BHRMDA and Capital Careers HR Measuring HR Effectiveness November 9 th 2007

1. BHRMDA and Capital CareersHR Measuring HR EffectivenessNovember 9th 2007 Richard Finn Head of HR, CBA

2. Why is measurement important • To measure the efficiency and effectiveness of HR processes • To measure the contribution HR is making to the business; measuring alignment and the achievement of strategic goals • To measure the return on investment from a people initiative • To understand and manage intangible value

3. Human Capital Value Structured Human Capital Unstructured Customer Brand Value Market Value: Intangible Book Value: Tangible

4. The WOW stats • 74% of measurement managed companies are industry leaders and… • 83% of measurement managed companies were top 3 performers in their industry (Schiemannn) • Companies which link non-financial indicators to performance have 3% higher return on assets and 5% higher return on equity (Wharton)

5. Measurement provides data to support decision making RPM FUEL

6. What can we measure? • Efficiency and effectiveness of HR processes • Cost per hire • attrition • Cost/investment in HR • Number of employees per HR professional • Total HR budget per employee/profit/??? • People strategy contribution • Talent acquisition • Culture measurement • Human Capital Cost Index (labour cost per fte) • Business strategy contribution • Implementation of global supply chain model

7. Types of measure • Metrics • Time to hire • Sales team attrition • Measures • Tenure • Regretted turnover • Lead/Lag • Engagement (Lead) • Training costs (Lag) • Ratios • L&D programme ROI • Human Capital Value Added • Benchmarks • Internal • external

8. The MacNamara Fallacy Step 1: measure what’s easily measured Step 2: disregard what can’t be easily measured Step 3: presume that what can’t be measured isn’t that important Step 4: if it can’t be measured it doesn’t’ exist

9. HR delivers different value Created Value Added Value Value for money

10. Creating capability for the future • Driving business strategy • Global employer of choice Created Value • Aligning HR with business strategy • Creating capability to perform now • Organisation / management development • Strategic competence framework Added Value • HR operations • Training Value for money …….and we need to measure it differently

11. HR measurement for business impact • Motorola: 23% of sales people generated 67% of revenue. If everyone in the third quartile performed as well as the top quartile, $1b revenue per year. • RBS: 0.1% decrease in absence = £2m saving 10 month break-even period before recruitment costs are recouped • B&Q: £24m extra revenue if every store had the same engagement levels as the best performing ones

12. Measurement for resourcing: Develop or Hire Hewlett Packard Pepsi-Co • Predominantly entry hire • Low attrition • Cross-functional moves • Hire at all levels • High, monitored turnover • Fast progression

13. Measurement for Resourcing 5 25 50 250 1000 3000 1 Actual / average external hiring Actual / predictable exit 5 25 promotions 50 promotions 100 150 100 promotions Talent required: 50 (200 predictable exits) 50

14. Measurement of engagement The PeopleMetrics Engagement 20 (“E20”)* 1. The work I do challenges me 2. My workload is manageable 3. I have the resources I need to do my job 4. I feel empowered to get things done 5. The work I do makes an impact EMPLOYEE ENGAGEMENT Satisfaction Retention Advocacy Work 6. There are clearly defined career paths for me 7. I am given ample opportunity to grow professionally 8. There is fair competition for jobs 9. There are excellent job opportunities available for me 10. Training is available to help me grow professionally Career 11. My manager values my input 12. My manager clearly communicates what is expected of me at work 13. My contribution to [company’s] success is recognized by my manager 14. My manager provides me with candid and timely feedback about my work 15. My manager provides me with the appropriate levels of responsibility Manager 16. Senior leadership’s vision provides a clear direction for [company] 17. I trust senior leadership 18. Senior leadership is accessible 19. Senior leadership considers employee input when making decisions 20. There are open channels of communication between senior leadership and staff Sr. Leadership

15. Identifying the most powerful levers

16. Benchmark Data: Overall Drivers of Engagement Values Values Values Manager Manager (#2) (#2) (#2) Values Senior EMPLOYEE EMPLOYEE Values Values EMPLOYEE EMPLOYEE (#2) Leadership ENGAGEMENT ENGAGEMENT (#2) (#2) ENGAGEMENT ENGAGEMENT Overall Satisfaction • Job Satisfaction • Advocacy • Retention • Overall Satisfaction Overall Satisfaction • • Advocacy • Advocacy Advocacy • • Senior Senior Senior Values Leadership Career Leadership Leadership (#3) (#3) (#3) Direct Manager Direct Manager Direct Manager Work (#4) (#4) (#4) Drivers of employee engagement differ depending on the type of worker * Based on PeopleMetrics’ proprietary research on employee engagement among knowledge workers and production workers

17. Engagement Segments

18. Understanding what influences Front Line Managers’ commitment to their firm creates engagement Job security 48% 45% Openness 42% Work-life balance Career opportunities 37% 27% Relationship with managers Source: 163 FLMs P&P research Hutchinson & Purcell (2003)

19. Measurement proves that line managers critically impact business performance A Ability M Motivation O Opportunity Front Line management Discretionary Behaviour Commitment Motivation Satisfaction Performance Plus Purcell, et al., 2003

