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Overview: Do you quail and
quake when your CEO demands proof that your new and innovative HR practices help
the bottom line? Fear not - this article discusses the clear links between HR
performance and company success.
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Takeouts:
- Studies over the last 15 years
have conclusively proven that HR practices can be leading indicators of bottom-line
profit and shareholder return.
For example, the Watson Wyatt Human Capital Index study found that great people
practices could increase shareholder return by up to 47%, while poor practices
could decrease shareholder value by 33%.
- Credibility
at board room level is gained over time through a succession of initiatives that
are proven to generate genuine profit. The success at which credibility is gained
is directly proportional to the positive impact of results generated, and how
well these results are communicated throughout the organisation.
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Over
the last decade, the Human Resource function has come under increasing scrutiny
for the costs incurred in servicing business needs. To avoid being seen merely
as a cost centre, HR professionals have drawn on the assertion that human capital
is the foundation for creating value in the New Economy
and argued that their rightful place is as senior company officers at the top
of the organisation.
To that end,
HR executives often support initiatives which help to position themselves as strategic
partners or change agents. However, this push
for strategic input is fraught with traps for the unwary or inexperienced HR practitioner.
A seat at the executive table is not a given. It requires an understanding not
only of how HR actually contributes to business profitability, but also the ability
to create a compelling case for HR's inclusion at the top of the tree. So how
you do you chart your course? Define
The Bottom Line Over the last
few years, significant advances have been made to the development of HR performance
measurement. One of the more recent is "The HR Scorecard: Linking People,
Strategy and Performance". Based on
an ongoing study of 3,000 firms, the research
first recommends dividing your HR metrics into two areas: strategic (big-picture);
and core (or 'basic'). Get the
Basics Right In the rush to get
a seat at the top of the management tree, it's easy to give day-to-day administrative
functions lesser priority. But efficient operations are the foundation on which
leverage to build your case is gained. If you are not regularly reviewing your
core HR processes and systems and identifying how to streamline operations, you
will miss real opportunities to identify potential savings and efficiencies. Furthermore,
you are not likely to be strengthening relationships with key stakeholders, or
forging stronger links between staff, their work and business objectives. There's
no point setting lofty goals if you're not able to deliver expected HR services
to your internal customers within agreed timeframes. Bottom-Line
Basics There are three key steps
to building a strong foundation: 1.
Review HR Practices to Identify Profit-Making Activities.
Watson Wyatt's Human Capital Index (HCI) has
conclusively identified key HR practices that are leading indicators that impact
either positively or negatively on total shareholder return (TSR).
The latest study identified 49 such practices, grouped into 6 categories.
Five of these practices boosted the bottom line. In order of impact, they
were: a) Total Rewards
and Accountability;
b) Collegial, Flexible Workplace;
c) Recruiting and
Retention Excellence;
d) Communications Integrity;
e) Focussed HR Service
Technologies. The study
revealed that the highest performing companies had significantly different HR
practices from low performers. Indeed some popular practices like 360 degree reviews,
staff training and HR Technologies to support culture change were actually linked
to decreased performance. The
message is clear - don't go for HR initiatives that are flavour of the month or
just because others are using them. It's best to focus on a few high-leverage
initiatives and excel in those to unlock further resources. For example, if you're
able to expedite recruitment cycles and increase staff retention rates, you can
build a case to access some of the savings from those improvements to fund further
initiatives. 2. Automate
systems wherever possible.
Once you know where the potential profit lies, make every effort to turn regular
processes into efficient, user-friendly self-service systems. The world of "eHR"
can appear exciting and hold much promise - but never forget that technology is
a two-edged sword. Success in improving operations is entirely dependent on how
well you create and execute a technology strategy. The key is proper planning
with clear objectives that are carefully project managed. 3.
Assess stakeholder satisfaction with good communication.
