What metrics should I use? How do I know what is happening and how should I track this? With the change in the economy so too there is change in what people need to keep track of. However, this change in context does not mean that the metrics used to monitor the effectiveness of your HR practices should change. What will change is the way you interpret them and the actions you may take as a result.
To answer the question ‘what should we measure’ the first recommendation is Revenue per FTE. This is a measure of the total income from operations to the organization divided by the number of Full Time Equivalent staff in the organization (FTE). FTE is a standard measure of work contribution and therefore gives a more accurate picture than headcount which can be made up of full- and part- time contribution.
When it comes to counting income from operations this should include income from sales of goods or services but not income from interest or other investment activities which are not part of the organizations core business. The exception to this is financial organizations whose core operation is investment. This measure is also relevant to Not for Profit and public sector organizations who should calculate their total income from donations, sponsorships, government funding, and any revenue generating activities etc. For pure public sector organizations the income should be taken as the operating budget provided by the various governmental bodies.
Revenue per FTE should be tracked at all times because it creates a valuable picture of how the staffing levels are changing relative to the money coming in to the organization. This enables you to track when your revenues are falling below the level at which your staff group is sustainable. This is important information not because it means you need to cut staff — all the research suggests that cutting staff to save costs does not have the required outcome. This is important information because it tells you the need to review your strategy and market position to determine if the drop in revenue is cyclical and due to market forces or if your organization needs to review its strategy and change its position relative to the market. This second activity may involve an overall reduction in staff or it may involve redeployment. Again, the research into staff reductions suggest they have only been effective when done in conjunction with an overall strategic shift in the organization. Revenue per FTE can give you an early indication of the need to review your strategic position or prepare to weather a short-term market dip.
More importantly, Revenue per FTE can support you in identifying when the organization is starting to grow again and when hiring is required. Many organizations are slow to hire after a crisis and this can lead to under-performing on the opportunities that are being created. When your Revenue per FTE starts to see a sustained and significant increase then it is likely time to start adding people. Doing this early will avoid the burn out and stress which can be associated with growth. It may also give you first mover advantage in a job market that is characterized by a shortage of skilled talent and an ever-growing retirement bubble.
The metrics which complement Revenue per FTE are Voluntary Turnover and Absenteeism. We are all working in challenging times and many organizations have shed people and this action has been shown to increase your voluntary turnover – especially if you have been creating a culture of high involvement and engagement for the last few years. Therefore it is important to track your Voluntary Turnover and especially important to do this in a segmented way so that you can identify the level and experience that is being lost. The work done by Zatzick and Iverson showed that continued investment in creating a high involvement workplace was the best approach to reducing Voluntary Turnover and returning staff productivity to pre-reduction levels.
Absenteeism is also a crucial measure as organizations with fewer people tend to put more pressure on the existing workgroup, which is working under increased uncertainty and may have had to take on tasks and responsibilities for which they have not been trained. Absenteeism will determine whether or not your organizations have been successful in communicating and gaining credibility for their future direction for the business. It also lets you track and cost the outcome of the staff reduction. Increased absenteeism is an outcome of staff reductions and is one of the reasons that the cost savings fail to appear. This information is useful to justify increased investments in training and leadership support targeted at getting the organizations focused on its new direction. And to be used in future situations to help in properly costing the decision of whether or not to reduce staff.
Informed by these three metrics you are in a position to track the overall productivity of your staff group and monitor the repercussions of any changes that have taken place. You are also in a position to support investment in HR programs to rebuild a trust based working relationship with staff and leadership and act early when business takes a turn for the better.