With current economic conditions, there is an increased focus on budgets of individual departments and the effect of each on profitability. The idea is to analyze the role of every segment of a business, in an attempt to understand its relevance to return on investment (ROI).
Like any complex organization, it is difficult to measure results with an equal yardstick. Human resources departments—people management—are the most difficult to quantify to the bottom line. The global shortage of qualified talent, compounded by a troubled economy, is forcing executives to view human capital in a new context of economic metrics.
Few people would argue that investing in people is a lousy business decision; quantifying the impact of a typical human resources department is quite another story.
This leaves many CEO’s and senior management asking just where HR fits into the total picture of a company’s financial structure.
The Boston Consulting Group, along with the World Federation of People Management Associations (WFPMA), recently performed a large study of the relationship between people management capabilities, human resources personnel and financial performance.
In a nutshell, the survey asked businesses which role of HR provides the best ROI. The findings were clear—and not surprising.
Recruitment was the number one influence of HR on a company’s bottom line. This is not an earth shattering revelation, but for the fact that few researchers have ever quantified the relationship between HR and profits. Cultivating the best talent is a worthy goal of every organization; hiring the right people at the onset is even better. Imagine the time and resources it takes to prepare, mentor and develop a new hire to become the next sales superstar.
Why not hire a superstar to begin with? It is reasonable to think that obtaining the best immediately on a team is better than creating the ultimate out of whole cloth.
The BCC study confirms that the best companies for income potential have both talented people and strong HR practices. Of course, correlation does not equal causation, so whether substantial HR makes good people or good people develop strong human relations practices is still open to further examination.
Examining that relationship, if nothing else, will illustrate what may be the most essential elements of quality HR.
Out of 22 total topics asked of HR professionals in the BCC Creating People Advantage research, respondents reported a strong correlation between performance and capacity.
Companies that performed at the highest levels consistently were stronger in all leading HR procedures than those with lower-performance. However, some activities can be singled out. The topics with the highest correlation between ability and economic performance: recruiting, onboarding and employee retention, talent management, company branding, performance management and incentives, and leadership enhancement.
Recruiting is at the top of the list since companies adept in recruitment experience 3.5 times revenue growth as well as twice the profit margin, compared to companies with lower performing HR.
What does this mean to companies looking to enhance their bottom line?
Providing a professional, comprehensive hiring policy is fundamental—and not out of reach of anyone. Innovative recruiting systems can provide even small business owners a means to provide effective hiring and onboarding experiences.
The main takeaway is that HR—led by adroit recruitment activities—can be a critical component to business success. Focusing on acquiring the right talent is a priority, and mastering people development skills can deliver higher ROI, as well as a competitive advantage in the marketplace.
Read the complete BCG survey–Realizing the Value of People Management–at BCGPerspectives.com.
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