Jo Harley, managing director at employee engagement experts Purple Cubed, discusses why HR metrics should be a topic of conversation for every finance director
In today’s knowledge economy, more than 50% of an organisation’s income comes from its people. The workforce is fundamental as to whether a business has a low or high market cap. As such, it’s common sense that HR metrics are a boardroom conversation; analysed and understood in order to drive productivity, growth and profitability.
However, this is not always the case. Typically, initiatives relating to “people” are often viewed as the “soft stuff”, “fluffy” or “intangible” and so they aren’t always given the time or investment they deserve. Paul Nisbett, finance director at hotel management company Valor Hospitality Europe, has suggested that this is as a result of HR departments “previously lacking the right tools” in order to analyse and link their people metrics to business outcomes.
“HR teams weren’t able to provide this type of insight and so it wasn’t being viewed as a clear justification of why a business should invest money in HR initiatives and what that organisation would see in return,” he said.
People + data = workforce value
The positive news, however, is that HR is transforming. Today’s leading business thinkers are pushing for HR directors to use workforce metrics to provide a better understanding of people and their impact on market value and share price.
By harnessing data from across the organisation and using people analytics to delve into this and provide insights, businesses can now start to measure all aspects of its people and quantify the value they deliver.
But what does this mean for finance directors?
At its most basic level, people analytics can be used to provide insights from attrition, retention and absenteeism levels, through to understanding the correlation between engagement, productivity and performance. They can also be used to determine which roles are responsible for the most revenue. The total business cost of a sales person versus the sales revenue they generate can be easily calculated, for example.
“The more you look into the key KPIs for people management, then you’re getting a better view on what makes a good business, an average business and a poor business. When you start drilling into retention, productivity and the ability to grow your own teams so that you’re not constantly recruiting externally, that’s where you start to see real value,” suggested Nisbett.
But, it is also important to look at the bigger picture. How can you use people data to boost market value and investment opportunities?
According to Professor Dave Ulrich, a company can be valued by means of its financial performance, quality of leadership and the intangibles (such as strategy, talent and brand reputation) and yet, to date, within a business, leadership has been measured very little, if at all. However, thanks to Ulrich’s “Leadership Capital Index”, the quality of leadership can now be quickly and easily assessed, allowing investors to look at a company, determine the quality of leadership and put a value on it. Of course, the Index is just as important to finance directors, enabling any leadership issues to be highlighted and addressed to help improve market confidence and thus value.
“When we were looking for additional funding (see box out), we knew we could easily demonstrate that employee performance and improved leadership was driving hotel success because of the people data we had access to. We were able to build a far stronger case with this insight and present to our owners clearly to obtain the investment we required to drive our business forward” explained Nisbett.
For any finance director, the greatest challenge will always be the costs associated with payroll. Working closely with HR can help you justify why the right people, doing the right things and exceeding expectations is so important. Can you fully calculate the true value of a workforce? Unlikely. However, by digitising and taking advantage of emerging technologies as part of a people strategy, the more the business can demonstrate the impact employees have upon performance. And then it becomes significantly easier to invest in people initiatives which will drive productivity, maximise returns and open conversations around sale and investment potential.
Jo Harley is managing director at employee engagement experts Purple Cubed.