Cause and Effect

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Sure, your HR group keeps track of turnover and cost-per-hire rates. But can it demonstrate how the department affects the organization's financial results?

It's a cliché in human resources circles to say that "our people are our most important asset." That statement is seldom accompanied by supporting evidence—yet it is also rarely challenged. How do you know how important "your people" are? Do you measure their contributions to your business's strategic goals, including the bottom line? Chances are, you don't.

"Historically, we haven't made a good case for why what we do in HR has a causal relationship with anything that is relevant to the business as a whole," says John Gibbons, a senior research adviser at The Conference Board, a New York City-based nonprofit business think tank. "The things we do measure tend to be efficiencies that demonstrate we are efficiently running the HR function. But the measurements we report to the organization are not the measures that demonstrate we are having some sort of impact on the important results of the business."

That has to change, Gibbons says, because the role of HR will become more important as competition for qualified workers intensifies and human capital becomes the single most important means of competitiveness. The problem is that while about 75% of businesses The Conference Board reviewed recently do measure certain metrics in their HR departments, only 25% of those businesses have someone in HR who can measure and track HR metrics that are aligned with business strategies, and only 12% use those HR measures to push the company's strategies.

Gibbons, whose HR background include stints at Harvard Pilgrim Health Care and The Gap clothing stores, is a leading advocate for a movement called "evidence-based human resources." Rather than focusing on traditional HR measurements such as cost per hire, training hours, and turnover rates, Gibbons says evidence-based HR concentrates on a business's key operational and financial measures, and then identifies the human resources strategies that push those outcomes. For example, Capital One uses evidence-based HR to identify management practices that lead to higher retention of customers, higher numbers of accounts per customer, and increased value per account for each bank branch. "They're stepping back and saying, ‘It doesn't matter that the number of performance evaluations are higher. What really matters is whether the branch running well or not,'" Gibbons says.

So how can a healthcare organization employ evidence-based HR principles? Gibbons says HR must identify the performance indicators that senior management and the board use to determine the health of the hospital or system. "Start with those measures of organizational success, let that be your North Star, and work your way backward to identify the operational and human levers that drive those outcomes," he says. "Is it employee engagement? Is it the fact that they have good training and preparation for the job? Is it that we select certain types of people to perform the job?"

Once you've isolated the components of the employee experience, you have to determine if one thing is causing the other. "First, is there a correlation? Second, is there a lead-lag relationship—did the first thing happen first before the second thing?" Gibbons says. "Otherwise they are simultaneous and you can't make a compelling argument that one thing caused the other. Third, were there other things in the organization that may have had an impact on either of the things you are looking at?"

Gibbons believes the healthcare industry might be well-suited for EBHR because some hospitals have already adopted principles of evidence-based medicine and linked that strategy with performance outcomes. "A lot of healthcare providers hear the term evidence-based and they think, ‘Oh great! It's just another justification for pulling back on resources,'" Gibbons says. "Actually, what evidence-based medicine has done is take the scientific approach to determining what works and what doesn't, and that is what we are beginning to wrestle with in the HR arena."

John Commins

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