Guide to Measuring HR Effectiveness - Resource E: Creating an HR Value Chain
One approach to identify and present suitable HR measures and achieve alignment to the business strategy involves building the 4 elements of the HR Value Chain in a four-step process set out below. An outline of a workshop to do this is contained in Annex F.
Step One: Identify Business Outcomes
Identify the business outcomes or results for the organisation as set out in your current strategic, operational or business planning documents. There may be advantages in focusing on the top priorities for the organisation that have the greatest implications for your people.
An example of the business outcomes for Jobcentre Plus is provided below.
Step Two: Identify the People Outcomes
Having identified and prioritised the business outcomes, the next step is to identify the people outcomes required to achieve them. This means identifying all the people factors that could contribute to each of the business outcomes identified in Step One. Using the People and Performance Model framework the factors considered should include:
- Resourcing: the numbers and level of staff required
- Abilities: competences, skills, expertise and experience required
- Motivation: attitudes, engagement and commitment required
- Opportunity: culture, organisation, teamwork and leadership required
It may also be worthwhile to consider separately the same factors for managers and leaders as these may have a significant bearing on the people contribution.
The people outcomes should then be prioritised to identify those that are most critical to the achievement of business outcomes or where there are gaps or weaknesses that will need to be rectified. The outcome of this stage is a statement of the people outcomes crucial to future organisational success (such as skills, capabilities expertise, attitudes, culture and relationships).
People are of course not the only factors that affect the achievement of business outcomes. Other factors such as information technology, processes, organisation and policies may also influence what can be achieved. So at this point its is worth considering if there are any other significant factors that may affect the achievement of the business outcomes or have an effect on the people resource, ability, motivation and opportunity factors. These other factors and how they will be addressed should be also included in the business strategy and in a wider business measurement framework.
Step Three: Identify the key HR Activities
People outcomes can be achieved through a range of different HR activities delivered either through line managers or through the HR function. This step involves a discussion between HR and the business. It covers both what HR and managers need to do to achieve the required people outcomes. Again it is also important to identify any factors that might constrain what can be achieved.
The key HR activities to be considered include:
- Recruitment
- Selection
- Promotion
- Learning and development
- Talent Management
- Performance management
- Pay and reward
- Terms and conditions, hours, flexibilities
- Job design and content
- Teamwork
- Communications
- Leadership and management
- Culture and values
So for each critical people outcome, several HR activities may be identified to contribute to the required result. The activities might include:
- Recruiting more of the ‘right’ people
- Increasing the diversity of the workforce
- Building employee engagement and commitment
- Developing leadership and management capability
- Ensuring staff are in attendance
- Managing staff rostering to meet the caseload etc.
It is also important at this point to agree which activities will achieve the greatest impact or might contribute to several people outcomes. Collectively decisions can be reached about what HR activities will take priority. This step also enables you to ensure HR activities are all aligned to achieve similar coherent people outcomes.
Step Four: Identify the HR measures
The final step in creating the HR value framework is to identify those measures or indicators that demonstrate that the HR activity has had the required effect. A crucial factor in our ability to do this is about being specific about the outcome(s) of each HR activity. The benefit of using this framework is that these specific outcomes have already been identified in Step Two. Ideally these indicators should be expressed as required results in the form of SMART statements of the outcome – or in other words - as objectives. As a result of HR activity X we will expect Y happens.
The advantage of this approach is that measures are identified with a clear line of sight (or golden thread) to the business outcomes that we want and that these are agreed by the organisation as measures of the added value of HR or people management activity. The goal is to identify at most two to three measures at most for each critical outcome. It is also worth identifying any ‘leading’ indicators. These are measures at one point in a causal chain that indicate or predict something else will happen later. For example if staff absence rates increase this could be a leading indicator of the extent to which productivity or service targets can be achieved in practice.
Review
The final stage in the alignment process is to review the results and ensure that the process has covered all the critical territory in addressing the outcomes and that there is a clear causal link through the process.
Review questions to ask at this stage might be:
- Have we identified all the factors that affect the delivery of the business outcome (that we can influence)?
- Have we identified all the people factors that affect the business outcomes?
- Are there any critical constraints that might affect the impact of these people outcomes on the business outcomes?
- Are the causal relationships right?
- Are the weightings of importance right?
- Are there any other ways we could measure the HR contribution?
- Are we happy with the overall picture that emerges?
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