The human resources department has not always been perceived as having a big impact on the profitability of a company, in the same way as, say, sales or finance. But this perception is perhaps a little unfair.
After all, who is responsible for the talent that drives those departments?
When you strip everything back, it is fair to say that a business is only really as good as the people working within it. Without people, you simply don’t have a company (in fact, the literal definition of a company is ‘a group of people’), and it is HR that is responsible for those people – attracting them, developing them, and strategically organising them in a way that enables the business to perform at its best.
Bearing that in mind, it seems nonsensical to suggest that HR is not a critical factor in a company’s profitability. But the problem lies in demonstrating where that value lies, and how, specifically, HR impacts the bottom line.
Perhaps the most obvious point to make is around talent management. Strong talent is the driving force behind the success of any business, and it is the responsibility of HR to understand the talent required, attract that talent, and ensure those people are developed in a way that will enable them to help the organisation meet its strategic goals.
Leadership talent management deserves its own mention, particularly given that many organisations are struggling to attract and retain effective leaders at the moment. Strong leadership can make or break a business, particularly during tough or turbulent times, or periods of significant change.
By attracting the right leaders, and developing them in the right way, HR can have a huge impact on the success of an organisation. It is not a case of simply saying, ‘we need a leader for X department’ – it is a case of assessing the leadership needs of the department or organisation in question, attracting somebody who fits that need, and then developing their skills and behaviours in line with specific requirements.
When HR does all of these jobs effectively, the impact on the bottom line is undeniable. You end up having the right people in the right roles, performing at the highest possible level, and this is inevitably going to affect wider business performance, and therefore the overall profitability of the company.
Through succession planning, HR can also ensure there is minimal disruption to productivity through key talent leaving the business.
Employee engagement and business performance
Hay Group recently undertook research to investigate any tangible link between employee engagement and business performance, and they discovered a causal link between the two.
They discovered that keeping employees and enabled improved an organisation’s bottom line and helped it better prepare for future challenges. The report suggested firms with the highest engagement scores had, on average, 4.5 times the revenue of those with the lowest.
The report also found that individuals with high levels of both engagement and enablement (i.e. the tools they need to succeed) were 50% more likely to exceed performance targets.
Engagement doesn’t only boost business performance, however – it also improves retention levels. Retaining top talent does, indirectly, impact business performance, but it is also serves to save on costs.
Quantitative analysis firm Oxford Economics showed that staff turnover costs the UK economy at least £4.13bn every year, with the average cost of a new hire amounting to £30,615 on average (£5,433 logistics costs and £25,182 on wages during the initial period of low productivity).
If you accept the premise that HR is ultimately responsible for engagement levels in an organisation, you could therefore make the fair assumption that, by having an impact on employee engagement, HR indirectly affects the bottom line and delivers a tangible commercial benefit.
Aligning HR with overall strategy
The thing to remember here is that, as with anything in business, there is no ‘one-size-fits-all’ solution when it comes to impacting the bottom line through your HR activities. The key is to make sure your HR strategy is intrinsically linked with the strategic goals of the wider business.
Every department is essential, but ultimately everything a business wants to achieve needs people to make it happen, and if the right people are not in place at the right time, the result could be disastrous. It is therefore essential to look at organisational goals and build a HR strategy around them.
Take employee development, for example.
Spending time and money putting people through learning interventions might increase their skills and knowledge, but in order to ensure the best possible return on investment, of time and of money, it is far more effective to provide those people with learning that will give them the skills, or teach them the behaviours, that will specifically help them contribute to the success of the company.
People are the key to success
It is no secret that most businesses are operating in an increasingly tough commercial environment, with competition fiercer than ever. The ability to innovate, analyse, and spot opportunities, is absolutely essential for any organisation that wants to succeed.
It is people who do all of those things, and regardless of which department those people reside in, it is HR that has overall responsibility for making sure the workforce is made up of the right people, in the right places, being developed in the appropriate way.
On that basis, and given the evidence that factors like employee engagement – a key function of HR – have a significant impact on productivity and profitability, it is safe to say that HR plays a vital role in the health of the bottom line.
But the question remains: does perception reflect reality, or, when it comes to the bottom line, is HR still, unfairly, seen as second-best to the departments traditionally associated with revenue generation.