20. Watson Wyatt Human Capital Index • Quantifies the link between HR practices and business performance • 43 HR practices associated with a 47% increase in market value: • Rewards and accountability • Collegial, flexible workplace • Recruiting and retention excellence • Communications integrity • HR technolgy • “Prudent use of Resources” had a negative impact on market value because they were not aligned with strategy

21. High Performance HR Index: Mark Huselid • 14% increase in Index = $42,000 per employee more pa • HPWS firms: • more resources dedicated to recruitment and selection • Strategically aligned training • Regular performance management • Maximise use of teams • Usually not unionised • Double the no. of HR professionals per employee

22. Towards a model of good practice in HR measurement: the service value chain ServiceQuality EmployeeSatisfaction Retention External Service Value CustomerSatisfaction CustomerRetention Increased Profits

23. Maximising value in the Service Value Chain: Sears • The three Compellings: • Compelling place to invest • Compelling place to shop • Compelling place to work • 10 out of 70 questions had greater impact on behaviour than all of them • Now focus on measuring: • Great organisation • Great job

24. Towards a model of good practice in HR measurement: the HCM value chain Input Activity Output Impact • Organisation effectiveness • Leadership capability • Mental models • Management time • HR function capability • Funding • Resources • Organisation • Resourcing • Development • Performance management • Career development • Engagement • Talent management • Tangible resources • Intangible capability • Human capital • Organisation capital • Social capital • Employer of choice • Operations • Customers • Financial

25. HR delivers different value Created Value Added Value Value for money

26. Towards a model of good practice in HR measurement: the measurement matrix:Ingham & Finn Creating value 9 10 11 12 CV primary focus Adding value 5 6 7 8 AV primary focus 1 Value for money 2 3 4 YFM primary focus Input Activity Output Impact

27. Best practice measurement (1) • What are the strategic business goals? • What are the people levers that will drive those goals? • How well are we pulling those levers? • Is our level of resourcing in line with future growth needs? • Are we growing the talent pipeline • Are we accelerating the development of our best people

28. Best practice measurement (2) • Carefully select a balance of measures, using Data, Information and Knowledge • Collect historical data to inform funding decisions • …and track trends • Measure less rather than more, and research the meaning behind results

29. Hard data is not the complete answer…. • Hard data is interesting, soft data generates wisdom • Strategic decisions require objective and subjective information • Fuzzy data opens the door to meaning, innovation and growth

30. HR measurement is an Art and a Science! Richard Finn

32. BHRMDA and Capital CareersHR Measuring HR Effectiveness: a call to actionNovember 9th 2007 Richard Finn Head of HR, CBA

33. Measuring Measurement: the most successful measures are ….. • Leadership • Productivity • Employee satisfaction/engagement • Recruitment The Conference Board 2004

34. Best practice example measures…Centrica • Human Capital ROI • Training ROI • Cost of absence • Cost of leavers • Employee engagement • Annual pay audits • Employee share scheme/flexible benefits • Diversity and inclusion Centrica

35. Best practice example measures…..Coca-ColaHBC • High performers in key positions • Employee employment profile • Performance appraisal profile • Compensation, history by employee • Completion rate of IDP’s • Training effectiveness • Internal/external training hours • Training costs • Health and safety: accident frequency rate • Employee engagement

36. Best practice example measures….. • Workforce profile • Turnover • Retention rates • Absenteeism • Performance and productivity • Engagement Accounting for People Task Force, UK

37. Best practice example measures ….. • Added value per employee • Profit/revenue per employee • Reward strategy • Leadership/succession planning/talent management • Cost/effectiveness of training • Link to bottom line Baron and Armstrong

38. Best practice approaches….Nationwide Building Society • HCM data feed into intranet so that users can assess how they are doing against a number of indicators and drivers of committed employees • Eg Pay, tenure, coaching, resource management, values, retention & customer commitment • Supported by advice on how to improve

39. Best practice approaches….Royal Bank of Scotland • HR toolkit available to all HR staff, to maximise contribution to the business • Supports the development of action plans with tangible bottom-line benefits • Work streams: • Surveys, measurement, research, benchmarking, reporting

40. Best practice approaches….Standard Chartered Bank • Human Capital Scorecard, published quarterly • Cut by business with commentary • Used in twice yearly Board Reviews as part of the annual strategy planning process • Supplemented by qualitative research on trends etc • Role of manager in engagement and performance • Behaviours which drive customer loyalty

41. If I was a CEO I would like to know.. • Ability to recruit and retain talent • Indicators of employee engagement • Investment in people development • Measures of efficiency and effectiveness for what HR does • Major project/initiative tracking data • Contribution to intangible growth

42. Developing a People Scorecard • The scorecard is one way to bring measurement together • Business, People and HR measures in the same place • A variety of measures leading to informed management judgement

43. A People Scorecard will…. • Drive behaviour • Provide early indications of the performance of the business / project, not just those that will be reflected in the budget • Create alignment towards business goals across the whole organisation • Provide management with feedback/predictors on business performance • Create a linkage between, organisation, team and individual performance

