HR: Value or Expense?
Measuring Future Business Relationships
Presentation to the 2001 HRINZ Conference of the
Results of the National Baseline Survey on
Valuing Human Resources
by
Paul Toulson (College of Business, Massey University)
and
Philip Dewe (Birkbeck College, University of London)
Introduction
I know that you
are not going to
believe this, but..
 Measuring HR in terms of
business metric
• The subjectivity myth
 Marginalisation of HR
 The implicit realisation
that value in 21st Century
is created by and through
people
State of Play
• Link to competitive advantage through employee
commitment and capability.
• Recognition of importance of human capital.
• The importance of measurement and approaches.
• Human resource accounting:
Knowledge-Based Assets,
Value-Based Management.
• Other measurement approaches.
• Where are we at in New Zealand?
Aims of Study
• What New Zealand
organisations are doing to
measure HR results?
• How critical do they
consider HR measurement
to their management and
success?
The Sample
job title
Line Management
34%
HR Management
45%
21%
gement
Accting/Finance Mana
Top Five Principal Reasons for the
Importance of Measuring Human Resources
• HR should be accountable (89.6%)
• People skills and knowledge most important source of sustained
competitive advantage (84.7%)
• Understanding the value of people focuses us on future human
resource needs. (76.7%)
• Measurement of human resources gives management needed
information to support business strategies (74.3%)
• Enables management to make better informed decisions. (72.2%)
Factor Analysis of the Sixteen Statements About
The Importance Of Measuring Human Resources
• Reason 1 (Measurement
Reflects The Strategic And
Competitive Importance of
Human Resources)
• Reason 2 (To achieve
credibility human resource
management must be
expressed in financial
terms)
There are
two
principal
clusters
Top Five Reasons Why Organizations Do
Not Measure Human Resources

Current HR measures lack precision (58.8%)

Current HR measures are not widely accepted (50.56%)

Current HR measures lack reliability (40.4%)

Insufficient time to develop appropriate HR measures (40.1%)

Current HR measures lack validity (38.5%)
Three Principal Reasons Given To Justify Why
Organizations Do Not measure Human Resources
• Reason
1
(Human
resource measures lack
precision)
• Reason
2
(Human
resource measures are
too difficult)
• Reason
3
(Human
resource people lack
expertise)
Perceptions of Importance of Measurement at
Different Levels in the Organisation
•
•
•
•
•
•
•
Human Resource Management (50.0%)
The CEO (44.4%)
Partners (33.2%)
Senior Management (32.8%)
The Board of Directors (25.8%)
Line Managers (21.1%)
Financial Management (17.9%)
The Most Frequently Used HR
Measures
From some 32
measures, we
found that the six
most frequently
used ones were…
• Accident frequency rate
(60.3%)
• Client satisfaction
surveys (60.1%)
• Absenteeism rates
(56.3%)
• Training and education
costs (56.0%)
• Cost of People (53.9% )
• Competencies (53.2% )
The Most Infrequently Used HR
Measures
…while the six
most infrequently
used measures
were..
• Training costs (4.9%)
• ROI in human capital
(9.0%)
• Value added per
employee (9.3%)
• Time to fill job (11.9%)
• Return on training
(11.9%)
• Seniority (14.4%)
The frequency with which the top 6 measures are taken expressed as a
percentage
Measure
Daily
Weekly
Monthly
Quarterly
Annually

Accident frequency rate
12.1
9.2
53.8
13.4
11.5

Client satisfaction surveys
4.2
3.2
15.4
26.4
50.8

Absenteeism rate
12.1
16.5
43.4
18.2
9.8
.3
1.3
46.7
18.8
32.9
 Training
costs
and
educational

Cost of people
3.4
6.2
53.8
11.7
24.8

Competencies
8.5
2.8
7.1
23.8
57.7
The Measures That Should Be Used But
Currently Are Not
This is what
we should be
measuring…!
• Return on training
(33.6%)
• ROI in human capital
(31.3%)
• Turnover costs (29.95)
• Cost per hire (28.7%)
• Innovation (28.4%)
• Cost-benefit analysis
(28.2%)
Importance of the Different HR Measures by
Your Industry Sector
• Client satisfaction surveys
(52.1%)
• Competencies (42.9%)
• Leadership (41.2%)
• Job satisfaction (40.1%)
• Accident frequency rate
(35.1%)
The top five HR measures
thought to be important by
the industry sectors of the
respondents were…
Business and
Financial Services
Community, Social and
Personal Services
Manufacturing
Client satisfaction
surveys (57.6%)
Client satisfaction
surveys (54.9%)
Accident frequency rate
(67.6%)
Competencies (52.3%)
Competencies (41.5%)
Client satisfaction
surveys (38.0%)
Leadership (48.4%)
Learning (40.2%)
Leadership (36.6%)
Job satisfaction (46.5%)
Leadership (38.0%)
Absenteeism (32.4%)
Learning (41.9%)
Job satisfaction (37.8%)
Competencies (31.0%)
Factor Analysis of How Important The Different
Measures Of Human Resources Are Considered To
Be
3 Groups of
HR Measures
• Group 1 (Human
Resource
Costs/Information)
• Group 2 (Return on
Investment)
• Group 3 (Individual
attributes/potential)
Are there Differences Between Human Resource Management,
Accounting/Finance Management and Line Management in Terms of
Issues Surrounding Human Resource Measurement?
On the importance of measuring
human resources
HR managers and line managers are more
likely to see the importance of measuring
human resources than are
accounting/finance managers
On reasons for measuring human
resources
• HR managers and line managers are more likely to agree
that measurement reflects the strategic and competitive
importance than are accounting/finance managers
• HR managers are more likely to agree that to achieve
credibility human resource management must be expressed
in financial terms than are line or accounting/finance
managers
On why organizations do not measure
human resources
• HR managers are less likely to agree that human resource
measures lack precision and thus a reason for not
measuring them than are either line or accounting/finance
managers
• Accounting/finance managers are more likely to agree that
human resource people lack expertise when it comes to
measuring human resources than are line managers
On the Importance of different
measures of human resources
• HR managers are more likely to see the importance of
measuring human resource costs/information than are
either accounting/finance or line managers
• Accounting/finance managers are less likely to see the
importance of measuring individual attributes/potential
than are either human resource managers or line managers
Conclusion
So what can we
conclude from
these results?
Questions
• What are the implications of
these results for you as HR
practitioners?
• What do you think should be
measured in HR, and what
should be done with the
information once collected?