In a knowledge-based society today, more than ever an organization must decide where, when and how to spend money on its human capital. But, how do you know where to invest your human capital dollars?
Well, first keep in mind that as an employer, there are some basic things you need from the people who work for you. You need people who are accountable for their work, engaged in their work and adaptable to their environment. That said, the only way to know if your investment will pay off is to measure the success (or failure) of that investment. To align your employee talent with your business goals, a company must establish key performance indicators. What follows is a discussion on, key performance indicators, (also known as KPIs).
A key performance indicator is a financial or non-financial metric used to help an organization define and measure progress towards organizational goals.
Key performance indicators provide real data that can be used to make decisions that help a business thrive or keep it from failing. This strategic approach is based on an organization’s ability to identify, define, track and act upon accurate, real-time data. In other words, taking this approach can mean the difference between succeeding and not succeeding, especially for many small-to-medium-sized businesses.
What does this term mean and how does it relate to your greatest assets, your people?
To understand the definition of a key performance indicator, we have to take a broader look at the entire organization. Most companies establish organizational goals that are: 1) financial; 2) customer-focused, 3) focused on improving productivity through internal process improvements; and, 4) goals tied to the learning and growth of a company. Establishing key performance indicators takes your HR department above and beyond personnel administration by moving beyond transactional employee services. Can anyone in your organization provide your senior executives data on the questions below?
How are your employees using their discretionary efforts?
- How do competitors’ employees perform compared to your employees?
- How productive are your employees during the workday?
- What differentiates your organization from other businesses?
Defining how to measure the answers to these questions, specific to your organization, will serve to improve the bottom line. Linking how HR services are delivered to ensure an organization is supplied with relevant employee information and data, your organization can make real-time decisions.
This strategic approach is dramatically different than previously held notions of HR and its role in the business world. In the past, HR was generally thought of as the “compliance police,” or personnel administrators and paperwork handlers. In today’s business environment, HR serves as a strategic business partner in helping organizations reach higher levels of performance through its people.
How does this approach actually work?
Before you can establish measurement criteria, you need to evaluate and define the foundation components of your organization. Why are you in business? What value do you bring to your customers, your employees, and to your community?
Next, you must analyze the organizational structure. This process involves formulating and communicating values: What do we stand for, what do we believe in, etc.? Look at the organizational structure and ask yourself if that structure is designed to accomplish what we want to accomplish. What are our goals? How are we going to reward, retain and manage our employees?
Today’s HR professionals must be trained to understand your immediate and long-term business goals and how accomplishing each goal will impact revenue growth. For example, if your organization is focused on customer service you might gather data tied to customer satisfaction and market share by deploying a customer satisfaction survey and implementing a “mystery shopper” program where employees providing exceptional customer service are recognized.
The next phase involves helping you communicate this information to your employees. I cannot overstate the importance of this step. Since your objective is to connect your employees with your business goals, they first have to understand and get excited about those goals. You must have employee buy-in in order to achieve successful results.
Take for example, a business like Coca-Cola. Everyone knows that brand. Everyone knows what they do, including its employees. From the truck driver to the bottler, employees understand that their performance and commitment to the brand are connected to the performance — and, the end revenues — of that company.
What’s Next?
In my future Insights, you will learn more about performance metrics, including financial and non-financial related metrics. We will also address how entrepreneurial businesses can keep from working in a crisis mode and avoid operating in a perpetual state of “putting out fires.”