Chapter Overview

This chapter discusses the concept of strategic human resource (HR) evaluation. It identifies the need for measuring human resource management (HRM) activities and taking informed business decisions. Various approaches and techniques of HR evaluation are discussed. Methods of evaluation of an individual HRM subsystem as well as an HRM system as a whole are discussed in detail. The concept of HR analytics and its use in strategic HR evaluation is also highlighted at the end of the chapter.

Learning Objectives

OPENING STORY

HR and Finance—Marriage on the Clouds

The changing business environment is making cross-functional collaboration more important than ever before. However, no partnership could have a more immediate impact on corporate performance than finance and HR departments working together. Traditionally, the two have not really worked together. The fact is many HR professionals do not necessarily appreciate a balance sheet or hard accounting data. Finance professionals may not really understand the value of things like motivation and soft skills.

However, things are changing. With the digitization of the economy and the emergence of analytics, finance and HR managers are coming together. With an eye on business transformation, both are now focusing on using business metrics and analytics to contribute to the bottom line. They are coming out of their cocoons and working in tandem. Just as the chief finance officer (CFO) helps the chief executive officer (CEO) lead the business by allocating financial resources, the chief human resources officer (CHRO) should help the CEO by building talent. The link between financial numbers and the people who provide productivity to reach those numbers should be inseparable. CHROs need to understand finance, and CFOs need to be more people-centric. When CFOs and CHROs work together, they can significantly impact the business.

An Ernst & Young survey shows companies with high collaboration between HR and finance experience an increase in topline revenue, an increase of 10 per cent or more in operational cash flow, and an increase in employee productivity and engagement.