RAJASTHAN TECHNICAL UNIVERSITY

RAJASTHAN TECHNICAL UNIVERSITY

Major Lab HR

Submitted To: Submitted By:

Anjali Murare
________________ MBA 4th Sem

Batch: MBA 2021 – 2023

 ACKNOWLODGEMENT

This present work will remain incomplete unless I express my

feelings of gratitude towards a number of persons who delightfully
co-operated with me in the process of this file.
First of all, I would like to express my special thanks of gratitude to
our teachers Dr. Mridula Sharma, for their valuable direction,
suggestions, exquisite guidance and for always providing us a helping
hand ever since the commencement of this file.
Secondly, I would also like to thank our Faculty of MBA for their
encouragement and support during this course of my study.
It also helped me in doing a lot of research and I came to know about
so many new things.

I am really thankful to them.

 CONTENTS

❖ The Important HR Metrics used in Company

• HR Metrics
• HR Metrics Matter
• HR Metrics Impact
• HR Reports
• Importance
• Uses
• Example
❖ Sentrifugo
• Getting Started
• Dashboard
• Leave Management
• Self Service
• Service Request
• Human Resources
• Recruitment
• Organization
• Analytics
• Expenses
• Assets
• Appraisals
• Exit Procedure
❖ Book Review: HR Scorecard
 The Important HR Metrics used in Company

What Are HR Metrics?

HR metrics, or human resources metrics, are key figures that help organizations track their
human capital and measure how effective their human resources initiatives are. Examples of
such data include turnover, cost-per-hire, benefits participation rate, and others (we’ll get into
more of them later). Measuring this kind of information—what’s working well, what needs
improvement, and what trends to expect in the future—helps organizations figure out their
people strategy.

Why HR Metrics Matter?

In a recent study, we found that both executives and HR professionals agree that measuring
HR and its impact on an organization is critical. In fact, many executives want to hear from
their HR teams more frequently and with more detailed HR reports.
What this means is that HR metrics are no longer nice-to-haves—they are a must for any HR
team that wants to help build a solid, data-driven management strategy for their organization.

HR Metrics Impact Your Strategy

In our survey, over two-thirds of respondents said that it is very important or extremely
important to measure the impact that HR initiatives have on their organization. This is a good
sign for HR professionals because, in Peter Drucker’s words, “What gets measured gets
improved.”

And to take that quote a bit further, what gets measured matters: a full 87 percent of
respondents said that HR reports influence their organization’s strategy to varying degrees. If
your organization hopes to make informed, strategic choices for the future, it’s clear that HR
metrics need to be a piece of that puzzle.
Executives Want More HR Reports

As important as HR reporting is, it seems that some HR teams aren’t delivering as much
information as their executive teams would like. Among the non-HR executives we surveyed,
nearly one-third said their HR team doesn’t report often enough, and 16 percent said they
have no idea how often their HR team reports.

While 51 percent of the respondents did agree that their HR teams report frequently enough,
the numbers suggest that many organizations still have room for improvement. Therein lies a
great opportunity for HR. Understanding the reporting needs of your executive team, and
then meeting those needs, can open the way for you to become a more strategic force in your
organization.

Measuring Employee Experience Needs to Be a Priority

It isn’t frequency alone that matters when it comes to HR metrics—it’s also about what you
measure. We asked respondents for the types of HR reports they currently use to measure the
impact of HR, as well as the types of HR reports they wish they had. From a list of various
options, almost a quarter of respondents selected employee satisfaction as a report they would
like to have, and 20 percent selected employee engagement.

Since HR is meant to serve the people of an organization, the employee experience should be
an important part of the HR measuring process. Are HR initiatives helping to boost employee
satisfaction and engagement? Or are they hindering these things? HR metrics can help answer
these questions.

What Are the Most Important HR Metrics?

There is no shortage of things to measure in HR, from headcount to benefits participation.

