Measuring HR and OD effectiveness

In a results oriented world of measurement, analytics, and accountability there is little room for functions that are unable to prove that they add value to the bottom line. Evaluating the link between organizational performance and OD/HR practices is complex and there is no one right way to do it.

A report commissioned by the UK's Institute of Personnel and Development in 1997 (Patterson, M. G., West, M.A., Lawthorn, R. and Nickell, S. Impact of People Management Practices on Business Performance) sought to establish a link between Human Resource Management (HRM) practices and the financial performance of organizations: one in a series of efforts to prove that HRM contributes positively to the 'bottom line'. The findings from this research did reveal the possibilities of demonstrating a measurable impact of HRM on organisation performance and productivity.

More recently (2003), and building on the original research, the CIPD published Understanding the people and performance link: unlocking the black box. The model developed in this research demonstrates that people management practices in themselves do not create value. They do, however, create the building blocks of performance: ability, motivation and opportunity:

• Ability is the assumption that people want to apply for jobs, have their attributes recognised and are willing to learn new skills.
• Motivation assumes that people can be motivated to use their ability in a productive manner.
• Opportunity assumes people will perform well, engage in high-quality work and participate in wider activities such as team initiatives or problem-solving if they are given the opportunity to do so.

Another research report on the links HR practices and organizational performance comes from, Laurie McBassi, reporting on her research in the paper Employers' Perspectives on Human Capital Development and Management , submitted to the OECD in 2006 found that

A wide variety of human capital elements that are statistically associated with key organisational outcomes, but that the exact list of items that are most closely related to key outcomes in any given organisation bears little relation to the list of most important items in other organisations, even (in the case of the two manufacturing firms) within the same industry. It points to the complexity of measuring and managing human capital within organisations: there is no handy list of a small number of items that can be targeted in a quick effort to address an organisation's human capital deficiencies. Rather, a wide range of items, across multiple categories of human capital, must first be examined in order to identify those that are most closely related to the outcomes that the organisation is seeking. Only then can an organisation know where its human capital improvement efforts might most usefully be targeted.

Method of evaluating the effectiveness of OD interventions lag those of HRM. A 2009 report by Liz Finney and Carol Jefkins of the UK Roffey Park Institute, Best Practice in OD Evaluation opens with the words

We approached our research aware that there are many practitioners in the field of OD who believe that its systemic nature makes it hard to measure; some hold a world view that says it's inappropriate even to try.

…. In the prevailing economic climate we would argue that it is critically important. And as we emerge into a post recession world, we believe that being able and willing to demonstrate the impact of OD on the effectiveness of organizations will be imperative if the discipline is to maintain and increase its credibility.

Thinking about evaluation I'm wondering how important it is for HR and OD to show by rigorous analytics that they add value to business performance and productivity? Does it make business sense to do so, or is it too complex and time-consuming a task to get to reliable and tailored metrics that drive business strategy and performance? Does the ability to evaluate effectively have a bearing on the relationship and organisational positioning between OD and HR?