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A Benchmark Is Not a Scalpel

November 18, 2008
Related Topics: HR Services and Administration, The HR Profession, Strategic Planning, Featured Article
I’m down on benchmarking today. Several of my recent clients are convinced that being more efficient in their human resources processes will lead to a need for fewer people in the HR function. I agree with my clients. I just can’t prove it.

    Back in the pre-Internet age, benchmarking was about visiting other companies to see how they accomplished seemingly unattainable feats. For example, the typical number of inventory turns in one industry was 10 times per year, but one company figured out how to do 50 turns per year. Benchmarking teams would visit this exceptional company to learn about their combination of processes, technology, organization, culture and intangibles to see how they were able to do it. More important, they would copy what they could to achieve similar business results in their company.

    In short, benchmarking used to be about the art of the possible and breakthrough thinking. Now, benchmarking is used as a staffing or full-time equivalent calculator. Don’t get me wrong, it’s a pretty good calculator—you put in volumetrics, such as the number of new hires, hourly/salaried employees, benefit plans, etc., and the models crank out the number of FTEs you need.

    So because of benchmarking, my client, often the CFO, knows that the opportunity exists to reduce total HR headcount by 20 to 30 percent to get to top-quartile performance. Plus, there is often agreement that HR is inefficient and transaction-oriented, and would like to help the business in ways besides recording employee status changes onto a form to be entered to the non-integrated computer system and tirelessly matched to the original paper form by payroll. There just has to be an opportunity to reduce staff, doesn’t there?

    Will the surplus HR staffers please stand up?
If only the "extra headcount" in HR would wear bright red suits to work so we could easily identify them. Unfortunately, it works out to more like a red sock here, a red collar there, maybe a red sleeve or two if you’re lucky. With fractional FTEs spread across HR processes (such as recruiting, benefits, compensation and employee development), the only way to "unlock" the opportunity is with a combination of process redesign, organization restructuring and some new technology. Those are each big pills to swallow, and the benefits need to be quite large to make it all worthwhile. Maybe my clients just aren’t big enough for these solutions.

    Plus, when my clients and I choose not to examine how effectively HR supports the business, we’ve increased the risk of improving HR’s efficiency at the expense of service levels, potentially in critical areas of the business. For example, benchmarks may show that training headcount is higher than first quartile, suggesting the opportunity for cost savings. However, a key goal this year is to bring a new product to market, placing demands on the HR organization to acquire, onboard and train new employees. Another demand on HR relates to the ongoing push in plant training activity to prepare the workforce for the large number of employee retirements predicted over the next few years. Thus, increasing the efficiency of the training headcount to first quartile could impair the capabilities of the workforce to deliver on business goals.

    The training example above touches only one type of service HR provides to the business. Predictably, there are other strategy-driven imperatives that require HR support, for example:

  • A new national accounts sales structure that requires compensation support to align incentive payments.

  • An increased level of cross-business unit cooperation requires organizational development skills and resources to mitigate cultural differences.

  • Continuing growth in new areas requires succession planning to deepen leadership bench strength.

    Without the strategic perspective highlighted by the examples above, first-quartile performance is certainly commendable, but may be considered lamentable by line managers who fall short of their goals.

    Rather than focusing on benchmarked headcount, HR leadership should encourage metrics that reflect workforce readiness, competency improvement, recruiting/onboarding cycle times, national account penetration, and other measures that more closely link to business results. The money HR saves operationally through headcount reduction will have little impact on the business. The best outcome that can be hoped for in this scenario is improved transaction efficiency. A more likely outcome is losing the six to 12 months it took to build a business partnership, while degrading both the level and quality of service to the business.

    My recommendation boils down to this: Don’t substitute benchmarking for leadership. Most competent leaders have a sense of what needs to be done. Benchmarking can be a powerful tool to help inspire the organization to higher levels of performance ("We will be a top 10 percent company in operating efficiency"), but only as improvements are made in strategic alignment and business impact.

    Thus, benchmarking becomes a tool to enable a transformation of the HR function, not a scalpel to trim its fat. I commend you if you’re a top-quartile performer, because you’ve obviously worked hard on process efficiency and invested appropriately in technology. However, without the perspective of your business customers, I’m not willing to give you a clean bill of health.

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