A case study examining the advantages and measuring of Human Resources Indicators

 
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INDICATORS OF HUMAN RESOURCES

 

Introduction

People management is continuously evolving. In recent years, traditional HR ceased to be solely an area that takes care of the payroll. Its function has developed into becoming an asset for helping to make strategic business decisions. This is because during the past decades with globalization and the deep changes in the corporate market; it has brought to entrepreneurs, the understanding that employees are very important assets for business success.

In this movement, people management also increasingly incorporates management by indicators (performance, productivity, job satisfaction among others). In this way, it is possible to establish goals and compare them with information. It is possible to verify in which indicators the company is improving or worsening, as well as to compare with the results with previous years, or rather, historical data, and the results of other organizations (benchmarking),hence facilitating the evaluation of the company’s performance and its competitiveness in the market.

The primary objective of this paper is to study the business situation in English companies within the construction sector, in order to verify how these companies use people analytics in a daily basis and take advantage of them in improving people’s performance, related processes and making better decisions tailored towards getting a suitable  return on investment. One of the secondary objectives is to ascertain whether Human Resources (HR) functions are measured, and whether they can be managed. As well as verifying if the actions taken after measuring the indicators allow better performance at the individual and / or organizational level. In order to achieve these objectives, topics related to the Strategic Human Resource Management (SHRM) will be addressed; Human Resource Management (HRM) objectives, human resources indicators, performance evaluation.

Human resource’s indicators allow a more accurate reading of HR problems, and through this, it is possible to quantify any organizational practice, becoming a way to listen to what is happening in a certain area and read the symptoms in a way that can promptly correct possible gaps as stated by Mariapanadar (2013).

For Gates and Langevin (2010), performance is positively associated with the implementation phase of Human Capital Measurement. According to Lengnick-Hall and Lengnick-Hall (2003), Human Capital is composed of the know-how, skills and capabilities of individuals in an organization; reflecting the skills that people bring to work. The development of the Human Capital Measurement system enables organizations to better measure and manage performance, thereby optimizing their organizational efficiency. The result can be in avoiding unnecessary redundancies or even the closure of companies since the indicators provide quantitative information allowing action to be taken in advance. Gabcanová (2012) adds that performance indicators allow us to achieve a competitive advantage over other competitors, allowing companies to thrive over time.

The subsequent proposal will deliver a Literature Review based on the main topics found in the existing literature, followed by extra information which outlines the methodology, data collection and limitation.

 

Research Questions

The research objective of this essay is to explore and examine the key performance indicators will be reached by concentrating on the subsequent research questions:

  • What challenges have been documented that are faced by the organisation in choosing the correct performance indicator to use/people analytics tailored towards driving the return on investment in people?
  • How do companies use human resources indicators in a daily basis and take advantage of them in improving decision making?
  • What strategies are used to manage human resources indicators in organisations?

 

Literature Review

For Bean and Gerathy (2003), Key Performance Indicators (KPIs) are valid and effective when applied consistently and comprehensively. They add that financial performance must be respected as the critical measure of success for any business, however, KPIs are strongly related to operational metrics at the HR level. According to Griffin (2004), there should be a link between the KPIs and the specific objectives; from the specific objectives to the organizational objectives and from the organizational objectives to the strategic ones.

Hursman (2010) defined five criteria for the composition of KPIs; it should be specific, measurable, feasible, relevant and have established deadlines. Hursman believes that the process of elaborating KPIs is characterized by determining the organizational goals. Identify metrics to measure progress in these goals; collect current information on these metrics, make metrics on a scorecard and making employees internalize the scorecard is very important.

Moreover, Cronin (2007) believes that choosing the relevant KPIs requires thinking about aligning the strategy with the objectives. Equally, for Harvey (2000), KPIs should be used as a mirror of the organization’s business and should be reformulated periodically to accommodate corporate environmental change. According to Gabcanová (2012), KPIs must be connected to mission and vision. Further, Skibnieski and Ghosh (2009) defined that all KPIs should have an impact on business decision-making on a time scale, and their use in the construction industry has also received plenty of criticism (Beatham et. al 2004; El-Mash al. 2007). Organizations should identify the areas of business processes that are most critical to the organization’s financial success. KPIs can be divided between leading and lagging. The leading indicator is a metric that refers primarily to future development and causes. The lagging indicator is a metric that refers to the past and its developments as well as effects and results.

