Full text of DOI:10.1002/(SICI)1099-050X(200021)39:1<93::AID-HRM8>3.0.CO;2-N

DATA- AND METRICS-DRIVEN APPROACH TO
HUMAN RESOURCE PRACTICES: USING CUSTOMERS,
EMPLOYEES, AND FINANCIAL METRICS
Thomas E. Murphy and Sourushe Zandvakili
Should scientific measures be used to evaluate the effectiveness of HRM practices? Can HRM
demonstrate that its proposals cause a predicted outcome? If the allocation of capital within
an organization is based upon projected financial returns, should HRM be required to dem-
onstrate the expected returns of its proposals? Would the use of scientific and financial mea-
sures give HRM practices greater internal support and continuity? The authors demonstrate
how metrics were used to evaluate two new HRM projects at one of the world’s largest retail-
ers. © 2000 John Wiley & Sons, Inc.
An integral
element to
Introduction—The Allocation of Capital
turns. More often than not, only those ven-
tures that demonstrate the highest return are
selected. This calculation is referred to as
either a Return on Investment (ROI) or an
Internal Rate of Return (IRR), which com-
pares the cost of capital or “hurdle rate”
against the return of the proposed project. In
some cases, the projected cash flows of the
initiative are estimated using the cost of
capital as the discount rate. This method
is referred to as the Net Present Value
(NPV) calculation.
An integral element to calculating any fi-
nancial return is the measurement of cus-
tomer perceptions and needs.As the business
continues, the process repeats itself—
customer input and data are assembled and
analyzed; financial measures are taken; new
approaches to improve product and service
are tested, evaluated, and measured; and,
where appropriate, additional capital is allo-
cated to support the revised efforts to meet
calculating any
financial return
is the
measurement of
customer
A“Start-Up” Dialogue
Entrepreneur: I have an idea for a new busi-
ness. I have done some customer research
and put together a pro forma, and am trying
to decide what my next steps should be.
perceptions and
needs.
Friend: How about deciding on a partner?
Banker: How about deciding how much
capital you will need and how it will be
allocated?
The fundamental decision every enter-
prise must make, no matter what stage of
maturation, is the allocation of its capital and
resources. When choices of strategy, expan-
sion, acquisition, new products, and the like
are reviewed, they are supported by detailed
financial metrics that show the expected re-
Human Resource Management, Spring 2000, Vol. 39, No. 1, Pp. 93–105
© 2000 John Wiley & Sons, Inc.

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customer expectations. The process of using
does improve retention long term and, there-
fore, is worth the investment. Consequently,
it comes as no surprise when other employers
in the same labor market increase their wages
and turnover once again increases. The un-
tested wage theory was only a temporary
solution; there was a negative return.
customer data and financial measures to plan,
test, allocate, and evaluate can and should be
applied to the practice of human resource
management (HRM). Regrettably, it is not.
This article describes three practices that
were implemented at The Kroger Co. The first
used pilot studies of two proposed human
resources practices that were controlled for cer-
tain factors to determine the causal connection,
if any, between the practice and the measured
results. The second used financial measure-
ments to assess the real benefits and returns of
these human resources practices. The third used
customer data to design a selection system for
new employees.
Traditionally, HRM has fallen short in de-
signing its interventions—such as new employee
selection, training, development, assessment
and reward programs—by not providing sub-
stantive input or data to demonstrate customer
needs and expectations. The decision-making
process by the human resource specialist has
been intuitive at best. In organizations that are
willing to rely on such anecdotal support, capi-
tal has been allocated to HRM projects without
support from financial measures or data reflect-
ing customer input. If capital is not allocated
based upon a disciplined application of fi-
nancial measures, the ability of HRM to win
unequivocal support for its initiatives is in
jeopardy. Further, when revenue declines or a
business crisis looms, it is frequently the HRM
practices that were approved without financial
measures or customer input that are the first to
be trimmed or eliminated (see Fitz-enz, 1996).