But what data will give your organization the insights it needs to grow and succeed? We’ve
compiled a list of some of the most important HR metrics and formulas to monitor in your
company.
Recruitment

• Headcount: The total number of employees in your organization or within a

specific department you may be tracking.

• Demographics: The characteristics of your workforce such as age, gender,

education level, and length of service.

• Time to Hire: The average number of days between when a job is posted and
when a candidate accepts your offer.

• Acceptance Rate: The number of offer letters your organization extends divided
by the number of candidates who accept an offer.

• Cost per Hire: The average cost of hiring a new employee. You can generate this
number by adding up both internal and external hiring costs then dividing that
total by the number of employees you hired in a given period.

• Time to Productivity: The time it takes for new hires to become acclimated at
your organization and start working at full productivity.

• New-Hire Turnover: The number of new hires who leave within a set period of
time, such as within their first year of employment.

Engagement & Retention

• Employee Satisfaction: The number of employees who would recommend your

company as a good place to work versus the number of employees who wouldn’t,
indicating overall employees satisfaction (an employee Net Promoter
System℠* like ours can help you measure this).

• Total Turnover Rate: The number of employees who leave your organization
within a given period of time divided by the average number of total employees
(then multiplied by 100 to come up with a percentage).
 • Voluntary Turnover Rate: The turnover rate including only those employees
who leave your organization voluntarily.

• Talent Turnover Rate: The rate of turnover among your organization’s high-
performing and high-potential employees.

• Retention Rate: The opposite of your turnover rate in that you divide the number
of employees who remained in your organization over a given period by the
number of total employees.

• Retention Rate per Manager: The retention rate broken down by individual
teams and managers.

*Net Promoter, NPS, and the NPS-related emoticons are registered trademarks, and Net
Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc.,
Satmetrix Systems, Inc. and Fred Reichheld.

Time Tracking

• Absence Rate: The average number of days employees are absent in a given
time period, not including approved PTO (also called absenteeism).

• Absence Rate per Manager: The absence rate broken down by individual teams
and managers.

• Overtime Hours: The number of overtime hours worked by employees in a

given time period. You can calculate an average number or break it down by
individual employees.

Employee Value & Performance

• Revenue per Employee: The total amount of revenue divided by the total
number of employees.
 • Performance & Potential: A nine-box matrix that allows you to categorize
employees according to their performance and potential levels for better
succession and leadership planning.

• Employee Performance: You can track employee performance through self-

assessments, peer reviews, manager assessments, or a combination of all three.

• Goal Tracking: If your performance management software includes goal

tracking, you can see the goals employees have set, how these goals connect to
larger company goals, and the progress employees have made.

• Company Performance: A high-level comparison of how well employees are

performing versus how engaged and valued they feel.

Training & Development

• Training Expenses per Employee: The total cost of your organization’s training
courses and programs divided by the total number of employees.

• Training Completion Rate: The number of employees who completed a given

training divided by the total number of employees, then multiplied by 100 to get
a percentage.

• Time to Completion: The average amount of time it takes for an employee to

complete a given training program.

• Training Effectiveness: There are several methods for measuring training

effectiveness, including running tests or assessments to generate a pass/fail rate.

HR Service & Software

• Ratio of HR Professionals to Employees: The number of employees in your

organization per HR professional on your team.
 • Cost of HR per Employee: The total amount your organization spends on HR
functions divided by the total number of employees.

• HR Software Employee Participation Rate: The number of employees who

actively use your HR software divided by the total number of employees,
multiplied by 100 to get a percentage.

• ROI of HR Software: There are several factors that contribute to the ROI of
your HR software, but the core formula is the difference between how much the
software costs your organization and how much money it generates or saves your
organization.

How to Use HR Metrics

All of this data is important, but if you want HR metrics to have a real impact on your
organization, then SHRM recommends keeping these four tips in mind in their Advanced
Analytics: Using Data to Drive HR Excellence report.

