Canadian HR Reporter

CANADIAN HR REPORTER July 10, 2017 6 NEWS Productivity measurement lacking, fi nds survey Greater alignment needed between HR, fi nance BY SARAH DOBSON WHILE almost three-quarters (72 per cent) of senior fi nancial executives say measuring pro- ductivity is a key performance indicator, only 10 per cent feel the measurement tools they have in place fully meet their organiza- tion's needs (though 45 per cent said the tools "somewhat meet" their needs). And more than one-quarter of the executives are not using productivity data to improve performance at all, according to a survey and roundtable by the Canadian Financial Executives Research Foundation (CFERF), the research arm of FEI (Financial Executives International) Canada. "Productivity is tricky in that, at the end of the day, what you're trying to do is increase output per employee or worker, but how do you measure that? at will vary by industry, by company, and the more complex the com- pany, the harder it is to measure. But just because it's hard doesn't mean you shouldn't be doing it," said Laura Pacheco, vice-pres- ident of research at FEI Canada in Toronto. From a logistical and budget standpoint, it doesn't make sense to do all this work if you're not go- ing to use the results, according to Lisa Irish, director of HR Metrics Service in Niagara, Ont. "It can be time-consuming, it can use a lot of resources, espe- cially in HR, so you need to have a plan about how you're going to use the data, how it's going to be presented, and then how you're comparing that data to goals and targets that you've set. And if you're not reaching those goals and targets, then (it's about) de- ciding what action's going to be taken, whether it's new initiatives or whatever it might be." And fi nance is keen to have the data: 36 per cent of respondents said they measure key perfor- mance indicators (KPIs) and will continue to do so; 23 per cent said they are in the process of devel- oping KPIs; 27 per cent they hope to measure productivity in the future; and only 14 per cent said they have no such plans. Productivity, engagement When it comes to defi ning em- ployee or workforce productivity, most respondents look through the lens of fi nancial numbers, re- lying on sales and the cost of gen- erating sales, found CFERF. The top three financial met- rics used are: sales generated per full-time employee (46 per cent), percentage of revenue allocated to compensation (23 per cent), operating expenses per full-time employee and industry-specifi c metrics, such as units produced per employee for manufacturing companies (22 per cent). When it came to workforce turnover metrics, voluntary (57 per cent) and involuntary turnover (46 per cent) are most popular. ere is no one magic bullet for productivity measurement, but some are fairly common given that cost structures are similar among employers, said Russ Wong, To- ronto-based CFO of ADP, which sponsored the research. "If the workforce is a very large part of an organization, then those organizations tend to focus on workforce productivity metrics such as revenue per fte (full-time equivalent), or margin per fte, or whatever their particular cost drivers, (such as) client per fte. So you can group them in clusters… and as an organization matures in its measuring of productivity, I think that's where some of the challenges lie, getting away from the fi nancial metrics and integrat- ing them into the true HR metrics." Looking at turnover rates within the fi rst 90 days, promotion rates or off er acceptance rates, for ex- ample, can help form a picture of employee engagement, said Irish. "Just looking at bottom-line profi t is probably not enough de- tail anymore for a CFO to be able to really have an understanding of what's happening and why results are what they are." When asked what would most foster productivity in the next three years, 38 per cent of respon- dents cited upgrading employee training and skills, 21 per cent cited increased employee engage- ment, and 16 per cent cited both improved workfl ow design and expanding or recalibrating the workforce. Organizations are very aware of the need for productivity and they want to move into diff erent metrics in terms of looking at employee training or employee engagement, said Wong. "People are good at managing those traditional fi nancial met- rics, and where we're heading is moving into a little bit of what I call non-traditional productivity metrics, and linking that back to the bottom line." Sixty-one per cent of the CFOs said employee engagement is a meaningful metric, yet 29 per cent said it's the one area of HR report- ing they would hope to improve, followed by competitive compari- sons and succession planning for key roles (both 22 per cent), and labour costs (16 per cent). Finance and HR e fi rst step is for fi nance and HR to work together to defi ne what successful engagement looks like for their organization — so view- ing the end goal, said Irish. "It might look diff erent for ev- eryone — maybe it's a healthy bottom line with low absentee- ism, full vacation usage and low fi rst-year turnover, as an example — but whatever it looks like for their organization, they'll need to not only measure internally — so look at their performance over time — but also benchmark ex- ternally to see what others in the industry are doing." Finance and HR should play equal roles when it comes to any kind of measurement of HR, she said. "(It's about) finance bringing their history of data and fi nancial experience, and HR bringing their history of performance and incen- tive knowledge together, and work- ing together to be able to make sure that, fi rst of all, they're talking the same language when it comes to data or the source of the data." It's about creating a partner- ship, said Pacheco. "I don't think fi nance should be dictating, nor should HR. It really is a relationship that needs to be forged, with operations as well, al- ways ultimately looking at what is the goal of the organization, what is the vision, and how do our met- rics align to that goal?" is link between fi nance and HR is gaining in importance, said Wong. "It's not just about the re- porting, it's really about the strate- gic partnership value-add." Finance may be reporting all the metrics, he said, but is there an owner responsible for taking ac- tion who may be in the HR space? "We know we have a productiv- ity challenge here in Canada, it's (important) that organizations are aware of that, and I think that we are starting to recognize that HR and fi nance together can help move this in the right direction and make a positive contribu- tion to make organizations more productive." Labour law research just got faster, easier and more comprehensive. 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You can be a really bad organization and improve 10 per cent, but if your competition is twice as profi table as you, you also should be doubling your profi t, said Russ Wong, Toronto-based CFO of ADP. "It's important to have that outside-in view, so you know where you are internally versus externally because competition every year gets tougher and tougher." In some instances, it's becoming more diffi cult as organizations diversify and start moving into other areas so, for example, sales per employee is going to mean different things — but at least there's something to compare to, said Laura Pacheco, vice-president of research at FEI Canada in Toronto. "Benchmark data tells you historically what's going on, but you can't drive staring at the rear-view mirror… you're moving forward and predictive analytics is that future-oriented state: 'Where am I going?' or 'Where am I likely to go?' and then you can adjust your course accordingly." And yet only four per cent of respondents use predictive employee analytics leveraging HR data, found CFERF. Many organizations, particularly smaller ones, aren't ready for this kind of measurement, said Irish. "It also takes time to build up a historical data set in order to start using those results for predictive analytics. So getting started just with some basics is really the key — start with some simple turnover numbers and build from there." This is ultimately where organizations want to go, said Wong. "You can get out in front of it and address it before it happens, so it's the ultimate goal to be able to predict the future and address issues before they happen," he said. "But what organizations are going to need are not only tools to do that but obviously the talent and capabilities to be able to address that." "Just looking at bottom-line profi t is probably not enough anymore for a CFO."

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