Most companies understand HR as compliance watchdogs: an internal police force which protects the company from scandal, lawsuit, and other unpleasant entanglements. However, your Human Resources team offers huge potential not only to protect your assets but to boost profits and productivity positively. Here are a few reasons why you, Mr. or Ms. Executive, should rethink your opinions on HR.
Not your mother’s HR
The old school way of thinking sees HR as the tool to control the workforce. The HR team keeps the employee handbook up-to-date, makes sure you don’t get sued, and that you don't ask any illegal questions when hiring new employees. While these tasks are the foundation of Human Resources’ capabilities, it’s dangerous to think of HR as a means of “controlling” your employees.
Human Resources’ duties form a pyramid of responsibilities that, when fully utilized, can transform your company. At the base, they deal with compliance issues and all the boring, paper-pushing aspects of personnel recordkeeping. In the next layer, Human Resources should be responsible for the tactical applications of growing your company, such as refining hiring processes and onboarding new hires to understand your company culture. At the highest level, a strategy is necessary -- this level aligns the CEOs vision of the company, the organizational goals, and cultural values that inform every move. Human Resources must stop from the top down. Otherwise, your values will not align with how you hire new people.
To quote last week’s Hire Power Radio guest Rod Swartwood, “Had I a magic wand, I’d enchant CEOs to understand that the head of Human Resources should be as important, if not more important, than the CFO. When businesses rank the same financially, they set themselves apart with the people they employ.” An impassioned team of workers will beat passive drones any day.
Human Capital ROI
Look at it like this: in any financial department, the CFO runs the place, with controllers directing accounting managers who in turn order account clerks. If a CEO thinks that striation of skillsets is necessary for business, the same structure and significance are essential for your Human Resources. Why? Because a great Human Resources department will make or break the overall productivity and profitability of your employees.
We have the math to prove this, too. Rod Swartworth, shared with us his proven formula to showcase the productivity value of your employees or their Human Capital Return on Investment. Considering everything you pay when you hire people, such as their salary, benefits, payroll tax, bonuses, etc., you want to have a certain percentage of return on that investment. You can get all your numbers from your finance department. The formula is:
Revenue-(Total Expense - People Cost)
This creates a ratio similar to earnings per share, except here you see how much money you make on how much you spend per person. The number you get will vary greatly depending on the industry you’re in, whether you’ve paid out bonuses, hired new people, etc. But when you utilize this formula on a monthly, quarterly, even annual basis, you get a great idea of how productive your employees are relative to your company’s revenue.
Use this and other measurements to evaluate and analyze the health of your organization. Ask yourself, am I getting more revenue and paying my employees more, and not getting more profit out of it? Compare departments and different times of the year. Ideally, your numbers should be rising, and the return margin should be 20% or more. If not, your employees may not be as productive as they could be.
For startups, you can implement this formula before you start generating revenue. Plug in any investments or take our R&D as a cost, to mitigate the wide swing of statistics when you plug in numbers. If you’re losing money, you still have a number, it’ll be below a dollar, but if that trend is dropping money, you’re throwing good money after bad productivity.
Implement Processes for best HCROI
Now that you can measure how productive your employees are, what processes can you build in to enhance that return on investment? The first step is to see your employees as productivity enhancers, rather than a cost to control. This perspective switch shows employees right away that they matter to both you and organizational shareholders. For businesses, the cultivation of good people should be just as important as the cultivation of good profit. Warm bodies pushing paper are not top performers.
The number one reason for mediocre performance is whether or not the employee’s values are aligned with the goals and values of the company. When people have a why they’ll work with autonomy and energy. As the multitude of jobs have left factories and migrated to the office, this is especially true now. These are high-level tasks, and you can’t just fill a role with any random person. Sixty percent of the times this works if you’re lucky, because people are adaptable. But they don’t stay long -- there’s no higher purpose for them here.
Rod Swartwood created the acronym “Ascend” to illustrate a suite of best practices to maximize the potential of your human resources, and it starts with HR. “Ascend” encompasses: Attract, Select, Culturalize, Engage, iNspire, and Develop.
Attract- Be stalwart in your company values and who you are. A good employment brand means walking your walk, so your current employees will word-of-mouth your greatness out into the world. Good people will come to you.
Select- Choose to hire people whose values align with your goals and objectives. Matching their wants with your opportunity is tough, but worth it for the right person. While they understand the technical requirements of the job, most hiring managers don’t have the skills to figure out whether a person is a cultural fit or has potential to excel. Asking questions beyond the technical is key! Even Google removed managers from their hiring processes, and they’ve done pretty well for themselves.
Culturize- Get your new employees completely involved with your values. This can be done with fun orientation activities, partnering them up with a current employee as a mentor, or any number of different ways.
Engage- You have their bodies and hands in the building, but now you need their heads and hearts. People who have their hearts involved with the role feel a powerful drive to go above and beyond, because they have a why. A company whose engineers build synthetic heart valves introduce their employees directly to the patients whose lives they’ve saved with their work. That’s an incredibly powerful motivator.
Develop- Make your people better. You must inspire continuous learning and drive people to want to learn new things. Offer development opportunities, stretch assignments, and other things that will push employees as human beings to grow. This way, you’ve built more attraction into your employment brand, so more good people will hear about you and want to join!
Let the experts guide the “human” in “human resources”
Good Human Resources leaders who have the ear of the CEO can easily put the above processes into place to bring on great, long-lasting talented people.
So what’s the most effective way to start out, when your fledgling company is starting to spread its wings? Swartwood recommends outsourcing the strategy side of HR from the beginning. Convince your CFO that an HR person wouldn’t be trusted to close the books, so why should he or she be running personnel? Even if its one day a week, an HR expert can teach managers to do a better job in hiring. These high performers your managers bring on will add revenue, allowing you to build your own steller HR team into the organization.
Hire the pros to lay the foundation, and allow these HR experts a seat at the executive table to add to productivity and performance. Your people are one of your company’s dearest asset, invest in making solid, lasting, and profitable hiring choices. If you give HR and talent acquisition a seat at the strategy table, you’ll see financial results.
Rick Girard is the Managing Director and Founder of Stride Search, an engaged talent search firm. While not running a School for Gifted Mutants, he hosts Hire Power and creates valuable and tactical content for entrepreneurs to utilize to successfully build an outstanding team.
Robert Davis grew up here in HB , started in Aerospace, to a snowboard manufacturing , Thermal Snowboards. Thermal snowboards made products for companies like 5150 & Joyride. The company was acquired in 1995 by RIDE, a publicly traded Company and then obtained by k2. At that point, Robert was the VP of Operations. In 1997 Robert left and started Avid Ink. He effectively built the company from one employee to over 250 and $24 mil in revenue. This all from a 25k loan from his family! He successfully exited the company in 2015.
Today, He is Founder and CEO of both Y7 Collective and his newly acquired company, Communities for Cause, a mobile app that works with local merchants and allows the merchants to give money to specific non profits chosen by the user. He is also Member of Tech Coast Angels, Orange County & OCTANe's Launch Pad Panel.