A well known Human Capital consulting firm recently published their structured approach to taking HR to the next level. Within this was a section focused on identifying HR’s primary performance measures.

Quite rightly they suggest that HR performance measures should focus on business impact, not just on HR operating efficiency. They go on to say that one of the best ways to measure how effectively a company is leveraging the value of its people is to consider its workforce productivity, defined as revenue per employee divided by profit per employee.

Sounds great, right?

Unfortunately in the HCM sphere, there is a tendency to force complex people metrics into oversimplified, financially relevant KPIs. Whilst HCM should absolutely be linked back to business value, value is not delivered by creating relationships between HCM and financial performance that at best are not causal*, and at worst do not exist at all.

“Workforce Productivity” is an example of a metric that has absolutely nothing to do with measuring the effectiveness of people. Before the iProCon HCM email server is crashed by countless emails pointing to the existence of “Employees” in the definition, consider the following:

A company (let’s call it B.Com**) makes widgets in a factory staffed by 10 people. In 2007 B.Com made £12k of profit on revenues of £100k. In 2008 B.Com increased profits on the same £100k revenues to £15k, without changing their staffing. B.Com have done well in 2008, but their Workforce Productivity has declined from 8.3 to 6.7! But wait, there’s more...

Consider the definition of Workforce Productivity: Revenue/Employee divided by Profit/Employee


Basic maths tells us that this equation can also be expressed as: Revenue/Employee multiplied by Employee/Profit


Cancelling out the “Employees” from the top and bottom lines leads to: Workforce Productivity = Revenue/Profit


Don’t believe it? Consider B.Com again: In 2007 they made £12k of profit on revenues of £100k, rising to £15k profit on £100k revenues in 2008.

2007 Workforce Productivity = 100/12 = 8.3
2008 Workforce Productivity = 100/15 = 6.7

Jargon and irrelevant but nice sounding KPIs are prevalent within the HCM sphere, as more organisations try to show how their HCM solutions drive real, sustained business value. The challenge is to see through the flashing lights and marketing spiel and ensure that real, causal links exist from HCM interventions back to the core drivers of business value.


* Causal: when one event occurs as a direct result of another event. Some events may be correlated (i.e. they move together), but there is always the chance that they move together because of another event.
**B.Com is a fictional company. Any resemblance to other companies, either past or present, is purely coincidental.

A recent HBR article (“Innovation in turbulent times”, June 2009: http://tinyurl.com/mmpgfg) discussed the need for businesses to have creative, “right brain” types in leadership positions. It suggests that innovation is the result of pairing creative with analytical thinkers - when businesses have too few creative thinkers in leadership positions, innovation is vulnerable to unwise cost cutting, in particular during hard times.

Whilst there is some truth in the need to have a good mix of “left and right brain” thinkers, that is nothing new – diversity of thought is vital to establish the strong funnel of ideas from which to promote those with the most promise. Where the article falls short is in the lack of structure it places around the innovation process as a whole. In fact, it starts with the statement “innovation is a messy process – hard to measure and hard to manage”.

Innovation doesn't have to be messy, and it should certainly not be left to the effective partnership between two individuals in leadership positions. When managed effectively innovation is simply another business process, taking ideas through prioritisation and realisation in a way that meets the organisation’s strategic objectives and takes account of the innovation culture.

For additional information on frameworks and tools to help deliver and measure innovation in your organisation please contact us.

Many organisations we talk to are struggling with similar issues. How can they ensure that the transformation is happening as quickly as possible? What can be done to make sure that those lower down the organisation have the same sense of urgency as those at the top? How can the transformation roadmap be defined so that the vital many have as clear an idea of the journey as those who defined it?

To address these challenges iProCon HCM has, over the past 12 months, developed and deployed the Human Capital Capability Excellence Model (HCCEM™).



The model and its underlying tools and processes deliver several significant benefits:

• It helps the organisation understand what best practice actually looks like (in terms of managing change, people metrics and information systems, amongst other aspects related to human capital performance), encompassing both industry specific and cross-sector dimensions.
• It benchmarks the current state of the organisation against best-practice. Benchmarking allows comparison across regions, business units or individual locations as appropriate.
• Capabilities and Excellence are defined in terms of Levels. For example, Level 1 might be poor, whilst Level 5 is best practice. These definitions allow the organisation to define what level is desired and aim only as high as will deliver a positive return. If a business unit is at Level 5 in a capability where the organisation only requires Level 4, resources can be diverted to upskill other business units, or investment may be reduced.
• The definition of levels (for example Levels 1 through 5) provides a road map for transformation. Managers responsible for business units sitting currently at Level 2 can clearly see what is required in order to reach Levels 3, 4 and 5. This helps them understand the transformation journey, but in steps that are driven by the agenda set by the top team.
• Transformation progress reports become a repeatable activity that is baselined across the organisation as a whole. The nature of the tool allows reporting by exception to the top team: Who moved up a level in the past month? Why? Which business unit is lagging on the achievement of particular capabilities within the desired time frame? These progress reports become a significant leading indicator of future business performance.

The HCCEM™ is already helping numerous organisations to deliver their transformation projects more effectively and efficiently. Each implementation builds upon the significant volume of work that already underpins the model, delivering maximum results for a minimal investment. If you would like to see how the HCCEM™ can help accelerate your transformation effort, please contact us.

In his article “The metric behind the slogan”, Michael Schrage explains how innovative metrics have made selling new products a much easier prospect. For example, James Watt is largely hailed as the genius who invented the steam engine. Whilst the steam engine was undoubtedly a triumph of the industrial revolution, Watt’s most enduring innovation was the invention of the “Horsepower” metric. Used to articulate the power of his engines in terms mine owners were familiar with, his measure effectively defined an industry and has outlived every engine he designed or built. Another example is the shift from measuring “miles per gallon” to “gallons per 100 miles”. Researchers have shown that most consumers miscalculate comparisons between vehicle mileage performance; most people ranked an improvement from 34 to 50mpg as using less fuel over 10,000 miles than an improvement from 18 to 28mpg over 10,000 miles, even though the latter saves twice as much fuel. (Going from 34 to 50mpg saves 94 gallons; going from 18 to 28mpg saves 198 gallons).

These examples highlight an interesting challenge associated with common measures of organisational performance. Metrics tend to be either too one-dimensional (measuring performance in the financial dimension whilst ignoring customer and stakeholder value), delayed (for example, financial measures tend to lag what is actually occurring in a business – they are symptoms of a deeper cause), or they do not intuitively show how a situation can be improved (if staff turnover is high, what must be done to improve it?).

The challenge for all organisations is to find a range of metrics that articulate organisational performance in a way that helps key stakeholders (shareholders, customers and employees) understand precisely what must be done to improve or sustain a particular level of performance. Improved methods of measuring the performance of an organisation will ultimately help people focus on the aspects of performance that matter most.