The Metric System

In 2002, when Lee Gelb advocated a rigorous productivity analysis of Starbucks employees, her belief in the value of metrics was regarded as quixotic or worse, by many people in human resources. True, F.W. Taylor had pioneered what came to be known as "scientific management" through detailed labor studies nearly 100 years before, but within HR the idea that productivity could be assessed as if workers were robots flew in the face of the department's ostensible people-first mission.

And top management wasn't interested, anyway. Gelb, senior vice president of human resources at Starbucks, soon found that her goal of using sophisticated metrics to track, rank, and analyze the ROI on recruitment and development of every employee garnered little support anywhere in the company. "We really had to put up a good fight," recalls Gelb, who left the stimulant supplier seven years ago. "Management agreed that it was important, but they wouldn't give us any money for it. So we set out to prove to them that such programs would save money and reduce turnover."

Remember, this was 2002 — with $3.3 billion in revenues, Starbucks had already risen to become the world's fastest-growing brand, according to Interbrand's rankings. Between 2000 and 2003, the number of stores nearly tripled, from about 2,300 to 6,600. "We were spending an enormous amount of money on executive recruiters, with not very good results," recalls Gelb. That capital outlay, she argued, would be better invested in additional training for homegrown talent.

But while corporate took great pride in touting its higher level of "employee satisfaction" — which, the theory went, gave profits an extra shot by reducing turnover and thus the costs of entry-level training — it was far less certain about programs that would help staffers move up the ladder. "It's wonderful to keep people," says Gelb, "but everybody needs training. We shouldn't have been putting people in positions where they were going to fail because they didn't have the experience or expertise." Fortunately, even without the budget she sought, Gelb was able to tap into expert advice because "outsiders were anxious to work with us. They thought they would gain a lot by having an association with Starbucks."

Most companies aren't in that position. In fact, just figuring out what to measure and how to measure it has often proven to be more than most companies could tackle. Even a basic metric like turnover wasn't useful unless HR could figure out, using surveys perhaps, why employees were leaving. "HR didn't know what to measure, or what to do with the measurements they had," says Richard Beatty, a professor of human resources at Rutgers University.

HR, in short, settled into a comfort zone, delivering a handful of rudimentary metrics that usually failed to connect employee performance to corporate performance. Certainly none of those measures helped senior executives respond to the economic collapse. The relationship between finance and HR, often strained to begin with, got worse, since the failure to deliver meaningful metrics reinforced the suspicion that HR was far more interested in lavishing empathy on workers than applying brainpower to the business. Executives were more apt than ever to tune out HR suggestions about improving "work/life balance" or bettering "employee engagement" scores, since they had no idea how such efforts would rescue the company's earnings per share.

"HR people have the responsibility for a very expensive resource — the workforce," says Beatty. "But in the end, what does HR deliver?"

Pressured by the downturn, senior management now wants to know why HR can't behave more like its functional siblings — IT, say, or purchasing — and identify moves that will maximize the company's human-capital investment. Where are the inefficiencies in the company's talent supply chain? If employees are "the company's most important asset," as HR executives oft proclaim, why isn't that asset being coolly assessed like any other?

"Company executives are all over HR saying, 'Give me something that will impact quarterly results now,'" says Drew West, product marketer at Kronos, which makes workplace-measurement software. More than that, they are also asking HR for help with understanding the future. "This recession came out of the blue for many organizations," says Kevin Martin, vice president and group director at Aberdeen Group. "Now they want to plan for the unexpected. They want to look more than 18 months out and assess how the people they have will map to what they need."

The fact that CFOs suddenly want more out of HR is a complete reversal of how they've usually viewed it: as a locus for cost-cuts. Is now really the time to spend money on recruiting? Do programs that help employees develop additional skills matter when there are so few jobs for them to go to? Is there a CFO anywhere who wants to hear about the long-term value of staffing up a given area at a time when revenue-per-employee is under scrutiny?

Thus HR must confront a major change in expectations as it seeks to demonstrate exactly how it boosts productivity, fattens margins, or indisputably sharpens the company's competitive edge. But that kind of change may have to come from without as well as within. C-suite executives may have to provide a clear mandate, and funding, to propel HR to the next level.

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