First, analyse your data and draw conclusions from it. Producing lots of data can bring a false
sense of productivity—don’t get caught in the trap of measuring things just to measure
things. As SHRM’s report explains, “It is the insight that produces value, not the metric
itself.”

Second, SHRM reminds us that the main purpose of HR metrics is to help your organization
make better, more informed decisions. If you find yourself reporting on data that does not
contribute to larger decisions, then it may be time to adjust your reporting strategy. After all,
the report states, “Any metric that does not lead to action is not worth the time and effort to
calculate and report it.”

Third, you should identify the right audience for each HR metric. Not every figure is going
to be equally useful for every team. Some metrics, like new-hire turnover or time-to-hire, will
be especially helpful for your recruiting team, but they might not be as relevant to your
middle managers. To make HR metrics as valuable as possible, SHRM reminds us “don’t
waste anyone’s time with metrics or analytics that are not relevant to their responsibilities and
decisions.”

Fourth, your organization must determine its own goals and targets. There is no universal
magic number for what your turnover rate should be or what your training per employee
should cost. It all depends on your organization’s specific circumstances. So, your
organization should have a goal for each metric that clearly relates to your organization’s
overall success.

Examples of HR Metrics in Action

Jennifer Fisher, International Scholarship and Tuition Services (ISTS)

As director of people and culture at ISTS, Jennifer Fisher uses performance management
reporting from BambooHR to save time, identify opportunities for improvement, and boost
engagement. The reports give her organization “better visibility into where everyone is. If
everyone is going in the same direction, we are so much more productive. If everyone is
meeting their goals, that means our company is most likely meeting its goals.”

By tracking HR metrics such as goal progress, employee performance, and employee

engagement, Jennifer and her team were able to identify points of employee disengagement
and misalignment, as well as potential development opportunities. With this data, they have
helped employees improve and gotten the right people on track for leadership positions.
 Sentrifugo

Sentrifugo by Sapplica Inc. is a cloud-based open-source human resource (HR) software

system that is suited for small to midsize businesses across a variety of industries. Key
features include performance appraisal, employee self-service, leave management and time
tracking. Sentrifugo’s suite of applications helps businesses track current employees’
personal information and manage hiring decisions. With the system's employee self-service
portal, each employee can log in to access and modify their own information. In the self-
service portal, employees can also see policy documents, such as employee handbooks.

1. Getting Started

1.1 What are the roles available in Sentrifugo?

1.1.1 Super Admin
Super Admin installs the application and provides his email credentials while installing.
He/she is responsible for setting up and configuring the application to make it ready for use.
The Super Admin will be the first employee in the application, for example: EMP0001 or
SENT0001. However, in Sentrifugo, the Super Admin will not be included in the
organization’s employees’ list. The employees’ list starts from the second employee
(Organization Head).
The Super Admin has unlimited access over the entire application. In other words, he/she has
full control, and is responsible for administering Sentrifugo.
1.1.2 Default Role Groups in Sentrifugo
There are 6 main role groups available by default in Sentrifugo:
• Management
• Manager
• HR
• Employee
• System Admin
• External User
Within each role group a maximum of 5 role groups can be created. For example:

1.2 How do I log in to Sentrifugo?

1.2.1 Super Admin
After installing Sentrifugo your (Super Admin) credentials will be sent to your email address
and will also be available in a downloadable PDF file. To access the application, follow the
link provided on the screen after installation.
a. Super Admin login credentials
b. Follow this link to open the application
c. Download PDF file containing login credentials
Super Admin receives the below email:
1.2.2 Employees/Users
After the HR/Management/Super Admin adds you to Sentrifugo, your credentials will be sent
to your provided email address. You can access the application through the link provided in
the email containing your credentials.

The link leads you to the Sentrifugo login screen.

