This article is an excerpt from Jack Altman’s book, People Strategy: How to Invest in People and Make Culture Your Competitive Advantage.
For most teams, data is a vital tool to drive business decisions. Sales teams, engineering teams, marketing teams — all of them use data to set goals, measure success, and inform strategy. But historically, decisions about hiring and firing, promotions, performance management plans, and a host of other issues that face HR professionals have too often relied on judgment calls rather than hard numbers.
To some extent, this is unavoidable. When your work centers around human beings and behavior, there will always be subjectivity involved. But without quantitative measures, decision-making processes can feel shaky and lack transparency. And that can make it difficult for HR departments to position themselves as strategic to company leaders.
A significant aspect of any People strategy requires observable and observed data to drive your decisions. Judgment is undoubtedly important, but we should never rely only on our gut. As a CEO, I want all my department leads to be able to present proof for their strategic plans and results. HR is no exception. Through data and analytics, People strategy drives business outcomes — sometimes in unexpected ways.
Data can act as a “smoke signal” to show you where the fire is in your organization. It may not give you the exact terrain or tell you if the fires are spreading, but data provides you small-to-large indicators that then allow your HR team or company to follow up or build out new or better programs and focus. You can see surprising things in the data which lead you to go further and investigate through human interaction.
Lattice began as a performance management company. But in 2018, we had an “aha” moment, realizing that combining performance management with employee engagement surveys could yield better insights that, at the time, were missing from HR. With these tools, we had the capacity not only to show if the company culture was working for employees more broadly, but we could also dig down and show how engaged top performers are compared with bottom performers. Are high performers in danger of leaving? Are some teams feeling less connected to the organizational culture than others? And is that impacting their productivity?
This need to make HR more data-driven has been the biggest reason for the rise of HR technology like Lattice. For years, HR had to run critical data-gathering processes in text documents or spreadsheets. But HR technology has changed the way we can collect and analyze the data that drives many essential initiatives — from employee engagement to travel and expense management to rewards and recognition. When your HR tech stack is optimized to work together or centralizes a number of key data points under one tool, you can easily collect and even cross-reference data points to draw valuable insights to empower your team, even if you’re not a data wonk.
HR Metrics 101
Data is the key to proving that HR is a critical strategic function rather than a cost center. It shows what HR is capable of providing for an organization, just as marketing data demonstrates the value of the team and its strategy. It’s how HR can translate People strategy into the executive language of numbers. But what data should you be analyzing?
It depends. Because every company is different, HR teams are likely to have different needs and goals. Establishing what your goals are is essential to understanding your analytics needs. There are dozens of metrics that you could measure, but they all fall into a handful of categories. HR tracks all kinds of stats, but for the purposes of our initial discussion, we’ll stick with the following:
- Recruitment: Measuring the effectiveness of your hiring funnel.
Examples: Time to hire and acceptance rate.
- Performance: Measuring how well employees and managers are performing against goals and expectations as well as how much employees are contributing to the business. Examples: Goal tracking, performance scores, and revenue per employee.
- Engagement: Measuring the health of your culture based on how many employees are staying and leaving, how many would recommend your company as a great place to work, and more.
Examples: eNPS, results from employee engagement surveys, and turnover.
- Employee Development: Measuring the effectiveness and amount of learning and development happening at your company, including the number of employees who have received training, career pathing participation, and other training efforts.
Examples: Training completion rate, career path ratio, and growth planning participation rate.
- Diversity, Equity, and Inclusion: For the purposes of tracking this very important category, HR leaders can encourage employees to voluntarily share their gender, preferred pronouns, and ethnicity information. HR can then generate transparent reporting on how diverse their company’s workforce is in order to set goals. Also, HR can leverage compensation info in order to present a more transparent equitable pay report.
Organizational vs. People Team Metrics
As you get started mapping out your needs, remember this: most “people” metrics are not the sole responsibility of People teams. So, when setting expectations around the data piece of your People strategy, keep in mind that there are really two types of metrics: organizational health metrics and People team metrics.
Organizational health metrics track how well employees are managed and are able to work within the company. HR may be on the hook to track and measure these metrics for the company, but these aren’t usually numbers that HR can directly control or on which HR can move the needle without the participation of others in the organization. For example, employee engagement scores are measured and tracked as an HR responsibility, and HR programs can help improve engagement, but engagement is a company-wide effort – from the CEO to team leads to managers. HR programs alone won’t make a real difference in lifting engagement overall.
