MEASURING THE EFFECTIVENESS OF HUMAN RESOURCE MANAGEMENT – SOLUTIONS FOR DETERMINING THE RIGHT DIRECTION FOR HR DEPARTMENTS

In recent years, the human resource management (HRM) practices of the Vietnam National Textile and Garment Group (Vinatex) have undergone many innovations, positioning HR as a strategic function essential for sustainable development. HRM activities have gradually moved beyond executing basic tasks such as labor administration, legal compliance, payroll calculation, and payment. Instead, the focus is shifting towards formulating HR policies, planning strategic human resources, and employee training and development.

Under increasing pressure from the labor market, with rising employee fluctuated rates and the growing difficulty of attracting and recruiting new talent—especially highly skilled workers—business leaders have come to recognize that HR management is critical to the survival and growth of enterprises. Numerous initiatives have been implemented, ranging from the corporate group level to individual businesses. Initial positive outcomes have been observed in areas such as the adoption of HR management software, internal training programs, and need-based training offered by professional organizations.

However, these efforts are insufficient to ensure a strong workforce for the organization. A key challenge lies in assessing the effectiveness of new HR programs in contributing to the overall business strategy. While there is a strong desire to improve workforce quality and quantity, there is a lack of clear metrics to evaluate the impact of existing initiatives. Furthermore, difficulties have arisen in generating ideas for launching new programs.

This article aims to present several methods for measuring the effectiveness of HRM. These methods are intended to provide HR departments with fresh insights for developing actionable plans for HR management in 2025 and beyond.

A highly effective work system in an enterprise is the optimal combination of people, technology, and organizational structure, enabling maximum utilization of resources and opportunities to achieve goals. Within this system, the contribution of human resource management (HRM) is reflected in a well-organized structure, task design, talent selection, and employee compensation. These elements must operate seamlessly together to ensure employee satisfaction with the organization.

A significant advancement in HR departments in recent years is the adoption of a “customer-oriented” mindset in their operations. For an HR department, its “customers” are the entire organization and its various departments. These internal customers rely on HRM to deliver a range of services to attract, retain, and motivate talented employees.

Under this customer-oriented approach, HRM identifies customer groups, understands their needs, and determines the necessary actions to meet those needs. These activities can be categorized into the following main groups:

Table 1 – Customer-Oriented Approach in Human Resource Management

The content in this table serves as a foundation for organizations to define objectives and success metrics. Businesses can evaluate HR effectiveness using a set of key workforce indicators or by measuring the performance of specific activities such as recruitment, training, or the design of compensation, benefits, and rewards systems. Additionally, they can assess the economic value of an HR management program.

Below, we introduce two approaches for evaluating the effectiveness of HRM programs: HR Audits and HR Data Analysis.

Evaluation Through HR Audits

HR audits involve a comprehensive assessment of the outcomes of HRM functions. To conduct an audit, HR departments need to identify key functions and performance metrics, along with customer satisfaction measures, to gauge the success of each function.

An internal team or an external agency can carry out the audit. Fundamentally, the audit evaluates predefined criteria to fulfill the needs of internal customers. It can also be expanded to cover additional areas, such as fairness in treatment, cultural environment, and positive labor relations.

Furthermore, audits across similar units within a corporate group can provide valuable benchmarks and insights for developing action plans that focus on continuous improvement.

Table 2 below introduces performance metrics for various HR functions, including workforce planning, compensation and benefits, training, employee evaluation, and development.

Table 2 – Key Success Metrics for HR Management Audits

The HR department can further design detailed indicators, such as:

• The ratio of compulsory turnover (desired by management vs. undesired by employees) to voluntary turnover (undesired by management).
• 360-degree performance evaluation programs.
• Anonymous surveys on employee satisfaction with the company.

Even within the suggested aspects in Table 2, each HR department can develop its evaluation frameworks tailored to the specific programs being implemented, such as training, benefits, compensation, and job placement. This ensures alignment with ongoing initiatives and organizational goals.

