HR Effectiveness: What It Is, and How To Measure It

Productivity, performance, and reaching business goals are any company’s dreams. Employees are key to all that. But before you start thinking about them, there’s another, more critical stakeholder: your human resources department. HR effectiveness is the essential driver of all the processes in your organization. It can make or break employee happiness and engagement, talent acquisition, and much more.

What is HR effectiveness?

HR effectiveness refers to the HR department’s ability to reach its goals and deliver value to the organization. In more simple terms, HR effectiveness measures how well the HR department works, and how effective and efficient it is.

The term can cover various areas of the business, from the talent acquisition process to employee satisfaction, engagement, attrition, and more.

For most, an effective HR department is one that easily aligns with the company’s values and goals. It helps create a dedicated, motivated, and engaged workforce, and retain the most talented employees with ease.

Why should you measure HR effectiveness?

The HR function is inarguably one of the most important ones in your organization. When it is ineffective, you’re at risk of hiring the wrong people and losing valuable employees. You might even waste time and money on various processes, like hiring and onboarding. Measuring HR effectiveness can prevent this, and help your organization in several ways.

1. Ensure effective resource allocation

Time and money are crucial resources. You don’t want to spend them on things that aren’t helping your business. You might think that by investing more in the hiring process, you have better chances of attracting top talent. More expensive doesn’t always mean better. You want an effective hiring process, not necessarily a more expensive one.

Measuring HR effectiveness will help you spot inefficiencies. You can also see which HR activities are currently delivering the most value and allocate resources to maximize their success.

2. Understand the impact and overall value of HR

Have you ever wondered just how much HR impacts your organization? Measuring HR effectiveness provides a clear view of its value and its contribution to the organization. It is also the best way to measure HR performance and find the strengths but also the areas that could use a little improvement.

3. Inform workforce planning

Once you understand the impact your human resources department has on your organization, you can use that knowledge to prepare your workforce for the future. You’ll be able to identify skill gaps, focus on succession planning and internal hiring options, create better retention strategies, and more.

How to measure HR effectiveness?

To measure HR effectiveness, you’ll need to look at some key performance indicators (KPIs). The exact KPIs you choose might vary slightly depending on your goals and your company‌. 

For instance, a larger company could include internal mobility among these KPIs. But these numbers could mean little for a small start-up that has only been in business for a few years.

Key indicators of HR effectiveness include, but are not limited to,

• Employee satisfaction

• Time-to-hire

• Turnover rates

• Diversity and inclusion metrics

All of the above metrics help you to objectively determine how successful—or unsuccessful—key HR activities have been in your organization. They also help to flag areas of improvement, as well as strengths with your HR team. All of this intel can be used to make informed decisions about HR team staffing, resources, and strategic direction. 

7 metrics to measure HR effectiveness

Measuring HR effectiveness can boost your company’s overall productivity and performance, and help you save costs. For that, you’ll need to look at various metrics. 

How you choose them depends entirely on your goals. Are you interested in a specific sector, such as reducing turnover rates? Then you’ll need to select the metrics that show what could drive people to leave, or, on the contrary, convince them to stay. 

Do you want a broad look at HR effectiveness? Then you’ll probably want to look at as many metrics as possible. Here are seven metrics that will guide you when measuring HR effectiveness.

1. Employee engagement

Engaged employees are more efficient and effective at what they do. Plus, their turnover and absenteeism rates are significantly lower, according to a Gallup study. 

That’s why the engagement rate is essential when measuring HR effectiveness. If something is not right in this area, the HR department needs to get to work quickly.

You can use various techniques to measure engagement. Surveys, both anonymous and named, can help you get a clear picture of how your employees are feeling. 

Don’t forget one-on-one meetings and even exit interviews. Sure, you don’t want to see employees quitting. But if they do, take advantage of the moment and ask them to share their thoughts.

2. Turnover rates

This metric shows you the rate at which employees are leaving the company. It can include both voluntary and involuntary turnover. It’s good to keep an eye on both numbers, though to see HR effectiveness, voluntary attrition will be the most important one.

There isn’t a universal turnover rate—it varies by industry. For instance, the standard benchmark turnover rate for call centers will different than the standard for software companies.

Turnover rates can reflect different problems in the organization, from poor HR processes to defective company culture, pay inequities, and more.

3. Employee net promoter score

How likely are your current employees to recommend the company to their friends as a great place to work at? That is the employee net promoter score (eNPS), a metric that shines a light on how satisfied employees are with every aspect of their job and the company.

Once you have these results, HR can take steps to analyze why certain employees are unhappy and what to do about it. Or, if there are no such issues, you’ll know you’re on the right track and can create a clear path forward to maintain the positive trend.

4. Absenteeism

Absenteeism often goes hand in hand with low engagement and low eNPS, but sometimes the three might not be connected.

When analyzing this metric, you’ll also want to view the general context. One person having a sudden absenteeism rate could signal the start of an issue within a department. But it could also result from personal issues that have nothing to do with the organization.

On the other hand, if you notice a growing trend of absenteeism rates for multiple employees either in one department or across the company, it is safe to assume this is an issue that concerns the organization. 

This type of increase in absenteeism often precedes an increase in voluntary attrition and signals that something is not working. HR will need to try to find the cause and correct it as soon as possible.

5. Cost per hire

Cost per hire shows you how much you’re spending on average for each new hire. Talent acquisition can be a very expensive process, consuming both time and money, so creating an effective program is crucial.

Measuring the cost per hire will not only give you an idea of HR effectiveness. It will also help improve the talent acquisition process, reducing the cost and time to hire, and attracting the best candidates.

6. Internal mobility rate

Internal mobility rate shows how many employees are moving to different positions within the company. It can be useful to track alongside turnover rates. For instance, if you have a turnover rate of 10% and an internal mobility rate of 7%, you’re filling most of the empty positions with existing employees.

A high internal mobility rate shows you have a good succession plan and that you invest in efficient learning and development programs. You help employees create well-defined career paths, and offer them opportunities to grow.

One thing to note, though, is that this metric is more valuable to large companies than to smaller ones. The larger the company, the higher the internal mobility rates can be. Smaller companies can’t offer the same mobility opportunities regardless of how effective their HR department is.

7. HR tech ROI

The datafication of HR is in full swing everywhere and with it comes an investment in various HR technologies aimed at boosting productivity and performance.

To correctly assess this metric, you’ll first need to get clear on your goals. Why did you invest in HR technology? What goals were you hoping to achieve? 

Compare the current metrics to the ones before you acquired the new technology. Do you see progress? Did you reach your goals or are you close enough to say the expenses were worth it?

The bottom line

HR effectiveness impacts every sector of your business. An effective HR boosts productivity and performance, and it can help you attract and retain top talent.

Because HR covers so many sectors and layers in the company, you’ll need to track several metrics to measure it correctly. Things like engagement, turnover rates, cost per hire, or HR tech ROI will provide a clear picture of how much value HR is providing to the organization. They will also show you how you can improve HR effectiveness to drive change where it matters most.

On the Outsmart blog, we write about workforce-related topics like what makes a good manager, how to reduce employee turnover, and reskilling employees. We also report on trending topics like ESG and EU CSRD requirements and preparing for a recession, and advise on HR best practices like how to create a strategic compensation strategy, metrics every CHRO should track, and connecting people data to business data. But if you really want to know the bread and butter of Visier, read our post about the benefits of people analytics.