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Human Resource Management Should Play It By The Numbers

We found this interesting article in a Profiles International Newsletter

Changing Role of HR:
Forget 'Warm and Fuzzy' - Know Costs of Lost Talent

Jack and Suzy Welch, in the July 17 edition of Business Week, took on the issue of what HR must do to retain the line-item overhead category on most business balance sheets. Any HR professional who has experienced cuts in HR budgets, reductions in staff and outright elimination of HR departments will understand the importance of this move. Every HR professional should read the article, or stop pretending to want a strategic role in the company.

Welch says that HR must first become a functional part of corporate financial management. Quantify. Dollarize. Given the very large, real and documentable costs of vacancies, turnover and legal problems, this is relatively easy. The real payoff, though, is on the positive side of the coin, when HR can track and document the dollars associated with productivity increases, longer tenure, better managers and employee satisfaction. In assuming this role, HR professionals have two major obstacles:

1) Lack of training in finance, numerical reasoning and communication of financial impacts (and worse);

2) Lack of interest in any of these things.

Traditionally, people go into HR because of the warm and fuzzy, intuitive, "health-and-happiness" approach. Welch even counsels, "Drop the socialist &lsquotreat-them-all-the-same' mentality." In the words of cartoon character Pogo, "We have met the enemy and he is us."

If you're still not convinced you can (and must) take this route, answer the Welches' challenge: "What could possibly be more important than who gets hired, developed, promoted or moved out the door?"

If you're having trouble with the numerical side of this challenge, make the CFO your ally. As John Sullivan noted in his Workforce Week review of the Welch position, "The CFO is the undisputed king of placing valuations on activities that are difficult to enumerate." By the way, your CFO is probably as uncomfortable with your warm and fuzzies as you are with the financial reports. But together, you can make things happen.

Look at a specific example of this way of thinking: Talent retention - As far back as most of us care to remember, HR has tracked "turnover" as one of our few consistent metrics. As commonly used, however, turnover is at best a hodgepodge statistic, lumping together the results of current hiring practice, past practice, management change or failure to change, the winds of the economy and goodness knows what else!

Talent retention, on the other hand, is more focused on current practice. According to Leslie Stevens-Huffman, writing for Workforce Week, "Nearly 70 percent of executives say that they view talent retention as important or extremely important." Identify the costs (both direct and indirect) of replacing talented individuals in your company, learn when new hires are most likely to leave and identify the factors causing them to leave.

Design a program to extend the average life of talent in your company by even a few months and calculate the direct dollar impact. You will find you have reduced the costs of hiring, training, unemployment insurance, workers' compensation, management time and negative impacts on coworkers. Simultaneously, you will have improved productivity, job satisfaction and leadership, while holding on to valuable company knowledge and loyalty. The total positive financial impact of your talent retention initiative alone may well pay for your entire HR operation!

Even in the entertainment industry, a business that many thought so creative they needn't pay attention to things like cost overruns, employee efficiency and careful budgeting, there is pressure to be more cost effective in every way and to always keep an eyes on the bottom line. As competition grows in every industry, there is no business from watching its costs, hidden or otherwise. One cost that is often overlooked is the hidden costs within the workforce. Turnovers and retraining alone can be a drain on an otherwise healthy business.

Then there is the matter of employee theft and substance abuse, that in combo can jeopardize the security of your proprietary systems, your databases and your intellectual properties. With these threats looming over just about any business, it becomes incumbent upon the Human Resources Manager to conduct careful employee screenings while paying close attention to the bottom lines. In this changing age, overviews are not viewed as favorably as specifics.

The devil is in the details, and the details, at least part of them, are in the numbers. As the article suggest, HR Managers should work with the CFO who are after all the numbers people. Working together, you can assure better cost control and overall productivity. Human Resource personnel who learn this and become efficient with numbers will be far more eligible for promotions than those who don't.

Coupled with watching cost, measuring productivity and assessing the bottom line, always remember to conduct pre-employment background checks on every job candidate. Pre-Employment Screening is the foundation for efficient hiring procedures. We always suggest a criminal background check and a Social Security Trace. You may also want to conduct a DMV search and a variety of civil searches.

So play it by the numbers, and check them our before you hire.

posted by Nicholas Gustavson @ 12:39 PM