By Ian J. Cook
It is time for HR to take a fresh look at the organization and how their colleagues in the other functions are doing what they do. HR is being challenged to show its relevance and worth as never before. Modeling or borrowing from the rest of the organization provides a quick and effective way to prove your value. As Dave Ulrich recently pointed out at the BC HRMA annual conference, if we do not meet the measurement challenges then the CFO’s of this world are very likely to take over this strategic work for HR.
HR is a unique function within the organization. We deal with people who are variable, unpredictable and the only source of competitive advantage left to many organizations. However, the delivery of the HR function has a great deal of overlap with the types of systems, controls and measurement challenges experienced elsewhere in the organization. By taking a fresh look at how, for example, finance maintains control over its financial data there will be lessons for HR in maintaining control over its employee data. Developing good processes and systems for measurement and operational control allows HR to demonstrate they can manage risk and investment appropriately and from here earn the opportunity to contribute at a more strategic level.
Finding a Fit with Finance
In drawing our comparisons we will start with the finance function. A core role of finance is to develop and deploy a system which allows the organization to cheaply and accurately track all financial transactions. HR has the similar responsibility to accurately track all staff data such as additions, exits and moves. In benchmarking your effectiveness you should look at what it costs each function per transaction. Very simply, how much does it cost each function to handle and maintain its core data? You may be surprised at how effective HR is compared to finance or alternatively you might show grounds for introducing an HRIS that allows better self-service options for data entry, while maintaining personal confidentiality.
Another lesson to learn from finance is how they deal with responsibility for accuracy. If you are reviewing your process you should ensure that the line managers who lead the staff have final accountability for its accuracy either through enabling them to input directly or through asking them to sign off on updated data. Explaining the cost and inefficiency of delivering this function centrally within HR should gain you support with your executive.
The next place to look inside finance is to the management accounting group. This is the group who will calculate how effectively the financial capital in the organization is being used by calculating Return on Investment, Economic Value Add or Return on Equity measures. The equivalent for HR should be a metric determining either Profit per FTE or Human Capital Return on Investment - which is calculated as your Profit divided by your Total Labour Costs. These metrics shows how effectively your people are creating added value. Over time you will be able to show whether you have been successful at increasing the ability of your labour pool to create value and whether or not you have increased faster than finance.
Tapping Into IT
The next area of comparison to consider is IT. HR has a responsibility to provide staff with information and support in using the companies’ HR systems. This is the same as IT supporting staff to use the computer systems. Whether this is outsourced or internal, IT functions maintain a close monitor on cost per transaction. HR should do the same, calculating how much it spends to service the information needs of staff or the problem solving needs of management. The figure for meeting staff needs is likely to support the need for increased self-service options. The figure for problem solving with management could well support increased spending on management and leadership training.
IT has the responsibility to help the organization improve and enhance its use of IT, aligned to the business goals. Much akin, HR has the responsibility to increase the effectiveness of the staff group through HR systems, learning and consulting support. Capturing increases to business unit performance where HR played a consulting role should be key. Of comparative importance is the calculation of costs saved through HR support whether it be it by reducing turnover or avoiding a costly termination package or law suit. Linking the value of the outcomes of HR’s contribution to the cost of HR services can show just how HR supports the organization to add value. When the cost of management turnover is established at a minimum of 100% of the person’s salary, it only takes the retention of a single manager to prove significant contribution.
Mentoring with Marketing
The final comparison to draw is to Marketing. This group has to maintain and grow a positive image for the organization in the eyes of customers. In our tight market for talent, HR has to do the same for potential staff. Monitoring referrals, people who return having left, the number of unsolicited resumes, number of hits on job adverts, etc: all indicate how effectively HR has positioned the organization. Combining the total cost of promoting the organization to prospective employees and the total cost of job advertising and dividing this by the number of suitable applications gives you a measure of your job marketing effectiveness. This is similar to how Marketing would measure how many enquiries were generated from a particular campaign.
A further area of potential learning for HR is to look at how Marketing works to understand their customer. A lot of the success of marketing is based on really understanding the interests, needs, wants and perceptions of their full range of customers. We now have four generations in the workforce and a significant increase in the diversity of most workplaces. Rather than learn the skills of employee / customer insight in isolation, consider working with Marketing to develop processes to capture and maintain a detailed understanding of your prospective employee’s interests and wants. The more accurate your understanding, the better your spend per suitable applicant will be.
You may say this is all very well, but I am the only person in my HR function. This is a reality for many organizations. The tools may not be as available, but the lessons still apply. We recommend that you categorize your activities linked to the areas above and track your time against the general buckets. When you show your executive that 80 per cent of your time is spent tracking data, providing information and managing organizational risk attached to poor management practice, you allow them to confirm that is what they want or to start to making choices about how to develop their HR function into the service they need. Without this data you are likely to be subject to more demands than are reasonable and to have the value of your work misunderstood.
We often spend our time describing why HR is different and special. It is a unique function. At the same time there is significant benefit to be gained from learning from other functions. Applying this learning will quickly and effectively enable you to prove or increase your perceived value in your organization.
Ian J Cook is the director of HR knowledge and research at BC HRMA. Ian is using his global HR consulting experience and business knowledge to grow a function which delivers informative, relevant and timely comment.
Reprinted from PeopleTalk Magazine, Fall 2008