HRM’s lack of connection to the “real cus-
tomers” of the enterprise is confused by its
perception of employees or other internal de-
partments as its exclusive customers. HRM
measures its effectiveness by seeking input
from these internal customers or by creating
performance measures related to its internal
work processes. Instead, HR should assess its
practices based upon the expectations of the
“real customers” of the enterprise. For ex-
ample, if customer loyalty is based upon the
ability of the enterprise to beat the prices of its
competitors, HR must design compensation
plans that are very cost effective and assure high
productivity. If customers expect employees to
have extensive product knowledge, training pro-
grams should be designed to meet this expecta-
tion. Similarly, if customers value personalized
service, new employee selection processes
should be instituted to ensure that service-
oriented individuals are selected for employ-
ment. If HRM’s link to the real customer is
not apparent, its connection to the overall
business strategy becomes obscured. HRM
must understand and constantly evaluate the
Human Resource Measurement
A human resource officer is arguing for the
funding of a proposed training center. It will
be a state-of-the-art facility. He has done his
homework by studying training centers at
other companies (benchmarks) and review-
ing the setting, facility, location, curriculum,
and technological appliances that will be used
to enhance the learning process. The capital
appropriations committee of his company in-
quires about the expected NPV of this new
facility. He responds that such a calculation
is not possible. His presentation is followed
by the head of logistics who proposes the con-
struction of a new regional warehouse for the
company. Her analysis indicates it will lower
overall product costs significantly and will re-
duce the time it takes to get product from the
plant to the shelf. She has calculated a sig-
nificant NPV for the facility. If the enterprise
allocates capital based upon data and finan-
cial measures, who will get the money?
The field of human resource manage-
ment has seldom used data (collected by
scientific methodology) or financial metrics
in competing for available resources within
the organization. HR managers convince
their organizations that turnover can be re-
duced if entry-level wages are increased.
Accordingly, millions of dollars are expended,
and turnover is reduced. The reduction, how-
ever, is only temporary because no effort was
ever made to test the wage theory under con-
trolled conditions to ensure that it actually

Data- and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics
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linkage between its practices and the overall
business strategy and must measure its contri-
bution to the enhancement of sales and profits.
Both Schuler (1992) and Huselid (1993)
report that the direct relationship between
customer satisfaction and HR practices has been
proven to exist. Making HRM an integral part
of the overall business strategy is vital for today’s
employers. According to Schuler (1990, p. 51)
HR needs human resource practices with “a
business issue, customer focus, and a bottom
line orientation;” (see also Plevel, Lane, Nellis
& Schuller 1994). The connection of HRM
and business strategy is best illustrated in
Figure 1 below.
Outline of the Article
Since it appears to many practitioners of HRM
that measurement is either unnecessary or
impossible, we describe the current state of
HRM measurement. We then explain a finan-
cial measurement process that was piloted and
tested at The Kroger Co., the nations largest
supermarket chain with over 200,000 employ-
ees, 1,400 supermarkets, 500 convenience
stores, nearly 40 manufacturing plants, and
$27 billion in annual sales. The controlled
pilot involved a Computer-Based Training
(CBT) program and demonstrated the finan-
cial returns from implementing the CBT at
By insisting on the application of finan-
cial measures and customer data to the
design and evaluation of its practices, HRM
will become accountable for delivering results
that are integrated with the overall business
strategy. HRM will be able to show, for ex-
ample, the real value of practices designed to
affect employee selection, customer service,
turnover, reward systems, employee safety,
improved methods of training, and other
such interventions. These are of particular
importance to companies in service-oriented
environments.
Kroger. The importance of linking customer By insisting on
the application
needs and expectations to employees will be
discussed next. Wedescribe a second controlled
pilot program, Computer-Based Employee
of financial
measures and
customer data to
the design and
evaluation of its
practices, HRM
will become
Selection (CBES), which the authors have in-
stituted at The Kroger Co. It uses customer in-
put as a means to design and, in part, measure
HRM practices. This is followed by the intro-
duction of a new framework for using financial
measures and customer and employee input to
design and evaluate all HRM practices, and to
link these practices to the business strategy. We
demonstrate that a data- and metrics-driven
accountable for
delivering results
that are
integrated with
the overall
business strategy.
Select
Profits
Enroll
Train
Evaluate
Reward
Motivate
Enroll
P
Productivity
Sales
Costs
FIGURE 1. HRM's "Select to Profits" loop.

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HUMAN RESOURCE MANAGEMENT, Spring 2000
approach to HRM, which requires a five-step
close attention to both, achieved higher busi-
ness results. He also urged the creation of a
“shared mindset” among all company employ-
ees as it relates to, for example, customer
service, quality, and team. Ulrich (1993) later
argued for employee competencies that yield
such a mindset to be assessed in screening
new applicants.
process, will provide the opportunity to de-
sign and deliver HRM practices that affect the
bottom line.
Human Resource Measurement:
Current Practice
A number of different measurement ap-
proaches have been described by various HRM
commentators. For example, Fitz-enz (1995)
has established a variety of work process
measurements in “total quality” fashion, which
can be applied to an array of human resource
practices such as recruitment, selection, re-
tention, responding to internal customers, and
costing compensation alternatives and benefit
options. As a result, cost per hire, retention
rate, time to fill jobs, cost to train, benefit plan
design alternatives, and a variety of other
human resource activities are measured, pro-
viding the opportunity for comparisons to
benchmarks and improvement.
