Contents
Page
A. Introduction 96
B. How Easy is it to Link Cause and Effect? 97
C. How Can you Measure the Impact of Strategic Human Resource Management? 97
Micro Measures 98
Macro Measures 98
D. Tools Available to help Measure Strategic Human Resource Management 99
Contribution to Added Value 99 Contribution to Competitive Advantage 99 Contribution toward Business Performance 100 The Balanced Scorecard Approach 100
Benchmarking 100
Other Analytical Tools 101 Using Evaluation Data 101
Objectives
The aim of this unit is to critically evaluate the processes required in order to assess the effectiveness of any given human resource strategy, especially in relation to the strategy’s impact on overall corporate outcomes and results.
When you have completed this study unit you will be able to:
Explain the nature of correlations and the problems associated with tracing causal relationships between events
Describe and explain the factors involved in measuring the impact of a given human resource strategy
Evaluate of the available tools for measuring the effectiveness of a human resource strategy: the balanced scorecard, best practice, competitor benchmarking, etc
Assess some of the key research findings about the connections between human resource strategy and organisational performance (e.g., Purcell, Huseleid, Guest).
A. INTRODUCTION
When we looked at the process of strategic human resource management, we noted that it is not the end of the process when strategies are implemented. Whenever a course of action is put in place, it is never 100% certain that the course of action will achieve the desired results. A variety of factors can knock a plan off course and this is just as true with human resource strategies as any other type of plan. The role of monitoring, review and evaluation is to oversee the progress of an action plan, so that deviations from expected results can be spotted quickly and, if necessary, corrective action taken.
You may recall from earlier studies that the features of a basic control system are:
An identification of what the process should achieve (i.e. its objectives)
Measurement of what is actually being achieved (called the feedback stage)
A comparison of what is actually being achieved against what should have been achieved
Identification of any required corrective action
Implementing corrective action.
This basic control system can be applied to human resource strategies but it does create some difficulties in establishing clear objectives and what measurements should be taken to establish whether objectives are being met.
At an operational level, objectives for specific strategies are clearly identifiable and the evaluation process becomes straightforward. For example, one of the objectives of introducing an induction programme might be to improve retention levels for new recruits. The success or failure of this initiative can be measured by recording the numbers of staff leaving within, say, 3 months, 6 months, or 1 year of starting work. The results can be compared with an industry benchmark or against historical data that can then be used to evaluate whether the cost of providing the induction training was justified by savings in recruitment costs.
Quantitative measurements tend to be preferred by managers because they are easier to measure and easier to explain. Measurements such as labour turnover (the number of members of the workforce leaving during the period, expressed as a percentage of the total workforce) are easy to calculate and can be adapted for a number of different uses.
However, while quantitative measures can be useful indicators, they can over-simplify a situation and mask the real problems or successes. Furthermore, because quantitative
measures are so easy, there is a tendency to make measurements and comparisons that are irrelevant to the real objectives of the plan or course of action. For example, it would be tempting to evaluate the success of a training course for telesales operators by the number of calls each operator makes, as collecting this data is easy. However, it is not the number of calls that is relevant but the number where a successful sale is made or perhaps the value of sales made by each operator.
Monitoring effectiveness in strategic terms is not easy. Quantitative techniques like
budgetary controls are commonly used, with the achievement of budgetary targets seen as evidence that the strategy is working. However, financial targets alone can over-simplify the role of strategy and do not address the role of performance and can even hide problems of performance. Furthermore, we must not lose sight of the fact that we have concluded that no one strategy should be considered as an isolated case, for it is the synergy created by the 'bundle' that dictates the true success of the human resource management function. Attempts, therefore, to measure the effectiveness of the strategic contribution of human resource management tend to concentrate on the overall contribution to the success of the organisation, in terms of added value, competitive advantage and the impact on business performance. Typically, ways in which this contribution has been made will include:
Developing a positive psychological contract
Increasing motivation and commitment
Increasing employee skills and extending the skills base
Providing employees with extended responsibilities so that they can make full use of their skills and abilities
Spelling out career opportunities and defining competence requirements
Instituting processes of performance management and continuous development
Using reward management systems to convey messages about what the organisation believes to be important and what it is prepared to provide financial and non-financial rewards for
Developing employment relations strategies that provide employees with a voice.
B. HOW EASY IS IT TO LINK CAUSE AND EFFECT?
This is one of the major assumptions about strategy formulation; there is a tendency to determinism: an expectation that it is possible to read across from the organisation’s business strategy and its external environment on to its HR strategy. This might be true for ‘classical’ strategies in stable organisations (classical strategy was described in Unit 1). However, many organisations lack a single and clear business strategy.
C. HOW CAN YOU MEASURE THE IMPACT OF STRATEGIC
HUMAN RESOURCE MANAGEMENT?
Demonstrating the link between good practice HRM and organisational success has been a matter of great concern and considerable research. Many would claim that their model of HRM would improve the bottom line but the evidence has been hard to find. The Black Box research, dealt with elsewhere in this guide, gives some good evidence that there are demonstrable links. However, a universal model for measuring the success of HR strategy does not exist. Measurement and analysis must be tailored to fit the organisation and in dynamic environments, there are simply too many other variables to allow safe conclusions to be drawn about the causal link between HR strategy and its impact.
That said, the following measures make a useful contribution to measuring HR strategy’s impact: