Benchmarking Key Performance Indicators PDF
Benchmarking Key Performance Indicators PDF
Benchmarking Key Performance Indicators PDF
Jean M. Hiltrop
Charles Despres
1 March 1994
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Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 2 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
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Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 3 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
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Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 4 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
1994) found that while 70% of the 4. Which attitudes and behaviours are
executives surveyed reported using currently displayed by these
benchmarking to evaluate performance, employees?
nearly 60% were benchmarking against
5. Which attitudes and behaviours are
their own company's historical record as
responsible for the trouble areas
opposed to competitors or industry
identified above?
leaders. Clearly, the greatest gain to be
had from a benchmarking exercise is 6. What HR policies and practices are
provided through comparisons with other contributing to the current attitudes
firms and different ways of thinking. and behaviours?
Indeed, as a programmatic effort
7. Which HR policies and practices need
benchmarking serves a number of
to be changed as a result of the above
purposes (Glanz and Daily, 1992). First, it
in order to build on strengths or
enables a company to calibrate how it is
correct weaknesses in our approach to
delivering HR practices. By examining the
HR management?
way other organisations accomplish tasks
and responsibilities, a company can audit 8. What are the performance measures
itself and identify areas where practices to determine the effect of our actions?
are within or outside a given norm.
What are the major cost components of
Second, benchmarking enables a company
the change program? Currently, the most
to learn from others' successes and
common form of HR benchmarking
mistakes. Building a continuous
involves salary surveys. It is the rare HR
improvement mentality has become an
manager who steps beyond this, for two
important goal for many organisations in
principal reasons: (1) the difficulty of
the last decade; benchmarking can open
finding standard and acceptable
minds and create a climate in which active
performance indicators similar to those
learning is encouraged.
used in financial management, such as
Third, benchmarking can be used as a tool return on capital and cash flow ratios, and
for creating the motivation to change. By (2) the reluctance of companies to divulge
learning what other companies are doing, sensitive information about their employee
line managers and HR professionals can retention, employment costs, and so on.
build a stronger case for allocating There are other reasons for the lack of HR
resources to HRM activities in ways similar benchmarking in contemporary
to those of successful companies. Finally, organizations, the most prevalent perhaps
benchmarking can be used to help set being the mythology that has developed
direction and priorities for an HR manager. around personnel work. As Jac Fitz-Enz
Rather than fall into the trap of trying to (1984: 7) observes:
do everything well and please everyone
The fundamental belief is that personnel is
with limited resources (which typically
something of a complex and mysterious
results in no one being satisfied), HR
art. Allegedly, the true and full value of
managers can use benchmarking to focus
the work can only be judged by those who
on critical activities (Ulrich, Brockbank and
perform it. Even then, the appraisal is
Yeung, 1989). Questions which may
bounded by subjective criteria. Many of
indicate a need for benchmarking HR
the faithful believe that, like virtue,
practices in an organization include the
personnel work is its own reward. Terms
following:
used to describe results are satisfied,
1. What is most critical to business quick, better, interesting, good, important,
success: Cost reduction? Innovation? creative, and other similar non-specific
Quality improvement? terms .
2. What areas are causing the most There are also people who believe that
trouble? measuring the effectiveness of human
resource management is simply
3. Which employees contribute most to
inappropriate. In their eyes, HRM is
the critical success factors?
devoted to stimulating and supporting
human happiness and development, and
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 5 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
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Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 6 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 7 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 8 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
For example, what is the firm's policy with database of HR practices that gives an
regard to recruitment? Is there a overview of developments within the
preference for internal or external world's largest organizations today.
recruitment? Is this policy sustainable and
Step 8: Review the outcomes of the
desirable in the new competitive
analysis.
environment? Does it support the need
for high quality human talent? Is this Look for performance gaps and discuss
policy consistent with other HR policies the policy implications with the main
and practices, such as rewards, training customers. Gain their commitment for
and development, performance implementing the necessary
management, succession and promotion. improvements. This implies that those
Do these policies and practices focus on ultimately responsible for implementing
improving individual and organizational the changes, (1) acknowledge the need
performance? for improving HR policies and practices,
(2) understand the differences between
Step 6: Review the delivery of HR policies
current HR practices and what is desired,
and practices.
and (3) accept and retain full ownership of
Questions need to be asked here in the practical steps toward implementation.
relation to all the HR activities currently
Step 9: Implement the agreed
being undertaken by HR or personnel staff
improvements and measure the progress
which could perhaps be done as well or
against pre-set targets.
