Kris Dunn | Founding Member, HRExaminer Editorial Advisory Board Member

Kris Dunn | Founding Member, HRExaminer Editorial Advisory Board Member

Please welcome Kris Dunn back to The HRExaminer Editorial Advisory Board. Who is Kris Dunn? That’s an easy question. Kris is the Chief Human Resources Officer for Kinetix, a RPO firm dedicated to growth companies. Prior to becoming a part of Kinetix, Kris has served as a VP of HR for DAXKO, a VP of HR for SourceMedical, a Regional VP of HR for Charter Communications, a HR Manager for BellSouth Mobility (subsequently known as Cingular and AT&T based on which round of consolidation you are referring to), and a Project Manager in the market research division of Aragon Consulting (gobbled up by IBM Global Services). With that track record in mind, he can say what he thought he never would – he has almost 15 years in the HR biz. Full Bio…


Revenue Per Employee: The Only Performance Goal You’ll Ever Need for HR Leaders

by Kris Dunn

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.

 
  • http://twitter.com/Genepease7 Gene Pease

    Kris,
    I do believe it is extremely important to have your metrics focused on business results and forcing HR to align with business strategy; however, do you think the single metric of Revenue per Employee is generalizing that number? Are you assigning an average number to all employees? I believe you could drill this down further. You don’t want to assume that your secretary has as much influence over revenue as your sales executive does. By utilizing multiple metrics without getting overly complex, you can determine what impact each position is having and report the results in a more effective, specific manner.

    Gene Pease
    Capital Analytics, Inc.
    http://www.capanalytics.com

  • http://twitter.com/kris_dunn Kris Dunn

    Hi Gene - 

    Fair point on the secretary.  Pressure on that number would focus more attention on who needs an admin, and maybe the best place to have admin support might be Sales…?

    BTW – I recognize the need to have drill down metrics below this one, but at the end of the day I like the generalized pressure it puts on the function to drive creativity, innovation and yes, raw productivity.  Thanks for the comment, going to look you up on the social tools and connect…

  • http://twitter.com/JaxStateFan Hank Humphrey

    How do legal issues relate into that? There is more legal issues today than ever. By Doing The Right Thing you are keeping the company out of legal issues with OSHA, EPA , EEOC etc. This just doesn’t happen easily.
    You are thinking more like an office person too. Manufacturing folks have known this for years and we think profitability all the time. Ex. Theory of Constraints.

  • Lisa Rowan

    I agree, Kris, with a few minor caveats. I advocate putting the topmost corporate goal at the top of the decision tree with the metrics HR theoretically can control below it, eg increase shareholder value at the top and below that people-metrics that infuence the top goal like improve productivity.  Where revenue falls short is in the obivous places like public sector and non-profits.

  • fool with a plan

    Kris,

    Thank you, thank you, thank you! If I could change anything about HR it would be helping HR folks understand that HR=$. How we hire, who we hire, how we integrated them into the company, the effectiveness of their managers, how we train them, etc. – all the “soft” stuff – has a DIRECT impact on the bottom line. The sooner us HR folk really get that we are, first and foremost, businessmen and businesswomen, the sooner that other business leaders will recognize us as peers. I know I’m preaching to the choir, but the formula is pretty simple: HR=Business Effectiveness/Output=$$$.

  • Dave

    Great post, but 2 thoughts. First, why not profit per employee? It includes the cost/productivity effects that HR programs should be aiming at creating. 

    Second, why not profit (or revenue if you like) divided by the amount spent on human capital? Say I replace 3 workers with 2 more productive (and more highly paid) workers, but in doing so my costs happen to increase… my revenue/employee metric has increased but does the company? Why should the heads matter more than the total financial investment that they involve?

  • Jeff Fairchild

    1. I tried signing in with facebook and yahoo, they both failed, so you may want to figure out what’s going on there.
    2. I found this through Google search, so I don’t give a damn about HR. So from a normal person perspective, it sounds really stupid when you say that all that matters is revenue. Do you think investors really care as much about revenue as they do profit? Hello? Who gives a shit about revenue if the company’s earnings are negative?

Page 1 of 11
More in Editorial Advisory Board, HRExaminer, Kris Dunn (710 of 1133 articles)