To communicate the value of their work to boards and executives, HR leaders need to tie their efforts to the metrics that matter most to their organisation.
With most organisations now relying on data to guide decision-making, business functions across the board are under pressure to quantify and demonstrate their contributions to financial performance – and HR is no exception.
Unlike functions with direct revenue streams like sales and operations, HR leaders often face challenges in quantifying their value, since many of their key contributions are indirect – spread across areas such as engagement, capability and culture.
“Historically, there’s been a perception of HR as being, quote-unquote, ‘warm and fuzzy’,” says Christina King FCPHR GAICD, Chief People Officer at Cornerstone Medical Recruitment, a labour hire business servicing the healthcare industry. “So the first hurdle is often overcoming that and communicating that HR can deliver to the bottom line.”
The best way to achieve this, she explains, is by finding the right data to demonstrate that contribution in a way that resonates with specific stakeholders.
“We’re blessed with so much data these days, so part of the challenge is figuring out what’s most meaningful to the organisation and what can be most closely tied to the key business metrics like revenue and profit,” says King, who will be speaking at AHRI’s International HR Day webinar.
The most compelling HR value propositions don’t simply present numbers, she says – they select and frame metrics that align with how the business defines success.
Choosing the right data
The first step in building a credible case for HR’s impact is understanding which metrics matter most to the organisation, says King.
While revenue and profit are common priorities across all organisations, other business drivers vary significantly depending on the industry and business model.
“For example, before joining my current role, I was in manufacturing with Youfoodz. In a manufacturing environment, everything is very much driven by quality standards, labour costs and a key manufacturing metric – in our case, packs per hour. So for that organisation, those metrics were critical.
“Whereas, in the organisation I’m in now, we focus more on things like retention of our internal staff and locums, or the feedback in the market, such as positive reviews, experiences being shared and referrals.”
Whether directly or indirectly, the impact of positive HR practices is often felt in all corners of a business, so King encourages practitioners to think laterally about which metrics they decide to use.
“For example, at Youfoodz, we rolled out a training program in GMP, or good manufacturing practices,” she says. “I then linked that training to the number of five-star reviews provided from our customers, and [was able to] show that the product they were experiencing was better because of the knowledge learned in that GMP training program.
“When you attach a dollar value to that – factoring in things like fewer complaints and reduced wastage – you can legitimately demonstrate that impact [in financial terms].”
While HR can take a broad view of which metrics to track, it’s still crucial to ensure each one clearly ladders up to a business goal, she says.
“Rather than presenting haphazard pieces of information, it’s about showing a clear link to the strategic plan.”
Read HRM’s article on how to use data to make your presentations more impactful.
Calculating the ROI of HR initiatives
Once HR leaders have determined which metrics will best demonstrate the impact of HR initiatives, the next step is putting a dollar value on that impact.
King has previously investigated the relationship between engagement and performance of call centre teams, who for Youfoodz, were key to driving strong financial results.
“For example, if I can demonstrate that an engaged employee makes 20 per cent more phone calls than a less engaged one – and if each phone call, on average, delivers $50 in revenue – then I can calculate that the more engaged employee is delivering around $300 more per day than a less engaged one, based on an average of 30 calls per day,” she says.
“If I do the maths based on, say, 20 working days in a month, that’s $6,000 extra per month. If I take into account leave, downtime and public holidays, and very conservatively assume that someone is productive for nine months of the year, then that’s a difference of $54,000 annually.”
“Rather than presenting haphazard pieces of information, it’s about showing a clear link to the strategic plan.” – Christina King FCPHR GAICD, Chief People Officer, Cornerstone Medical Recruitment
She recommends being conservative in your estimates to communicate that the figure you’re showing is towards the lower end of what’s possible. Being overly optimistic could undermine credibility and invite scrutiny from finance-driven stakeholders.
She also stresses that the formulas used to make these calculations don’t need to be complex – in fact, when presenting to boards and executives, clarity is often more important than precision.
“Be as simplistic as you can. Ultimately, you need to be able to stand up in front of a group and clearly explain how you got there,” she says. “Each data point might require a slightly different formula, but the simpler it is, the easier it is [to communicate].”
Hear more from Christina King FCPHR GAICD and other HR leaders at AHRI’s special International HR Day webinar on 20 May, celebrating the transformative impact of HR and the exciting future of the profession. Register now.
Communicating value to executives and board members
Leveraging the data you have collected to communicate HR’s financial value to leaders is the final and most important hurdle in building your business case.
Even with the right metrics, the message can miss the mark if it’s not delivered in a way that speaks to how boards and executives make decisions.
“HR practitioners need to have a deep understanding of what really drives the operational rhythm of an organisation,” says King. “What are the fundamental metrics that influence performance and success? You need to understand those first and foremost so you can speak to them when having conversations with stakeholders.”
To achieve this alignment in her current and previous CPO roles, King has found it useful to approach finance teams to deepen her understanding of financial reporting and ensure her team is interpreting and communicating data in a way that aligns with business priorities.
“I would highly recommend that to anyone, especially if you’re in a lead HR role,” she says. “Because as opposed to taking a generic course, you’re talking about data that’s familiar and working within the context of an organisation you already know – it’s a great way to build confidence and credibility.”
As well as factoring in specific business drivers, ensure you’re also acknowledging different styles of communicating and absorbing information, she adds.
“For example, if you know your board is heavily finance-oriented, you might lead with a spreadsheet. I’d also suggest supplementing [your presentation] with things like dot point commentary and, if possible, a graphical or visual representation. That way, you’re making sure you’re catering to different learning styles, which makes it more likely the message will stick.”
Going forward, continuously building skills in data literacy and data storytelling will be imperative for HR. Communicating value isn’t a one-off task – it requires an ongoing effort to ensure HR’s work is seen, understood and factored into decision-making at the highest level.
“There’s going to be a continued need for HR to demonstrate our connection to the core operation of the organisation,” says King.
“That’s really what we’re all aiming for – to be seen as a trusted advisor and a valuable contributor to the business.”
To mark International HR Day on 20 May, you can sign AHRI’s e-card to share your appreciation for your HR peers, download assets to share on your LinkedIn profile and enjoy a 48-hour flash sale on AHRI membership or HR Certification.