better by line managers, by computers, or
by external agencies and consultants. For The metrics selected should be the agreed
example, one recent survey identified an upon true indicators of the HR function's
increasing number of European performance and compare the results with
organizations that have decided to industry averages, competitors, 'best
outsource some of their traditional HR practice' firms, and/or with set targets or
services to completely independent previous performance ratings. As shown
businesses. An alternative option is to in Figure 8, it is usually feasible to produce
establish an 'internal consultancy or relevant ratios of HR performance data.
business unit' in which the HR function The most likely ratios should cover unit
sells its services both inside and outside costs and appropriate customer
the organization (Adams, 1991). The satisfaction measures. If measurements
advantage of this approach is that line are not clear or difficult to obtain, two
managers can go elsewhere if they are not alternatives are possible (Camp, 1989).
happy with the service they receive from One, the process of determining
the HR function within the organization. appropriate HR performance measures
becomes a key step in the benchmarking
Step 7: Make external comparisons to
process itself. Or, there are approximate
establish 'best' practice.As Humble (1988)
measures available from other functional
points out, it does not require an
areas that give an indication of how the
'espionage' network to get the data.
HR function is performing. For example,
Articles in such magazines and journals as
lead-times may be used as a proxy for the
Personnel Management, Personnel Today,
effectiveness of a new delivery-oriented
and Human Resource Management carry a
incentive scheme.
great deal of useful information about
what other companies in Europe, Asia and LINKING KEY HR PERFORMANCE
the United States are doing in order to INDICATORS WITH ORGANISATIONAL
deal with the contemporary HR issues. In EFFECTIVENESS
addition, a considerable amount of
Obviously, many managers and investors
research conferences and workshops are
are interested in knowing if a certain
currently being organized by business
activity or practice can serve as a leading
schools and consultancy agencies that
indicator or determinant of financial
allows progressive HR managers to inform
performance. When such an indicator
themselves and compare their own
goes up or down, an organisation can take
practices with those of other
actions to minimise or maximise the
organizations. At IMD, we are also
impact by changing the relevant practice.
building and constantly updating a unique
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 9 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Consequently, over the past few years, a significantly higher sales growth, profit
number of studies have tried to link margins, equity growth and earnings per
specific HR practices and organisational share growth than the less progressive
effectiveness in terms of financial ones. For instance, the annualized sales
performance, productivity, product quality, growth (five year trend) of high HRP
innovation, and so on. One such study companies was 17.5 percent, compared to
was conducted by Kravetz (1988). In a 10.7 percent for low HRP companies; and
book entitled The Human Resources the annualized profit growth of high HRP
Revolution Kravetz looked for the firms was 10.8 percent, compared to only
correlation between financial results and 2.6 percent for those low in HRP.
what he termed human resources
In a second study on the same subject
progressiveness (HRP) in 150 US
Frederick Schuster (1986) examined the
companies. HRP was defined as the
relationship between human resource
extent to which an organisation is:
management performance as measured by
...operating in concert with the the Human Resources Index (HRI) and
current and future workplace, organisational effectiveness. His intent
rather than experimenting with was to lay the foundation for the
radical programs or spending development of a reliable and practical
exorbitant amounts of money on instrument, which could be used as a
human resources programs. A benchmarking tool by companies
company high in HRP understands representing a wide range of industries
the critical importance of people to and sizes. The HRI survey contained 64
the bottom line and operates with measures of human resource practices, six
this in mind. (1988: 36) of which were the focus of this research:
A firm's score on the HRP index was 1. The assessment centre approach to
measured through a fifty-item personnel selection
questionnaire pertaining to HR practices
2. Flexible or cafeteria approach in
and policies in the following nine areas:
reward systems
1. Degree of openness of communication
3. Productivity bonus plans
2. Degree of emphasis on people in the
4. Goal-oriented performance appraisal
company culture
5. Alternative work schedules
3. Degree to which management is
participative 6. Organisational development
4. Emphasis on creativity and excellence These six practices were chosen because
in the workplace they were though to be related to the
general management philosophy which
5. Extensiveness of career development
Peters and Waterman (1982) termed
and training
attention to employee needs, and could
6. Effectiveness in maximising employee therefore serve as an operational
job satisfaction definition of this philosophy. Schuster's
hypothesis and findings were consistent
7. Degree of recognition and reward for
with Kravetz in that he expected and
good performance
found a small but meaningful relationship
8. Usage of flexitime and part-time between the six HR practices and financial
employment performance (as measured by return on
equity and total return to investors). In
9. Degree of decentralisation and
particular, the total utility of the six HR
flattened management hierarchy.
practices for the average Fortune 1000
The results showed that human resource company was estimated at $7.5 million per
progressiveness in these nine areas was year.
significantly correlated with financial
These two studies represent a small
success over a five year period. In
sample of the work currently being done
particular, Kravetz concluded that highly
in this field. Their formulations and
progressive companies enjoyed
findings have helped to explore the link
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 10 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 11 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
their function and work with managers of unless some existing ones are eliminated
their own stripe. One of the great pitfalls creeping numeration will be the result.
of HR performance measurement systems
is opened when HR managers begin argue
that their actions are undiscussable so
long as their performance targets are met.
