If your employees don’t come to work, you can’t run your business.
Likewise, if your HR strategy doesn’t support your business goals, you may not meet them.
That’s because it’s people who provide great customer service. It’s people who stay late to meet deadlines. And it’s people who do the work that allows your business to reach the milestones in your business strategy.
A true HR strategy is proactive and delivers the tools, environment, structure and resources your employees need to achieve company goals. With this end in mind, your strategy needs to help your business:
- Identify and hire the right people
- Manage and grow those people in the right way
- Develop each role to achieve your business strategy
- Build a company culture that supports your customer promise
But, how can you know if your strategy if truly working? How do you know if it’s affecting your company’s objectives?
It starts with quantifying, measuring and tracking business outcomes that are influenced by your HR practices. But first you must determine your business’s HR key performance indicators (KPIs).
What are HR KPIs?
The role of the KPI is to provide awareness of how you’re progressing toward your organization’s short-term and long-term goals. The KPIs that you select should be directly linked to your overall objectives, goals and strategies.
Like other KPIs, HR KPIs measure specific areas of your business using quantifiable, specific metrics. By constantly measuring and tracking these metrics, you can gauge whether your HR practices are proactively making a positive impact on your business’s profitability.
For many companies, the following examples are core HR KPIs:
- Turnover rate (by role, department and manager)
- Average time to hire
- Average employee tenure
But there isn’t one set of metrics that fits every organization. Beware of long lists of HR KPIs you may find on the internet – they will only encourage you to begin the bad habit of measuring for measurement’s sake.
Instead, you need the right three or four HR KPIs to determine if you’re successful (just like successful businesses only focus on three or four strategic goals at one time).
HR KPIs in action
Two of the most commonly acknowledged drivers of organizational success are employee engagement and leadership alignment.
Multiple research studies have proven that employee engagement has a direct impact on profitability and revenue generation. It’s a pretty simple equation: Engaged employees are more productive. More productive employees equal more opportunity for revenue generation.
In addition, it’s critical that your leadership team is consistently moving your organization in the same direction. If each of your leaders has a different goal in mind, they may be misleading their employees and spending time and money on unnecessary projects.
Let’s look at an example of a company that is experiencing fast growth, but has high turnover among the leadership team and low employee engagement.
If the company’s business goal is profitable double-digit growth, the leadership team will need to step back and identify their organization’s critical success factors that will drive the desired level of growth. Some may be able to identify key drivers based on their experience, while others may need to rely on researching best practices.
Once the leadership team identifies the short-term and long-term goals they need to achieve to drive double-digit growth, they will outline the strategies that are necessary to achieve those goals. For example, they may choose to develop goals focused on reducing operating costs related to productivity and the cost of turnover.
Measurable goals are a must
The difference between average-performing and high-performing organizations is often as simple as having goals that are measurable. Keep in mind that KPIs are a mechanism that allow an organization to monitor the effectiveness of their strategies. That being said, there needs to be a clear connection between the objective, the goals that will need to be accomplished to achieve that objective, strategies that will be used to meet those goals and the metrics that prove the effectiveness of your organization’s efforts toward its primary objective.
To get a better understanding of how this all works, let’s go back to our example company that wants to achieve double-digit growth. The outline below features the key objective as well as the related goals, strategies and KPIs that they might use to support their initiatives.
Achieve double digit growth
- Retain the organization’s top 10% of performers
- Increase employee engagement by 15%
- Reduce first year voluntary turnover by 12%
- Identify successors for all leadership positions
- Create a talent review process
- Implement a high potential program
- Identify and evaluate critical drivers of employee engagement
- Begin exit interview process
- Establish leadership training curriculum focused on strategy, financials and problem solving
- Monthly voluntary turnover rate
- Internal promotion rate
- First year retention rate
- Annual employee engagement score
While creating the list of key performance indicators is challenging, collecting the data can be an even greater barrier for many.
First, you need to establish a baseline measurement for each key performance indicator. Then, you need to track and document any changes, or lack thereof, every month or quarter. In the beginning, if it’s difficult to get a precise measurement, it’s acceptable to estimate.
Connecting your people to your business strategy is easier said than done. Download our free e-book, How to Develop a Top-notch Workforce That Will Accelerate Your Business, to discover how to build a game-changing HR strategy that aligns your people with your company’s goals.