Giving value for money

Citation

Mayo, A. (2008), "Giving value for money", Strategic HR Review, Vol. 7 No. 2. https://doi.org/10.1108/shr.2008.37207baf.001

Giving value for money

Giving value for money

Andrew Mayo Professor of Human Capital Management at Middlesex University and Director of Consultancy, Mayo Learning International Ltd.

“Efficiencies,” our theme in this issue, leads our minds immediately to measures. Yet there is a lot of confusion around “HR Metrics,” which is a term that is heard so frequently these days. Sometimes we are literally referring to a “basket” of measures that have some people-related element. The result is a melange of statistics, ratios, survey results, cost indicators, process measures and more; an unsystematic collection that generates little more than passing interest.

Defining measures

Measures need to be separated into two broad categories. There are those that are to do with the workforce or parts of it – these we may call “human capital measures”. They are seriously important and should be a key part of the organisation’s performance management system, linking people, productivity and value creation.

The second category is about HR as a function – and the same principles would apply to any other business support function. This is about value for money. What value or benefits do internal and external stakeholders receive from the function, and how does that relate to the cost of the provision of the services offered? Normally, we would look at two dimensions of such a question. The first is effectiveness – namely, to what extent do its activities meet their purpose? The second is efficiency – which is about the cost of achieving the level of effectiveness.

The question is made more complex, as HR is not an island of delivery. It relies on others, mostly managers, to cooperate in several areas. So there is a third dimension, which is the ability of the function to harness others to play their part in achieving people-related results. This influences, of course, both of the other dimensions.

Pin-pointing the outcomes

Effectiveness is about outcomes and should be measured in the value that is provided to stakeholders; the main ones for HR are employees, managers and senior management. If we take the bedrock of HR, which is its transactional and advisory services, then this will be measured in terms of accuracy, timeliness and responsiveness. The efficiency of delivering the standards of these is monitored in terms of productivity and cost. But the two sets of measures must go together – many an HR function has taken pride in its cost reduction success, but has lost out in effective outcomes.

Harnessing others – such as managers and employees – is a function of information provision and education; clearly the better the “self service” delivery channel we can create, the more efficient the whole service will be and, hopefully, also the more the overall effectiveness.

Of course, HR does a lot more than this, and a key area is the set of processes for which it is responsible. If we think about two key ones, recruitment and performance management, often the process outcomes are not very clearly understood. They are not mere activities, such as the number of appraisals done, but areas such as a motivational experience for employees or implemented personal development plans. The outcome of recruitment is measured in good performing, well-fitting, new employees. These are clear examples of where the part played by managers themselves is crucial. As to efficiency, we are looking at process measures, which include time and cost spent in relation to the outcomes.

Demonstrating value

We see much emphasis on the efficiency angle today, often leading to outsourcing. But this “three-legged stool” gives us the basis of an HR “balanced” scorecard, enabling us to make comparisons, set targets and monitor trends. It implies some important skills for HR. Process analysis and “engineering” is a fundamental tool. This is the key to productivity, which is also a function of the effective use of technology, training and, of course, good management. The management of external providers is also critical.

But what about HR being strategic? Well, apart from the need to actually have strategies and plans, this is more about initiatives and programs to help the business and its people be more effective. Our “three legs” still apply to each initiative – and we begin to overlap with “return on investment.” This is quite simply – were the returns (both financial and non financial) justified by the time and cost?

The pressures on all organisations to deliver value for money are ever increasing. Functions like HR should expect to be judged on this, and the smart ones will get their systems in place for demonstrating it whenever challenged.