Saturday, October 15, 2011

Revenue Per Employee: The Only Performance Goal You'll Ever Need For HR Leaders

Getting older is a bitch.  The body breaks down, the hair starts going gray.  Pharmaceutical commercials begin to be more interesting.

You also realize the way you do it isn't the only way it can or should be done.  Some call that perspective, others are blindsided by the shocking revelation they're a face in the crowd.

Case in point:  How do you measure the effectiveness of an HR Leader?  I'll define HR Leader fairly broadly to keep everyone engaged – let's say that's not only those who lead the HR function for an entire company, but also those with generalist responsibility over a client group of employees.  If you support a line of business or a function and have a flock of employees to hire, train and fire, you're an HR leader.

Talking about the effectiveness and performance of HR is a black hole.  You've got the transactional side, performance, talent acquisition, etc.  All sub-areas of HR have metrics, and HR leaders have been told that measurement is the key to the HR function being viewed as strategic.

But the top 20 metrics you can cite are really just white noise when it comes to measuring the effectiveness of an HR leader.

There's only one metric that really matters when measuring HR.  It's called Revenue Per Employee (RPE).  Take the revenue produced by your company or business unit and divide it by your total number of employee (FTEs for the budget geeks in the house).  

Compare Revenue Per Employee year over year for your HR leader.  Did it go up or down?  That's all you need to know. The rest is BS.

Here are some thoughts why Revenue Per Employee is the only metric that makes sense when viewing the performance of an HR Leader:

1. If it's about the business, there's no better measurement than revenue.  Everything else is a squishy mess that the line leaders don't understand or care to comprehend.

2. Your HR leader influences the biggest cost center in most companies – the people.  If revenue takes a hit, he/she should always have their eye on the denominator of the RPE formula. That's the expense side of the equation, and while it's easy to make the number look better for a couple of quarters by cutting heads, the RPE metric makes the short-term focus be balanced with a view towards what's going to deliver revenue over the next year – or five.

3. Everyone's situation is different and needs change from company to company.  The best HR leaders aren't attached to any single platform of what talent levers are most important.  Drop the right HR leader into the top job, and they should be able to evaluate the strategy that's going to deliver an upward trend on Revenue Per Employee for any company – whether that's Tyson Foods or Groupon.

4. All the stuff HR people love to argue about is embedded in the Revenue Per Employee formula.  You have a secret sauce related to Performance?  Innovation?  Sales?  Culture?  If it's something that can drive revenue, it impacts how you're going to be measured via Revenue Per Employee.  Pick any pet area of HR you love.  It's included in the formula if you really believe it can drive business results.  The big question is whether you can get more ROI towards Revenue Per Employee by focusing your time somewhere else.  That's the game and the question you have to ask.

5.  Revenue Per Employee is a great litmus test for an organization's HR MBOs.  You've got a project you want to spend a quarter on?  Wow, that organizational design stuff sounds great, but hold up – how's it going to generate a positive return to Revenue Per Employee?  If you can't articulate the impact to RPE and at least BS me a bit for how we're going to measure the return, you're probably not ready to talk about the money you want to spend on the project.

Start thinking about who you are as a HR pro related to Revenue Per Employee, and you quickly see some areas that you're weaker in than you'd like to be.  Me?  I'm a decent analytical guy and love to recruit.  My gap?  I'm not sure I've spent enough time thinking about training and development and how it impacts the productivity of the workforces I've supported.  If my past CEOs would have thrown the Revenue Per Employee slide up on a quarterly basis, that gap would have been exposed early and often.

Revenue Per Employee.  The smart CEOs don't need the details of what you're doing with the workforce, they just want to see that metric over time, then have a little conversation about the top 5 things your team is focusing on that's going to drive that number up. 

Demand to be evaluated via Revenue Per Employee only – if you dare.

Kris Dunn is the CHRO at Kinetix, a RPO firm for growth companies headquartered in Atlanta.  He's also the founder of the talent blogs The HR Capitalist and Fistful of Talent.

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