Understanding the needs and current satisfaction
levels of staff is crucial, and initiatives such as online surveys can be a fast
and cost effective way to take the pulse of an organisation. Staff also need to
understand why you choose to keep some practices and ditch others, so be sure
to send out regular communications on key decisions and recent success stories. With
these three steps firmly established, the process of gradually building HR's credibility
for a seat at the boardroom table is underway. Build
on the Basics Apart from satisfactorily
meeting employee needs, there is one measure of success that is guaranteed to
capture the attention of senior management: money. To translate your bottom-line
basics into profit-making reality, your 'building program' will consist of a blend
of project and change management skills. The following steps will give any initiative
the best chance of success:
- Diagnose and state the problem in clear
business terms.
- Calculate
the real business cost of the problem.
-
Work with the people experiencing the most pain to plan and develop a suitable
HR solution.
- Calculate the
total cost of implementing the solution.
-
Calculate the savings.
- Calculate
the cost/benefit ratio.
- Implement.
- Review and Report.
For
example, the launch of a proposed new candidate referral program across a workforce
of 5,000 staff at a cost of $20,000 per year to implement could be supported by
the following projections: - 3% of
staff will refer friends/family members, resulting in 150 referrals.
- 1
in 3 referrals (or 50 people) are successfully placed in a role.
- The
current average cost per hire through traditional channels is $8,000, resulting
in a $400,000 saving.
- Less the
cost to run the program / pay for referral bonuses ($20,000), equates to a gross
saving of $380,000 per year.
On
that basis, there would be few senior managers who would block the recommended
changes. If they have been kept informed, implementation and review/reporting
will then be almost a formality. The result? You will have successfully opened
a door to further opportunities. How big those future opportunities are depends
on the success of the implementation. Perhaps
the most significant outcome of a successful HR change process is that you will
have begun to redefine what is "strategic" about HR in the eyes of the
powers-that-be. To drive that home, there are two final but crucial steps to close
the oop. Firstly, practice what you preach; modelling is always the most powerful
influencer. Secondly, use relevant communication channels (both formal and informal)
to spread the word of your success (eg. e-mail, formal presentations, Friday drinks,
Intranet, annual reports, Management briefings, etc). This will help ensure that
people across the entire organisation become more informed of the relevance of
leading-edge HR practices as genuine creators of profit. Conclusion
For HR to become an indisputable
leader in driving profit, practitioners must start at a grassroots level, linking
initiatives with operations in a language that line management understand (initially,
cost-savings). This is crucial to gaining their support and buy-in to assist you
on your way to the top. Start small and incrementally build momentum. Pick high
impact areas that if successfully addressed will give you greater scope to implement
change. You may find your efforts similar to growing bamboo - patience and persistence
ultimately yield a harvest that grows rapidly to maturity. Irrespective of how
quickly you get there, if you consistently deliver results with measurable bottom
line impact, and effectively communicate your efforts, a seat at the top of the
management table will be hard to deny.
References:
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About Regent Recruitment
Regent Recruitment is a recruitment consultancy that assists leading Australian
employers to attract and retain talented staff on a contract, temporary or permanent
basis. Whether we are filling one permanent role or recruiting contract staff
for a 400-seat call centre, we deliver an exceptional recruitment service.
Unlike other recruitment consultancies, Regent
Recruitment is unique in that it combines the capabilities of a large-scale multinational
recruitment operation with exceptional service levels typically only associated
with small boutique agencies.
How
can we assist you?
We would welcome the opportunity to have a confidential
meeting to discuss your staffing needs in more detail. If
you are interested, in the first instance please call Howard Mereine, General
Manager, on (03) 9909 7150 or e-mail Howard at hmereine@regentrecruitment.com.au. We
look forward to speaking with you.
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This article was licenced by Regent Recruitment for the Regent
Recruitment client newsletter.
Written by Victoria Small, and edited by Paul Quinn, Quinntessential Marketing
Consulting Pty Ltd.
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The
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