Fitz-enz (1996) has also developed a data-
base of the above measurements and contrasted
them against a set of “best practice factors” that
seem to be common among companies with
measurably high human resources performance
standards. He notes a clear distinction between
“best practices” that relate to specific interven-
tions and may only be suitable for the particu-
lar needs of a particular company and “best
practice factors” that are a set of holistic
and cohesive approaches to management.
Chief among the latter set of factors is
“customer focus”.
Becker, Huselid, Pickus, & Spratt (1997)
selected a bundle of “leading edge” human re-
source practices and correlated them to market
capitalization, thereby demonstrating through
a regression analysis the “financial” significance
of good human resource practices. Delaney &
Huselid (1996) illustrated positive association
between HRM practices (such as training and
staffing selectivity) and perceived performance
measures. Also, Huselid (1995) evaluated the
impact of HRM policies and practices on com-
pany performance.
In 1997, Ulrich developed an innovative
matrix of human resource dimensions that he
believed were critical to enhance the success
of the enterprise. These included the human
resource manager’s role as a strategist, admin-
istrator, employee champion, and change
agent. He encouraged human resource pro-
fessionals to balance their work among these
four roles and promise specific “deliverables”
that will enhance company performance.
Similarly, Schneider & Bowen (1993)
demonstrated the connection between a strong
service orientation among employees and more
positive customer experiences. Consequently,
they called for enhanced human resources
practices that can improve actual customer
service perceptions. Their survey, taken among
bank employees, showed a direct link between
the employees’ understanding of customer
preferences and their appreciation of the
bank’s total human resources experiences and
the customers’ rating of service quality.
Rucci, Kirn, and Quinn (1998), writing
about their first-hand experience at Sears,
relate how they determined that employee
morale was extremely low. They theorized that
designing human resource interventions in
response to needs assessed through employee
research could have a positive impact on
morale. Further, Sears learned that changes in
employee morale had a direct relation to cus-
tomer perceptions of their enterprise. Sears tried
certain HRM practices and measured them with
employee research. Those that improved em-
ployee “morale” showed a corresponding
improvement on customers’ perceptions. Fur-
thermore, Sears estimated that certain incre-
ments in customer research could be
transposed to measurable increases in sales and
profits. Thus, Sears concluded that “investing”
in improvements in employee morale had
predictable financial consequences.
In 1997, Ulrich
developed an
innovative matrix
of human
resource
dimensions that
he believed were
critical to
enhance the
success of the
enterprise.
Ulrich (1992) noted the relationship be-
tween being a “preferred customer” and an
“employer of choice”. He concluded that com-
panies, which make a strategic decision to pay
While all of these approaches may be
useful, they are not significantly helpful in

Data- and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics
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97
supporting a human resource executive’s
request for financial backing of a particular
HRM intervention. The possible exceptions
are Sears and Ulrich. Fitz-enz measured ac-
tivities instead of impact on customers, and
Becker and Huselid showed correlation but
not causation. On the other hand, Ulrich
capably identified the basic dimensions of HR
practice. Further, he was the first to insist that
HRM must promise deliverables within a ma-
trix that includes both tactical and strategic
objectives. We believe, however, that it is no
longer sufficient in some organizations to
promise “deliverables” if it cannot be shown
through measurement that the deliverable is
causally linked to the financial result. In fact,
Ulrich urges HRM to persuade line manage-
ment that “soft stuff” matters. In some in-
stances it does. Without measurement,
however, we really do not know for sure, and
HRM continues to be on the “soft playing field”
in competing for the allocation of capital.
Sears comes closest in using metrics to
connect employees to customers and linking
HRM to bottom line results. It does not, how-
ever, use controlled pilots to determine which
HRM practice is actually improving employee
morale, nor does Sears know that a given
investment in that practice will, in fact, cause
an increase in sales and profits. It also does
not use customers first to design its business
practices. Improvements in employee morale
are simply linked to customer satisfaction.
In the CBT and CBES projects at Kroger,
we have gone farther. We have used financial
measures to pilot and evaluate HRM practices—
pilots under controlled conditions to establish
proof that the intervention caused the change
in financial measures and customer input to
design and evaluate the HRM practices. We also
are establishing a five-step data and metrics
driven process that incorporates these concepts
and can be used to make HRM accountable for
delivering bottom line results.
hypothesized that CBT is a better and more
cost effective way to train new cashiers. With
almost 100,000 new hires each year, CBT pre-
sented a perfect opportunity to demonstrate
the utility of using metrics to measure its ef-
fectiveness and, thereby, justify the allocation
of capital to support its widespread introduc-
tion within the company. We used controlled
pilots and identified several potential per-
formance improvements that we could
attribute to the particular (cashier training)
CBT courseware:
•
•
•
•
•
improved customer service
reduction of training costs
improved employee retention
consistent training message
enhanced productivity
We used pilot programs in 20 test stores.
