Keep an Eye on the Bottom Line to Deliver Strategic Value

6 Jul

Strategic Value of Human ResourcesThe recession and its aftermath left virtually no industry unscathed, as unemployment skyrocketed, credit markets tightened and consumer confidence tumbled. But as troubling as the downturn was on a market-wide scale, individual businesses were forced to confront some rather unfortunate circumstances regarding workforce management, payrolls and their overall bottom line.

While reducing staff, maintaining labor costs and boosting morale may have been the most common strategies for surviving the downturn, most employers and human resource management professionals have acknowledged that the actual implementation of these practices is easier said than done.

For instance, labor costs – including both compensation and benefits – account for roughly one-third of a business’ overall operating costs, meaning employers and HR officers need to strike a balance between profitability goals and employee motivation – a window that has become increasingly fragile and narrow through the course of the economic recovery.

Accordingly, managers may want to consider aligning their strategies with the goals of the company. This means adopting managerial techniques that adhere to revenue and growth projections, as well as expectations of overall company culture. It may also mean organizing payrolls and labor costs around work quality and productivity. Such practices can drastically improve a company’s bottom line.

However, accomplishing this requires a greater level of involvement among HR professionals and executives – an endeavor that has been challenged by the gap that has traditionally existed between corporate strategy and HR management. But many leaders are beginning to stress the need for HR executives to define their roles and responsibilities within the context of an overall growth plan, marketing strategy or profit goal. Even so, such an outlook is still somewhat bare.

Only 19 percent of senior HR leaders are part of their company’s executive team, and only 16 percent of businesses claim HR is the key to positioning their organization for growth.

To begin to align labor costs with that of corporate objectives, businesses need to evaluate precisely how much revenue is being invested in payroll, benefits and other employment-related costs.

This metric serves as a sort of return on investment for labor costs. Divide total annual labor expenses by revenue and express it as a percentage:

Labor Cost Revenue Percent

In determining the result, consider how organizations spend, on average, 22 cents on labor for every dollar of revenue earned. Of course, these figures vary from industry to industry and business to business, so HR professionals should weigh their specific findings against the norms of their market.

While it may be that the trend of HR executives and managers taking on the role of corporate strategist has been slow to develop, most analysts and industry leaders see it as likely or perhaps even inevitable.

But corporate strategy involves a greater understanding of and involvement with tasks that are unfamiliar to most HR leaders – such as relations with clients and business partners, finance and accounting, sales and marketing, operations, information technology and the employees themselves. Without understanding these issues and concerns, HR officers will be hard pressed to develop relevant corporate strategies.

Ultimately, it is a workplace’s culture that determines its productivity, and it is up to HR professionals to help forge and guide that environment. More importantly, the most effective way to accomplish such an objective is through coordinating managerial and employee engagement strategies with overall business objectives.

Interested in learning more business metrics that can help human resources provide strategic information to the C-Suite?  Download our What the CEO Needs From Human Resources white paper now.

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