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Tap the CFO on Metrics

October 22, 2006
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Let's face facts: Numbers and dollars are the language of business. If you have been in an executive committee session you already know that results are what executives talk about. Steve Ballmer of Microsoft is famous for describing the company culture as being a "summer math camp," saying that "people have to prove they have the right answer."

Yet the HR metrics currently in use by most organizations prove nothing. Having written a book on metrics and having advised dozens of companies on the subject, I find that most HR metrics fail to excite anyone in the executive suite because the ones selected are the wrong metrics. The reason isn't surprising. Few organizations involve the owner and "godfather" of all numbers, the CFO, in developing a suite of measures that have real meaning and value.

CFOs are generally the first to ruthlessly pick apart HR metrics and the process used to derive them, so it just makes sense that they be involved in the process from the beginning to ensure that what is produced is valid and of value. Professionals in marketing and product development don't blindly select new features for what they plan to sell to a customer. They conduct surveys, focus groups and product usability tests to help ensure that what is delivered is something the customer wants and needs. HR must learn to do this with its internal customers as well.

I first learned the value of involving the CFO's office during a conversation many years back with Phil Wilson, who at the time was senior VP of human resources at Oracle. I asked him: "What is the smartest thing you have ever done in HR?"

He said that he had hired away one of the CFO's analysts to work in HR and develop its metrics. The benefits of this approach include the following:
  • HR can learn to use the language of the CFO. That means using business terms like "dollar impact on revenue," "productivity," "ROI" and "payback period."
  • HR can learn to convert metrics into dollar impacts. For example, instead of reporting that the turnover rate was 20 percent among mission-critical positions, you would report the dollar impact, such as a loss of $6.3 million per year.
  • HR and finance working together gives each function visibility into the other, alleviating the fear and misunderstanding that often create friction between the two.
  • When the final metrics are selected and presented to the CFO, there is little resistance. That's because financial experts were involved in developing them.
One of the best-practice leaders in partnering with finance is Trudy Knoepke-Campbell at HealthEast Care System in Minnesota. That organization used a process similar to the one that I am outlining here to help determine metrics that demonstrate a connection between HR issues and hospital operations.

The process begins by identifying potential customers of the metrics and defining their decision-making needs. For each major customer, work with a trusted employee of that function or department to help you determine what the customer will monitor and value, and what process the department would accept as valid for collecting the data and calculating the metrics.

Once the preliminary set of metrics has been selected, I recommend that you test them with a few key customers. HealthEast used a spreadsheet, but I recommend that you use 3-by-5 cards to present your metrics. Just place them on a conference table with the name of the metric, the goal of metric and a sentence on how the data will be collected and reported.

Then have the customer rearrange the cards into a row, starting with the most useful. Once the testing is done, allow the VP of HR to add or subtract any omitted or redundant metrics. In the final step, I recommend that you sit down with the CFO and again spread out the 3-by-5 cards and ask her to select the ones that she considers valuable.

Be prepared to answer any questions about how you will gather the data and the formula for calculating the metric. If variations exist between the CFO's choices and those of the other customers, let everyone know so that they can discuss their choices openly to arrive at a final set.

Workforce Management, October 23, 2006, p. 42 -- Subscribe Now!

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