Three baseline measurements were taken:
training time and costs, elapsed time to
achieve high productivity, and transaction
accuracy. Although the pilot stores using
CBT did show a reduction in turnover, we
did not use this in our evaluation because
we could not control for other factors
At the conclusion
of the pilot, the
data showed a
significant
relevant to turnover. CBT produced a more reduction in
“consistent” training message, but we were
training costs.
not sure how to measure the financial
consequence of this value. The pilot was de-
veloped to determine whether a significant
expenditure of capital on in-store personal
computers and software could be justified.
The CBT trained cashiers were contrasted
with traditionally trained cashiers. We used
relevant and historic cost and productivity
data from the same pilot stores.
At the conclusion of the pilot, the data
showed a significant reduction in training
costs as shown in Table I. Further, CBT cash-
iers achieved benchmark productivity targets
(items scanned per minute) in a significantly
shorter time period. Also, mystery shopper
interventions demonstrated that CBT cashiers
were more capable of handling complex trans-
actions accurately and without the assistance
of other personnel. With the use of controlled
pilots, we were able to demonstrate that fi-
nancial results were in fact caused by the new
CBT. In addition, our metrics demonstrated
that, together with the projected introduction
Measurement at Kroger—The First
Effort: Computer-Based Training
While logic would dictate that the first step in
the design of a HRM practice would be to in-
clude customer input and then establish mea-
surements, we started with the latter. We

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of additional software applications in other
and service enhancements that, in turn, drive
sales improvements. We moved to our next
project, employee selection. Armed with the
successful application of financial measure-
ment to an HRM practice, we looked at the
problem of improving the quality of new hires.
An organization cannot train, for example,
unfriendly people to be friendly. We wanted
to improve our selection process in order to
enhance the effectiveness of courtesy and ser-
vice training. Also, we needed a system that was
both cost-effective and measurable. We agreed
that a computer-based and self-administered
employee selection system was the answer.
service areas, CBT produced a significant ROI
(see Table 1).As a result, capital was approved
for the project.
Kroger now has CBT for cashiers installed
and running in most of its markets and new
courseware on safety, employee orientation,
and other subjects has been approved and is
being tested and installed. In this case, HRM
(with help from Finance and MIS) used the
same metrics as others seeking capital and won
approval for the allocation of resources.
We then looked for an opportunity to mea-
sure interventions that would increase revenue
CBT Measures in Pilot and Control Stores.
TABLE I
(A)
(B)
(C)
Resources
Needed to Train
Cashier
Productivity
Transaction Accuracy &
Self Sufficiency
Number of trainee hours
Number of trainer hours
Number of “buddy” hours
Scan rate of items
Produce recognition
Transaction complication
Tender complications
Using data quantifying the above three categories, we made the following measurements and conclusions:
(1) After a six-month test, we learned that the number of trainee hours, number of trainer hours, and
the number of “buddy” (fellow employees who monitor new cashiers) hours needed to complete
checker training were fewer in the Pilot stores than in the Control stores. Thus, the cost to train
under CBT was lower than the traditional checker-training program.
(2) We also learned that CBT-trained-cashiers in the Pilot stores had higher rates of productivity than
did the traditionally trained cashiers. Within a shorter period of time, their “scan rate” was higher.
Finally, we determined that the CBT-trained cashiers in the Pilot stores were able to better recog-
nize produce that had to be identified and weighed at the check stand, and that more CBT-trained
cashiers at the Pilot stores could handle complex transactions, cash, food stamps, checks, and
other “tender” complications without time-consuming assistance from the office. We converted
these findings to costs and measured a Return on Investment.
(3) We compared the initial CBT/ROI to the ROI of other capital investment opportunities and won
management approval to install CBT in many of our markets. New and relatively inexpensive
courseware on such topics as safety, service, and orientation are being added to the CBT program,
thus, further enhancing the return.
(4) One might consider that in future applications it would be more appropriate to use Net Present
Value (NPV) calculations to measure the financial impact of HRM interventions. In such a case,
the organization would use the appropriate discount rate, which is its cost of capital. This rate is, in
part, based upon opportunity costs and risks. These factors, when applied to projections for new
facilities, may not be particularly relevant to HRM interventions. Perhaps companies wishing to
use NPV as a metric could develop discount rates that are based upon training and other invest-
ments designed to enhance service as opposed to using traditional capital allocations. We leave this
for further study. We also note that with CBT we primarily measured cost savings.

