A well known Human Capital consulting firm recently published their structured approach to taking HR to the next level. Within this was a section focused on identifying HR’s primary performance measures.

Quite rightly they suggest that HR performance measures should focus on business impact, not just on HR operating efficiency. They go on to say that one of the best ways to measure how effectively a company is leveraging the value of its people is to consider its workforce productivity, defined as revenue per employee divided by profit per employee.

Sounds great, right?

Unfortunately in the HCM sphere, there is a tendency to force complex people metrics into oversimplified, financially relevant KPIs. Whilst HCM should absolutely be linked back to business value, value is not delivered by creating relationships between HCM and financial performance that at best are not causal*, and at worst do not exist at all.

“Workforce Productivity” is an example of a metric that has absolutely nothing to do with measuring the effectiveness of people. Before the iProCon HCM email server is crashed by countless emails pointing to the existence of “Employees” in the definition, consider the following:

A company (let’s call it B.Com**) makes widgets in a factory staffed by 10 people. In 2007 B.Com made £12k of profit on revenues of £100k. In 2008 B.Com increased profits on the same £100k revenues to £15k, without changing their staffing. B.Com have done well in 2008, but their Workforce Productivity has declined from 8.3 to 6.7! But wait, there’s more...

Consider the definition of Workforce Productivity: Revenue/Employee divided by Profit/Employee


Basic maths tells us that this equation can also be expressed as: Revenue/Employee multiplied by Employee/Profit


Cancelling out the “Employees” from the top and bottom lines leads to: Workforce Productivity = Revenue/Profit


Don’t believe it? Consider B.Com again: In 2007 they made £12k of profit on revenues of £100k, rising to £15k profit on £100k revenues in 2008.

2007 Workforce Productivity = 100/12 = 8.3
2008 Workforce Productivity = 100/15 = 6.7

Jargon and irrelevant but nice sounding KPIs are prevalent within the HCM sphere, as more organisations try to show how their HCM solutions drive real, sustained business value. The challenge is to see through the flashing lights and marketing spiel and ensure that real, causal links exist from HCM interventions back to the core drivers of business value.


* Causal: when one event occurs as a direct result of another event. Some events may be correlated (i.e. they move together), but there is always the chance that they move together because of another event.
**B.Com is a fictional company. Any resemblance to other companies, either past or present, is purely coincidental.