The Best HR KPIs Aligned With Company Strategy
This article will summarize a long research that was done for various kinds of HR KPIs. Below you will find the list of KPI for a Human Resource department. It is not just the KPIs, but detailed instruction about how to use specific KPIs and why these are the best choice for your business.
Why do HR managers and executives need KPIs?
The goal of any HR specialist is to help a company achieve its business goals by finding and hiring the right people, and then training and managing them in the right way and ensuring the consistency of the process. While the goal and the strategy of HR might be clear, how could one tell that their HR department is on the right track? Is the HR strategy being executed effectively? Key Performance Indicators (KPIs) will help in this case, but only if applied according to certain rules.
Lagging and Leading KPIs
Before we start with HR KPIs, all KPIs can be divided into lagging and leading.
Lagging KPIs are focused on the past, and they measure the output. For example, the “Turnover rate” is a lagging KPI. Lagging KPIs tell the story about the current state of your HR, but they don’t tell you how to change this state.
Leading KPIs are focused on the future. Leading KPIs measure the input that should be introduced to achieve better results. For example, for the lagging KPI “Turnover rate” a leading KPI pair might be “Employee Engagement Rate.”
We could say that “Employee Engagement Rate” (leading KPI) is what influences the “Turnover rate” (lagging KPI). Don’t draw a conclusion that lagging KPIs are useless and what you need are leading KPIs only. It’s just two type of KPIs that tell you different stories about your HR; and you will need both of them. What makes a difference is how you are going to use these KPIs.
Leading and Lagging KPIs in BSC Designer
Users of BSC Designer can specify if the indicator is a leading or lagging one:
- Go to the “Business goals” tab and find some business goal with an aligned KPI (or align some new KPI):
- Select an aligned KPI and in the properties change “Indicator type” to “Leading” or “Lagging.”
- Switch to the “Strategy map” tab. Leading indicators will have a light green background, lagging indicators will have a light gray background:
HR KPIs Best Practice
A KPI by itself cannot be good or bad. Let’s take a “turnover rate” KPI as an example.
- A bad HR manager only measures it without making any noticeable impact on a business.
- A good HR manager can have the same KPI, but use it exclusively for top-performers and have a step-by-step action plan about how to keep top-performers in the company, thus making a measurable difference to the company’s outcomes as a result.
Some best practices for HR KPIs here.
- Define Cause and Effect Links
Before you start thinking about KPIs, define the strategic objectives that you have. The HR department is not a separate business; it works for the company, and it helps the company execute the strategy. Plus, it manages a company’s most valuable asset, its employees. Make sure that the HR department in your company understands how its activity is linked to the ultimate objectives of the company.
- Align KPIs With a Specific Objective
KPIs are not a stand-alone measurement product. They are supposed to track your progress in achieving certain business objective. If you have a KPI, then it should be linked to some kind of business objective. If you have a KPI that is not linked to any objective, then probably you don’t need this KPI at this very moment as it has nothing to do with the company’s business objectives.
- Add an Action Plan
If you have a business objective and a KPI, it means that you know the goal and you know your progress towards this goal. But nothing will happen unless you start doing something. Add an action plan to your HR KPI. For example: if you measure employee engagement index in some way (that’s your KPI), what is your action plan to improve it?
There are 20+ HR Hire KPIs that you might have found. The problem is that these KPIs have nothing to do with your strategy:
- HR Turnover (why it is useless and how to replace it)
- Time to fill (why it is useless and how to replace it)
- Actual versus budgeted cost of hire
- Average interviewing costs
- Female to male ratio
I suggest starting with this HR Hire KPIs:
- Time to find required number of qualified candidates.
- Yield Ratio, %.(Number of leads from recruitment method / Number of candidates invited to interview) x 100%.
Most Finance KPIs for HR are lagging KPIs you are free to use any kind of finance KPI that you wish to. But make sure you link it to some specific business objective. In most cases it won’t be an easy task, as one number that you don’t know is the ROI of certain talent in your company. I suggest you find a way how you can calculate this ROI. By having even an approximate result you will be able to improve any financial KPI for HR:
- Talent’s ROI to Improve All HR KPIs.
One of the lagging measures for HR that might make a difference:
- Revenue per FTE employee. Formula: (Total revenue / The number of FTE employees) x 100.
- HR KPIs in the Balanced Scorecard
If you decide to use the “Strategy Map + KPIs” approach then what you might use is a Balanced Scorecard framework. With the Balanced Scorecard you can achieve all the requirements for the winning KPIs:
- You can build a cause-and-effect connection between business objectives;
- You can align KPIs with specific business objectives;
- You can add an action plan to each KPI.
Balanced Scorecard Software
As an automation tool I suggest using BSC Designer. You already have HR KPIs described in this article there.
What is more important is that this software allows creating a strategy map with strategic objectives linked by case-and-effect connection, and aligning KPIs to these objectives and adding an action plan to KPIs. Example from this article explains how to do this for HR.
Execute your HR strategy
When you have all your HR KPIs in the Balanced Scorecard you can start working with your HR strategy. Use an action plan that you have for specific KPIs, and ask your employees to report their progress back to the system.
When your company moves ahead you might need to revise your business objectives and as a result revise your HR KPIs. Do it regularly in order to make sure you are still tracking what matters.
Original article was written by Hussain Kamran