Ask Us Answered: Interpreting HCM Performance Metrics—Is Higher or Lower Better?
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Question: A member from a professional services firm referenced one of APQC’s key performance indicators for HR, Total cost to perform the HR function per ''Recruit, source, and select employees'' FTE, and asked, “What is the business implication of this metric and does it imply the higher or the lower the better for performance?
Answer: This is a common question and for good reason. On the surface, it has a simple and straightforward answer. At its core, it can only be answered with careful consideration.
Let’s start by answering this question at the surface level.
For cost and cycle time metrics, lower is generally considered “better.” For productivity metrics higher is usually preferable. The following table summarizes this answer, offering an example for each category of measures.
Efficiency metrics are context-specific. For efficiency metrics such as number of process FTEs per revenue, lower is generally considered better. However, for other HCM key performance indicators that APQC has designated as efficiency metrics, higher is typically considered better. Three examples are shown below, each from APQC’s Redeploy and Retire benchmarking survey:
Now, let’s talk about what it takes to answer this question at its core.
At the heart of this question is the desire to understand whether an organization is managing its human capital effectively. Answering this underlying question requires:
- ascertaining the performance requirements of the organization’s HCM strategy,
- examining a balanced set of HCM performance metrics, and
- calibrating with HCM outcome metrics.
Start by asking: What does the HCM strategy dictate about how high or low different HCM performance metrics should be? If the HCM strategy calls for retaining employees, higher HCM costs may be necessary to engage and retain employees.
Think about the HCM strategy in both the short- and long-term as decisions about what is positive performance today could jeopardize future strategic objectives. For example, low recruiting cycle times may be attractive today but could result in poor hires who become underperforming employees in future years.
Next, assemble and review a balanced set of HCM performance metrics. Looking at HCM cost, productivity, efficiency, and cycle time metrics together ensures that positive directional gains in one metric category are not achieved at the expense of another. It checks, for example, that HCM cost reductions are not driving up HCM cycle times.
Finally, add and review HCM outcome metrics. Following are examples of HCM outcome metrics. The actual HCM outcome metrics chosen should align with the organization’s HCM strategy.
- Employee engagement score
- Employee retention rate
- Internal promotion rate
- HR customer satisfaction score
Less favorable HR outcome metrics (e.g., high voluntary turnover or declining employee engagement rates) signal that low HCM costs or high HCM efficiency are potentially being realized at the expense of strategic HCM goals. For example, lower HCM costs are not preferable if they devalue the employee value proposition to the extent that an organization cannot attract the talent it needs.
In the end, there isn’t a one-size-fits-all answer to the question: Is higher or lower better for HCM performance metrics? HCM performance metrics need to be interpreted together and in conjunction with HCM outcome metrics that are tied to the most important objectives that an organization is seeking to achieve through human capital.
Learn More About Interpreting HCM Performance Metrics
Resources provided by APQC expert, Elissa Tucker, Principal Research Lead, Human Capital Management. You can follow Elissa on Twitter @Elissa.Tucker.