Precious Arinze is a content marketer at MediaBerry who writes about marketing, technology, automation, and employee development for SaaS and B2B companies. When they are not strategizing and executing ideas on how to grow a brand using content as a vehicle for promotion, you'll find them laboring over poems and essays.
How to Measure HR Effectiveness and Boost Organizational Efficiency
How often do we turn our lenses inward to measure HR's effectiveness?
In the world of metrics, KPIs, and data-driven decisions, HR can't just 'feel' they're doing a good job. They need proof. Concrete. Quantifiable. Undeniable.
Why? Because the role of HR is more than just hiring or conducting employee reviews. It's shaping the very core of an organization, sculpting its culture, and bolstering its efficiency.
But how do you demonstrate that the HR department's activities and initiatives are having a positive transformative effect on the business operations?
This guide has you covered. It will:
- Explain how to measure HR effectiveness.
- List the right metrics to focus on.
- Analyze the approaches you can use to increase the efficiency and ROI of HR functions.
🕵️♀️ What is HR effectiveness?
HR effectiveness refers to the impact that HR's activities and actions have on a company's success.
This metric tells you whether the policies and strategies your HR team is implementing are:
- Driving efficiency.
- Cultivating a favorable work culture.
- Helping to develop and retain talent.
- Complying with regulatory standards
- Pushing you closer to your organizational goals.
What are the factors influencing HR effectiveness?
You can look at many elements to understand how successful or unsuccessful your people operations have been. While these components can vary from company to company, they are suitable for quickly assessing your HR effectiveness.
Here are some critical factors that can shape your HR performance for better or worse:
- Operational efficiency: The amount of time your HR spends accomplishing administrative functions such as updating records or setting up workflows instead of strategic activities can affect effectiveness. Focusing on structure and technology will positively influence more than scattered systems and manual processes.
- Strategic goal alignment: If your HR practices and operations are designed in line with your organization's broader objectives, they will improve your HR outcomes.
- Regulatory compliance: One of the duties of HR is to ensure that the company complies with all relevant labor and laws. Failure to uphold these regulations signals ineffectiveness and can lead to diminished employee morale and serious legal consequences.
- Talent management: How you go about recruiting talent, onboarding hires, engaging employees, and meeting their learning and development needs will determine how productive and enabling your work environment will be.
- Performance evaluations: You need to analyze and measure your HR efforts to be sure that your actions have a meaningful impact. The frequency with which you audit your activities, monitor key HR metrics, and conduct HR effectiveness surveys can boost or hinder your ability to create an agile, happy, and highly engaged workforce.
📏 What metrics can be used to measure HR effectiveness?
The best way to determine whether your HR department is living up to expectations, effectively fulfilling its responsibilities, and adding value to the organization is to track progress over time.
There are dozens of metrics for evaluating HR effectiveness and identifying growth opportunities. The right ones for your organization will depend on your team's specific goals.
With that in mind, here are some key HR success metrics you can use to get the ball rolling:
Cost of HR per employee
This is derived by dividing the total amount of money your business spends on Human Resources by the total number of employees. This metric allows you to measure your HR activities' cost-effectiveness and uncover ways to distribute resources more efficiently.
Employee retention rate refers to the number of workers who maintained employment in your organization over a specific period—usually a year. To get your metric, take that number, divide it by the number of employees you had at the start of that period, and multiply by 100.
High retention typically flows from effective HR departments and practices.
Employee turnover rate
This metric shows the number of employees you lost over a specific period.
A high voluntary turnover rate may point to organizational issues, such as low compensation, lack of growth opportunities, poor HR practices, or a toxic work environment.
Other metrics like internal mobility rate, manager effectiveness, and promotion rate can help you shed more light on why your turnover rate is how it is.
Revenue per employee
The average income each employee brings to the company can be a great measure of HR effectiveness. If the revenue per employee is high or trending up (based on industry benchmarks), that's a sign that your employees are engaged, satisfied, and adequately supported to perform their jobs.
Time to fill vacancies
This has to do with the time between when you post a job opening and when you hire a candidate for the position.
A shorter time to fill indicates that you have a good employer brand and an effective recruitment process and strategy.
Tracking time to feel can help you pinpoint why your organization may be finding it difficult to attract qualified talent and what you can do to improve hiring efficiency.
Cost per hire
This metric tells you how much you're spending to hire a new employee on average.
Tracking cost-per-hire trends over time can help you determine if your talent acquisition strategies and policies are inefficient and what the HR department needs to do to cut down on the costs and time to hire.
Time to productivity
How long is it taking for new employees to acclimate to your organization and become fully productive?
👀 Learn how Alasco has slashed time-to-productivity rates by 50% thanks to a fun, structured onboarding plan.
Employee engagement rate
According to Gallup's 2023 State of the Global Workplace report, only 23% of workers are engaged, and employees continue to report record high stress levels.
Improved employee engagement and well-being are some of the most critical metrics HR professionals can tender as evidence of their department's effectiveness.