Evaluation Through HR Data Analysis

Another method to assess the effectiveness of human resource management (HRM) is using HR data analytics. This approach fully leverages the strengths of Enterprise Resource Planning (ERP) systems within companies, allowing HR programs to conduct quantitative analysis based on set objectives, and calculate the ROI (Return on Investment) for each HR program. Successful programs must generate benefits greater than their costs, with the primary benefit being improved productivity, reduced absenteeism, and lower leave through recruitment, training, and more appropriate compensation and benefits.

Global HR trends highlight that “data has never been more important in human resource management.” HR departments can improve their operational efficiency by combining higher performance with greater effectiveness. Higher performance means HR departments use fewer resources and lower costs to execute their tasks. Greater effectiveness is reflected in the quality of recruitment, training, and quantifiable turnover rates. HR departments need to quantify the costs incurred due to workforce turnover, including recruitment and training costs, and especially the costs related to productivity loss. Calculating these data points will provide input for policy decisions in the organization. A study by the world’s largest market research firm, Nielsen, showed that a 1% reduction in employee turnover helped save $5 million in operational costs. However, many companies still lack such figures, leading to confusion when making decisions on compensation and benefits.

A new analytical technique being applied is measuring the level of job communication between individuals via the company’s email system or through ERP approval/exchange systems. By analyzing the frequency of communications, it is possible to identify which roles need to collaborate to complete core tasks. This allows HR to plan workforce allocation and identify skills that need to be developed in key job processes. It also shows who is central to the workflow model, providing insights on designing appropriate training programs, succession planning, and compensation. Moreover, performance and job effectiveness can be measured to create strategies for supplementing skill sets or replacing employees when necessary. HR management needs to leverage technological advances to quantitatively identify areas for improvement to increase efficiency.

Suggestions for the HR Department in 2025

• Quantify the cost to the business when skilled workers leave and must be replaced by unskilled labor. From this, recommend policies to maintain a core workforce that is critical to the company, balancing financial and employer branding benefits.
• Define key metrics for HR management, which serve as early warnings for policy development:
  • Monthly voluntary turnover rate, as a percentage of total employees.
  • Number of newly recruited employees, and the proportion of those who are skilled.
  • Turnover rate after the probation period (3-6 months).
  • Turnover rate for university graduates/ the total number of university-educated employees.
  • Turnover rate for mid-level and senior management/ the total number of management staff.
  • Total training costs per person by labor group (unskilled vs. skilled).
  • Total annual training costs vs. value-added per employee. Value-added per employee is calculated as:
    (Currentyear’srevenue−Currentyear’sdirectmaterialcosts)−(Previousyear’srevenue−Previousyear’sdirectmaterialcosts)(Current year’s revenue – Current year’s direct material costs) – (Previous year’s revenue – Previous year’s direct material costs)(Currentyear’srevenue−Currentyear’sdirectmaterialcosts)−(Previousyear’srevenue−Previousyear’sdirectmaterialcosts) / Total number of employees.
  • Actual income per unit/ the regional average income (calculated per working hour).
  • Planning ratio for critical positions, particularly those requiring more than 12 months of internal training.
• Evaluate the effectiveness of training programs through trends in HR metrics mentioned above.
• Explore data from email systems and ERP software to identify bottlenecks and develop solutions.
• Take an open, multi-dimensional, and creative approach to employee welfare programs, moving beyond traditional experiences like Tet holidays, Tet bus services, and hardship assistance.

For the textile and garment industry, successful HR management is a key factor for sustainable development. Given the large workforce size, low technology barriers, easy imitation, and less attractive compensation packages, continuous innovation in HR management is critical. This requires proper attention from leadership, especially the Chairman and CEO of businesses. Creating a supportive environment, decentralizing tasks, encouraging innovation in HR management teams, allocating budgets for HR activities, and setting challenging tasks for HR departments must be prioritized. In future articles, the Group will continue to introduce in-depth content such as designing compensation-benefit systems and evaluating training effectiveness for businesses.

Translated from the Article by Chairman of Vinatex Le Tien Truong published in Viet Nam Textiles and Fashion Magazine on December 2024