Human Resource Evaluation and Business Performance

A Study of Contemporary Human Resource Performance Measurement Practices and its Association with Business Performance

Agenda

Objectives of the Study Business Performance Management Human Resource Evaluation The Perfect Performance Management System Linking HR Evaluation Practices with Profitability of firms

Objectives of the Study

To gain complete understanding of Business Performance Management Systems To understand the HR Evaluation Practices and critically examine them To find the link between HR Evaluation Practices and Profitability

Business Performance Management System

Defining Business Performance

What is Performance? Efficiency and Productivity Effectiveness and Efficacy Quality Dimensions:

Time Frame Time Orientation Means or Ends Qualitative Vs Quantitative

Why Measure Performance?

What cant be measured, cant be improved upon. Control Communication Alignment Strategy Motivation Balance and Sustainability Objectivity

The Evolution of Performance Measurement Systems

Dupont Pyramid

Evolution Contd.

GEs Performance Measures

Evolution Contd.

Performance Matrix (Keegan, Eiler, Jones)

Evolution Contd.

SMART Pyramid(Lynch and Cross)

Fitzgeralds Ends and Means Model

Evolution Contd.
Macroprocess Model (Brown)

Business Excellence Framework (EFQM)

Evolution Contd.

Balanced Scorecard

Evolution Contd.

PRISM Model (Adams, Neely)

Human Resource Evaluation

Why Measure HR?

Big Expenses Sustainability and Health of a Company linked to Strategic HRM Productivity linked with Employee Morale and Satisfaction High Attrition Costs People could be a Competitive Advantage Differentiation based on Talent

Human Resource Accounting

As old as Industrial Revolution itself The Human Oraganisation by Likert Brummet, HR as Cost Flamholtz, Replacement Cost Hekimian, Onward looking Cost Kermanson, HR as Goodwill Lev and Schwartz, Economic value of Employee Freidman and Lez, Market Company Pay Differential Morse, HR not an Asset Critique

Human Resource Metrics

Productivity Quality Costs (Incurred, Saved) Direct Value Generated Time Soft Data Critique

Human Capital Management

Why HCM? Talent approach Development and Improvement Need Automation Data Analytics Decision making Future Oriented Critique

HR Scorecard

Audit Approaches

HR Audits HRD Audit and HRD Scorecard Why Audits?

Cost Maturity Constraints Generic One size doesnt fit all True value added not researched well Completion and success cant be differentiated

Why not Audits?

The Perfect Performance Management System

IPMS Reference Based Model

The Ideal Performance Management System: The Way Forward

Future: Integrated Performance Management System (IPMS) Based on Reference Model

IPMS Systems Layer Pyramid Display

Stakeholders Requirements (Setting Directions)
External Control (Competition, Market and Uncertainities) Objectives (Goal Setting and Employee Performance Management) Metrics (Measure, Coordinate and Control) Process (Next Level Pyramid)

External Control (Competition, Market and Uncertainities)

Stakeholders Requirements (Setting Directions)

Metrics (Measure, Coordinate and Control)

Objectives (Goal Setting and Employee Performance Management)

Process (Next Level Pyramid)

Reference Model(with Levels) for IPMS

Why IPMS?

Accountability at Pyramid level Simplicity and Drill Down Complex Display Each Level considered (Unit Problem) Each Stakeholder can be Accommodated Metrics not bigger than Framework A good mix of Ends and Means A good mix of Leading and Lagging Measures Objective Needs high level of Automation and IT systems Maturity and Integration

Linking HR Evaluation Practices with Profitability of a Firm

An industry wide study of Fortune 100 companies

Research Problem

How do HR Evaluation Practices Impact Performance of a Firm?

Methodology

Sample: Fortune 500 Companies Performance : Utilization of Assets (ROA) Employee Satisfaction: Glassdoor Ratings (ESR)

Career Opportunities Communication Compensation and Benefits Employee Morale Recognition and Feedback Leadership Work Life Balance Fairness and Respect

Methodology contd.

Indexed HR Evaluation Practices (HRE)

1.
2. 3.

4.
5.

6.
7.

HRA HCM Communication Framework Process Audit Accountability Motivation Future Earnings Capacity Indicator of Certainty, Technology and Intellectual Capital

Market to Book Value Ration (MBR)

Data Analysis

Model 1 Model 2 Model 3 Model 4

ROA = f (HRE, ESR, MBR) ROA = f (ESR, HRE) ROA = f (MBR, HRE) ROA = f (HRE)

Analysis Contd.

Model 1

Model 3

Discussions and Conclusions

ESR and ROA poorly correlated for the sample. ESR and ROA correlation increases with the industry classification or MBR classification Higher MBR has been linked with higher ESR Correlation with ROA HRE as expected correlates highly and is very significant in the model HRE and MBR together explain 55% of variation in ROA. HRE practices directly influence firms ability to utilize the talent or human capital Accountability and Motivation are both important in order to leverage the HR Evaluation

Limitations and Recommendations

Limitations

ESR Source not very clean Singular measure of performance High dependence on Secondary Data No Time Scale Comparison Further research needed to prove marginal increase in productivity if HR is held accountable and incentivized More Time Series data needed to confirm increase in profitability with change in HR Evaluation Practices Research based on SBUs and not corporations could also link HR Evaluation Practices with Competitiveness

Recommendations

Thank You
Shirshendu Pandey
FORE School Of Management shirshendupandey@gmail.com

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