Human Resources

The Business Case for Human Resources

By Nicole BeckermanOctober 27, 2016

The success of every organization rests on the people who compose it. Collaboration and communication between employees and teams can propel a business to success or to a premature conclusion. So, it is without a doubt essential to keep skilled, competent employees in an organization and develop them into even more effective, resourceful professionals. Yet, many new HR initiatives are unfortunately often misunderstood, or misclassified as less vital to success, but there is a strong business case for investing in this area.

A healthy HR department has a wealth of insider knowledge waiting to be activated, on everything from why top talent could quit to unlocking employee productivity. They can help develop effective managers who increase revenue, understand how to keep essential people on board, and they can carry useful learnings from one department to another—just to name a few examples.

Magnitude of HR Impact

There are many opportunities for HR professionals to improve the bottom line, as they are connected to employees throughout all areas of a business. While it may be tempting to dismiss these potential effects as minimal or immaterial, several studies have illustrated the significant dollar impact HR can have with clear statistics.

Here are three example areas of focus which illustrate what can be gained when HR tools and strategies are used to their best effect:

Turnover: A known issue for organizations, turnover deserves a high level of attention by HR professionals and leadership alike. With a new generation of talent entering the workforce, the struggle for HR has become retention rather than acquisition, and the stakes are substantial: A study by Price Waterhouse Coopers indicated that turnover-related costs represent more than 12% of pre-tax income on average, and can reach as high as 40% of earnings. Not only that, but 9% – 32% of an organization’s voluntary turnover can be prevented.

Leadership Development: The Ken Blanchard Companies have proven in case studies that investing in leadership development improves managers’ skills of delegation and communication, resulting in better employee performance and increased customer satisfaction. These are worthy goals: For every 1.3% change in customer satisfaction, there is a corresponding 0.5% change in revenue growth. In fact, the Blanchard Cost-of-Doing-Nothing Calculator shows that the average cost of not pursuing leadership development is around 7% of annual total sales.

Recognition: Recognition programs can have a substantial impact on employee experience which translates into effects on revenue generated, customer retention, and productivity. According to studies, employees who don’t experience recognition are twice as likely to leave their organization the coming year, and conversely organizations that make a point of regularly recognizing employees show a 31% lower voluntary turnover rate than their peers with ineffective or no recognition programs. According to Glassdoor, recognition also aids productivity, with over 80% of workers saying they were motivated to work harder when they received appreciation. In a perfect world this recognition might happen organically, but a structured HR-driven program can ensure consistency and quality.

Identifying Areas of Improvement

New initiatives, or even existing programs, need to be targeted and measured. Breaking general metrics down by categories such as business unit, job class, performance ranking, and so on can yield new insights for making decisions about these initiatives.

Another lens to examine metrics through is by considering industry benchmarks and the activities of other peer organizations. Having an external frame of reference can provide a useful perspective to explore metrics from, and will make areas of improvement stand out.

Presenting the Case to Leadership

The most important (and perhaps precarious) step in making people-focused initiatives come to life is gaining buy-in from leadership. Often, opportunity costs related to areas such as turnover and lack of development are imagined to be small or non-relevant. But, If a strong, concise argument is not presented to refute this, these assumptions will tend to stick and create friction against change.

To educate leadership and motivate them to take action, do your homework and equip yourself with detailed, concrete metrics.Quantify the business ramifications of the status quo as precisely as possible. What is the actual dollar impact per day of that vacant key position? How much productivity can reasonably be gained, and how much additional revenue will it bring? The goal is to come up with methods of calculating costs and ROI that are accepted by the organization as legitimate and can be used for ongoing tracking.

Of course, the case for change should come with a plan for what that change will be. You should lay out a plan of action for any new initiative which includes timeframe, budget, launch, and the expected tangible and intangible benefits. The more specific and realistic the plan of action is, the more convincing it will be to leadership. Finally, make sure you have a framework in place to track and define what success will look like, and ensure it aligns with the larger organizational KPIs.

Nicole Beckerman

Nicole Beckerman

Writer

About the Author

Nicole Beckerman is a marketing consultant, writer, and clothing designer based in Los Angeles, CA. She holds an MBA from Mills College as a Goldman Sachs Scholar.

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