by Scott Pollak

Unlike other departments, HR lacks established standards. here's how to get started on a human-capital-measurement initiative.

Are you being asked by management to develop an HR scorecard? A corporate balanced scorecard? Apply six-sigma process improvement to back office functions? Trying to determine whether to outsource? If so, like many other companies, you are in the middle of a human-capital measurement initiative. Unfortunately, HR executives are three or four steps behind their colleagues in other departments. In finance, for example:

• Accounting staff apply longstanding standards that determine what to measure. Measures are created and debated by national bodies. What gets included and what doesn't get included in each measure is also passed down through the generations.
• Companies have invested hundreds of millions of dollars in financial transaction and analysis systems, integrating them with operational systems and training their users.
• Practitioners frequently spend four to six years of higher education studying basic and advanced issues, pass a national set of exams, and must complete continuing education.

In fact, for many companies these measures are public knowledge, filed with the SEC. Profit & Loss, Return on Assets, Cash Flow rules, and many more are ingrained measurements of doing business. By contrast, HR practitioners are asked to build a scorecard.

There are no established standards for what to measure, or how to measure , or how to define what is measured-though we at Saratoga like to think there are some de facto standards. Data is contained in several different types of unintegrated systems (including HRMS, Payroll and Financial/GL), and within a given company, there are likely to be multiple versions of each system. Most HR practitioners have little experience or education in accounting or analytics, and it is not a standard part of continuing education or certification.

So how do you get started? My four recommendations:

1. Establish measurement as a process, not a project. The finance example above shows that measurement is not a project with a defined start and stop. Human-capital measurement is a process: one that requires money, time, executive support, and thought. If your company is not willing to step up to this effort, if you just expect to buy a report, you will not succeed.
2. Measure what matters. Human-capital measurement should not occur in a vacuum; it should dovetail with corporate strategy and human-capital strategy. Don't select your key performance indicators (KPIs) without linking them to both of these strategies. Don't know what these strategies are? Don't think you have one? Find out. Cobble one together. Ask. Do what you need to do, but don't start your measurement without properly understanding these strategies. Make sure you get a sponsor, one with as much juice as possible. A VP should do, but a Senior VP is better.
3. Start small and learn to crawl. Companies don't need to begin with 67 metrics for every department. Begin with 8 to 15 corporate metrics, and perhaps only for major business units. Measure on a monthly basis, or if that seems too much, try quarterly. Don't try to reinvent the wheel. Leverage metric definitions that already exist, and have a defined set of inputs. Presumably, you can find a set of metrics that have already grappled with the question of where to put rent and how to deal with systems costs. Saratoga can provide you with a set of KPIs that have been through this process, and so can a number of others.
4. Use measurement for support, not illumination. I'm really talking about expectations here. If you expect perfection, you won't succeed. The numbers won't give you an action plan anyway. The numbers can support, validate, or disprove your own theories for improvement. Don't expect more. This change in expectations will alleviate two nagging issues associated with measurement: your numbers won't be 100% exact and your comparisons won't be either. This is okay. We're talking management here-not statistics. With a certain amount of attention to detail and logic, your numbers may be imperfect, but they will be equally imperfect. This still allows you to make intelligent decisions about your human capital and communicate effectively.

Getting started in this fashion won't take the place of years in school or millions of dollars invested in systems. But it will beat another year of ruing your payroll system, attending conferences discussing how to get a seat at the table, and then coming up with another set of reasons for not having solid data in your scorecard.