Training expenses are the total amount you're spending on implementing and running learning and development programs for your employees. On the other hand, training effectiveness measures the value and impact of a specific training program on
Keeping an eye on these metrics will show you whether your training initiatives are working and delivering returns for the company or if you need to revamp your strategy to make training programs more effective.
Employee satisfaction index
If your employee satisfaction scores are high, your workers are happy and motivated to do their jobs. HR is effectively engaging them and satisfying their needs.
Several metrics feed into your satisfaction index. These include absenteeism rate, turnover rate, and employee net promoter score (eNPS). You can measure them via feedback, surveys, questionnaires, online reviews, and sentiment analysis.
ROI of HR software
This metric measures the difference between how much the HR technologies you use cost and how much they save or generate for your business.
To correctly calculate this, you need to factor in the reasons you invested in the technology and the overall cost of the software, from subscription to maintenance. Then, compare the metrics for your stated goals to those from before you adopted the software.
➡️ Check out our comprehensive guide to HR metrics for more KPIs you can use to gauge the impact of your HR practices.
🎯 27 OKRs used to measure hr effectiveness
"Effective HR is like crafting the perfect puzzle – each piece matters, and the finished product reflects a harmonious combination of strategies. Just as solving a puzzle requires systematic thinking, HR practices demand a structured approach to nurturing talent and fostering a culture of collaboration." Matthew Cooper, Editor and Founder of NYT Crossword Daily.
Tying Human Resources initiatives to objectives and key results (OKRs) will give you a reliable framework for setting strategic goals and collecting relevant data to gauge progress and achievements. It allows department members to drill down and focus on the core priorities they're working towards at any given time.
Setting OKRs also provides management with a clear picture of how HR activities and KPIs contribute to broader business goals so you can secure the buy-in you need to get your plans off the ground.
Let's look at some examples of OKRs you can set for various HR functions and responsibilities.
Objective: Create a well-oiled recruitment engine that attracts qualified candidates.
- Raise the offer acceptance ratio from 60% to 80%.
- Bring down the cost of hire from $2200 to <$1500.
- Win an award for "Best Places to Work in Z."
- Launch an employee referral program by the end of Q1 to increase the number of new hires sourced through internal referrals from 5% to 20%.
- Reduce our average time to fill vacancies from 60 to <45 days.
Objective: Streamline employee onboarding processes to improve onboarding metrics.
- Interview two of the most recent hires in each department about their onboarding experiences and develop strategies for improvements based on their feedback and recommendations.
- Design and implement onboarding surveys to discover issues that may be affecting employees' onboarding journeys
- Attain a 90% new hire satisfaction rate for the onboarding process.
- Shorten time to productivity from 6 months to 4 months.
Objective: Adopt a continuous approach to giving and receiving feedback.
- Collaborate with management to select, implement, and roll out a performance management system by Q3.
- Implement bi-weekly check-ins and monthly 1-on-1s between managers and their direct reports with a 65% completion rate.
- Switch from annual to quarterly performance reviews and achieve 90% completion rates before the end of each quarter.
- Survey employees to collect feedback on the effectiveness of new performance management processes.
➡️ To make performance reviews more focused and objective, use this list of role-specific employee performance metrics as a starting point.
💼 Don't forget about evaluating your managers. Learn how to evaluate manager performance with the right metrics.
Learning and development
Objective: Deliver relevant training opportunities to enable employees to advance their skills and perform their jobs more effectively.
- Allocate a budget for training and ensure 100% utilization.
- Develop skill competencies, career maps, and growth plans for all employees in collaboration with team leads by Q4.
- Create and launch leadership-approved training programs for all departments.
- Attain 75% training participation and completion rates.
- Ensure all team leaders undergo and complete manager training by Q2.
Objective: Improve company culture and build an environment where people love to work.
- Run culture surveys and use survey feedback to pinpoint the top 3 problem areas needing improvement and suggest 6 implementation changes.
- Host quarterly culture sessions to discuss, evaluate, and fine-tune organizational culture.
- Improve eNPS scores by at least 15% by the end of Q3.
- Launch a company-wide employee recognition program to appreciate team members who do great work and champion our values.
- Lower the number of monthly internal complaints from 12 to 3 and shorten the turnaround time for addressing complaints from 3 weeks to 5 days.
Objective: Improve employee experience and satisfaction so fewer employees leave.
- Conduct stay interviews and surveys to measure engagement levels and gain insights on making the organization a better place to work by Q2.
- Compare and review benefits and compensation packages based on competitive/local market rates.
- Lower employee attrition rate to <5.
- Increase employee job satisfaction scores to 8 or higher and eNPS scores from 60 to 80.
❓ Check out 15 best stay interview questions to ask your employees and which ones to avoid.
💰 3 Ways effective HR impacts a company's bottom line
Effective HR is directly linked to organizational success. Without it, you will continually fall short of achieving the workplace culture that you dream of.
Having a thriving HR function with a well-defined purpose and an unwavering commitment to helping your company run at peak performance pays off in different ways:
The strength of your HR practices can be the difference between employees who are proud of their work and are happy to go the extra mile to solve problems for colleagues and customers and workers who are simply clocking in and doing the bare minimum they can get away with.