1.2 How do I set up Sentrifugo?
The Super Admin can begin setting up Sentrifugo by using the Configuration Wizard.

1.3.1 Configuration Wizard

Configuration Wizard allows you to configure settings that reflect requirements unique to
your organization and make your application ready to use. Configuration Wizard is the first
screen that is displayed if you are logging into the application for the first time.
Information is gathered in 5 steps.

Step 1: Modules
Step 2: Site Config

Step 3: Organization
Step 4: Business Units

Step 5: Service Request

 2. Dashboard

Sentrifugo’s dashboard enables you to have all the information you need at a glance. You can
decide what elements you need on the dashboard by configuring widgets. You can also view
announcements and your colleagues’ upcoming birthday.

2.1 How do I add Widgets?

You can configure your shortcuts on your dashboard using the below methods:
a. Click the organization logo on the top left corner
b. Click here link at the center of the dashboard
c. Click the logged in user’s name in the top right corner
d. Click Settings in the dropdown
e. Click the gear icon in the bottom left corner
f. Click Shortcuts button in the settings page
g. Drag and drop the selected menu item(s) in the widgets box
h. Click SAVE button to add Shortcuts in the Shortcuts pane
This is how your widgets and shortcuts will appear on the dashboard after you’ve saved them,
refer the image below:
 3. Leave Management

One of the main features available in Self Service is Leave Management. You can raise leave
requests and have them approved by your Reporting Manager/HR. Below is the leave
management process flowchart.

Process Description:
• A User (Any User who has a reporting manager) raises a leave request.
• The User can cancel his leave request unapproved or approved (one day before the leave
date)
• Either the Reporting Manager or HR can approve/reject/cancel (at any time) the leave
request.
 4. Self Service

Self-Service enables you to raise and handle leave requests. You can access your personal
information, documents and leave details. You can also check the details of the employees
working in your team. A Manager has the privilege to add Employees to Sentrifugo, provided
he/she is their reporting manager.

4.1 How do I view My Details?

a. Click Self Service in the top menu
b. Click My Details on the left menu panel
 5. Service Request

Service Request provides access to key services and information which are required by the
employees. Configure the service request workflow without coding or scripting. You can
raise and handle service requests. Below is the service request process flowchart.

Description:
• A User (Any User who has a reporting manager) raises a service request.
• The Executor(s), Viewer(s) and the User will receive an email notification.
• The Executor has 3 options:
o He/she can execute and close the service request
o Request for Management approval
o Request for User’s manager’s approval
• The actual execution takes place offline
• If the Executor has requested for either User’s Reporting Manager or Management’s
approval, then the request will only be closed once one/both of them have approved. The
Reporting Manager or Management will receive an email notification if an approval is sought
from them by the executor(s).
 6. HR (Human Resource)

HR (Human Resource) deals with user, leave and holiday management configuration. It
stores the employee data which includes personal, official, experience, documents, education,
visa & immigration details etc.

6.1 How do I manage Roles & Privileges?

Access to important data must be monitored and restricted to certain users only. Sentrifugo
understands your need for security and enables you to protect your data from unauthorized
access through the ‘Access Control’ feature.
By using the option Roles & Privileges in the module HR, each role group can be allowed or
disallowed to add/delete/edit/view certain features. Only the Super Admin & Management
role group can assign or deny privileges to users.
As mentioned earlier in section 1.1 What are the roles available in Sentrifugo? there are 6
main role groups available by default in Sentrifugo:
• Management
• Manager
• HR
• Employee
• System Admin
• External User

To create a new role:

a. Click HR in the top menu
b. Click Roles & Privileges in the left menu panel
c. Click +Add button on the right side
d. Click on the default role you want on the left side
e. Fill in the required details
f. Click on the triangle dropdown icon to view the privilege options
g. Select the modules and their respective privileges you require for this role h. Click SAVE
button
 7. Recruitments