Furthermore, the majority of KPIs used in construction are lagging measures. This is because the indicators are mostly used for review purposes after a project is completed and therefore, they do not offer the opportunity for control during the project development and execution. In order to improve their benefit, it has been emphasized by many authors that indicators need to be used to measure project performance at the process level. That is to say that they need to be able to measure performance while the project is running so that they can take action if needed.

On the other hand, one of the main concerns during the implementation of KPIs is the ability to differentiate the most important metrics that are strategy-oriented. This idea is further developed by Eckerson (2007) who states that metrics are a powerful force that can lead to change in the organization, but only if the right metrics are developed and applied. Wrong metrics can even damage organizational processes and demoralize workers. These views demonstrate the depth of importance given to KPIs in the successful running of a modern company.

In the same way, performance measurement was initially introduced and successfully implemented in the construction industry. A number of the research projects have been carried out in this area resulting in different frameworks and models for Performance Measure System (PMS).

Kueng (2000) not only noted the similarity existing in PMS such as Balance Scorecard (BSC); European Foundation for Quality Management (EFQM) (1999); traditional control; statical process control; workflow based monitoring on the basis of their level of use and the aspects they aim to measure, but also concluded that the suitable process PMS should reinforce a process-oriented perspective, by prioritizing the processes and not the organisations with their units and measuring performance related to both hard and soft process issues.

Companies have been utilizing the BSC as part and parcel of their initiative to implement key performance indicators. This is an integrated set of strategic, balanced and convergent indicators that include financial and non-financial aspects. Due to its operational character being oriented to guide the decision of change, it is focused on value creation rather than financial results and considers only the key metrics for the strategy that has been drawn (Kaplan and Norton, 1992). In addition to providing periodic and timely feedback on business development, it allows the establishment of cascading objectives, leading to greater knowledge, involvement and focus on strategic objectives, making individuals aware of how they contribute and your performance will be measured by the contribution made by each.

Metrics are necessary as they help define the strategy. They also help quantify goals and objectives as well as how best to make sure the initiative was a successful good targets are set for each goal, and through regular reviews, the metrics will indicate if we are on a path to success, as Davis and Novack (2012) states.

According to Galagan (2011), the renewal of interest in the metrics currently comes from the need for HR to consider the formation of people, strategic and relevant demonstrating where the difference can be made. Companies start by defining their strategic objectives and letting them know what kind of measures the company is looking for. The challenge for many companies is to capture the relevant metrics that will lead to conclusive action. Despite this, Davis and Novack (2012) write that a good metric has to have a set of characteristics.  These characteristics are also supplemented by Vale et al. (2008), who believes the objective of the Human Resources metrics panel is to create a set of indicators that will enable the organization to be analysed to facilitate the management of human resources. It measures the performance of a set of indicators that allow a later conclusion that contributes to the establishment of new measures in order to achieve the objectives. It should be based on five ideas: to be a tool to support decision making, to be transparent and efficient in its design and use, to have an easy adaptation to the evolution of organizations, to have maximum visibility when accessing key variables, to be an element of constant motivation at all levels of management.

Nevertheless, For Grossman and Nancy (2013), the downside of revealing metrics for investors is that it can reveal important data for the competition. This can allow them to evaluate the information and look for ways to affect those results.

According to Brancato (1997), a company can only manage what it measures, and it must only measure what it manages. An organization that continuously monitors and efficiently manages the use of appropriate metrics will have discovered a unique source of competitive advantage.

Hammer (2007) states that companies of all industries and sizes have achieved great improvements in costs, quality, speed, profitability in key areas with a focus on measurement and process reengineering. However, several authors have emphasized the need to use KPI for improvement and learning purposes rather than for data comparison (Beatham et. al. 2004; Costa et. al. 2004).

