Human Resources (HR) is the heartbeat of any organization, playing a crucial role in managing the most valuable asset - the workforce. HR leaders continuously strive to enhance the employee experience, drive career development, and create a workplace culture that fosters growth and engagement.
In this blog we will delve into the complete world of HR benchmarking, including:
In this quest for data excellence, HR benchmarking emerges as a powerful tool, allowing HR professionals to measure their strategies and practices against industry standards and competitors.
Human Resources Benchmarking encompasses various types, each serving a unique purpose. Let's explore internal and external benchmarking first, followed by some other useful types:
To embark on the benchmarking journey, HR professionals can opt for either internal or external benchmarking. Internal benchmarking involves comparing metrics and processes within different departments or units of the same organization. It is a valuable approach when the goal is to identify performance gaps and improve specific areas within the company.
On the other hand, benchmarking externally focuses on collecting data from external sources to compare with one's own HR practices. It often involves looking at industry trends, gathering data from comparable organizations, or consulting firms that provide benchmarking reports. This type of benchmarking provides valuable insights into where an organization stands relative to competing organizations or industry standards.
Performance benchmarking focuses on comparing specific HR functions or processes with similar departments or functions in other organizations. This type helps HR teams identify best practices and areas for improvement within the HR function and other functions. The leader in functional HR benchmarking is CompanySights, who have access to relevant data for every function in any business, in any industry.
Competitive benchmarking involves comparing HR metrics and practices with competing organizations in the same industry. This type of benchmarking helps HR teams understand how they stack up against their direct competitors and industry peers.
Now that you have a solid understanding of the different types of benchmarks, let's jump in to the benchmarking process!
The benchmarking process in HR involves several key steps, as follows:
The benchmarking process begins with collecting data, both internal and external. HR professionals gather data related to HR metrics, such as employee turnover, labor costs, and employee engagement. Tip: CompanySights provides a shortcut for HR professionals collecting external data, which can be a long and uncertain process.
HR leaders identify the HR processes or focus areas they wish to benchmark. It is usually linked to the HR strategy and may include career development, resource allocation, or other critical aspects of HR management.
HR professionals compare their data with relevant external information collated in the first step of the process. This may involve comparing with similar organizations, industry standards, or market share data.
Analyzing benchmarking results is a crucial step. HR leaders assess the differences between their metrics and the comparative data to identify performance gaps and areas for improvement.
The insights gained from benchmarking data inform HR leaders' decisions and strategies. They can make data-driven decisions to enhance HR initiatives, improving employee experience, engagement, and career development.
Benchmarking in HR is not a one-time effort; it's an ongoing process. HR professionals should continually collect data, analyze it, and make necessary improvements to maintain high performance and competitiveness.
Through examples we can quickly demonstrate the practical applications of HR benchmarks, which are often based on specific metrics and formulas to measure performance and efficiency. Here are some examples for the most common HR benchmarks used today:
Evaluating the headcount by function is crucial to ensure that an organization has the right number of employees in each department. This benchmarking exercise typically involves two key metrics, as follows:
This metric is particularly useful for assessing the efficiency of commercial functions in a business such as Sales, Marketing, and Customer Support. It measures how much revenue is generated per employee in these areas. The formula for calculating Revenue per Function Employee is:
Revenue per Function Employee = Number of Employees in the Function / Total Revenue
For example, if a company's Sales department generates $50 million in revenue and has 50 employees, the Revenue per Sales Employee would be calculated as:
$50 million revenue / 50 sales employees = $1 million Revenue per Sales Employee
Now let's assume that the benchmark mid-range for similar sized companies in the same industry is between $1 million and $2 million Revenue per Sales Employees. Therefore this company is on the bottom of the mid-range, suggesting that an opportunity to improve sales headcount efficiency may exist.
This metric is usually applied to all other functions within the organization. It helps determine the proportion of employees in each department relative to the total workforce. The formula for calculating Function Employees as % of Total Employees is:
Function Employees as % of Total Employees = Number of Employees in the Function / Total Number of Employees * 100
For instance, if an organization has 300 employees in its Research and Development (R&D) department and a total workforce of 1,000 employees, the Function Employees as % of Total Employees is:
300 / 1,000 * 100 = 30% are R&D Employees
External benchmark data shows us that the R&D % of Total Employees mid-range for similar sized companies in the same industry is between 25% and 35%. Therefore this company is in the mid-range, suggesting that it is appropriately sized.