Recruitments simplifies your hiring process by giving you the provision to initialize a
requisition, manage candidate CVs, interviews and shortlist/select candidates. Below is the
recruitment process flowchart.
Description:
• A User (Management/Manager/HR) raises a requisition request. According to the number
of approvers selected (Min: 1 Max: 3), the approvers (Management, Manager) have to
approve/reject the requisition request. A requisition can be rejected at any level
• After the requisition request has been approved, the HR can enter the details (CV) of the
candidate
• The HR will then schedule an interview
• The interview takes place offline
• The interviewer (Management/Manager/HR/Employee) provides the feedback about the
candidate
• The Management has to give their final consent, they can either approve/reject
• Once the Management approves, the HR can add the candidate to the application
 8. Organization
Organization lets you can manage your organizational information, Business Units and
Departments, Announcements and Policy Documents.
8.1 How do I view/edit information about my organization?
This information was first given in the Step 3: Organization of the Configuration Wizard.
a. Click Organization in the top menu
b. Click Organization Info on the left menu panel
c. Your organization’s details will be displayed here
d. Click Edit icon to modify details
e. Enter or modify details
f. You can change your company logo
g. Click UPDATE button
8.2 How do I view my Organization Hierarchy?
a. Click Organization in the top menu
b. Click Organization Hierarchy on the left menu panel
c. Your Organization Hierarchy will be displayed here
 9. Analytics

Analytics uses descriptive techniques to represent your organization's data and allows you to
generate custom reports and then export them to Excel or PDF. Your organizational data such
as Employee Status, Employees on Leave, Attrition Rate will be presented in the form of pie
charts, line and bar graphs. Click on Analytics in the top menu option to view the
charts/graphs.

9.1 How do I view/generate Reports?

a. Click Analytics in the top menu
b. You will be redirected to Analytics page where graphical representation of organization
statistics is displayed
c. Click on a menu item in the Analytics menu
d. Click on the corresponding submenu
e. In the selected submenu page, click on Export to PDF or Export to Excel to generate report
Or, to generate custom reports
f. Provide the specifications required to generate report
g. Click GENERATE REPORT to generate a custom report
 10. Expenses

Expenses allows you to manage your expenses, trip budgets, advances and receipts. You can
create and send your expenses for approval to your Reporting Manager. Expenses can be
placed into various categories such as food, travel, entertainment etc.

Process Description:
• User (Any user with a reporting manager) can add a new Trip
o User can submit the Trip for approval
o User can export the trip as an expense
• Advances
o User can check the advances allotted to him/her
o User can allot advances to employees reporting to him/her
• Receipts
o User can add/upload receipts
o User can attach receipts to expenses
o User can download existing receipts
• User can add expenses
o User will need to enter expense details
o User can select an advance amount/add the expense to a trip/upload receipt (optional)
o User can then submit his/her expense
o The user’s reporting manager receives the user’s expense request, he/she can:
 Approve the expense
 Reject the expense
 Forward the expense to another manager who can perform the actions on his/her
behalf.
(The other manager also has the same options i.e., Approve/Reject/Forward)

Note: There is no limit on how many times an expense can be forwarded.

 11. Assets

Keep a track of your organization’s assets like computers, laptops, phones etc. and assign
them to employees. It enables the Employers to have quick access to information related to
all the assets in the organization. A user can create asset categories and subcategories. Asset
details such as invoice number, vendor details, warranty status, asset images etc. can be
added and then assigned to employees.

Process Description:
• User (Management/HR/System Admin) can add a new Asset Category
• User then creates a new asset by providing asset details and allocating that asset to an
employee
• User can allocate/reallocating existing assets to employees
• A User (Any User/Employee who has a reporting manager) raises an asset request.
• The Executor(s), Viewer(s) and the User will receive an email notification.
• The Executor has 3 options:
o He/she can execute and close the service request
o Request for Management’s approval
o Request for User’s manager’s approval
• The actual execution takes place offline If the Executor has requested for either User’s
Reporting Manager or Management’s approval, then the request can be closed once
one/both of them have approved
• If the User’s Reporting Manager or Management reject the request, then the executor
can close the request
• The Reporting Manager or Management will receive an email notification if an
approval is sought from them by the executor(s).
 12. Appraisals

