Another key finding is that HR leaders will have a seat at the table for strategic discussions only if they can demonstrate the business impact of HR. That is, they need to be able to quantitatively establish the areas in which HR supports the organization’s strategic decisions. Our experience has found that data-driven, analytical HR departments are more likely to play a strategic role in their organizations, and the survey data supports this. (See Exhibit 9.)
HR functions that use people-related KPIs and steering tools (such as simulations and forecasts) to measure areas such as workforce productivity and personnel costs, and then analyze and communicate the results throughout the organization, have a greater strategic role in the organization.
Yet our survey data also shows that using a data-driven approach is far from universal. Nearly half of the respondents (44 percent) said that if they use KPIs and steering tools, they do so only occasionally to track workforce productivity. An even larger proportion (55 percent) said that, at best, they use them only occasionally for tracking personnel costs—a relatively basic output metric.
An HR organization that does not use metrics and analytical techniques simply cannot play a strategic role in its organization. Without a clear, data-driven understanding of how the organization is leveraging its human capital, HR leaders have little to contribute to big-picture strategic discussions.
Such results reinforce a common stereotype of HR: that the function is better at working with “softer” aspects of human capital, such as training and development, and is less skilled at applying the economic logic required for higher-level areas, such as workforce productivity, planning, and forecasting.
The use of HR KPIs and steering tools is yet another point of differentiation between high performers and low performers. (See Exhibit 10.)
That said, there is still room for improvement among the high performers. While these companies were far more likely to define quantitative targets and have KPIs in place, there was still a noticeable drop-off in the number of companies that take the next step—using those KPIs to formulate new HR initiatives. So, the low performers need to become more data oriented, and both high and low performers need to use that data to take action.
Key performance indicators are crucial in assessing HR impact, yet many companies struggle to ensure that they’re measuring the aspects of performance that truly matter. For example, many companies look primarily at the “input” elements of HR, such as head count or costs, rather than the “output” elements, such as productivity. They neglect to track the effectiveness of their HR spending to ensure that it supports the company’s strategic orientation. (For more on KPIs, see “How Lufthansa Consolidated Its KPIs to Measure the Things That Really Matter.”)