Human Resource Evaluation and

Business Performance

A Study of Contemporary Human Resource Performance Measurement

Practices and its Association with Business Performance

Agenda

Objectives of the Study

Business Performance Management

Human Resource Evaluation

The Perfect Performance Management System

Linking HR Evaluation Practices with Profitability of firms

Objectives of the Study

To gain complete understanding of Business Performance

Management Systems

To understand the HR Evaluation Practices and critically

examine them

To find the link between HR Evaluation Practices and

Profitability

Business Performance

Management System

Defining Business Performance

What is Performance?

Efficiency and Productivity

Effectiveness and Efficacy

Quality

Dimensions:

Time Frame

Time Orientation

Means or Ends

Qualitative Vs Quantitative

Why Measure Performance?

‗What can‘t be measured, can‘t be improved upon.‘

Control

Communication

Alignment

Strategy

Motivation

Balance and Sustainability

Objectivity

The Evolution of Performance Measurement

Systems

Dupont Pyramid

Evolution Contd.

GE‘s Performance Measures

Evolution Contd.

Performance Matrix (Keegan, Eiler, Jones)

Evolution Contd.

SMART Pyramid(Lynch

and Cross)

Fitzgerald‘s Ends and

Means Model

Evolution Contd.

Macroprocess Model

(Brown)

Business Excellence

Framework (EFQM)

Evolution Contd. Balanced Scorecard

Evolution Contd.

PRISM Model (Adams, Neely)

Human Resource Evaluation

Why Measure HR?

Big Expenses

Sustainability and Health of a Company linked to Strategic

HRM

Productivity linked with Employee Morale and Satisfaction

High Attrition Costs

People could be a Competitive Advantage

Differentiation based on Talent

Human Resource Accounting

As old as Industrial Revolution itself

‗The Human Oraganisation‘ by Likert

Brummet, HR as Cost

Flamholtz, Replacement Cost

Hekimian, Onward looking Cost

Kermanson, HR as Goodwill

Lev and Schwartz, Economic value of Employee

Freidman and Lez, Market Company Pay Differential

Morse, HR not an Asset

Critique

Human Resource Metrics

Productivity

Quality

Costs (Incurred, Saved)

Direct Value Generated

Time

Soft Data

Critique

Human Capital Management

Why HCM?

Talent approach

Development and Improvement

Need Automation

Data Analytics

Decision making

Future Oriented

Critique

HR Scorecard

Audit Approaches

HR Audits

HRD Audit and HRD Scorecard

Why Audits?

Cost

Maturity Constraints

Why not Audits?

Generic

One size doesn‘t fit all

True value added not researched well

Completion and success can‘t be differentiated

The Perfect Performance

Management System

IPMS Reference Based Model

The Ideal Performance Management System:

The Way Forward

Future: Integrated Performance Management System

(IPMS)

Based on Reference Model

IPMS Systems Layer Pyramid Display

Stakeholders Requirements

(Setting Directions)

External Control

(Competition, Market and Uncertainities)

Objectives

(Goal Setting and Employee Performance Management)

Metrics

(Measure, Coordinate and Control)

Process

(Next Level Pyramid)

Stakeholders Requirements

(Setting Directions)External Control

(Competition, Market and Uncertainities)

Objectives

(Goal Setting and Employee Performance Management)

Metrics

(Measure, Coordinate and Control)

Process

(Next Level Pyramid)

Reference Model(with Levels) for IPMS

Why IPMS?

Accountability at Pyramid level

Simplicity and Drill Down Complex Display

Each Level considered (Unit Problem)

Each Stakeholder can be Accommodated

Metrics not bigger than Framework

A good mix of Ends and Means

A good mix of Leading and Lagging Measures

Objective

Needs high level of Automation and IT systems Maturity

and Integration

Linking HR Evaluation Practices

with Profitability of a Firm

An industry wide study of Fortune 100 companies

Research Problem

How do HR Evaluation Practices Impact Performance of a

Firm?

Methodology

Sample: Fortune 500 Companies

Performance : Utilization of Assets (ROA)

Employee Satisfaction: Glassdoor Ratings (ESR)

Career Opportunities

Communication

Compensation and Benefits

Employee Morale

Recognition and Feedback

Leadership

Work Life Balance

Fairness and Respect

Methodology contd.

Indexed HR Evaluation Practices (HRE)

1. HRA

2. HCM

3. Communication

4. Framework

5. Process Audit

6. Accountability

7. Motivation

Market to Book Value Ration (MBR)

Future Earnings Capacity

Indicator of Certainty, Technology and Intellectual Capital

Data Analysis

Model 1 ROA = f (HRE, ESR, MBR)

Model 2 ROA = f (ESR, HRE)

Model 3 ROA = f (MBR, HRE)

Model 4 ROA = f (HRE)

Analysis Contd.

Model 1

Model 3

Discussions and Conclusions

ESR and ROA poorly correlated for the sample.

ESR and ROA correlation increases with the industry classification or MBR classification

Higher MBR has been linked with higher ESR Correlation with ROA

HRE as expected correlates highly and is very significant in the model

HRE and MBR together explain 55% of variation in ROA.

HRE practices directly influence firms ability to utilize the talent or human capital

Accountability and Motivation are both important in order to leverage the HR Evaluation

Limitations and Recommendations

Limitations

ESR Source not very clean

Singular measure of performance

High dependence on Secondary Data

No Time Scale Comparison

Recommendations

Further research needed to prove marginal increase in

productivity if HR is held accountable and incentivized

More Time Series data needed to confirm increase in

profitability with change in HR Evaluation Practices

Research based on SBU‘s and not corporations could also link

HR Evaluation Practices with Competitiveness

Thank You

Shirshendu Pandey

FORE School Of Management

shirshendupandey@gmail.com

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