Performance Appraisal is a systematic evaluation of Employees’ performance and to

understand their abilities for further career transition. It is generally done by the supervisors
on the basis of factors such as parameters, questions, ratings etc. In Sentrifugo, the appraisal
is configured for an entire business unit or for a specific department. Below is the flowchart
of the appraisal process followed in Sentrifugo:
Process Description:
• A User (Management/HR for only specific department) initializes an appraisal
• The appraisal can be enabled to Managers/Employees
• If it is initialized to the Managers first, then they can assign questions in addition to
the ones set by the User who initialized the appraisal.
• After the Managers submit their questions, the appraisal can be enabled to the
Employees. (If you don’t require a manager to provide additional questions, then you
can directly enable the appraisal to the Employees)
• The eligible Employees will submit their self-appraisal and send it to their L1
Manager.
• L1 Managers will provide their comments and ratings for each question and overall
comment and rating for the Employees
• Depending on the number of appraisal levels selected, the L2/L3.. Managers can only
provide overall rating and comment
• The User will close the appraisal cycle
• Management will initialize feedforward for Employees who have completed their
appraisal or for all Employees
• Employees will provide feedback about their managers
• Management will view the feedback and close the feedforward process
 13. Exit Procedure

Sentrifugo's Exit module will provide your organization a smooth and hassle-free exit
process. You can create a tailored exit process suitable for your organization. You can
customize exit types, notice period, exit request approvers and exit interview questions.
Employees can raise an exit request. All the mandatory and configured approvers will be able
to provide their approval in an organized manner. Once the Exit Process has been completed,
the employee will be enabled to provide his/her feedback through the Exit Interview
Questions.
Description:

• A User raises an Exit Request.

• The Approvers and the User will receive an email notification.
• The Approvers can approve/reject the request.
• The Final approval will be done by the Super admin/Management/HR.
• After final approval, exit interview questions will be enabled to the user by the Super
Admin/Management/HR.
• User submits the feedback.
• The Exit Procedure will be closed.

13.1 How do I configure Exit Types?

a. Click HR in the top menu

b. Click Exit Procedure on the left menu panel
c. Click Exit Types in the submenu
d. Click +Add button on the right side
e. Enter ‘Exit Type’ name and its description
f. Click Save button
13.2 How do I configure Exit Questions?

a. Click HR in the top menu

b. Click Exit Procedure on the left menu panel
c. Click Exit Questions in the submenu
d. Click +Add button on the right side
e. Select an Exit Type
f. Enter a Question
g. Click to enter a new question
h. Click Save button

13.3 How do I configure Settings?

a. Click HR in the top menu
b. Click Exit Procedure on the left menu panel
c. Click Settings in the submenu
d. Click +Add button on the right side
e. Enter the required details
f. Click Save button

13.4 How do I initiate an Exit Procedure?

a. Click HR in the top menu
b. Click Exit Procedure on the left menu panel
c. Click Initiate/Check Status in the submenu
d. Click +Add button on the right side

e. Enter the required details

f. Click Save button

13.5 How do I approve an Exit Procedure?

a. Click HR in the top menu
b. Click Exit Procedure on the left menu panel
c. Click All Exit Procedures in the submenu
d. Click Edit icon against a record

a. Select Exit Status

b. Enter Comments
c. Click Save button
d. Details of the employee can be viewed
e. Details of the Exit Procedure along with the status of every level of approval can be viewed
 Book Review
The HR Scorecard Brian Becker, Mark Huselid,
Dave Ulrich

Competitive advantage in the new economy relies on intangible assets like brand recognition,
knowledge, innovation and, in particular, human capital. As a result, business leaders must
rise to this occasion by incorporating the HR function into the firm's overall corporate
strategy. In this excerpt from their new book, Brian E. Becker, Mark A. Huselid, and Dave
Ulrich explain how "managers throughout the firm can understand exactly how people create
value and how to measure the value-creation process."