Data- and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics
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Using a structured interview to improve
selection was not enough. We had used simi-
lar methods in a number of markets over
the years, and they proved to be very time
consuming. Numerous personnel needed to
be trained and certified as expert interview-
ers, and each interview took 45 minutes of
management time. Except for an analysis of
equal employment opportunity (EEO) im-
pacts, the process was not evaluated with any
scientific measurements. Thus, while touted
by some regional Kroger HR managers, one
could not logically conclude, for example, that
there was a causal relationship between the
new selection system and the changes in turn-
over. Accordingly, in some markets the new
selection process was abandoned when sales
fell and expense reduction programs intensi-
fied. We concluded that any new employee
selection program should be self-administered
by a prospective employee at a personal com-
puter. No such software was available.
tests to assess certain competencies. The va-
lidity of these alternatives is questionable
without scientifically linking them to cus-
tomer satisfaction and measuring their
impact on bottom line results.
We designed a new approach for the se-
lection process—one that uses both customer
input and is measurable. It represents an op-
portunity to inextricably link HRM practices
to the business strategy by improving customer
service and achieving measurable financial
results. The cause and effect, however, of this
new approach must be demonstrated by data
and scientific methods. Financial measures
must be used to justify the allocation of capi-
tal for its support.
The success of any organization should be
based not only on the loyalty and commitment
of the employees but also on the employees’
awareness of the customers’ needs and expec-
tations. It is evident from HRM literature and
our own direct experience in the profession,
We concluded
there were two
deficiencies in
the current
selection
practice: the lack
Moreover, the traditional structured
interviews were designed to detect competen-
cies that were identified either by company
peers or management or were drawn from the
experience of expert behaviorists. Customer
expectations with respect to employee behav-
ior were ignored. We concluded there were
two deficiencies in the current selection
practice: the lack of real measurement and
the lack of customer input into the design of
such selection instruments. Using customer
data was both novel and compelling.
that most human resource specialists believe of real
measurement
gauging the needs and desires of customers
(except, perhaps, “internal customers”) is be-
yond their domain and expertise. While exten-
sive customer data has been developed by the
enterprise to improve its sales, merchandising,
and service objectives, HRM specialists gener-
ally do not use the data available to design or
measure their practices. Some do use the data
to train and develop employees. Many, how-
ever, are simply not in touch with the “real
customer” and do not consider the potential
to use and measure customer satisfaction in
the design and evaluation of their HRM pro-
grams. The time has come for HR specialists
to link their practices to customer data and
to evaluate them with financial measures. A
balanced approach—where customers, employ-
ees, financial results, and business development
can be bundled in an HRM strategy that is mea-
surable—is both necessary and viable (see
Kaplan and Norton, 1996). We firmly believe
use of such input can improve sales, service,
productivity, and the overall financial perfor-
mance of the organization.
and the lack of
customer input
into the design of
such selection
instruments.
Linking Customers to Employees
Why Customer Data Is Critical:
The Rationale
Employees are generally the most important
link between any organization and its custom-
ers. Thus, the characteristics of the workforce
are of paramount importance to the advance-
ment of organizational objectives and their
success. This requires each organization to
assess its selection processes in order to be
successful. Depending on organizational needs
and labor market conditions, firms have uti-
lized the following in the hiring process:
application forms and historical references,
unstructured and structured interviews, and
The traditional avenues of gathering infor-
mation from other sources such as benchmarks,
internal customers, and employees are no longer
appropriate for the goals of the human resource
specialist. We believe HRM must insist that new

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data, more specific to customer perceptions, be
generated that will assist in the design and mea-
surable evaluation of new HR practices. The
customer should be the centerpiece of many
HR and labor relations strategies, policies,
and practices.
For example, a labor relations strategy
should be initiated by examining customer
data. The first questions in developing a strat-
egy should be “What do the customers want
from our workforce, and how is the labor
agreement supporting or blocking their
expectations? How can new ideas be incor-
porated to make sure that HR practices are
enhancing customer service?” From there,
negotiating strategies can be developed.
Customer data must lead the business strat-
egy, and HRM must insist on its use within
its own discipline. Metrics should be the
ultimate evaluator of success.
Because of the introduction of CBES, user-
friendly software suitable for interactive entry
level employee utilization had to be designed; it
had to incorporate customer expectations of
employee behaviors. For this purpose, Kroger’s
research department was requested to develop
a new customer research format that would
provide the needed data for our new software.