For HR measures to have real impact in
the organization, dialogue about the
meaning and relevance of programs,
activities and measures must remain open.
Some organizations have enforced this
dialogue through the use of a cross-
functional team which monitors the
system and ensures that relevant
measures are being used and understood.
Communication is the sine qua non of
effective change efforts. In this
connection HR managers must be
prepared to regularly communicate, with a
proactive attitude, the purpose and
specifics of the performance management
system to all involved employees, and be
prepared to clarify repeatedly the
measures in use. The assumption that
managers and employees understand or
accept the new system is dangerous and
constitutes a serious design flaw.
Analyze the data regularly, at a rate
compatible with their impact on decision-
making, and draw appropriate conclusions
by comparing the key performance
indicators over time. These comparisons
may be made between business units,
and/or against predetermined targets.
Current benchmarking efforts assess the
HR performance of business units against
comparable units within the same
industry, or against units and
organisations that are considered best in
class.
Finally, be ready to change the
measurement system if a particular
indicator fails to achieve business goals, or
if the costs of collecting and analysing the
data exceed the potential benefits of their
use. As Eccles and Nohria (1992) point
out, the discipline needed to discontinue
irrelevant performance measures should
not be underestimated. The benefit of
keeping the same measures for a period
of time lies in the historical comparability
thus afforded, and perhaps in longitudinal
evaluation of the impact anticipated by the
HR practice. The risk is that attractive
new measures can always be found, and
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 12 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 1
Figure 2
EFQM Performance Criteria
People Management ...how the organization releases the full potential of its people by:
1. integrating corporate and HR strategy
2. assessing the match between peoples' skills and organizational needs
3. establishing and implementing training programs
4. achieving effective top-down and bottom-up communication
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 13 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 3
United Technologies
Human Resources Practices Survey
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 14 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 4
Elements of White-Collar Productivity
(Janssen Pharmaceutica)
Effectiveness
1. A strong, clear connection between corporate strategy and work activities
Organization
1. Overlap / duplication
2. Fragmentation
3. Inappropriate groupings or functions or alignments of functions
4. Inefficient reporting relationships
5. Excessive management layers
6. Clarity of mission
7. Appropriateness of job design
Motivation
1. Turnover
2. Performance feedback
3. Contribution visibility and recognition
4. Group identity
5. Teamwork
6. Management style
7. Career planning and development
8. Training
9. Communication
Process
1. Value-added activities, operations, and steps
2. Scheduling and backlog control
3. Degree of automation
4. Control and transfer points
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 15 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 5
White-Collar Performance Measures
(Janssen Pharmaceutica)
Productivity
1. Units of output / Number of employees
2. Units of output / Cost to produce
3. Value-added work operations / Non-value-added operations
4. Costs to manage / Number of subordinates
Throughput Time
1. Time required to process work or complete work products
Quality
1. Number of errors / Unit of time
2. Error-Free work product transactions / Work product transactions with errors
Others
1. Deadline accomplishments percentage
2. Customer satisfaction index
3. Degree of employee commitment / involvement (organizational climate)
Figure 6
Measuring the Costs of Exit Interviews
1 Cost of interviewer time = (time required prior to interview + time required for interview)
X (interviewer's pay rate per period) X (number of turnovers per period)
2 Cost of terminating employee's time = (time required for the interview) X (weighted
average pay rate for terminating employees) X (number of turnovers per period)
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 16 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 7
Key HR Performance Indicators
Employee Relations
1. Number of resignations / Total headcount per year
2. Average length of service per employee
3. Rate of absenteeism
4. Average length of absence per employee
5. Number of supervisors and managers per employee
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 17 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
Figure 8
A Three-Tier Approach for
Assessing Performance in the HR Function
.
Hlltrop, J. & Despres, C. 1995. Benchmarking HR Practices: Approaches, rationales and prescriptions for action. Chapter 9 in
D.E. Hussey (Ed.), Rethinking Strategic Management: Ways to Improve Competitive Performance. Wiley (1995), pp. 197 - 220.
Page 18 of 20
Benchmarking HR Practices: Approaches, Rationales and Prescriptions for Action
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