The Evolving Picture of HR: From Professional to Strategic Partner

Recent decades have witnessed dramatic shifts in the role of HR. Traditionally, managers saw
the human resources function as primarily administrative and professional. HR staff focused
on administering benefits and other payroll and operational functions and didn't think of
themselves as playing a part in the firm's overall strategy.
Efforts to measure HR's influence on the firm's performance reflected this mindset.
Specifically, theorists examined methodologies and practices that are focused at the level of
the individual employee, the individual job, and the individual practice (such as employee
selection, incentive compensation, and so forth). The idea was that improvements in
individual employee performance would automatically enhance the organization's
performance.

Although such research attempted to extend the range of HR's influence, it did little to
advance HR as a new source of competitive advantage. It provided scant insight into the
complexities of a strategic HR architecture. And simply put, it didn't encourage HR managers
to think differently about their role.

In the 1990s, a new emphasis on strategy and the importance of HR systems emerged.
Researchers and practitioners alike began to recognize the impact of aligning those systems
with the company's larger strategy implementation effort — and assessing the quality of that
fit. Indeed, although many kinds of HR models are in use today, we can think of them as
representing the following evolution of human resources as a strategic asset:

The personnel perspective: The firm hires and pays people but doesn't focus on hiring the
very best or developing exceptional employees.

The compensation perspective: The firm uses bonuses, incentive pay, and meaningful
distinctions in pay to reward high and low performers. This is a first step toward relying on
people as a source of competitive advantage, but it doesn't fully exploit the benefits of HR as
a strategic asset.

The alignment perspective: Senior managers see employees as strategic assets, but they don't
invest in overhauling HR's capabilities. Therefore, the HR system can't leverage
management's perspective.

The high-performance perspective: HR and other executives view HR as a system embedded

within the larger system of the firm's strategy implementation. The firm manages and
measures the relationship between these two systems and firm performance.

We're living in a time when a new economic paradigm — characterized by speed, innovation,
short cycle times, quality, and customer satisfaction — is highlighting the importance of
intangible assets, such as brand recognition, knowledge, innovation, and particularly human
capital. This new paradigm can mark the beginning of a golden age for HR. Yet even when
human resource professionals and senior line managers grasp this potential, many of them
don't know how to take the first steps toward realizing it.
In our view, the most potent action HR managers can take to ensure their strategic
contribution is to develop a measurement system that convincingly showcases HR's impact
on business performance. To design such a measurement system, HR managers must adopt a
dramatically different perspective, one that focuses on how human resources can play a
central role in implementing the firm's strategy. With a properly developed strategic HR
architecture, managers throughout the firm can understand exactly how people can create
value and how to measure the value-creation process.

Learning to serve as strategic partners isn't just a way for HR practitioners to justify their
existence or defend their turf. It has implications for the very survival of the firm as a whole.
If the HR function can't show that it adds value, it risks being outsourced. In itself, this isn't
necessarily a bad thing; outsourcing inefficient functions can actually enhance a firm's overall
bottom line. However, it can waste much-needed potential. With the right mindset and
measurement tools, the HR architecture can mean the difference between a company that's
just keeping pace with the competition and one that is surging ahead.

A recent experience of ours graphically illustrates this principle. In a company we visited, we

asked the president what most worried him. He quickly responded that the financial market
was valuing his firm's earnings at half that of his competitors'. In simple terms, his firm's
$100 of cash flow had a market value of $2,000, while his largest competitor's $100 of cash
flow had a market value of $4,000. He worried that unless he could change the market's
perception of the long-term value of his organization's earnings, his firm would remain
undervalued and possibly become a takeover target. He also had a large portion of his
personal net worth in the firm, and he worried that it was not valued as highly as it could be.

