WHEN organisations review people issues, the review often circles around the financial aspect of people administration such as the cost of payroll, office space, travel, training etc.
While these are all important costs in any organisation which should be reviewed from a cost effectiveness perspective on a concurrent basis, the main people focus should be on the return of the people investment and how they contribute to the growth of the business.
As the growth of a business comes from an increase in revenue, it is all about developing a business culture which inspires people to always perform at their best for the benefit of the business.
Despite the fact that investment in people is the single highest cost in most organisations, people issues, interestingly enough, do not get the deserved attention from management. This is paradoxical, particularly in comparison to the scrutiny that most other high cost assets are subject to.
The behaviour of the people, whether they perform well or not, can actually mean the difference between success and failure for the organisation. If people are skilled, motivated and have the right competencies for their jobs, they can help the organisation exceed its business goals. At the same time, if they do not have the right competencies or are simply not interested in their work, it can lead to a complete collapse of the business in a worst case scenario.
People do not get the attention that they deserve from management because they are not seen as an asset in the true business sense.
Managements are focused on assets which are found in the balance sheet and people issues are delegated to human resource (HR) departments. Though recent surveys have shown that 'talent management' is on top of the CEO priority list today, the active involvement from the CEO still remains limited. People issues continue to be delegated to HR and may not get the attention they rightfully deserve until they are reflected in financial reporting.
Most other assets are measured for their financial impact on the business, either through depreciations or as a return on the investment, but there is seldom a follow-up on the return of investment in people. Managements are assessed on the financial performance of the business, and as long as there are no generally accepted financial measures in place to monitor the return of people investment, people management will not be included as a parameter in the assessment of their performance.
Measuring output
The importance of having an identified people strategy for healthy growth of the business will not be that obvious to the CEO until his or her performance measures, bonuses and other remuneration are pegged to people performance measurements and whether the organisation's people targets have been met.
It is surprising that people management is not treated as a strategic business priority by managements, considering the key role that people play in the performance of an organisation. The true business value of the 'people asset' should, therefore, be recorded in the balance sheet and the impact of their performance be reflected in the profit and loss account.
Measuring people's performance from a financial perspective is of course more difficult than measuring the productivity of a certain machinery, which produces a specific number of products per given time unit, or a financial investment which generates a yield without the concurrent involvement of people.
However, most tasks performed by people can be measured, analysed and pegged to the expected output of work. Some simple examples include measuring the amount of work produced by an employee per time unit if that employee's activity is purely administrative, or using a revenue parameter to measure and match people's performance against a defined cost parameter.
Whatever measures are used, the expected output from all performances must meet the expectations of the organisation as a best practice and future performance should then be measured against these internal best practices and targets.
To control the return of the people investment, the measures should be applied across all levels and grades of staff. There are efficiency gains available at administrative levels as well as business management levels. Every position in an organisation's business hierarchy should be able to contribute to the efficiency or increase in revenue.
It may more often be a matter of increasing efficiency and reducing costs on the administrative levels, while it is more about increasing revenue at management levels. When new measures are set up, it is important to also control time and other variables from other departments etc, which may have an impact on the performance of what is measured.
In conclusion, when measuring performance, it is important to have something to measure the performance against. Though there may be measurements and data available in the market place for measuring people performance, they are not commonly accepted and certainly not consistently applied by organisations.
There is a need for common performance measurement tools which are flexible enough to cater for differences in how processes are performed and how methodologies are applied and adjusted in different organisations, irrespective of the individual organisation's business needs and working culture.
Otherwise, each individual organisation will have to identify and develop its own 'best practice' measurements.
Some organisations may find it difficult to identify what the 'best practices' are for their businesses and to find the right balance between individual and collective measures. It may require a mindset change from management and many CEOs may initially find this to be a challenge, but once they understand how they can use people performance measurements to improve their financial results, they will become 'drivers' of strategic business HR in their organisations.
Creating yardsticks
Perhaps this could eventually change the fact that two thirds of all mergers and acquisitions in the market fail to deliver the anticipated synergy of the merger or acquisition, and that in nine out of 10 cases, this is due to a lack of focus on people issues.
There are many consultants in the marketplace that would be more than happy to help organisations with these developments.
The focus for management, therefore, should be to find the right measures aimed at assessing and monitoring contributions to revenue generation and the overall business performance, in line with the organisation's business strategy.
The measuring of people performance as such will not make the difference between success and failure of an organisation, but it will give management a 'health check' with respect to the impact that its people strategy has on the business. It will also provide management with a platform for informed business decision making, which, depending on how the results are interpreted, will help the CEO create a substantially improved competitive advantage for the organisation.
This article was first published in The Business Times on May 15, 2008
