How HR Adds Value

Increasingly today the human resources function is being cut back and marginalised by dinosaur organisations measuring performance solely by short-term financial measures.

This article explores ways in which the HR function can add value – and the consequences of depleting HR resources.

Human resources adds to company’s bottom line in number of ways:

1) By selecting the right people for the business
Some readers may be able to reflect back to recruitment they approved that did not work out. In most cases this would have been based on interviews and references. HR practitioners have found there are far more effective ways to recruit, starting by taking an in-depth focus on the job requirements, followed by behavioural event interviews, simulated exercises and assessment centres. All of this takes experienced in-house resources to manage and deliver, but the cost of appointing the wrong person can be very much greater than just their salary costs.

2) Reducing the need to recruit
My experience of working for Arthur Andersen in its Manchester office showed me picture of people climbing up mountain roped together. The picture was symbolic of not only team work but also of the philosophy of actively encouraging staff beneath you to come up into your job. At Andersen recruiting costs at the middle and senior management levels were next to nothing. An HR team can help the organisation migrate to culture like this.

3) Reducing recruitment costs
If some skilled recruiters are generating between $350,000 to $600,000 in fees, you can safely assume their pay packet is somewhere between $120,000-$200,000. It does not take rocket scientist to point out that contracting out is certainly not cheap option. With fees around 12.5-15 percent of gross remuneration, 10 management positions can cost you $125,000 to $150,000 in recruiting fees.

Whilst the HR function may not wish to take all of recruiting in-house it can, through initiatives, substantially reduce costs. One organisation I have come across has been very proactive, giving staff $5000 bonus if they suggest person who ends up being recruited for sales-related position (with certain provisos re length of stay etc).

4) Developing managers and staff
Building organisational capacity is often left to on-the-job-training. Some enlightened organisations are investing in building in-house development centres. Such initiatives require experienced people (your HR team) supplemented with some external experts.

One finance sector organisation put 180 managers through development centres to improve their management competency. Following this experience some of the managers realised they would like to redirect their career within or outside the organisation.

5) Enhancing the organisation’s performance through changing the culture
A new culture can improve the bottom line in many ways: less absenteeism, lower turnover, more initiative, higher productivity and possibly greater business opportunities created by staff.

Any culture change requires high level of buy-in. Organisations which have been successful have had an experienced HR resource to support change processes.

One organisation in the service sector successfully tied the culture of the recent relaunch of the company into its employment contracts. The relaunch was based around staff empowerment and trust. Call centre staff are allowed to approve company expenditure even where the company may not be liable. Decisions are reviewed after the event for performance management purposes.

Another organisation, in the private sector, successfully developed its own in-house ‘culture change’ course. Internal teams were set up to identify company with outstanding customer service. An airline was identified and liaised with. Consultants then assisted the internal teams to develop customised course to guide the organisation’s staff through the culture change.

6) Reducing ACC payments
Organisations with “back to work” programmes report great success with significant reductions in ACC levies. One manufacturing organisation achieved an annual saving of $400,000 in ACC levies partially through setting the goal of “no accidents in million hours”. Its workforce now believes that accidents are preventable rather than an industry norm.

An estimate of how much HR can add to the bottom line
We have developed some broad estimates based on discussions we have held with organisations. The example above uses hypothetical company in the service sector with approximately 500 staff.

Why managers haven’t the time and expertise to be surrogate HR resource
Thinking back to your most recent management position, how much time did you allow for performance feedback to your staff? Were the six-monthly assessments difficult to fit in? Organisations are now giving feedback three to four times year to ensure performance is on track. If managers are spending time managing performance, how can they develop and maintain expertise in recruitment techniques, accident prevention or management development?

Possible consequences of removing an internal HR function:
• Over reliance on external advisers, which may cost more in the long run defeating the objective of cost saving;
• trend to purchase rather than grow trained staff – thus becoming over reliant on the training provided by other employers;
• Remuneration is out of kilter, especially at the senior levels;
• The organisation’s culture is talked about but nothing is really done about it;
• New recruits are not performing as anticipated;
• Staff turnover and absenteeism rising;
• Young talented staff never learn good management skills.

Steps you can take
• Start marketing the value the HR team creates;
• Relocate the HR function so that it is close to the CEO’s office;
• Ensure the HR function is led by broadly educated and skilled HR professional;
• Investigate your recruiting costs as the HR team should be able to make savings;
• Ask for an informative two to three page HR report to be included in the monthly board papers;
• Ensure that your HR advisers are involved in the business planning – they have much to give and it represents the ideal forum to enhance their perceived value.

Signs that HR is being marginalised
• HR does not report directly to the CEO;
• Absence of human resources report in the board papers;
• HR staff are not replaced when they leave;
• No data capture or monitoring of the money spent on training;
• Percentage spent on training is down over past five years;
• No clear documentation of the organisation’s core competencies;
• No succession planning for management roles;
• HR position is not headed by trained HR professional;
• No regular staff opinion survey;
• Senior management positions are recruited by the CEO (often previous work associates);
• The CEO and senior management team have not had 360 degree feedback;
• Coaching and mentoring are only thought to be relevant to sports;
• Lack of HR trend analysis in absenteeism, health and safety, headcount, demographics, etc.

David Parmenter is the CEO of Waymark Solutions, Wellington firm specialising in helping organisations measure and improve performance. Email: [email protected], Website:

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