This new survey was utilized to identify em-
ployee competencies assessed by the structured
interview and to serve as a baseline measure
used to determine the precise impact of CBES
with respect to customers. The controlled pilot
was set up to compare baseline versus pilot
financial measurements as a means to evaluate
its success. The stage was set, but a special fo-
cus had to be placed on the new element of the
structured interview, “Customer Satisfaction”.
Utilizing and Measuring Customer
Satisfaction
Our plan, called “Linking Customers to
Employees—a Data and Metrics Driven
Approach”, will minimize management’s guess-
ing about customer needs and expectations
The most difficult challenges an organization
faces are (1) identifying the needs and expec-
tations of its customers, and (2) selecting and
training its workforce to fulfill and sustain
customer loyalty. To quote one of Kroger’s di-
vision presidents, “We need to not just satisfy
the customers, we need to cause them not to
want to switch to our competitors.” If this task
is conducted correctly, it will reward the orga-
nization and its shareholders.
Customer data can help drive many
aspects of the organization—its culture, its
structure, its mission, and the behavior of its
employees. Only the specific tactical choices
to meet customer expectations need be passed
on to the managers and employees. Non-
supervisory personnel are the organizational
bridges to customers. The employees should
be indirectly selected by customers and trained
in accordance with their needs, taking into
consideration EEO and safety regulations.
For an organization to succeed, we believe
an index of customer satisfaction must be cre-
ated and incorporated into the design of an
employee selection process. Such an index
allows incorporation of organizational specific
norms for the selection of employees. We be-
lieve the index of customer satisfaction is the
key to organizational success as it assesses its
performance and customer base.
Accepting this
rationale, the
authors—together
with colleagues
from Kroger’s
HRM field offices
and the
consumer
research and
finance
departments—
developed a plan
to pilot the use of
a new computer-
based employee
selection system.
and will demonstrate the cause and effects of
various practices and interventions so as to
validate their effectiveness and justify their fi-
nancial support. It will work for organizations
of all sizes; however, it is most effective for
organizations that require high levels of
customer service. Once we provide an outline
of our approach, it should become evident that
organizational norms vary across geographic
regions and variations may be necessary.
Customer satisfaction and needs may differ
in other locations.
Linking Customers to Employee Selection
Accepting this rationale, the authors—together
with colleagues from Kroger’s HRM field
offices and the consumer research and finance
departments—developed a plan to pilot the
use of a new computer-based employee se-
lection system. The plan was unique because
it used a software based structured inter-
view and included new and specific cus-
tomer input in its design. Two different
consulting firms with extensive experience
in statistical customer and employee re-
search were retained to develop the software
for the CBES pilots.

Data- and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics
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The notion of customer satisfaction is
not new (Berry, 1995; Schneider-Bowen,
1995; Heskett, Sasser, & Schlesinger;
1997); however, its scientific application for
employee selection and training is both new
and unique. The definition of customer sat-
isfaction varies among organizations. It
should be apparent that organizations are
confronted with a variety of customers that
necessitate different levels of customer satis-
faction. The parameters, and their values
across the spectrum of customers, vary greatly
even within an industry. Thus, one has to
measure an index of “customer satisfaction”
for each general type of customer. For ex-
ample, the measure of “customer satisfaction”
in the airline industry is highly sensitive to
the class of service. In the grocery industry, it
is highly sensitive to the location of the store
and the demographics of the customer base.
The index of customer satisfaction is unique
to each organization and its clients. We do
believe, however, there is some overlap in
identifying this index within and across
industries. For example, we believe in a ser-
vice-oriented environment where customers
have identified the following behavioral char-
acteristics and attitudes as desirable:
formance of a potential employee can be
formed. Most human resource specialists be-
lieve they know the desirable characteristics of
an ideal employee; however, these characteris-
tics may not be the same as those preferred by
the customer. Many HRM specialists consider
discipline, pride in work, assertiveness, respon-
sible, team player, personable, safety conscious,
trainable, etc. as characteristics that should be
considered in evaluating a prospective employee.
Determining what behaviors the customer ex-
pects can serve to be a more powerful tool in
identifying the most important characteristics
to meet service expectations and organizational
goals simultaneously.
The identification of the individual charac-
teristics by a HRM specialist should be done
scientifically. There are a number of approaches.
One can use industry norms or conduct an in-
ternal evaluation of the existing workforce to
identify the desirable features. The latter ap-
proach has some inherent danger if a scientific
approach is not used; thus, internal evaluation
might not be the best for some organizations.
At Kroger, we used the gathered information
from customers in our approach to employee
selection.
Most human
resource
specialists
believe they
know the
desirable
characteristics of
an ideal
employee.
