HR’s Crucial Role in Creating Wildly Profitable Organizations

Editor's Note: Take a look at our featured best practice, HR Strategy: Job Leveling (26-slide PowerPoint presentation). Job Leveling is a disciplined approach to gauge the value of work for individual positions across the organization. It entails ascertaining the nature of work done by each position, authority levels, and the effect of each job on business results. Jobs that are configured inadequately bread [read more]

Also, if you are interested in becoming an expert on Human Resource Management (HRM), take a look at Flevy's Human Resource Management (HRM) Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

* * * *

For most businesses, their biggest expense is their wages bill.  Surely, then, you should do whatever it takes to get the maximum value out of this investment, shouldn’t you?  Yet, most HR Departments don’t do much more than assist with hiring and terminations, maintenance of Policy and Procedure manuals, advise on wage rates, keep review documentation and the odd bit of training.

The cost of losing and replacing people is also extraordinarily high.  ZaneBenefits reports that some studies (such as SHMR) predict that every time a business replaces a salaried employee, it costs 6 to 9 months’ salary on average.  For a high-earner or executive level employee, the cost can be more than 2x their salary.  A study by the Institute for Research on Labor and Employment, University of California, Berkeley  found that “turnover costs for a manager average 150% of salary, including tangible costs of hiring new workers and relocation, and intangible costs such as the new worker’s inefficiency and lost productivity while the job is vacant.”

Does your HR Department work closely with your staff, understand their drivers and goals, help them enjoy their work and grow in it?  My money says it doesn’t.  Most HR Departments of large companies are reactive, only providing what sectional heads ask them for.

How then should you approach the twin issues of employee productivity and retention?  Modern thinking is that these are two sides of the same coin.

Employee productivity means having people doing things they are suited for and enjoy.  It means they are properly trained and have the resources they need to get the job done.  It means everyone pulling in the same direction, feeling part of a team, each one fulfilling their role and supporting others.  It means that people get satisfaction from their work and recognition for performance.  It means that they are supported in their desire to grow, that their concerns and complaints are listened to, and they feel valued.  It means that from the top down, everyone understands the organisation’s priorities and goals, high ethical standards and good corporate citizenship.

Not only is achieving these conditions likely to engender motivation to perform for the organisation, it will also create a climate of loyalty and pride, where staff put in the extra required to achieve quality outcomes within deadlines.  When staff are so turned on by their work and have a career path they want mapped out for them, are they likely to seek greener pastures elsewhere?

In fact, getting the fundamentals right in a business as described above leads to a slew of benefits that all translate to a much healthier bottom line:

• Fewer people leave, and the cost of replacing people drops dramatically;
• Product quality improves;
• More shipments are made on time;
• Customers enjoy better products, service and a turned on team;
• Suggestions for reducing waste and removing bottlenecks are voluntarily given;
• Conflict, bullying and other negative behaviours become rare exceptions to the norm;
• The best candidates come looking for work, rather than have to be enticed away from others;
• The value of each person’s contribution to the organisation can grow to its maximum potential.

The result of all this is, of course, an organization that outperforms its peers, sets standards of customer service, performance and profitability, and becomes a place which enriches the lives of all those who work there.

An HR Department that actively works to achieve the outcomes above is one that is significantly contributing to the organisation.  If it doesn’t, then it is a drag on the organisation’s performance and profitability.  How do your HR efforts rate?

Want to Achieve Excellence in Human Resource Management (HRM)?

Gain the knowledge and develop the expertise to become an expert in Human Resource Management (HRM). Our frameworks are based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. Click here for full details.

The purpose of Human Resources (HR) is to ensure our organization achieves success through our people. Without the right people in place—at all levels of the organization—we will never be able to execute our Strategy effectively.

This begs the question: Does your organization view HR as a support function or a strategic one? Research shows leading organizations leverage HR as a strategic function, one that both supports and drives the organization's Strategy. In fact, having strong HRM capabilities is a source of Competitive Advantage.

This has never been more true than right now in the Digital Age, as organizations must compete for specialized talent to drive forward their Digital Transformation Strategies. Beyond just hiring and selection, HR also plays the critical role in retaining talent—by keeping people engaged, motivated, and happy.

Learn about our Human Resource Management (HRM) Best Practice Frameworks here.