Knowledge@Wharton had a great article recently about performance drivers. Here’s a brief excerpt:
As the Dean of a business school, you decide that the best reflection of winning is BusinessWeek’s rankings. These are prominent reputation scores created by a third party that directly pits business schools against each other every two years. Essentially all MBA applicants know about the BusinessWeek rankings, and the smartest MBA applicants with highest motivation try to go to the best-ranked schools. If you attract really smart, motivated people to your school and simply don’t mess them up too bad, there is a very good chance they will go out and succeed in their careers. And then guess where they will want to hire their future MBAs? In fact, loyalty aside, most successful companies want to recruit MBA students from schools with the best public reputations. And who can command the highest salaries and the best jobs from these great companies? You’ve got it: MBAs graduating from the top-ranked programs. These virtuous cycles are why you picked BusinessWeek’s rankings as your primary Organizational Outcome.
Do you want to know what your Performance Drivers are? Then you need to call BusinessWeek. Because once you selected these particular rankings as the evidence that will let you know that you are winning, the only way to learn your Performance Drivers is to figure out how BusinesWeek creates the rankings. So you call up BusinessWeek and learn the formula. Forty-five percent of the ranking is based on what your MBAs say about your school after they have been in the program a year. Forty-five percent of the ranking is based on what the companies that hire your MBA students say about your school. That leaves 10% — what is that extra 10%? That’s just a little remainder, hardly worth thinking about too much, but that is your school’s “Intellectual Capital.” ((Knowledge@Wharton. July 11, 2007. “Is Your Workforce Strange Enough to Guarantee Competitive Advantage?”))
What interests me are in fact those formulas. If you extrapolate this to HR, what really counts is first, what do your employees think of you, and second what does management think of you. In a distant third, what you actually do counts, but only so much as it shapes the first two criteria.
I’d suggest that the first criteria is a measure of engagement. I mean really, who cares what employees think of HR. That’s not going to make them stay and produce. We want to know what they think of the organization and engagement here is the right measure.
Second, what does management think of you? While many might realize this is a necessary evil because that’s where our funding comes from, it really is indicative of the job we’re doing. No matter how great our HR team is and how efficient our processes, all that is worthless if we are not demonstrating that to management.
Last, what we do does matter, but not as a measurement to be used at the end of the day. It’s possible we cut $1M out of the recruiting process year over year, while maintaining the same quantity and quality. But it goes back to the second metric. Did management notice enough to score you well? At the end of the day, it’s all about one thing. Are your customers (employees and management) happy?
One response to “The Right Metrics”
“If you don’t know where you’re going, chances are you’re going to get lost along the way.” Not only is this true, but in today’s new economy, it’s even more relevant. While metrics do not provide the directions, they can provide attributes about the trip (e.g. travel time, cost, safety, etc.). But, what happens when there are no metrics? What happens when executive management doesn’t even know what the metrics should be? What happens when metrics HR keeps the real metrics hidden to prevent exposure?
This couldn’t be more true when applied to healthcare benefits. Michael Porter, a brilliant Harvard strategist, wrote in his book “Redefining Healthcare” corporate America has been and will continue to negligent when it comes proactively managing healthcare benefits and more specifically, healthcare vendors. Mr. Porter specifically credits HR with a large part of our healthcare crisis. Why? The ultimate root cause here is performance bonuses. Again, Mr. Porter points out that the overwhelming majority of VPs of HR and Directors of Benefits DO NOT receive performance bonuses based on their ability to manage the healthcare benefits trend. One can only assume executive management has had the proverbial wool pulled over their eyes while escalating healthcare costs erode profits.
Unfortunately, since the BIG HR firms do not have a seat in the C-suite, the C-suite is essentially clueless. Moreover, since the C-suite’s trusted advisors, such as the McKinsey’s and the Big 4 accounting firms do not have sufficient knowledge about the opportunity, healthcare costs go largely uncontrolled.
And that my friends is an example of NOT having the right metrics. Its time for HR to take its head out of the healthcare sand and do something. Today’s economy is quite different than yesterday’s economy (how do you say sub-prime meltdown?). HR can no longer afford to be silent. HR needs to bang on the table, educate the C-suite and get performance bonuses for Benefits to implement real change NOW.