Manufacturing is held accountable for waste and re-work, why not HR?

Only 15 percent of companies have determined the return on investment of their recruiting/staffing investment. "That means only 15% of billions of dollars spent each year on recruiting/staffing can be linked to a financial or business outcome," says Joseph P. Murphy, Principal and Vice President of Shaker Consulting Group, Inc.

Today, companies create wealth by converting "raw" intangibles into products, services, brands, intellectual capital and networks, not acquiring tangible assets (equipment and buildings). The most valuable intangibles are employee skills, reputation and relationships. They represent competitive advantage in today's business environment and are now the true source of corporate wealth. As a result, one new metric of business performance is profit per employee.

Murphy then asks if individual productivity is the new metric, "why do HR and senior executives continue to use accounting principles instead of finance when measuring the effectiveness of HR?" He offered up this real case scenario.

Accounting principles track income and expense. Finance applications track productivity and profitability. A sales organization he consulted with averaged sales per territory in the neighbourhood of $1 million. The average sales for the top 80% of the sales force was $1.5 million. The bottom 20% reduced the average sale by $.5M; the bottom 20% of the salespeople averaged only $300,000. Accounting reports showed a profit. Financial reports would reveal gross inefficiencies and waste.

In a recent survey sponsored by B21 Publishing and Success Performance Solutions, less than 32 percent of the 162 respondents (HR executives and managers) reported that their company tracked the cost to hire a new employee. (As you will read shortly, even this metric is now considered to be an ineffective measure.) In a survey of Lancaster County HR professionals, less than 12 percent of the companies were monitoring cost-per-hire. A few tracked total recruiting costs but most respondents weren't tracking anything but turnover and vacancies. One respondent commented "it takes too much trouble to track this stuff." Another said, "the turnover rate is very high in this type of business so we are very happy our average turnover is much, much lower."

Despite his disappointment in HR's effectiveness, Murphy is quite sensitive about "not slamming HR" for the lack of outcome based metrics. He squarely places much of the blame "at the feet of executives who haven't recognized the importance of HR metrics", for allowing the continuation of measuring the wrong factors and rewarding wrong behaviors.

To Download this Whitepaper, click on the following link to the EPIC Software web site, click on "Whitepapers" and then download Whitepaper Number 26: A Strategy for Building HR Credibility with Management: Not For The Faint-of-Heart

http://www.epic-soft.com