by AJ Whalen, Senior Research Analyst, SAPinsider

The decision to purchase and implement new human capital management (HCM) technology can take a significant amount of time and require buy-in from the highest levels of your organization. Justifying these projects requires the ability to carefully measure results and to ensure that the results align with the strategic goals of human resources (HR). Identifying the right measures for your organization from a myriad of efficiency, productivity, compliance, project performance, and financial performance metrics requires research, strategic alignment, and collaboration with stakeholders. This article will examine which metrics are most meaningful for human capital management and what leaders are measuring.

In a recent interview with SAPinsider, an HR director in the high-tech industry summed up his keys to properly assessing the outcome of HCM technology investments this way: “Understand your organization’s key performance indicators (KPIs) and get executive buy-in.” However, even customers that have a grasp on the metrics that are important to their organization and receive proper buy-in may have difficulty when it comes to quantifying the business value of their results. While some metrics like project deployment time are easy to measure, others are not. After all, how do you quantify the financial value of improved employee engagement or increased access to learning content?

The idea of measuring business results in order to evaluate the effectiveness of a significant project or investment like an HCM technology implementation is not a new concept. Cost and efficiency mandates often drive technology investments as companies search for new ways to accomplish tasks with fewer resources and greater results. In a recent SAPinsider survey on cloud HR adoption trends that included 278 individuals across 129 SAP ERP HCM and SAP SuccessFactors customers, 41% of all respondents indicated that the pressure to lower costs and increase the efficiency of HR processes is driving their organization’s HCM investments. For many companies, the ability to justify the cost and effort of the HCM technology they implement to meet these mandates can be hindered by their inability to measure the potential business value the technology will deliver to the organization.

Which Metrics Are the Most Meaningful For HCM?

The most meaningful metrics are those that measure the direct effect HR has on an organization’s bottom line. While there are many ways to evaluate the effectiveness of HCM technology, choosing the right metrics requires careful thought and close alignment with both HR and corporate strategies. The three most commonly used measures of HR business process success reported by SAPinsider survey respondents are:

• Employee satisfaction/engagement (48%): Satisfaction is a key factor in employee retention because an engaged workforce is a usually a more productive workforce, and satisfied employees are more likely to remain with the company. Because this metric typically tracks employee sentiment through surveys rather than quantitative results like cost or time, it is often considered to be a “soft” measurement. As the integration between Qualtrics and SAP SuccessFactors solutions evolves, the opportunities to leverage HCM technology to track satisfaction and engagement could (and should) increase tremendously.

• Employee turnover (40%): This metric tracks the number or percentage of workers who leave the company in a given time frame. Turnover statistics are more meaningful when they are cross-referenced with other factors, including organizational and job data from SAP SuccessFactors Employee Central and even employee performance ratings from SAP SuccessFactors Performance & Goals. For example, combining employee performance data with turnover statistics, the data can be used to analyze trends in attrition between high and low performers.

• Time to hire (36%): This measure is defined as the amount of time it takes to fill a position, from job posting to candidate acceptance. If measured properly, data from SAP SuccessFactors Recruiting can be used to track both the time and cost efficiency of a company’s recruiting efforts, a critical metric for most organizations.

What Leaders Are Measuring

As we dug deeper into the survey results to learn how different respondents measure the results of HCM business processes, we found some key differences between survey participant groups. The respondents who indicated they believe they are achieving HCM technology results that are slightly better or significantly better than their peers (we will call them “leaders”) are far more focused on measurements such as employee satisfaction (56% reported measuring this vs. 48% of peers) and turnover costs (26% vs. 13% of peers). Leaders are more likely to invest in new technology that helps them to proactively measure key metrics like employee engagement in support of their HR strategic goals. In contrast, HCM technology investments reported by the non-leader peer groups are more likely to be driven by more reactive forces such as mandatory cost cutting.

Leaders also tend to use and measure a wider variety of KPIs than the rest of those surveyed. Leaders invest more heavily in efforts to measure hidden employment costs such as the absentee rates (22%) than their peers (13%). These measurements employed by the leaders enhance their ability to defend the return on investment for their HCM technology projects.

What Does This Mean for SAPinsiders?

To properly measure the outcomes of HCM technology, SAPinsiders should:

• Embrace the measurement of experience data. The leaders in our survey differentiated themselves by their willingness and ability to track sentiment by focusing more heavily on employee satisfaction and to analyze combinations of data from different sources. Combining experience data with traditional operational metrics such as employee retention rates can provide deeper analysis and greater insights into trends that might not be visible from operational data alone.
• Understand the capabilities of the technology you plan to implement. You can’t measure what you can’t track. For example, if your KPIs require you to measure time to hire and cost to hire, will your SAP SuccessFactors Recruiting application provide the necessary data points to track these metrics? Ensuring you have the right data will help you define the proper measurements that will demonstrate the added value of your HR business processes.
• Align your measurements with published goals. By monitoring the link between overall organizational goals and your HCM investments, you can help your key stakeholders develop a better understanding of the potential benefits of your technology initiatives.
• Make the measurement of outcomes a regular habit, not a one-time event. Measuring the results of your HCM applications should not be something you only do at the end of a project. Your project’s sponsors will demand long-term accountability and establishing proper planning, data collection, and measurement efforts will help demonstrate that.

Following this guidance should help SAP customers properly plan for and measure the results of their HCM initiatives. For additional insights and lessons learned, download the SAPinsider benchmark report “State of the Market: How the Cloud is Transforming HR”.