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Building the Case for HR as a Business Asset

 

Within the last decade the human resources (HR) function has demonstrated that it is capable of not only performing the requite basics of hiring, compensating and handling a myriad of employee issues and government compliance, but is an integral part of the business just like sales, operations, finance, and information technology. Much of this is due to the ability to now measure their business impact.

 

HR has evolved over the last half century from its beginnings as a personnel administration function. This model of HR was handling employee transactions.  Its focus was on doing repeatable activities at the lowest cost possible.  Efficiency was the key measure of success.  This was also associated with business leaders view that employees are costs to the organization and that business success can be obtained through lowering the cost of handling employee related activities. HR leaders were rewarded for taking costs out of running HR.

 

As government legislation affecting the workplace became more prominent, HR departments were now charged with compliance issues. These included employee safety and non-discrimination in hiring and employee treatment.  But these did not necessarily change the role of HR in the business. These compliance issues were still viewed as costs related functions with the addition of mitigating risk.  Installing HR practices that will reduce the risk of OSHA, OFCCP, and EEO fines and consent decrees was now the norm. 

 

Many of these HR initiatives were sold to business leaders from the perspective of fear that not doing so will run the risk that it will be even more costly.  Again the issue was about viewing HR as a cost center.

 

Just like Douglas McGregor’s Theory X and Theory Y managers, businesses view their human resources as either costs or assets. The transition to assets started to take hold in the 1990s and today it is becoming more the norm. The biggest challenge has been making the business case for it.

 

Business leaders who were early adopters of treating employees as assets, did so mainly because of their own personal values.  If senior leadership values such broad concepts as business process improvement, utilization of best practices and believing that the softer aspects of HR (e.g., managing talent, developing teams and organizations, attending to organization culture, etc.) matter, they tended to allocate resources to this end.  But this foundation is rather soft. If the business leader who championed this leaves the company, or budget cuts are required, then these soft programs are usually the first to go.

 

Until recently HR has found it difficult to make the case on a more solid foundation.  This has generated the HR metric and analytics movement that has been able to not only calculate the ROI for HR initiatives, but also demonstrate the linkage between changes in people can lead to changes in business outcomes. 

 

One of the earliest adopters of using hard data to make the link between HR practices and Business performance was Sears. They were able to show that an increase of 5 percentage points in employee engagement attitudes led to a 1.3 percentage points increase in customer satisfaction, which led to a .5% increase in revenue growth.  Thus, the case was made that investments in HR and management practices that increase employee engagement does have a monetary payoff.

 

More recently, research conducted by HR industry analysts shows that there are aspects of HR that have direct correlations with market performance. That is, going from good to great pays off in the market performance of a company within its industry sector. 

 

The transactional administrative functions like compensation and benefits show no relationship with market performance. Nor does creating a centralized shared services delivery model, or a decentralized HR Generalist delivery model, or having a low HR to employee ratio. These activities need to be done well, but investing more into them may not drive any better tangible business outcomes.

 

But having HR drive the change management process and providing data to support business change do have an impact on market performance.  More specifically, work in the following areas all has strong relationships with market performance:

·     Workforce and Succession Planning

·     Measuring the impact of investments in HR services on business measures

·     Tracking KPIs and all HR processes

·     Employing HR analytics

·     Building employee competencies in

o  Teamwork

o  Business acumen

o  Business ethics

o   Project management skills

·     Employee engagement

·     Hi potential employee development

·     Leadership development

 

All of this indicates that many of the seemingly intangible (softer) HR activities actually have the greatest impact on the business.  Businesses that invest in these areas by making these processes better will most likely experience and returns in their business outcomes.

 

The upshot of all this is that HR should not be reluctant to measure it’s business effectiveness, using hard data to support it’s existence and creating a compelling argument for more resources to go from good to great.

 

Pragmatic HR Consulting helps businesses develop meaningful metrics and establish the link between HR initiatives and business results. For more information contact Dr. Carl Greenberg at 636-751-6522 or carl.greenberg@pragmatichr.com.

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Pragmatic HR Consulting LLC, 1776 Schoettler Valley Drive, Suite 450, St. Louis, MO 63017.
Copyright 2012. All rights reserved.