But then there are People Team metrics, which are numbers that you and your team can directly control and should absolutely own. And even if some of those metrics do rely on other teams to help improve, they are metrics HR teams will want to drive outright to success.
Example HR Metrics
If you’re just getting started and deciding which metrics to track, it may be easy to get overwhelmed by the options. We’ve put together a good starter list of metrics to help you get your data needs rolling. For most of these, you’ll want to see how these metrics progress over time, reviewing them on a monthly or annual basis, depending on the metric.
Average Time to Fill
Measure how fast your recruiting team and the roles’ hiring managers are filling positions – from when the job is listed until the moment a candidate is hired.
Time to Fill = Sum of all Roles’ Time to Fill ÷ Total Number of Openings Filled
Cost Per Hire
If your company is high growth, you’ll want to be efficient with how much you’re spending on recruiting. This metric will help you stay on budget, and a low cost per hire result is bragworthy.
Cost Per Hire = Hiring Costs ÷ Total Hires in a Given Period
Employee Net Promoter Score (eNPS)
If you can’t run a full-scale employee engagement survey, eNPS is an effective overall measure of engagement. It asks the simple question: On a scale of 0 to 10, how likely are you to recommend your company as a place to work?
Employees with 9+ ratings are generally considered “promoters,” while those with ratings of 0–6 and 7–8 are labeled as detractors and passive, respectively. An eNPS can be as high as +100 (the absolute best) or –100 (the absolute worst). Intuitively, anything below zero is cause for concern.
Employee Net Promoter Score = % promoters – % detractors
Measures the rate at which employees – employees that you then need to replace with new hires – leave your company. These departures can be voluntary or involuntary. Turnover usually catches teams off guard, especially when employees leave on their own. It also requires hiring managers and recruiting teams to invest time and money in seeking a replacement.
Turnover Rate = (Total Departures ÷ Average Headcount) x 100
Voluntary Turnover Rate
Go one step further in your retention analysis and look at only those who are leaving on their own, instead of you asking them to depart. This shows how many employees are unhappy enough that they chose to leave.
Voluntary Turnover Rate = Voluntary Departures ÷ Average Headcount) x 100
Going through a performance review cycle will give you great insights into who your top performers are and who needs improvement and why. Go one step further to conduct 360-degree reviews to help managers get feedback on their leadership and development styles. Cross data about your top performers against other key metrics, such as employee satisfaction or turnover, to gain more insights.
Revenue Per Employee
Measure how over or understaffed your organization might be by looking at the growth of your revenue over time as you grow your teams. It’s also an indicator of the quality of hired employees. This metric is particularly interesting to benchmark against others in your industry to see how comparatively efficient you are.
Revenue Per Employee = Annual Revenue ÷ Full-Time Employee Headcount
Career Path Ratio
As your company grows, this metric measures your company’s share of promotions versus lateral moves. Knowing your company’s career path ratio can inform long-term workforce planning and help you identify employee development roadblocks.
Career Path Ratio = Total Promotions ÷ (Total Transfers + Total Promotions)
Of course, there are other metrics that you can measure, including performance and employee growth. But again, the specific data you pull together will depend on your needs and goals as a company.
One thing to keep in mind when trying to decide what to measure: Similar to engagement survey results, you should limit what you measure to what you can act on. If a huge priority for your next two quarters is high growth and hiring, be prepared to track key recruiting metrics like time to hire. If your company is having a retention problem, focus on engagement metrics to measure where folks are unhappy. Then you’ll be able to quantify HR strategies both to show value and drive business outcomes.
Companies put a lot of strategic planning into creating clear go-to-market and product strategies each year. Why aren’t we doing the same for defining our People strategy? It’s critical that executives and HR leaders not only plan how our companies will engage with employees but also how they will achieve their goals.
Over the years working with thousands of companies, Lattice has learned what it means to be a people-centric company. In People Strategy, we want to give executives, HR leaders, and even managers a framework for transforming their company into one that’s people-centric, building and maintaining a healthy culture of high performance.
If you want to learn more about how Lattice can help enable all these important People Strategy practices at your company, book a Lattice demo to see our products and platform in action.