The HR Value Chain model helps to link HR to business outcomes. This model will enable HR professionals to convince the management about their contributions as a department to the overall growth of business.
In order to prove the analytics value using the HR Value Chain, a clear definition of input and output variables are required. We can consider the input variable as an Independent variable and the output variable as the dependent variable and a mediator variable in between both.
HR Value Chain shows that you have a number of HR activities & processes (input variable) which leads to HR outcomes (mediator variable) which in turn leads to Organizational objectives/ outcomes (output variable).
- HR activities & processes include manpower forecasts, Recruitment, Compensation & benefits, Employee Relations, Training & development and Organizational development. Recruitment has various metrics like cost per hire, time to hire, sourcing channel, number of candidates per vacancy, number of vacancies etc to measure how well we are doing in HR. They help to measure the efficiency of HR activities but does not indicate the results in terms of the quality, HR finances or performance.
- This will thus lead to HR outcomes to measure the effectiveness of HR. This includes employee engagement, retention, absenteeism, performance, competency etc. Are we able to engage our people? Are we able to retain our talents? Do we have low absenteeism? HR outcomes are on the capabilities and cost side.
- However, HR outcomes are not enough, in the end we want to make outcome on the organization or impact the organization .These may include profit, turnover, productivity, quality, customer satisfaction, moral values, fairness, legitimacy.
For instance, we increase the training budget like number of days in training, training costs which is an HR activity and it fits in the efficiency box, does that lead to better employee performance? That’s an HR outcome which measures the effectiveness of the HR program. Does this increase in performance lead to increase in sale? If you can prove that connectivity then it has a strong organizational outcome or it has achieved organizational objectives.
Additionally, if we compensate people fairly which is an HR process; efficiency metric, does that lead to higher employee retention, which is an HR outcome. Which in turn can lead to lower cost which is an organizational objective.
Research demonstrates that positive relationships have to be established between HRM practices, HRM outcomes, and organizational outcomes which eventually will lead to the recognition of the HR value.
So why is HR still struggling to show its added value?
Partially, it’s because every organization is unique. The HR outcomes in one organization may have positive impact on their organizational objectives however that may not be the case in another organization. The HR impact and effectiveness varies across industries and their business objectives differ from one to another.
The second reason is that it’s hard to show added value in a very practical way as the value is added through various HR practices. At this juncture, analytics become crucial.
HR serves the business and should follow the organizational objectives. All HR outcomes and activities that HR focuses on should lead to these business outcomes. Analytics is a great tool to measure the effectiveness of the HR interventions aimed at reaching these business outcomes.
The tangible analytics evidence connects what we do in HR to tangible financial business outcomes, proving once again the added value of HR. This framework of evidences prove the Analytics value using the HR Value chain.
Courtesy: AIHR -Academy to innovate HR
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