The necessary evil ...
You know the story: HR is considered a cost, a necessary evil, in a majority of companies. Few are the companies who admit that their greatest asset are the people who work for them.
Sadly this is the HR Director or HR Manager’s fault ...: most of them are busy running the department, often doing a great job, but unaware of their role in the achievement of the company's goals. And even if they are aware of the impact they have, often they won't be able to make the translation towards measurable figures (it's simply not in the HR-DNA).
That's also why in many companies the Financial Director or Operations Director will have more influence than the HR Director: they talk in terms of efficiency, money and revenue and that's the only language a company owner or CEO speaks. And they are 100% right! That is what running a business is all about!
The bottom line is all that counts at the end of the day!
It may be a bit strange for an HR-guy to make such statements, but I know what I am talking about, having worked for many years in HR, thinking I was doing a good job, but without the slightest reflection of what MY contribution was in the company’s results. Becoming older and more experienced helped to create the awareness, but for me it has only become crystal clear at the moment I started my own business.
Does this mean the rest is of no importance? Of course not, but all the company’s activities, including HR, are only facilitators to achieve the companies final goal. And don't be mistaken: if the facilitators aren't doing a great job, the company's results won't be good either.
However, the goals of all facilitators, including the HR Department, should be 100% aligned with the company goals! Always! I call this the "vertical integration" of HR: the company's strategy has to be translated in HR processes, and all HR decisions should be checked with the company's goals and strategy.
This is only the starting point!
Think in terms of ROI & payback time
A great way to facilitate the acceptance of HR-decisions by the board (for example an investment in an HRIS tool), is to present it in terms of ROI (return on investment) or pay-back period. By doing this, you will be forced to translate your HR project into the board's language (being euros, dollars, yens, ...). You will learn to think in terms of investment & return, ...
It is an interesting exercise and the first time you will do it, you will be astonished by how little you know about the real impact of your decisions! It may be confronting at first, but once you have done it, and have felt the success when the board accepted your project without any objection, you will get to learn the power of talking in terms of revenue!
Calculating the ROI is not difficult, once you know the total investment cost and the savings/extra earnings you will generate by the investment. It is calculating the real cost and the real benefit that is the hardest.
Does this mean you have to turn into a cold hearted figure driven business man? NOT AT ALL! "Sustainability" is the key word and is AS IMPORTANT as the revenue! It's not difficult to save costs in HR: you could for example dismiss all your experienced, but expensive staff members and hire cheap labour force instead. This would make a great ROI and pay-back time on the short term, but on the long term, it would cost a lot more than the salary costs you would economize. It could even mean the end of the company!
Although this is an imaginary example, there are managers that reflect this way. I was confronted in my own career with (non HR) executives who thought that HR was something that could be managed on the short term. They expected strong results (for example a solid drop of absence figures) after a month.
This is of course possible, but my point is, that on the longer term this will have a strong negative impact on the company.
In my next article I will focus on some tips & tricks on how to make your HR sustainable.
The art of measurement
Thinking in terms of revenue goes hand in hand with measuring the impact of your decisions. You cannot evaluate the result of your work correctly, when you cannot measure it.
This is another issue in HR (although there is more awareness about it these days): in contrast with the other departments (production, finance, sales, ...) there is not a lot of structured reporting in HR. I worked for 11 years as HRIS consultant for a payroll provider and most of the advanced reporting needs weren't for the HR department, but for the accountancy department, and were mainly focused on the payroll cost.
HR is considered a "soft" discipline and there is not enough vigour to control the results of the own HR processes. I personally think this is mainly caused by a lack of awareness of where the impact can be found.
For example: how do you measure employee satisfaction? You could organize a yearly employee satisfaction poll, but this will cost a lot in term of money and time, it will generate expectations, and it is a one-shot measurement. If, however, you measure the absence figures, the turn-over ratio, the number of candidates that applied on jobs that were recommended by a staff member, ... you will get a permanent measurement of your employee satisfaction, as they are all indicators of the satisfaction degree, if put together.
If you want to measure the results of your HR, you have to be conscious of the fact that HR is like a wheel mechanism: turning one wheel can have an effect of several other parts of the mechanism. This is also to be considered when taking HR decisions: an integrated approach is always necessary! But more on this in my next post.
Being aware of the impact of your decisions is a first step. Measuring the results is a second phase. Making board members, staff members, but also the members of the labour unions aware of the impact of decisions that are taken in HR will be a giant leap forward in gaining respect!
If you know how a decision will impact the company’s results, then you are in a much stronger position in discussions. You will have the knowledge to win the debate! This is very interesting in negotiations with labour unions: If they claim for example a salary increase, you could ask them how this extra cost can be compensated, pointing them on the negative impact this will have on the company’s bottom-line result. This will not only create a stronger position in your negotiation, but also create the awareness that each decision impacts at the end the company’s results, and by consequence may affect the company’s position or even the employment on the long term.
Become an entrepreneur in your company
Now that you are aware of your role in the achievement of the company’s results, you can actively contribute by becoming an entrepreneur in your own company. This means that you start to manage the HR department as it was your own company. You no longer have to stand on the sideline and wait for orders to come, but get in the frontline and actively look for opportunities to get most out of your department. How can you save money, get most out of the available resources, optimize the way of working, sell your decisions, … you can even create your own (internal) marketing campaign to get everybody to know what you stand for!
And as you will act as a company owner, you will start to speak the same language as your CEO ...
How save money in HR without dismissal
Saving money isn't easy without affecting the salaries. However there are different things you can do to limit the costs.
The most common thing is to replace the heavily taxed base salary by more tax-friendly advantages as meal vouchers, cost-reimbursement, ... In most companies this is already a common thing.
Another interesting thing to save money is to renegotiate all the contracts with your existing partners. This is not very pleasant if you have a long term relationship with one of them, but it will challenge them to give you the best of service! It will also give you an idea of what the competition can offer you. May be you get a better price for the same service, or you get more service for the same price.
Increasing the efficiency is also a good way to save money. Maybe the effect will not directly be translated into money, but you may get more added-value and more things done for the same cost. So you will win on it at the end. You can easily increase the efficiency by starting with the repetitive tasks without much added value. Try to automate them as much as possible. There will be less risks for errors (so less time to correct them and less frustration) and the quality of the job will increase. The extra time that has become available can be used for more interesting things. This may result in a higher motivation, a higher productivity, ... I wrote an article on this recently.
Be accepted as a fully-fledged business partner to the board
Simply being more aware of your impact, and by motivating decisions by calculating the return will make a huge difference in your credibility towards the board.
So next time when you present a new HR project, try to add a couple of slides with the ROI and pay-back time, and add some details about the total cost & savings on short-, mid-long and long-term, and you will see how doors will open-up like never before.
But most of all: you will be aware of your real value for the company !