Value added SHRM to Drive profits

Most people will acknowledge that the HR profession encompasses a body of knowledge, expertise and skill that add value to organizations. But intuition doesn’t cut in today’s business world. Executives want proof that HR is a profit maker and not just a cost center.


Fortunately more and more studies are coming out that demonstrate a remarkable correlation between specific HR practices and shareholder return. Furthermore an increasing number of individual companies are able to provide solid anecdotal evidence that HR is, if not a profit center, then at least an important contributor to their profitability goals. Executives are beginning to understand that the “human” resource is the most valuable resource they have and there is also proof available now to show that investment in human resource pays off.

SHRM professional must – and can – do more to actively manage perceptions and promote the good work they do. Besides ensuring all personnel related activities operate at a steady hum, HR must design initiatives in line with business objective to add value to bottom line.

While HR doesn’t directly produce revenue, it doesn’t go out and find new business or open new markets – HR certainly improves the effectiveness of the organization, which allows the company to find new business or open new markets.

Various studies have shown that the 15 to 30 percent of the total value of a company can be correlated to specific human capital practices. The point is that the HR professionals have a choice in terms of how they spend their money and invest in the human capital of the firm.

HR has two ways of looking at building profit: 1) Cutting costs and 2) Helping to generate revenue by implementing right HR initiatives.

1) Cost cutting is a quick and relatively easy way to boost profits. It is typically HR’s first tactic. One of the most common way of cutting cost is utilizing technology to provide employee self – service. Self service technology enables employees and their managers to do such things as pursue e-learning, change benefit options, get answer to compensation questions, and manage performance without the help of HR professionals. When done well, measures that utilize technology to bring efficiency to administrative processes have the potential to reduce costs substantially.

2) Value added SHRM is the ability of HR to select and retain the right employees and help them to do their best work. This is where the real profit gains are to be found. Line and HR managers need to embrace the idea that investment in human capital can be a significant source of value creation for shareholders. When we look at companies that continue to be profitable despite today’s brutal economic conditions we find that there are many similarities in how the HR efforts at these companies help to strengthen the bottom line. However it is important to remember that none of these efforts can build profit in isolation. HR activities must work together to create an overall culture that is conducive to profit-making.

a> Communicate extensively: The vision, values and goals of the company are regularly communicated to employees. Not only that but bad news is routinely shared, and successes are celebrated. Company’s encourage free flow of communication and maintain open door policy. Knowledge based companies don’t believe in hiding any knowledge and information from their team members.

b> Employees are involved in setting goals: Instead of executives sitting down and devise a list of objectives for each employee to follow, employees are encouraged to identify the business drivers, set accountability measures and roll out the plan. Involving employees in goal setting has an impact not only on profits but also on morale. This substantially improves employee satisfaction and morale, belief in company’s vision and employee understands how their jobs contribute to the company’s business objectives.

c> Employees understand how their jobs affect the bottom line and how the bottom line affects their paychecks: When employees understand the impact of their work, amazing things can happen. But research proves that in addition to devising a clear line of sight between an employee’s job and company’s success, it’s vital for a company to share its success with employees. When employees understand the vision and how they contribute to it and benefit from it, they are much more inclined to help achieve it.

d> HR is not solely responsible for HR activities: HR acts like a facilitator of change and encourages others to do the actual culture change work. Experts say “Companies fail if they believe any one department should handle cultural responsibilities.”

e> Cost savings are important, but not the focus of HR: Saving money is an ongoing concern of HR bust cost saving should not be the primary focus of HR professionals who want to generate value for their companies. HRs focus on maintaining a culture that can ensure growth of business and that employee are creative and innovative enough to get the job done.

f> Employees are given what they need to be productive: It may go without saying that it pays to provide employees the tools they need to get the job done. But those “tools” are not always obvious and may include everything from training and work/ family initiatives to competitive compensations and corporate ethics programs. HR adds value to the bottom line by creating attractive workplace that helps employees stay and want to be productive. If your company is a good place to work, with good policies and procedures and a good environment, productivity- and profit - increases.

( Ref: Paper presented by Shari Caudron)