Increase HR's contributions to profits - human resources managers

Can you save the company $2 million? Get started by answering some tough questions, then calculate your costs and benefits.

Human resource managers are in an ideal position to measurably increase their department's contributions to company profits. Doing so will also increase individual accountability, make the HR function more relevant, and earn increased respect from upper management, peers and employees.

The HR staff can assess the department's current contributions to the bottom line by thinking about and answering these five sets of questions honestly, both individually and as a work team.

1. How relevant are the HR department's activities to making ever-increasing contributions to the company's profits? Why?

2. In many companies, HR is not expected to play a key role in running the business; instead it performs support activities that are sometimes lumped together under the term payroll and picnic. HR managers should ask: How true is this at our company? Why? How would the boss, the CEO and our peers respond to these questions, and to our answers?

3. What would be the three most important benefits to the company if the HR department applied the criterion of profit contribution to its actions?

4. If the company's HR function ceased to exist tomorrow and all duties were outsourced, what impact would that have on the bottom line? Why? How would the boss, the CEO and our peers respond to the question, and to our answers?

5. What long-term benefits would HR enjoy if everyone in the department consistently thought in terms of making measurable contributions to profit?

The HR staff has a strong personal interest in these questions and their answers. They will determine the growth or stagnation of HR in the company. To increase HR's contribution to company profits, five actions must be taken. First, acknowledge the impact HR's actions have on the bottom line and evaluate that impact in dollar terms. Second, take initiative to identify and resolve substantive business problems. Third, discuss situations with line management in terms of dollars, not in terms of soft issues like "employee satisfaction." Fourth, take responsibility for achieving tangible numerical objectives. Fifth, achieve the above within the organization's vision and value system.

A METHOD FOR BOOSTING CREDIBILITY

A simple eight-step method can boost HR's credibility and stature in the eyes of general management and peers by enabling the HR staff to relate to others in the language they understand: money. These steps will also link HR more strategically with line operations. As this process occurs, line managers will recognize the contributions profit-oriented HR solutions have made toward solving their business problems. An example is used to show how the method works.

1 Clearly diagnose and state the business problem. During a two-year period, a wholesale produce company lost money because it hired, and later fired, seven ineffective or unqualified sales representatives. The problem was aggravated by the company's inability to effectively address the issues involved in the sales representatives' poor performance.

2 Calculate cost of the problem with hard numbers. Begin the calculation by examining cost categories and the numbers that go with them. Assume the following costs: training for seven sales representatives later fired for cause, $493,738; recruiting, $30,100; management time to train sales representatives and later deal with termination-related issues, $25,830; lower profits, higher costs, theft and waste due to sales representatives' poor performance, $1,612,000. Total cost: $2,161,668.

3 Develop human resource-based solutions, working with the people who have the problem. The wholesale produce company's HR department developed a solution involving three types of training: first, managers were taught to determine, through specific interviewing techniques, whether candidates' previous life experiences prepared them for success in the company's specialized business environment; second, a standardized PC-based training program was developed and implemented for newly hired sales representatives to accelerate performance readiness or weed out those who didn't meet the standards; third, managers were trained to provide effective performance counseling to make sure trainees accepted and retained responsibility for their own learning and progress.

4 Calculate total cost to implement the HR training solution. Costs do not include a category for travel and living expenses, since all training was conducted in conjunction with regular on-site business activities. For this example assume: $600 for management time to attend a four-hour, in-house behavioral interviewing course; $14,200 to develop a standardized sales training program for new hires, with classes conducted in-house by HR staff members and line managers; $600 for management time to attend a four-hour training session on performance coaching, also held in-house. Total cost: $15,400.

5 Calculate savings from the solution. The cost of the problem, $2,161,668, minus cost of the solution, $15,400, equals a total savings of $2,146,268.

6 Calculate the cost/benefit ratio. $2,146,268 divided by $15,400 equals 139:1.

7 Implement the solution. Here's how the wholesale produce company implemented the three separate elements of the training solution.

Interview training. Before interviewing candidates, HR staff members and line managers developed a profile of the ideal sales representative, specifically focusing on the critical success factors (essential life experiences) the candidate must have to be a successful sales representative in the business. After identifying 10 to 12 critical success factors, HR and the line managers developed a series of probing, open-ended questions for each factor.

One factor was planning and organizing, defined as the ability to efficiently establish appropriate courses of action for oneself or others to accomplish specific goals. Being able to work in a consistent, logical, orderly way for maximum personal and work-group effectiveness is also important. Through specific examples and explanations, candidates have to convince interviewers that, over the course of their prior experience, they have indeed gained these critical skills.

Recognizing that people who have the appropriate life experiences and attitudes can be trained, the line managers now give more weight to the depth and breadth of the candidate's experience and less to the total number of years of sales experience.

Accelerated training for new hires. The accelerated new-hire training program, computerized and divided into 60 tasks, can be tailored to each individual's level of knowledge, experience and training. A trainee with no previous selling experience could complete the program in a maximum of six months. An experienced sales representative could complete it in eight to 10 weeks. Documenting progress was an automatic by-product, enabling managers to coach or praise trainees as appropriate.

Performance coaching. Through role plays, HR staff members can train line managers to use a four-step counseling process. In this training, managers learn to keep performance improvement discussions focused on employees' responsibility for their difficulties, the causes of the problems, solutions and plans for follow-up.

8 Report improvements. Before the interview training, managers were speaking about 80 percent of the time during interviews. After training, they were speaking only 20 percent of the time, primarily asking questions and clarifying answers. Applicants were speaking the rest of the time. Because applicants can no longer pick up cues from the interviewer and parrot back answers calculated to please, they have to think about their attributes and relate them to the job.

The company has received an additional benefit from the training program. Because the program involves all departments and many existing employees in validating the questions and answers for each of the 60 tasks, the program became the vehicle for a policies and procedures manual - something the company had wanted but never created.

The accelerated new-hire training program accomplished more than training new sales representatives 50 percent faster than before and saving about $2 million. The program laid the groundwork for introducing total quality management into the company; its use was expanded to four other corporate sites.

BENEFITS

This example shows how HR can make a substantial, measurable contribution to profits. Often, no major changes are required in the way the human resource function is managed. The key to deciding for or against change is to use a quantitative framework for diagnosing needs and evaluating the results of the proposed actions.

The benefits to human resource managers, personally and professionally, are tremendous. As entrepreneurial change continues to sweep the job market, the key to growth and survival as a human resource professional is to be highly valued by management as a consistent contributor to the company's profitability.

For more information on linking HR with the bottom line, see Turning Your Human Resources Department into a Profit Center by Michael W. Mercer (New York, AMACOM, 1989).

Donald M. Burrows is president of Acorn Consulting in Cary, N.C., and international chair on SHRM's Area II board of directors.

COPYRIGHT 1996 Society for Human Resource Management
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