From Theory to Practice—Computer-Based
Employee Selection at Kroger
•
•
•
•
•
•
•
Customers should be greeted in a
friendly manner.
Employees need to be attentive to cus-
tomers and their needs.
Employees should limit personal con-
versations among themselves.
Employees should not complain about
their jobs to the customers.
Employees should demonstrate that
they enjoy their duties.
Having developed a suitable Customer Satis-
faction Index for Kroger markets, we were
ready to begin the pilot of a new CBES pro-
gram. Based upon our previous experience
with structured interviews of entry-level store
employees, we hypothesized that a new CBES
program could have several positive impacts.
As we have mentioned, our earlier efforts
did not utilize a computer-based (self-ad-
ministered) process, nor did we incorporate
customer input in determining the qualities
needed by entry-level employees. Also, we
did not use any measurements to establish
the impact on the business. Accordingly, in
our new venture, we established a number
of indices that are amenable to financial
measures: Customer Service, Service
Knowledge, Safety Index, Tenure, Validity/
Candidness, and Accuracy.
Employees should be informed and
cooperative in responding to questions.
Employees should be attentive to
cleanliness and safety.
We suggest that each organization conduct
a scientific survey of its customers relevant to
its industry and gather information regarding
different dimensions of customer service and
satisfaction. Once this information is collected
and systematically arranged, various hypoth-
eses regarding required knowledge, attributes,
and other competencies that affect the per-
These are being used to create an Employ-
ability Index for the CBES program. Customer

102
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HUMAN RESOURCE MANAGEMENT, Spring 2000
input is vital in this process and influences all
other indices. For example, if customers re-
quire a safe place to shop, this can be incor-
porated into the selection process. Each of the
indices listed above gauges a number of items
relevant to the knowledge, skills, aptitude, and
personality of the job candidates. It is clear
that behaviors of potential candidates need to
be assessed in an unbiased manner. One’s
thought process, tolerance for customers and
job-related stress, and self control are impor-
tant items that need to be incorporated into
the decision-making process. Each of the items
noted above varies under unique organiza-
tional situations. The job-related attitudes are
the best proxy for on-the-job behavior of po-
tential job candidates.
We also can measure and contrast baseline
store profitability and other financial items,
but the above three were considered most
likely to be directly affected by an improved
selection system.
At the conclusion of the pilots and the
gathering of the data, these financial measures
will be used to determine what impacts, if any,
the new selection system has had. It will en-
able us to determine whether an allocation of
capital for store computers, software, and a
full-scale CBES initiative is justified.
Our measurement also used a controlled
pilot system to make sure that it was the HRM
intervention, in this case CBES, that was
directly causing the change in baseline mea-
surements. We used three categories of stores
to form pilot groups: (1) stores that offer the
survey and use the results for selection of new
employees; (2) stores that offer the survey but
do not receive feedback nor use the results
for selection of new employees; (3) stores that
use the traditional approach in hiring. A num-
ber of factors such as store sales volume, ac-
cident rates (employee and customer),
profitability, and store location were used in
the selection of pilot stores and their assign-
ment to different groups. As evident from our
grouping, a number of important items could
be monitored and contamination of our ob-
servation was minimal.
At this point, we are not sure what results
will come from CBES, but at the end of the
pilot period we will be certain of our hypoth-
esis concerning CBES. Either it will or will
not demonstrably improve selection and af-
fect financial measures. If these cannot be
shown, other strategies and HR practices
should be considered.
The pilot covered a nine-month period and
Our experiences
with CBT and
CBES have led
us to conclude
that there is a
broader spectrum
of HRM
activities—more
than just
selection and
training—which
should be
involved 90 stores across several regions in the
United States. Prior to the implementation
of CBES, we conducted scientific customer
surveys considering a wide range of customer-
related issues in all the pilot stores. We formal-
ized and arranged the data and correlated our
findings with a number of behavioral attitudes
and characteristics of potential employees.
These helped to identify a number of important
factors in creating our psychometric scales for
the purpose of employability.
This structured interview or survey was
conducted interactively on a computer. Pro-
spective entry-level employees within the
pilot stores were directed by management to
complete the survey on the computer. Store
management then received one of the follow-
ing recommendations from the system:
incorporated into
this data- and
metrics-driven
process.
