In the past, chief financial officers and chief executive officers had the tendency to view their human resources (HR) department as a "cost center" within the organization. As a result, these corporate executives largely relegated their HR staff to non-strategic tasks such as maintaining employee records, enrolling employees in healthcare plans, maintaining the employee handbook, ensuring legal compliance and assisting with the entry/exit process all of which are "overhead cost" activities. Starkly absent were any expectations about linking compensation to performance; identifying, educating and grooming future executives; and developing specific HR strategies that supported the organization's corporate goals and objectives.
However, with low unemployment rates, an acute skills shortage in certain occupational areas and steady job growth projected for 2007, C-level executives now consider the HR department as a competitive differentiator, enabling them to attract top talent, reduce employee turnover and control the high cost of benefit enrollment and utilization.
Industry consultants, and those in the halls of academia, have been instrumental in crafting a new role for HR a role where the human resources department becomes a key component of a company's ongoing success and a recognized contributor to the bottom line. As part of this corporate-wide change, best-in-class organizations now recognize employees as valuable "assets" whose main products are productivity, customer service and expertise.
As a result, some HR experts suggest that Wall Street take a look at the human resources processes within an organization in order to determine the value of one company over another, which is not a bad idea. Given that salary and benefits costs comprise the largest corporate expense, it makes sense to evaluate a company's effectiveness in managing its benefits costs, attracting and retaining core talent, reducing turnover, linking compensation to performance and driving the automation of its HR and business processes with self-service and other software components. In fact, numerous benchmark studies have proven that companies that efficiently manage their human capital components using software are significantly more profitable and competitive than those who do not.
Making HR Profitability a Corporate Reality
With the help of human resources management system (HRMS) technology, these concepts are moving to reality. However, the first hurdle that needs to be overcome is selecting and quantifying human capital information in the form of human capital management metrics that are capable of being plotted over a specific timeframe. Common examples include: total compensation; revenue-to-employee or productivity-to-employee metrics; turnover rate; employee assessment or satisfaction; time-to-fill or cost-to-hire statistics; employee performance index; etc. Once developed, these factors should be compared across the company and within the industry.
Providing these metrics to C-level executives ensures that they have a better understanding of human capital policy and how it is tightly linked to worker productivity, organizational efficiency and profitability. More importantly, C-level executives will be able to see the overall value and contributions that employees make to the company's success.
However, some executives will still require some enlightening. In fact, one C-level executive recently made a comment that he didn't think an HRMS would help his company at all, stating, "Clearly, human resource management system vendors and HR departments need to do a better job at educating executives on how human capital management practices and corporate success are integrally linked."
When making a business case for an HRMS system, remember there is more to these systems than just benefits costs. For instance, high employee satisfaction and a reduction in turnover translates into significant cost savings and greater overall corporate profitability. So be sure to take the time to "translate" these key metrics into terms readily understood by the C-level executive so they too can view the larger, strategic picture.
Mapping HR Information to Corporate Strategy
Industry research by leading firms such as Gartner, Aberdeen and Forrester confirm what many organizations already know that companies that have engaged their human resources departments in communicating strategic objectives create better shareholder returns than companies that have not. As a result, executives now expect their HR departments to concentrate on talent management and HR services that provide a clear-cut measurement of how employee performance maps towards company objectives in an environment of increased globalization and regulation. Put simply, HR departments now need to focus on people, process and strategy if they want to remain competitive and increase their profitability of their companies.
Effectively managing human capital is the key to achieving these organizational goals. The collective effort of all individuals and departments drives the company as a whole to achieve its desired objectives. As a result, organizations are turning to human resources management systems to ensure that their systems, processes and strategies become the foundation for achieving the effective use of their valuable human capital assets.
Competitive Environments Lead to Greater Profitability
Increasing competitive energy is yet another way that corporations are generating stronger returns. By allowing individual departments to compare and share industry metrics and corporate objectives among one another, HR professionals and managers are seeing a productivity uptick as divisions seek to meet their own objectives, monitor themselves against other departments within the company and compare their results to the industry as a whole.
As a result, and in addition to providing corporate goals and strategy, an organization must also collect information about the workforce in general so it can measure itself against its own goals and industry standards. Today, the crucial responsibility of collecting and disseminating information tends to fall within the scope of an organization's HR department. For human resources professionals to have accurate and up-to-date information about their workforce, it is imperative that their employees have direct access to critical corporate data and benchmarks, which can be accessed any time, from anywhere.