Management Quality as a Driver of Business Success

Steinbeis study points to data-driven HR as a value driver within companies

Since 2009, Steinbeis University Berlin (SHB) and the management consulting company zeb have been conducting a biennial personnel survey. The study involves surveying HR managers, executives, and people with direct line responsibility at banks in Germany, Austria, and Switzerland. The recently published longitudinal study was managed by the Steinbeis Transfer Institute zeb/ backed up by seminar papers written at the School of International Business & Entrepreneurship (SIBE) at SHB.

Personnel managers often ask themselves – and are asked by senior managers – what measurable contribution HR work makes to company success. But is it actually possible to measure the value of HR management? According to the recently issued study, it certainly is. The figure next to this article shows how this is calculated. Companies are categorized into four groups according to the quality of their management. They are also categorized and divided up based on their financial success. The graph on the right shows the results: If one calculates precisely how management quality can determine financial success, the result shows a correlation of between 35% (2009) and 95% (2013). If one calculates the correlation between financial success and management quality, the figure remains constant at a significantly lower level of 35%.

What is this data based on and how is it gathered? Around 1,900 banks and 2,700 respondents have taken part in the studies until now. At 94 banks that took part in three studies in a row, the project team has now conducted a longitudinal study into the quality trends and personnel developments spanning the three measurement periods in 2009, 2011, and 2013. The quality of HR management is measured by looking at processes in the HR department, the implementation of HR measures within different departments, the strategic orientation of HR activities based on support given to senior management, and employee performance. The analysis was based on guidelines for assessing quality laid down by the European Foundation for Quality Management (EFQM). The survey was based on an online questionnaire looking at specific actions such as “Is your HR strategy based on key indicators taken directly from the business strategy?” The answers were scored on a five-point scale from 0% (rarely or never) to 100% (regularly and systematically).

Cost and revenue figures were also worked out for each company participating in the study by examining annual reports. As banks all use the same reporting methods, the experts at Steinbeis University did this for net profit margins, cost/income ratios, and HR cost rates using a moving three-year average. Other figures used included the average balance sheet total, the number of workers (headcounts and full-time capacity), and staff fluctuations. For the first time, this made it possible to work out the direct relationship between the quality of HR management and the financial success of a company.

It has not been known until now whether such improvements actually deliver measurable benefit in financial terms. What these calculations demonstrate is that 95% of the variance in the financial success of a bank is determined by its HR processes. According to the 2009 HR study, this value only stood at 35% because the financial crisis and the growing importance of client business also significantly raised the importance of HR management. The financial strength of banks only accounts for 35% of the quality of HR management. The evaluation of the longitudinal study is also clear. If a company raises the quality of its HR management, it also improves costs and revenues. But if quality goes down, the financial indicators also get worse.

Recent studies show that, viewed internationally, around 20% of firms have suitable evaluation methods for assessing large volumes of internal and external data. Only half of such evaluations then make their way into HR reports or HR dashboards. Around 15% of the respondents at the banks in the Steinbeis study use advanced data analysis methods but under 5% have access to a structured, continually updated HR dashboard.

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