HR EVALUATION: A BACKGROUND The performance of the HRM funet attention or concern. The main miss ae the HRM function was not evaluated. ve vague and subjective. For example, the quantum of HRD budget was seen a indicative of the significance of the HRM function. ene ee ne ren te in the organization as well as in the HR departmen nization. This ae ion was not very important for the business results of the orga: " " ee eo has changed in the recent past. Jeffrey Pfeffer (1995), professor at the Stanford Graduate School of Business, argued that the ‘basis for competitive Success has changed’. Human resources are viewed as the ‘most important asset’ of an organization—an asset that creates value for the firm and helps the firm attain as well as sustain competitive advantage. As mentioned already, until recently evaluation of HR programmes or of the HR function was not a priority for most organizations. Intense business competition has increased the need for all organizational functions, such as finance, management information systems (MIS), marketing, etc. to demon- strate how they contribute to higher business performance. The HR function is also required to quantify and measure its impact on business performance. Traditionally, the HR manager could be abstract and talk about the impor- tance of HR practices in terms of employee morale, commitment, and tum- ; I of a firm can no longer be simply ‘best in class’. They must, rather, add value. ‘Adding value’ typically refers ‘o increasing the gap between revenue and costs, usually by reducing costs. It is not obvious how the HR function or HR Programmes add value. Nevertheless, firms are Tecognizing the increasingly important need to demonstrate efficient utilization of ion, until recently, did not attract an n of HRM was seen to be to ‘improve ine administration’. Therefor, the evaluation way beginning to focus on assessing the m HR activities, Thus, questions such as the ‘pected to be answered: ire? tangible benefits that result fro; following are Posed and ex, Scanned with CamScanner° Ls training led (o improved capabilities and performance? e a roved e) been iit in hi, we improved employee capabilities and performance resulted in higher hizational profits? To be accepted a a strategic business partner, the HRM function should be luated to demonstrate its value in quantitative terms, It must replace ideas with results and perceptions with assessments and back up its claims with evidence. ‘Today, human resource measurement and evaluation is receiving considerable attention from academics and practitioners alike. Before discuss~ ing the perspectives of HR evaluation, il is important to understand the meaning of HR evaluation, eva -HUMAN RESOURCE EVALUATION: DEFINITION AND OVERVIEW “To evaluate’ means ‘to determine the value of’, Human resource evaluation refers to determining the value of HR for achieving organizational goals. Bratton defined HRM evaluation as ‘the procedures and processes that measure, evaluate and communicate the value added of human resource management practices to the org: tion’. ‘There are several benefits of HR evaluation. These include @ the promotion of change by identifying strengths and weaknesses; @ an assessment of the performance of the HR function; demonstration of the bottomline contribution of the HR function through, for example, reduced turnover; and a demonstration of the function’s role in the achievement of organiza- tional goals. While recognizing the importance of HR evaluation, it is also essential to answer questions such as the following: What should be evaluated—the overall HR effectiveness or only the effectiveness of the HR function? © What should be evaluated —HR activities and practices, or the impact of HR policies on the organization and employees? © What should be evaluated—HR practices, the HR department, or HR professionals? hould be the level of analysis in HRM evaluation within the orga- nizational structure? . © What criteria should be used to assess the effectiveness of the HR function/ artment? de Greer (2001) st complete overview of HR evaluation. Let us consider each of the raised above (see Figure 3.1). es that answers to the above questions help one gain 4 questions Scanned with CamScannerFigure 3.1: HR Evaluation: determining the value of HR for achieving organizational goals Overall HR etfectivenogs, ‘scope Narrow evaluation of HR effectiveness HR department Focus HR professional HR practices Strategic Reactive to proactive linkage Strategic Level of Management analysis. Operational Outcomes Evaluation erie Processes Scope of evaluation Evaluation of HR may be directed towards overall HR effectiveness or more narrowly towards the effectiveness of the HR function. Measures of overall HR effectiveness include turnover, workers’ compensation claims, employee satisfaction, etc. An evaluation of the HRM function, on the other hand, includes measures related to the efficiency in administering an HR programme, such as benefits and recruiting applicants. Overall HR outcomes and effectiveness