As far as people analytics is concerned, it is necessary to evaluate the results generated by the implementation of HR policies. This policy diagnosis in the various HR functions can be done through HR audit. Any audit process is aimed at identifying who is responsible for each activity, determining the objectives of each activity, reviewing the policies and procedures followed, developing an action plan to correct errors in objectives, policies and procedures, and monitoring the plan of action. At a later stage, it will solve the problems identified by the audit as stated by Berry (1967). Things that are measured need to be managed (Kaplan and Norton, 2008).

For Dyer and Reeves (1995), organizational performance can be defined in terms of HRM results as turnover, absenteeism, job satisfaction; commitment, as well as other results such as productivity, quality, services, efficiency and customer satisfaction. Moreover, it can also be defined in terms of financial indicators as profit, sales, capital market results, market share, share price and growth.

The measurement of human capital allows clarifying and focusing people on what is important, because what the company measures through the indicators, mirrors what the company considers a key activity for the success of the organization. Being that what the company measures, and consequently, reward is the strongest message about what the organisation considers truly important. Likewise, indicators play a very important role in performance, allowing clarification of expectations regarding the performance of individuals, since it is one of the most effective forms of involvement, motivation and continuous improvement. Taylor et al. (1995) states that performance metrics can provide useful information to supervisors as well as company leaders regarding merit, promotions and training needs. This may be important for legal purposes and to develop valid selection indicators.

To achieve this goal, it will be essential to measure the contribution of individuals to the organization, having several tools at their disposal such as the BSC and KPI’s that help improve organizational performance management. The indicators that exist in organizations always have as their ultimate goal to certify that organizational objectives are being met and that the organization is fulfilling its mission. Indicators also have the purpose of translating financial value, which reveals whether or not the organization is performing well and whether it is well on its way to achieving its organizational goals.

Therefore, the HR strategy is built around measurable goals that can be seen as a link between the current state of the art and future key objectives, a theme that will be discussed below.

 

Research Methodology

The research will probably adopt a qualitative approach, and utilizes questionnaires to gather information from a sample space of 100 companies. The inclusion criteria entail those companies that have comprehensive systems for people analytics. The number of participants will most likely be determined by the size of the company. Consent will be a crucial component of the research. In order to access organisation’s current data, it is necessary to gain permission from it as well as decide who is keen to complete the questionnaires. Likewise, time management is crucial at this point and need to be managed in an effective way to certify the project is delivery in January 2019. For this reason, a Gantt chart has been created to help track progress. In analysis, qualitative data will be sifted and organized in order to identify the trends (as favoured by the majority), in an attempt to meet the above research objectives.

  1. b) Time Frame

Gantt Chart (Gantt, 1917) below:

 

 

Activity Project – Gantt Chart
Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19  
Submit Project Proposal                          
Read further literature                          
Draft – Literature review                          
Finalise – Literature Review                          
Draft Survey Questions                          
Pilot Questionnaire                          
Amend Questionnaire                          
Issue Survey                          
Send email reminder                          
Identify Secondary data                          
Analyse secondary data                          
Analyse data                          
Draft – write up analysis and results                          
Draft – write up discussion and conclusions                          
Review entire project                          
Submit project                          

 

  1. c) Limitations

There are some limitations of this proposed research which should be recognised. Firstly, the study intends to verify how companies use human resources indicators, particularly the people analytics in a daily basis and take advantage of them. Secondly is to ascertain whether Human Resources functions are measured, and whether they can be managed. As well as verifying if the actions taken after measuring the indicators allow better performance at the individual and organizational level. The study will be conducted through a questionnaire and the main limitation relates to the validity of it could be concentrated as a result of carrying together diverse scale items from the literature (Bryman & Bell, 2015). This limitation is relating to the sample population which at the moment it is expected that 100 companies will be involved in the study. However, according to the literature, 200 companies are needed to certify statistical legitimacy and consequently there are implications for generalizability (Bryman & Bell 2015).

 

  1. d) Conclusion

To summarise, this proposal has delineated and deliberated the main mechanisms of this study and has discussed the importance to continue explore this area as it can be crucial for the success of the organisation. This essay focuses on analyse the challenges faced by the organisation in choosing the correct performance indicator to use followed by how companies use and benefit from the human resources indicators.

