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 KPIs that I recommend for a Human Resource department. This is not another “50+ KPIs for HR” list. I’m giving you not just the KPIs, but detailed instruction about how to use specific KPIs and why I think these are the best choice for your business. I invite you to read the article, and then try to implement these HR KPIs in your business and share your experience in the comments.

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 let me explain that all KPIs can be divided into lagging and leading.

Two type of KPIs tell different stories about your HR

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.

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. I’d like to summarize some best practices for HR KPIs here.

HR KPIs Best Practice

1. 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.

2. 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.

3. 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?

Why lists of 50+ HR KPIs don’t work

I was already writing about KPI overload problem and KPIs/BSC template. If you will search for HR KPIs in Google then you will find a lot of “50+ KPIs for HR” lists. There is one problem with them – they don’t work! I’m not talking about a case when a young HR manager needs to show a list of some KPIs in Excel to his your boss. I’m talking about the impact of the usage of these KPIs on the business.

  • Most HR KPIs in the form you see them in Internet won’t help you execute your HR strategy better!

Still, you can use these KPIs for some brainstorming. My recommendation: if you take a KPI, pass it through the questions from the “HR KPI Best Practice” section to find and adapt ones that your business really needs today. An alternative approach is to start from scratch. Here is an article that will help you to come up with better KPIs.

Recommended HR KPIs

Here is a list of recommended KPIs for HR. Your choice of the specific KPI and the specific way to use it depends on your current business objectives. Each KPI in the list is a result of a detailed analysis. Before you start using a specific KPI, I recommend for you to follow the relevant link. Also, check “HR KPIs in the Balanced Scorecard” section with my recommendation of an automation software.

HR Hire

I know 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. Learn more about this KPI in the article.
  • Yield Ratio, %. (Number of leads from recruitment method / Number of candidates invited to interview) x 100%. Read more.

Training and development

In my previous article, I have explained why some KPIs are pointless:

  • Average training cost per full time employee, $;
  • Average number of hours per full time employee, hours;
  • % of HR budget spent on training;
  • % of employees trained;
  • Employee training satisfaction index.

Please start with the article first, then the list of KPIs below will make sense for you:

  • Time reduction achieved, %. If the goal of the training was to do something more effectively or simply faster, then you might track it by a KPI.
  • Cost reduction achieved, %.  If the goal of the training was to do something in a more effective way then you might track direct cost reduction, which is a result of the training.
  • Return problems rate, %. The KPI is applicable where the problem is clearly defined and linked to the final result. By the way, a repeated problem is one of the negative drivers of customer loyalty.  If you are able to decrease this number, you’ll make your customers happier.
  • Performance improvement, %. The KPI must be linked to a specific performance index. For sales people it might be the number of sales generated, for a copywriter it might be readers to leads conversion.
  • Improved qualification/skills results, %. The KPI is applicable only to this training where actual qualification/skills are measured, not just the facts studied in the training.

Loyalty and Reward

  • High performers’ turnover, %. Turnover rate for the high performance employee. Read more.
  • Employee Engagement Index, %. The measurement of the employee engagement index was described in this article. There is a  separate Balanced Scorecard available for an engagement.
  • Reward KPIs. I have shared best practices about reward KPIs in Compensation and reward KPI best practices. The general recommendation is to choose a compensation program according to current business objectives of the company and to avoid using reward KPIs linked to the performance of individuals as they are not helping to solve the motivational problem.

Finance

Most Finance KPIs for HR are lagging KPIs (see the explanation in “Lagging and Leading KPIs” section), 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. Learn more about calculating Talent’s ROI.

Productivity

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. Read more.

HR KPIs in the Balanced Scorecard

When you have your HR KPIs,  what are you going to do with them?

Why dashboards are dangerous

One thing that I find especially dangerous is using classical dashboards. They are nice-looking; and you can play a lot with a data, but let’s have a look at some limitations:

  • You don’t have access to a cause-and-effect connection between your goals;
  • You don’t see the alignment between KPI and the specific business objective;
  • You don’t see the action plan.

KPIs of the Balanced Scorecard on the Dashboard

I was writing about dashboards before in detail. My conclusion was that the best dashboard you can have is a strategy map with KPIs on it. On the strategy map you can see the cause-and-effect connection between objectives; and you can see the big picture of what is going on. In the form of KPIs you have a visual indication of your success. Check the above-mentioned article for the details.

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:

1. You can build a cause-and-effect connection between business objectives;

2. You can align KPIs with specific business objectives;

3. You can add an action plan to each KPI.

I was writing about using a Balanced Scorecard Template, and you can follow the same steps applying them to the HR department.

Balanced Scorecard Software

As an automation tool I suggest using BSC Designer.

You already have HR KPIs described in this article there. You have HR KPIs in the BSC Designer Online and you can save these KPIs to your account right now (learn how).

Or you can download a .BSC project file with HR KPIs and then use it with BSC Designer PRO. BSC Designer uses open format for its Balanced Scorecard projects, so you can switch between editions according to your needs.

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.

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.

Aleksey Savkin is a business performance expert at BSC Designer. His areas of expertise are Balanced Scorecard, KPIs, Business Performance Management. Aleksey is the author of a number of articles and books on Balanced Scorecard.

Posted in HR

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