If you have been a part of the “big business” experience, thinking about Operating Profit and its 2 components (top line/revenue & operating costs) are likely nothing new for you, when you hear — “how does HR add value.” You also likely have a strong handle on the top 5 pareto bars of costs in each of the business unit you have cognizance of, and a strong grasp on employee performance and its contributions to both revenue and costs. With that kind of lens from which to view your business, the return on employee investment and correlation between employee alignment, performance & profit are also likely easy to see.
To the contrary, sometimes running smaller organizations can be laden with an overwhelming breath of places to focus making answering “how does HR add value” much more challenging. Paretos are hard to come by and large cost drivers may go initially un-noticed, making ROI of any investment that much more abstract. Add the “misunderstood” nature of classic HR into the mix and no wonder you’ve chosen to ignore the “cost of bad people” side of things so long.
How Does HR Add Value?
The Harvard Business Review has answered the question: how does HR add value. HBR has gained consensus among its senior leaders that the primary role of HR is to build organizational capability to support the execution of business strategy. — “…To get there, our HR department is applying the same principles of business process redesign, organizational redesign, job redesign and competency model development to our own function. We have mapped competencies to each job and started to understand the gaps between where we are today and where we want to be in the future… This is the real role of HR, and even though some people remain skeptical of its bottom-line importance, in fact its relevance cannot be underestimated.”
Sure, building organizational capability to support business strategy sounds great and admittedly is sometimes overwhelmingly complex to measure. But when we look more simply at how excellence in HR can save your operation money, suddenly a handful of places (pareto bars) become increasingly visible. Here are 3 examples!
3 Costs, Excellence in HR Will Drive Out of Your Business
(Job Need Identification to Autonomy)
Cost to Identify Candidates
Although there is absolutely a place for “Executive Search Firms” in the identification of specialty candidates, there is also a large number of more ‘standard’ roles in today’s SMBs that with enabling technology may be filled by in-house/outsourced HR teams. At a savings to the business of 20% of the new employee’s first year salary.
There’s also a large body of work, “Job Need Identification -to- Candidate Identification” that must be completed to ensure the correct candidates are put forward to the interview team, regardless of the head hunter vs HR sourcing decision. If not completed correctly it becomes easy to overwhelm the interview team with the distraction of many ‘bad candidates’ – waste and resultant costs.
Cost to Interview
If your operation does not work on liquidated time or billable hours, it may be easy to overlook the propensity to “interview everyone” and “chose the best of the bunch”. The “interview everyone” crutch, for no objective interview criteria, training or pour interview practice becomes a hidden factory that drives costs. HR Resolved has seen companies interviewing as many as 12 candidates for one role (total company investment ~8 hours per candidate) and in hindsight still make a “bad hire”.
Conversely, if a proper set of objective interview criteria are developed for each role, HR Resolved may pre screen accordingly and only put best fit candidates forward (typically less than 3 candidates) for interview with the interview teams (at under 6-hours per candidate). As soon as any candidate satisfies the objective criteria, an offer may be extended and the waste/cost of undue interviewing and distracting the business from revenue generating activities mitigated.
Cost to Onboard & Reduced Time to New Employee Return on Investment (ROI)
Error Free Onboarding is a HR Resolved process that positions new employees ready to begin work day-1, as opposed to the classic “begin paperwork” on day-1. As its name implies Error Free Onboarding eliminate the rework, confusion, distraction and resultant costs we’ve sadly all experienced in the classic onboarding process.
With Error Free Onboarding behind us the Assimilation & Competence Model (A&CM) may kick off day-1. A&CM is a process focused on minimizing new employee time to autonomy (new employee ROI) while in parallel limiting distraction from the organization’s primary focus, delivering customer value and revenue generation. A&CM quickly and visually holds the new employee accountable to alignment with the organization and the performance standards set by the functional manager, immediacy driving down the “cost of bad quality”.
So, how does HR add value? Driving down the costs to identify, interview, hire, onboard and train the right employees is a great start to maximizing Operating Profit (OP). It’s perhaps even a great step toward building organizational capability to support the execution of business strategy. And the sooner those employees may work autonomously to execute the business strategy, the faster your people are also driving new employee ROI down and top line revenues up!
Still not sure how HR Resolved can drive Operating Profit through employee alignment and performance please reach out to start a conversation or subscribe to see more examples of HR Resolved driving costs down and value up, in future posts.