44. A Balanced Scorecard Financial Customer People Process

45. HR ScorecardScorecard Quadrant Definitions Financial Customer Measures how well the business/function is meeting its financial objectives Measures whether the business/ function is adding and creating value for the business and its customers People Process Measures whether the business/ function has in place the staff capability to support the needs of the business Measures how well the business/function is managing risk and protecting its assets and measures the efficiency and effectiveness of the services provided by the function

46. HR Function Scorecard: Example Metrics FINANCIAL CUSTOMER • MEASURE AREA - COST AGAINST BUDGET: • ACTUAL DEPARTMENT COST AGAINST BUDGET • MEASURE AREA - SERVICE COSTS: • % PEOPLE COST OUT OF TOTAL ORGANISATIONAL COST • AVERAGE COST OF TRAINING PER EMPLOYEE • ABSENCE COST PER EMPLOYEE • AVERAGE RECRUITMENT COST: GRADUATE/ EXPERIENCED HIRE • MEASURE AREA - EXTERNAL SUPPLIER: • EXTERNAL / INTERNAL HR SPEND RATIO • MEASURE AREA - EMPLOYEE RESPONSIVENESS: • % OF EMPLOYEES THAT LEFT THE ORGANISATION • MEASURE AREA - ORGANISATIONAL STRATEGY ALIGNMENT: • % OF ASSISTANT DIRECTORS/DIRECTORS WITH CUSTOMER FOCUSED SMART OBJECTIVES • MEASURE AREA - CUSTOMER CARE: • % OF RECEIVED ENQUIRES RESOLVED BY THE HR DEPARTMENT • NUMBER OF COMPLAINTS CONCERNING THE HR DEPARTMENT PEOPLE PROCESS • MEASURE AREA - STAFF TURNOVER: • VOLUNTARY TERMINATION RATE (M) • MEASURE AREA - STAFF ABSENCE: • TOTAL ABSENCE RATE • MEASURE AREA - STAFF MIX: • % OF TEMPS/CONTRACTORS STAFF TO TOTAL • MEASURE AREA - STAFF COMPETENCE: • % WITH A COMPLETED COMPETENCE ASSESSMENT • MEASURE AREA - STAFF ROLES • % WITH CLEARLY DEFINED JOB DESCRIPTIONS • MEASURE AREA - STAFF OBJECTIVES: • % WITH CLEARLY DEFINED SMART OBJECTIVES • MEASURE AREA - STAFF RECRUITMENT: • % OF ALL APPLICANTS ACCEPTING JOB AFTER OFFER • MEASURE AREA - TRAINING DELIVERY • - AVERAGE NUMBER OF TRAINING DAYS PER EMPLOYEE • AVERAGE NUMBER OF DEVELOPMENTAL TRAINING DAYS PER EMPLOYEE • AVERAGE SCORE ON POST-TRAINING FEEDBACK FORM • MEASURE AREA - PERFORMANCE MANAGEMENT: • NUMBER OF PMS FORMS RETURNED TO HR • MEASURE AREA - REWARD MECHANISM: • % OF BONUS DECISIONS AGREED AT FIRST ATTEMPT • MEASURE AREA - EFFECTIVE MIS: • % INFORMATION REQUESTS MET BY CURRENT MIS SYSTEM • MEASURE AREA - RECRUITMENT: • NUMBER OF APPLICATIONS PROCESSED (M) • AVERAGE TIME TO ACCEPT OFFER (Q)

47. HR Scorecards Creating Alignment Via Scorecards BUSINESS STRATEGY HR STRATEGY TEAM PERFORMANCE GUIDE INDIVIDUAL PERFORMANCE GUIDE FINANCIAL CUSTOMER PROCESS PEOPLE FINANCIAL CUSTOMER PROCESS PEOPLE FINANCIAL CUSTOMER PROCESS PEOPLE FINANCIAL CUSTOMER PROCESS PEOPLE

48. Benefits of the Scorecard Translating The Vision Balanced Communicating Feedback & Scorecard & Linking Learning Business Planning

49. Making the scorecard work

50. Scorecard Traffic Light Reporting STATUS TARGET ACTUAL THIS MONTH ACTUAL LAST MONTH STATUS TARGET ACTUAL THIS MONTH ACTUAL LAST MONTH STATUS TARGET ACTUAL THIS MONTH ACTUAL LAST MONTH STATUS TARGET ACTUAL THIS MONTH ACTUAL LAST MONTH FINANCIAL CUSTOMER 150 400 500 65% 65% 65% 55% 65% 50% - Measure A - Measure B - Measure C - Measure A - Measure B - Measure C £5M £5M £4.5M £1.5M £1.5M £1.5M £0.5M £0.5M £0.5M TRAFFIC LIGHT STATUS ‘RED’ (NEEDS ACTION) ‘AMBER’ (TO BE WATCHED) ‘GREEN’ (ON TARGET) PROCESS PEOPLE 75% 60% 65% 15% 12% 14% 20% 40% 45% 80% 75% 70% - Measure A - Measure B - Measure C - Measure D 50 50 65 6 8 10 5 10 15 - Measure A - Measure B - Measure C BAL03327