Through the use of a questionnaire, this research will investigate and measure how companies use the indicators of human resources in order to develop the research questions. This information can then be used to give solidity to these results and goals, so that the path is reorganized in search of a better result for the company as a whole.

 

References:

 

Bean, C. e Geraghty, K. (2003). Navigating the road to KPI success. Focus, 5(6). p. 37-41.

Beatham, S., Anumba, C. J., and Thorpe, T. (2004). “KPIs: A critical appraisal of their use in construction.” Benchmarking, 11(1), 93–117.

Berry, J. W. (1967). Independence and conformity in subsistence-level societies. Journal of Personality and Social Psychology, Vol. 7, p. 415—418.

Brancato, C.K. (1997, May). Implementing strategic-performance measures. Across the Board, 34 (5). P. 55-56.

Bryman, A., Bell, E. (2015) Business Research Methods. 4th Edition.

Campos, A. Vale, F. e Alturas, B. (2008). Human Resources Metrics Dashboard. SIGDOC 2008, Proceedings of the 26th ACM International Conference on Design of Comunication, Lisboa, Portugal, p.257-262.

Costa, D., Formoso, C., Kagioglou, M., and Alarcon, L. (2004). “Performance measurement systems for benchmarking in the construction industry.”

Cronin, G. (2007). Measuring strategic progress. Choosing and using KPIs. Accountancy Ireland, 39 (4). P. 30 -31.

Davis, T. Novack, R. (2012). “Why Metrics Matter”. Supply Chain Managment Review.

Dyer, L. and Reeves, T. (1995), “Human resource strategies and firm performance: what do we know and where do we need to go?”, International Journal of Human Resource Management, Vol. 6, p. 656-70.

Eckerson, W.W. (2009). Performance Management Strategies. Business Intelligence Journal, 14(1). P. 24-27.

El-Mashaleh, M., Minchin, E., and O’Brien, W. (2007). “Management of construction firm performance using benchmarking.” J. Manage. Eng., 23(1), 10–18.

Gabcanová, I. (2012). Human Resources Key Performance Indicators. Journal of Competitiveness, 4. P. 117-128.

Galagan, P. (2011). “The Burgeoning Metrics Market”.Vol. 65 Issue 7. p26 -28.

Gates, S. Langevin, P. (2010). Human Capital Measures. strategy, and performance: HR manager’s perceptions. Accounting, Auditing & Accountability Journal Vol. 23 No. 1.

Griffin, J. (2004). Developing strategic KPIs for your BPM system. DM Review, 14 (10). P. 70.

Grossman, R. Nancy, D. (2013). “Disclosing HR Metrics: How Much Information is too much?”. HR Magazine. Vol. 58, Nº3. P. 48-52.

Hammer, M. (2007). The Process Audit. Harvard Business Review.85(4).

Hursman, A. (2010). Measure what matters. [online]. Information management. Retrieved from: http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=48&hid=11&sid=a294ed98-abe3-4394-8cf0-ab8353d1d74c%40sessionmgr12

Kaplan, R. S. e Norton, D. P. (1992). The Balanced Scorecard – Measures that Drive Performance. Havard Business Review. P. 71-79.

Kaplan, R. S., Norton, D. P. (2008). Execution premium. Harvard Business Press.

Kueng, P. (2000). “Process performance measurement system: A tool to support process-based organizations.” Total Qual. Manage., 11(1), 67–85.

Lengnick-Hall, M. e Lengnick-Hall, C. (2003). Human Resource Management in the knowledge economy. San Francisco: Berret-Koehler.

Mariappanadar, S. (2013). “A conceptual framework for cost measures of harm of HRM practices”. Asia-Pacific Journal of Business Administration. Vol. 5 Iss: 2, p:103 – 114.

Skibniewski, M. J. e Ghosh, S. (2009). Determination of Key Performance Indicators with Enterprise Resource Planning Systems in Engineering Construction Firms. Journal of Construction Engineering and Management, 135 (10), 965-978.

Taylor, M.S., Tracy, K.B., Renard, M.K., Harrison, J.K. and Carroll, S.J. (1995), “Due process in performance appraisal: a quasi-experiment in procedural justice”, Administrative Science Quarterly, Vol. 40, p. 459-523.

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