Check out CompanySights for access to trusted headcount benchmark data
Employee turnover is a critical HR metric that measures the rate at which employees leave an organization. Benchmarking the employee turnover rate against industry averages can provide valuable insights into retention strategies and overall workforce stability. The formula for calculating the Employee Turnover Rate is:
Employee Turnover Rate = Number of Employees Who Left During a Period / Average Number of Employees During The Same Period * 100
For example, if a company had 20 employees leave during a year, and the average number of employees during that year was 400, the Employee Turnover Rate would be:
20 / 400 * 100 = 5% Employee Turnover Rate
Let's internally benchmark this rate to the prior three years, which was 8%, 13% and 9% respectively. With this comparison we can quickly determine that employee turnover is the lowest it has been in the previous three years, which is good news for the HR team and business more broadly.
Benchmarking labor costs against competitors is a common practice to identify cost-saving opportunities and areas of potential inefficiency. The formula for calculating Labor Costs as a percentage of total expenses is:
Labor Costs % = Total Labor Costs / Total Operating Expenses * 100
For instance, if an organization spent $2 million on labor costs and had total operating expenses of $10 million, the Labor Costs as a percentage of total expenses would be:
2 / 10 * 100 = 20% Labor Costs
External benchmarks put this metric at 30% to 40% in similar companies, which highlights that the company is either very efficient, has a lot of people in low cost countries, or is understaffed. Further analysis of the companies workforce should be undertaken.
These are just a few examples of how specific HR metrics and benchmarking can be applied to evaluate and improve various aspects of HR performance. Using the right metrics and formulas, HR professionals can gain valuable insights into their organization's efficiency, employee turnover, and cost management, ultimately driving data-informed decisions and continuous improvement.
Benchmarking in HR offers a multitude of benefits, and HR leaders should consider its advantages for their organizations, including:
HR benchmarking provides reliable data that guides HR leaders in making informed decisions. It ensures that HR strategies and initiatives are based on data-driven insights.
By identifying areas for improvement through benchmarking, HR leaders can create an environment that fosters career development and engagement, resulting in a better employee experience.
Competitive benchmarking allows organizations to compare themselves to industry peers and competitors, helping them identify opportunities to gain a competitive edge.
HR benchmarking is a tool for continuous improvement. HR leaders can adapt and refine their strategies based on benchmarking data, ensuring ongoing success.
Human Resources Benchmarking has become a crucial tool for HR leaders. It enables them to make informed decisions by providing reliable data for comparison. By understanding where their organization stands in relation to industry averages, HR leaders can identify areas in need of improvement, allocate resources more effectively, and set benchmarks for success.
In an era where data-driven decisioning is the norm, HR leaders who leverage benchmarking data are better equipped to drive their HR initiatives. These insights can lead to more successful organizations with higher employee satisfaction and engagement, ultimately impacting the organization's overall business performance.
Looking for reliable HR benchmarking data? Search here
To make the most of HR benchmarking, HR teams should consider these best practices:
Choose HR metrics that align with your organization's goals and focus areas. Selecting relevant metrics ensures you collect data that truly matters to your organization's success.
External HR benchmarking data can provide valuable insights. HR professionals can identify relevant sources, research published studies and reports, and even participate in surveys and research to obtain external data. The key thing is to make sure that they are a trusted data provider, such as CompanySights who specialize in HR benchmarking data.
Seek employee feedback on HR initiatives and use it to make improvements. Valuing employee input can lead to more effective HR strategies.
HR benchmarking can be a complex process, but with the right approach, it can yield significant benefits. The two key tips that we have for you are as follows:
HR leaders should establish the necessary infrastructure to facilitate effective HR benchmarking. This includes data collection systems, analytics tools, and the right personnel with the expertise to manage benchmarking efforts.
Ensure that benchmarking data is collected and analyzed promptly to provide real-time insights and support quick decision-making. Try out CompanySights, which provides you trusted HR benchmarking data in real-time, so that you can get straight to the people insights.
HR benchmarking is an invaluable tool for HR leaders and organizations looking to enhance their HR strategies and practices. It provides a clear view of how an organization compares to others in the same industry or to industry standards.
By identifying performance gaps, setting benchmarks for success, and making data-driven decisions, HR leaders can create a more engaging and fulfilling employee experience, drive career development, and improve overall business performance.
HR benchmarking is not just a one-time endeavor; it's a continuous process that requires commitment and dedication to achieving excellence in HR management. Good luck!
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