HR effectiveness helps ensure employees feel connected to their jobs and the company and are supported to perform their best. How? By creating workflows, processes, and programs geared towards developing employee potential and optimizing the workplace experience.
And as you probably know, improved engagement will translate to increased job satisfaction, productivity, and customer service, which means more money coming in.
Retention and attraction
When effectiveness is the watchword for your HR operations, all your people strategies will be aligned to increase employee tenure and lifetime value. Onboarding will go from an awkward phase involving a lot of paperwork to an immersive process that helps new hires find a sense of belonging and achieve faster success.
Training will become an exercise uniquely tailored to enrich team members and further their career aspirations while plugging the organization's talent gaps.
Effective HR will help you attract the right talent, discover what you're already doing right with your employee enablement processes, and identify issues that may motivate workers to leave so you can solve them.
In so doing, you will drive retention, decrease the costs of hiring, onboarding, and lost productivity of new employees, and minimize the risks of losing critical knowledge and skills due to employees departing suddenly.
With a high-functioning HR department, you'll know the career journey for each role. You'll be able to diagnose skill gaps at the individual and organizational levels and devise training programs to help you upskill existing team members to bridge the gaps.
You'll also have a steady talent pipeline waiting to assume new roles that open up in the future or succeed team members who are vacating their current positions after receiving a promotion or tendering their resignation.
Strategic workforce and succession planning ensures that your business is prepared for any changes and disruptions that may occur in the future.
♟️ How can HR effectiveness be improved? 5 Strategies to try ASAP
If you want to transform your company's HR into a highly efficient machine, here are some practical ways to achieve this:
1. Embrace HR digitization and automation
Only 1 in 4 companies use some degree of HR automation and/or artificial intelligence to support their people processes. If you're not one of them, you cannot claim to be truly effective because you're probably bogged down in administrative tasks, leaving you with very little time to do strategic, impactful work.
To improve HR effectiveness, look for opportunities to streamline processes by automating basic and repetitive functions. You shouldn't be manually tracking vacation days, doing payroll, shuffling through records, and managing training, onboarding, or performance initiatives.
Hand these chores to technology so you can redirect your precious brain power to designing engaging experiences that your people will love.
💡Discover the best practices for automating HR processes to help your team work smarter.
👀 Also, check out our guide on choosing the best HR automation software for your company's needs.
2. Leverage data-driven decision-making
Developing a data-driven HR strategy can give you better visibility into the state of your people's experience and the points where disengagement is happening. Don't just set OKRs and metrics and forget them. Keep track of results and analyze your people data to identify areas in need of improvement and formulate a strategy to tackle them.
As long as you're tracking valuable KPIs and not vanity metrics, the reports you generate will provide insights on what actions to take next to address roadblocks standing in the way of employee satisfaction, productivity, and retention.
💪 Ready to go the extra mile to optimize your workforce? Consider making these 10 people analytic trends a part of your HR strategy.
3. Implement winning employee engagement initiatives
Engaged employees mean a fatter bottom line. It also automatically improves the outcomes of many of your HR metrics because engagement forms the bedrock of the overall workplace experience.
An excellent way to score serious points for HR effectiveness is by creating authentic and personalized engagement programs to help your workers connect with their colleagues and find happiness in their jobs.
➡️ Learn how to create an employee engagement plan that gets results.
4. Prioritize upskilling and reskilling to bolster productivity
Thanks to the rapidly evolving technological landscape and breakthroughs like AI, the skill requirements for many job roles are changing and widening. For your organization to remain competitive in the current and future climate, you will need to reskill and upskill your workforce to address potential skill gaps.
You can do this by offering blended learning opportunities that include social learning, peer coaching, mentorship, and formal learning methods like in-person training and online courses.
💡If you want to create effective upskilling programs, check out our comprehensive guide.
➡️ Not sure how to leverage AI in your people processes? Get inspired by 9 real-world examples of companies using AI in HR.
5. Make a habit of regular communication
Oftentimes, employees will tell you what they need. You just have to make it easy for them to do so. You will not be able to attain your HR goals if you don't carry along employees, managers, and other stakeholders.
Put practices and systems in place for communicating HR-related information to the people who matter. Make it easy for team members to say what they think about HR policies and activities and act upon their feedback. Open, honest, and transparent communication will foster trust and pave the way for HR and organizational success.
➡️ Unlock next-level HR effectiveness and employee happiness with Zavvy
Knowing what metrics and OKRs to focus on for HR effectiveness is only half the battle.
You still need the right tool to help you implement your HR strategies and correctly monitor, gather, and analyze your data.
Zavvy is an all-in-one workforce management solution that enables you to streamline and maximize the efficiency of HR tasks and processes from onboarding to employee development and learning management.
Our software suite comes with automated and customizable features to support you in:
- 🗺️ Mapping career paths for each employee.
- 🔁 Running continuous 360 feedback cycles.
- 👩🎓 Curating personalized learning experiences.
- 📊 Standardizing performance review processes.
- Getting an x-ray of your people's skills and competency profiles.
- 🤩 Driving engagement to give your organization a competitive advantage.
📅 To learn more about our tools, book a free demo today.