are influenced by the performance of the line managers of the firm. In a narrower evaluation, on the other hand, measures of HR are affected only by the performance of the HR staff ot personnel. Such an evaluation may be misleading and suggest that HRM is the sole responsibility of the HR department and personnel. This is, however, far from the truth. Alll line managers and departments affect the quality of HRM. Most HRM activities are shared between HR personnel and line managers. Hence, evaluation of HR function is not a simple issue. The scope of evaluation also incorporates a time perspective, that is, the time it takes for an HR practice to have an impact on performance. Depending 07 the nature of the programme, the time lag between implementation ofa programme and its impact on performance can vary. Moreover, the impact of an HR programme may remain stable or increase or decrease over time- Focus The decision related to HRM evaluation needs to be clear about wha or what is being evaluated. Is the HRM department being evaluated, or the HR personnel, or HR practices? It is imperative that the scope of evaluation includes all three. This aspect is dealt with in greater detail later in this chapte" in the section on HR audit. An Overview of HR Evaluation Scanned with CamScannerStrategic linkage Chapter I discussed how the HRM function changed from having a reactive approach to having a proactive approach. This change is accompanied with a change in the focus of HRM evaluation. There has been a shift from a focus on how well a problem has been solved (reactive) to a focus on the impact of HRM practices on the organization and on the employees (proactive). In the past, evaluations focussed on criteria such as the number of self-appraisal forms filled or the turnover rate. Now, evaluations focus on finding out whether appraisals result in training need identification, whether the firm is losing high performers, etc. Level of analysis Another important aspect of HRM evaluation relates to the level of analysis. Human resource management may be evaluated at three levels: (1) strategic; (2) management; and (3) operational. At the strategic level, the objective of HRM evaluation is to determine the consistency between HR policies and company strategy. At the management level, the focus of HRM evaluation is on control, for example, cost effectiveness ofa benefit programme. At the operational level, itis the quality of HR services and programmes that are in focus, for example, satisfaction with the services of the HR department relates to the operational level of HRM evaluation. Evaluation criteria The determination of criteria for evaluating the effec- tiveness of the HR function is another significant issue. These criteria may range from the responsiveness of the department; to how proactive they are; to the quality of their training and development activities. An important issue related to evaluation concerns whether the evaluation criteria will involve outcomes or processes. Outcomes are the end results or products of work. Processes are the behaviours or the activities performed to reach the outcomes. Productivity ratios of the workforce of a firm, turnover rate, etc. are examples of outcome criteria. However, outcome criteria may be contaminated by fac- tors external to the HR activity being evaluated. For example, high turnover rates may be due to high demand for a particular skill rather than due to a firm’s HR policy. Similarly, process criteria may pose several difficulties in defining HR evaluation objectives. Specifying the right behaviour in the at- tainment of a goal refers to process criteria for evaluation. When the ‘right behaviour’ becomes an evaluation criterion, the emphasis on the attainment of outcomes is likely to be reduced. Therefore, evaluation criteria should take into account the objectives for which evaluation data is being obtained. Either outcome evaluation criteria or process evaluation criteria may be used for determining HR effectiveness depending on the evaluation objectives. In the past two decades, the HRM function has become a strategic partner in the achievement of business goals of the firm. The resource-based model of SHRM, discussed in Chapter 1, emphasized the importance of human capital to attain competitive advantage and sustain it. The human capital of a firm siteial 7 Scanned with CamScanners Do e. ile most firms believ at their people a contributes ine. While s believe that peop! or ates to its bottomlir fir 3 b hi their most valuable asset, they have foun i t HRM function translates this vision into reality or how HR practices add value to a firm and contribute to its competitive advantage. Organizations require HR professionals to demonstrate the impact of HR on firm perfor. mance. In the sections that follow we will briefly review the literature on the linkage between a firm’s HR practices and its performance and also discuss the rationale for measuring the contribution of HR to the achievement of the strategic goals of the firm. Scanned with CamScanner