Strategic Human Resource evaluation.

Every day more organizations recognize that their people are a source of competitive advantage. As a result, HR departments are evolving from playing a merely administrative role to becoming "strategic partners" responsible for contributing to the achievement of business objectives. This evolution requires that new ways of defining and assessing HR success be developed. Traditional operational measures of internal efficiency are not sufficient. HR departments must now be able to demonstrate the value of their strategic contributions.

This article describes a framework for HR evaluation that can help assess the impact of HR on the organization's business objectives. It then presents information that HR directors from 72 companies in Spain provided regarding their HR evaluation practices, as well as the roles realized by their HR departments. The findings illustrate the current state of HR evaluation and show how, as HR departments assume more strategic responsibilities, their evaluation systems become increasingly sophisticated.

Traditionally, many human resource departments measured their accomplishments by how busy they had been (Cascio, 1991): how many people they had recruited or interviewed, how many hours of training they had provided, or how many grievance procedures they had handled. This practice responded to a view of HR as an administrative support function needed to carry out personnel-related activities. This conception of the HR function is changing as organizations begin to realize the potential competitive value of their people (Wright, et al., 1994). More and more organizations are making conscious efforts to design HR practices that allow them to develop the strategic value of their people. This new approach, referred to as strategic human resource management (SHRM), calls for an expanded HR role that includes strategic as well as administrative functions (Boxall, 1996; Kane, 1996; Purcell, 1995; Schuler, 1992). Changing the focus of HR also requires that new ways of defining and assessing HR success be developed.

According to Ulrich (1998), the modem HR function encompasses four complementary roles. The first role, administrative excellence, is important because it is an immediate way of contributing to the overall efficiency of the organization and it helps build the credibility that HR needs to assume other influential roles. The second role HR professionals must realize is that of employee champion. Recognizing the value of committed, motivated employees, HR must play the critical role of employee advocate. The HR department must be the employees' voice in management discussions and should initiate actions that address employees' issues and concerns.

Two additional roles modern HR departments must realize are those of strategic partner and change agent. Being a strategic partner calls for an ongoing evaluation of the alignment between current HR practices and the business objectives of the firm, and a continuing effort to design policies and practices that maximize this alignment. HR professionals must help determine how the company's current culture, competencies, and structure must change in order to support the organization's strategy. At the same time, the HR department should play a key role in implementing and managing these changes, assessing potential sources of resistance to change, and collaborating with line managers to overcome these barriers (Exhibit 1).

The first two roles mentioned, those of administrative expert and employee champion, are of a day-to-day, operational nature, whereas the roles of strategic partner and change agent represent the emerging strategic dimension of the HR function. In a similar fashion, the roles of administrative expert and strategic partner deal with processes, while the employee champion and change agent roles focus on people.

If this strategic turn in the HR function is taking place, one should expect to see a parallel trend in the way in which the HR department evaluates its own performance. While traditional measures may indicate the level of operational efficiency, the impact of specific HR programs (or sets thereof) on the firm's strategic objectives must also be assessed in order to evaluate the new strategic roles. According to Ulrich (1997a, p. 5) this new focus "should be on the deliverables not on the doables." In fact, there is a growing body of research that focuses on studying the link between SHRM and firm performance (Becker & Gerhart, 1996; Dyer & Reeves, 1995; Guest, 1997; Huselid, 1995; Ichniowski, et al., 1997; Patterson, et al., 1997; Tyson, et al., 1997; Youndt, et al., 1996). Despite the growing academic interest in the strategic impact of SHRM, recent research (Cabrera & Cabrera, 2001) indicates that many firms may still be limiting their assessment of HR to activity and efficiency figures and that little eff ort is being paid to evaluating the effectiveness of HR with respect to key business objectives.

This article presents data collected from the HR directors of 72 companies in Spain to describe the state of HR evaluation. The purpose is to discover whether these companies, which represent a number of different industries, attempt to assess the strategic contribution of human resources. The study also examines the extent to which these HR departments realize each of the four roles advocated by Ulrich. Finally, the possibility is explored that firms' inclination to evaluate their HR function strategically is conditioned by the roles their HR departments realize.

In the next section a general framework for strategic HR evaluation that is currently surfacing in the field of SHRM is described. Then the information provided by the HR directors regarding their evaluation practices and the HR roles that their departments emphasize are presented. Finally, the implications of the findings are discussed and some directions for future research are suggested.

Strategic HR Evaluation Framework

SHRM is based upon the belief that critical organizational capabilities or behaviors are necessary for achieving a particular business strategy. For instance, a high-tech firm pursuing an innovation strategy will likely require a staff composed of highly committed, creative people working in self-managed teams in a culture that tolerates mistakes. These organizational capabilities are achieved through the individual and collective behavior of an organization's employees, which is influenced, in turn, by the organization's HR practices (Cabrera & Bonache, 1999; Lado & Wilson, 1994). So, once the behavior patterns necessary for achieving business objectives are identified, an HR system should be designed that attempts to develop these key capabilities (Yeung & Berman, 1997). In light of this, in evaluating an organization's HR function, both the extent to which current behaviors are contributing to the achievement of the organization's strategic objectives and the extent to which current HR practices are encour aging the desired behaviors must be assessed. Traditional HR measures of operational efficiency do not provide this information.

Some new approaches to the evaluation of HR have been introduced recently. Boudreau and Ramstad (1997) discuss the importance of separating the impact that HR practices have on internal process efficiency from the impact that HR has on employee behaviors and strategic results. They propose a model containing the following three levels of HR evaluation: (1) what HR does, (2) what HR makes happen, and (3) business success. Thus, in addition to traditional operational measures of HR activities, they argue that measures are needed that show the direct effects HR practices have on employee behavior and attitudes and that show how these combined changes produce strategic results. In their recommendations for improving HR evaluation, the authors highlight the importance of developing explicit models that specify the links between HR practices, employee behaviors, and firm results.

This approach to HR evaluation fits well with current models of strategy and management control that move beyond the traditional financial-only focus. For instance, according to the balanced scorecard, a popular framework of management control proposed by Kaplan and Norton (1992, 1996), traditional financial measures need to be complemented with measures of organizational performance from three other perspectives: customer, internal business processes, and learning and growth. The balanced scorecard also attempts to link all measures through a cause-and-effect chain; thus, it acts as a management, rather than measurement, system by helping managers to better understand how different measures are related and how they ultimately contribute to financial results (Bontis, et al., 1999).