Measuring Human Resource Management's Effectiveness in Improving Performance

Article excerpt

This article examines the strategic role of HR and its main practices, describes the outcomes of respective categories of HR practices, explains the critical reasons for measuring HR's efforts, and proposes a framework for assessing HR. Ultimately, organizations will be able to utilize the information to determine how particular HR practices correlate with better business results; determine potential areas for investments, expansions, and reductions; justify budget allocations; and be more accountable for each dollar spent within the organization. The framework proposed does not merely explain the cost for each major HR activity, but demonstrates the value of the activity and, hence, the opportunity to determine if it is a worthwhile investment and strategy for creating a competitive advantage.

What value does the HR function contribute to the bottom line of the organization? Over the years, tremendous emphasis has been placed on making HR practitioners strategic business partners and a value-added source within organizations. Traditionally, HR professionals could talk generally and conceptually about employee morale, turnover, and employee commitment as outcomes of HR efforts. Furthermore, the HR function was often viewed as an expense-generator and administrative function and not as a value-added partner. Ulrich (1997b) reiterated that to fulfill the business partnership role of HR. concepts need to be replaced with evidence, ideas with results, and perceptions with assessments.

This article examines the strategic role of HR and its main practices, describes the outcomes of the respective category of HR practices, explains the critical reasons for measuring HR's efforts, and proposes a framework for assessing HR. Ultimately, organizations will be able to utilize the information to determine how particular HR practices correlate with better business results; determine potential areas for investments, expansions, and reductions; justify budget allocations; and be more accountable for each dollar spent within the organization. The framework proposed does not merely explain the cost for each major HR activity, but demonstrates the value of the activity and, hence, the opportunity to determine whether it is a worthwhile investment and strategy for creating a competitive advantage.

The framework has proven its effectiveness at many companies, to show how HR creates value, to utilize information to increase investments in specific HR strategies and eliminate ineffective investments, and to serve as a critical resource in strategic business planning and budget allocation. The companies include Fortune 500 and smaller companies from retail, transportation, and financial industries.

Understanding the Strategic Role of HR

In today's business environment, organizations constantly need to evaluate their internal and external environment for challenges and opportunities to remain competitive and to sustain growth. Political, economic, social, and even psychological changes within our societies have a significant impact on organizations. Given any significant change or event, how ready are organizations to react in order to remain competitive?

Many factors drive changes in organizations today, including the use of technology, globalization, changes in workforce demographics, the elimination of bureaucracies in organizational structures, and the need to find a balance between work and family issues. Understanding the potential of an organization's resources and optimizing the output of such resources, given the changes, provides an impetus for HR to become the key source of creating the competitive advantage for the organization.

To create value and deliver results, HR professionals must begin not by focusing on the work activities or work of HR but by defining the deliverables of that work. HR's roles in building a competitive organization include management of strategic human resources, management of transformation and change, management of firm infrastructure, and management of employee contributions (Ulrich, 1997a). …