Cliche or not, modern business and start-ups are places where the current mantra seems to be ‘move fast and break things‘.
Yet, with new companies emerging across the planet and growing at break-neck speed, the question that may often be asked by founders is, what’s human resources management, and why does it matter?
When companies start out with a few founders working in close proximity, it may not be immediately apparent what the Return On Investment (ROI) in HR will be for a fleet-of-foot new operation.
So let’s break it down…
Why Does HR Matter?
People have always been at the core of a productive and effective business, whether you’re manufacturing widgets or running a bank. There is much talk of how machine learning and AI-based systems will eventually supplant many jobs currently carried out by people, yet, despite all predictions, businesses still rely entirely on the human touch to achieve competitive success. Having better tools can lend an advantage, but it is the people wielding the tools effectively which makes the difference.
Human Resources is at the heart of this process. Over the course of the 20th century, HR evolved to fill super-important management tasks that are the lifeblood of any business. Just a few key areas would include;
- Hiring – A good HR team will provide a systematic process to recruit, interview, select and much more. This can become a specialized area often referred to as ‘talent management’.
- Training – Tied to an organization’s strategic goals, HR will develop a program of training and development aimed at equipping staff with the skills to meet these objectives.
- Monitoring staff satisfaction – Salaries are an important tool in securing and keeping staff. However, money isn’t the full picture. HR needs to monitor levels of satisfaction with the work environment and maximize the staff’s sense of worth within the organization.
“Without the majority of the workforce being aligned, engaged and executing towards the same goals successful transformation becomes an almost insurmountable task.”
- Productivity & Performance – Human Resources needs to track performance metrics of staff against industry medians in order to assess whether staff needs further help to improve workplace performance.
This touches on just a few areas but effective HR will also play a role in setting salaries, fostering company culture, advocating for staff at director level and many other facets of the employee experience which, at one time, were managed in a piecemeal and ad hoc manner.
Especially for high-growth companies with their eye on running world-class businesses, piecemeal and ad hoc won’t cut it.
Measuring HR’s value to the organization
So how can a business cut to the chase and measure the tangible benefits of utilizing HR specialists? Just why is HR important to the business?
This touches on ROI and assessing how the cost of introducing and maintaining an HR function, whether internally or as an outsourced resource, brings value to a business.
There are a number of tangible measures which can immediately shed light on how HR brings value to a business…
Turnover Rates — What were staff churn rates like before and after HR management became an established part of the business?
“When employees leave, it’s costly for your business. It takes time and money to find and train a replacement. That’s why it’s best for businesses to reduce their turnover as much as possible.”
Absenteeism — As with Turnover rates, what were the metrics for sick days amongst staff before and after HR was established? Paying the salary of someone who is constantly missing work days is not only an opportunity cost to the business, but it also presents a plethora of additional problems, for example, if temp staff have to be hired to cover for absenteeism.
“Research by the Society for Human Resource Management indicates that the direct costs associated with replacing an employee can be as high as 50 to 60 percent of an employee’s annual salary.”
Cost of staff acquisition & retention – Staff are the fuel that fire the engines of any business. Yet, if an organization is paying more to hire and retain staff it can be placed at a competitive disadvantage within its sector. As with other metrics, HR should be able to demonstrate its value in reducing direct hiring costs, or indirectly reducing the loss of key staff that then requires fresh (and expensive) rounds of sourcing replacement talent.
Other metrics might include staff attrition rates, reduced workplace incidents/accidents, head-count, employee training rates, the speed of positions filled and market competitiveness of salaries and benefits.
What would you do without HR?
So ask yourself a question… If you have HR as an established function or external resource to your organization, just what would you lose if it no longer existed and who, if anyone, would need to take over these functions?
Like so many things we take for granted, it’s not until something you’ve always enjoyed is taken away that you begin to appreciate just how valuable it was. HR is perhaps one of the least appreciated, yet most valuable sets of functions which benefits every other part of an organization.
Is Human Resources important? If your company needs people to operate, then the answer is a resounding yes.