When we asked him how he was involving his HR executive in grappling with this problem,
he dismissed the question with a wave of his hand and said, "My head of HR is very talented.
But this is business, not HR." He acknowledged that his HR department had launched
innovative recruiting techniques, performance-based pay systems, and extensive employee
communications. Nevertheless, he didn't see those functions' relevance to his problem of how
to change investors' perceptions of his firm's market value.

Six months after our meeting, a competitor acquired the firm.

The sad truth is that the HR executive in this story missed a valuable opportunity. If he had
understood and known how to measure the connection between investments in HR
architecture and shareholder value, things might have turned out differently. Armed with an
awareness of how investors value intangibles, he might have helped his president build the
economic case for increased shareholder value.

The story of Sears, Roebuck and Co.'s recent transformation stands in stark contrast to this
anecdote and shows what companies can achieve when they do align HR with the larger
organization's strategy. After struggling with lack of focus and losses in the billions in the
early 1990s, Sears completely overhauled its strategy implementation process. Led by Arthur
Martinez, a senior management team incorporated the full range of performance drivers into
the process, from the employee through financial performance. Then, they articulated a new,
inspiring vision: For Sears to be a compelling place for investors, they said, the company
must first become a compelling place to shop. For it to be a compelling place to shop, it must
become a compelling place to work.

But Sears didn't just leave this strategic vision in the executive suite or type it up on little
cards for employees to put in their wallets. It actually validated the vision with hard data.
Sears then designed a way to manage this strategy with a measurement system that reflected
this vision in all its richness. Specifically, the team developed objective measures for each of
the three "compellings." For example, "support for ideas and innovation" helped establish
Sears as a "compelling place to work." Similarly, by focusing on being a "fun place to shop,"
Sears became a more "compelling place to shop." The team extended this approach further by
developing an associated series of required employee competencies and identifying
behavioral objectives for each of the "3-Cs" at several levels through the organization. These
competencies then became the foundation on which the firm built its job design, recruiting,
selection, performance management, compensation, and promotion activities. Sears even
created Sears University in order to train employees to achieve the newly defined
competencies. The result was a significant financial turnaround that reflected not only a
"strategic" influence for HR but one that could be measured directly.

Few firms have taken such a comprehensive approach to the measurement of strategy
implementation as Sears has. Granted, retail service industries are characterized by a clear
"line of sight" between employees and customers. Thus, their value-creation story is easier to
articulate. But that doesn't mean that other industries can't accomplish this feat. The
challenges may be greater — but so are the rewards.

Why HR? Why Now?

Consider the following:
In most industries, it is now possible to buy on the international marketplace machinery and
equipment that is comparable to that in place at the leading global firms. Access to machinery
and equipment is not the differentiating factor. Ability to use it effectively is. A company that
lost all of its equipment but kept the skills and know-how of its workforce could be back in
business relatively quickly. A company that lost its workforce, while keeping its equipment,
would never recover.

This excerpt captures the difference between physical and intellectual capital — and reveals
the unique advantages of the latter. The Coca-Cola Company's experience testifies to this
reality. According to then-CFO James Chestnut, after transferring the bulk of its tangible
assets to its bottlers, Coke's $150 billion market value derived largely from its brand and
management systems.

The evidence is unmistakable: HR's emerging strategic potential hinges on the increasingly
central role of intangible assets and intellectual capital in today's economy. Sustained,
superior business performance requires a firm to continually hone its competitive edge.
Traditionally, this effort took the form of industry-level barriers to entry, patent protections,
and governmental regulations. But technological change, rapid innovation, and deregulation
have largely eliminated those barriers. Because enduring, superior performance now requires
flexibility, innovation, and speed to market, competitive advantage today stems primarily
from the internal resources and capabilities of individual organizations — including a firm's
ability to develop and retain a capable and committed workforce. As the key enabler of
human capital, HR is in a prime position to leverage many other intangibles as well, such as
goodwill, research and development, and advertising.