•
•
•
•
Recommend to hire
Qualified recommend to hire
Not recommended
Invalid
Linking Customers to Employees—
A Data-Driven Approach
For the purpose of evaluation, three finan-
cial metrics (both baseline measures and post
pilot) were considered in this study:
Our experiences with CBT and CBES have led
us to conclude that there is a broader spectrum
of HRM activities—more than just selection and
training—which should be incorporated into
this data- and metrics-driven process. Using
customer data to design and evaluate HRM
practices and scientific methods to link the
cause and effect of the practice to the result
provide a sound basis to evaluate the process
1. Customer service perceptions at each
store
2. The turnover rate (measured in rate
and cost usingActivity Based Costing)
3. Employee safety (measured in acci-
dent rate and cost)

Data- and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics
•
103
and predict its financial returns. This can then
be used to support a clear and sustained justifi-
cation for the allocation of capital. We now have
an HRM process that incorporates the use of
customer data, metrics, employee data, con-
trolled pilots, and a continuing evaluative
methodology. We believe it is applicable to
most, if not all, of the HRM practices (select,
enroll, train, evaluate, reward, motivate, en-
hance productivity, reduce costs, improve
sales, and increase profits) listed in Figure 1.
There are five major steps in our data driven
methodology:
egies and action plans to respond to the
expectations of the customer and the
issues raised by the employees.
4. Pilot and test actions under controlled
conditions to determine which prac-
tices work and which do not. Hypoth-
esize potential financial returns and
set baseline measures. Measure re-
sults of pilots against baseline finan-
cial metrics and customer research.
Use controls to make sure the prac-
tices have a causal relationship to the
changes in baseline measures.
5. Implement the successful practices
and those with financial returns, re-
inforce the behaviors that support
them. Continue to measure customer
perceptions and employee behaviors.
1. Assess and measure customer percep-
tions of employee services. How does
the organization measure up? What
are the gaps? This process involves the
use of extensive customer research.
2. Determine from employees what the
barriers and opportunities are to meet-
ing customer expectations of service.
Here we recommend an intensive use
of employee research instruments that
cover all levels of the organization.
3. Based upon the research, develop and
prioritize one or more HRM activities
(e.g. recruitment, selection, orientation,
training, reward, motivation, and devel-
opment) that could lead to improved
customer service. This is where the
HRM professionals and others within
the organization develop specific strat-
Based upon our experience at The
Kroger Co., we believe the application of
this data driven approach should enable
HRM to make successful, strategic contri-
butions to their enterprise. HRM can posi-
tively affect service, productivity, sales, and
profits. It can unequivocally demonstrate
that its practices are having a direct impact
on the bottom line and are providing the
organization with a competitive edge. Us-
ing data identifying customer perceptions
and expectations to drive, design, and
to scientifically measure these practices
will assure senior management that such
Based upon our
experience at
The Kroger Co.,
we believe the
application of
this data driven
approach should
enable HRM to
make successful,
strategic
contributions to
their enterprise.
2. Employee Data Determines
Capacity of Organization to
Deliver
1. Customer Data Determines
Expectations for Service and
Quality
3. Based upon Research,
HRM Designs Practice
to Meet Customer
Expectations
5. HRM Implements
Proven Practices and
Measures Customer
Response
4. HRM Pilots and
Tests to See What
Works, What Does
Not, and Financial
Returns
FIGURE 2. Linking customers to employees: A data and metrics driven approach.

104
•
HUMAN RESOURCE MANAGEMENT, Spring 2000
practices must be supported and sustained.
This process is shown in Figure 2.
to one that directly links its interventions to cus-
tomers and employees, and that evaluates its
work with scientific and financial metrics.
Within the organization, the process will put
HRM on the same plane as other departments
that are competing for capital. It will also en-
sure a total and lasting commitment by the
organization for those HR practices that are
supported by a data driven process.
Conclusion
We have demonstrated that our data and met-
ric driven approach transforms HRM from a
unit that uses intuition and hunches and relies
on benchmark practices from other companies,
THOMAS E. MURPHY is currently a Fulbright Fellow. Previously, he was the Markley
Professor at the College of Business, Miami University. He also served as an adjunct
professor in the graduate programs at Xavier University and the University of Cincin-
nati. Mr. Murphy retired in 1997 as Senior Elected Officer and Group Vice President
for Human Resources and Labor Relations of The Kroger Co., where he worked for 23
years. Prior to his service at Kroger, he was Associate Professor of Law and Associate
Dean at the College of Law, University of Cincinnati. He has published on issues re-
lated to labor law, the Middle East, and health care.
DR. SOURUSHE ZANDVAKILI is Professor of Economics at the University of Cincinnati.
He is also a fellow at the Institute for Data Analysis and a faculty consultant at the
Center for Social Policy and Evaluation Research. His areas of expertise include labor
and personnel economics, human resources management, research methodology and
applied econometrics. His research has been published in journals such as Journal of
Econometrics, Economica, Journal of Applied Econometrics, Economics Letters, Applied
Economics, and Empirical Economics.
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