Metrics Need Context

Whenever the subject of metrics or analytics comes up, people immediately start asking what they should measure. When I ran Saratoga Institute I used to publish “Dr. Jac’s Top Ten Metrics.” Frankly, they were nearly worthless.

The reason they had little value was there was no context. A metric needs a situation in which to have relevance. Otherwise it is nothing more than an isolated number. Without context it would be like saying, “I don’t feel good, so what medicine should I take?” If you don’t know the ailment, how can you know which remedy to apply?

The prime question is: What are the key issues in your organization today and maybe for tomorrow? What has management set forth as the essentials for survival and growth this year? Business analysis is simple. All people problems are found within issues of quality, innovation, productivity or service. HR people often assume a shortfall is due to employee performance, but problems can come from sources such as process breakdown, poor equipment, low-quality material or bad product design. So, the question is not what we should measure, but what is the root cause of the problem?

Last year I was pulled into a project where the decision had already been made that the company needed a list of metrics that applied to a given set of activities. One was leadership development. The first slated question was: “What does leadership look like there?” That is, if you see someone leading, what are they doing? It is difficult to measure intangibles without first converting them to some tangible example. In this case, someone decided to measure three activities assumed to relate to leadership. No one tested this hypothesis. When I arrived, they were fixated on these three activities and conditions. There was no problem coming up with metrics to illustrate them. The problem was they were only semi-relevant.

After 30 years, HR measurement and analytics are becoming more popular. There is a small but growing group of companies developing skills and knowledge around these elements. Here are two examples.

Case one: Human resources reported to management the cost and volume of activity within the HR function. A significant financial commitment was being made each month to this routine. Over time, senior management saw the reports for what they really were — a thinly veiled self-justification and appeal for more resources.

Functionally, HR was reacting to requests from line managers regarding disconnected reports. This was tying HR up in report production rather than value generation. Finally, the C-level put a financial executive in charge of the analytics group. Quickly, the team was reduced 40 percent and everyone who remained was trained in statistical analysis. Now, line manager customers are being trained to use the new analytic system to generate their own reports. Concurrently, the analytics team is focusing on identifying and improving HR processes to create business value.

Case two: When a new CHRO joined the company he found there were all kinds of problems. Turnover, low morale, constant demands for better compensation and a high need for expensive contingent staff to cover absenteeism were a few of the more visible ones.

Instead of looking at what HR provided, he looked first at the business operations. He wanted to know why the problems existed. Were the people bad or was the system faulty? After digging into company performance records, he found the causes. Some were human and others were structural. Working with senior line management, he helped revise policies, procedures and processes that led to negative employee behavior. Today, this company is one of the most efficient, and the employees are among the highest paid and happiest in the industry.

Analytics is not about metrics. Numbers are only indicators of a condition. Descriptive analytics starts by diving into the source of the numbers to uncover what is causing the problem. Then, predictive analytics applies models to project what is the likely outcome of one human capital investment over another. That is when value truly emerges.