Why effective human resources practices are critical to productivity & the bottom line

The biggest cost of doing business is usually labour. In the June 2021 quarter, the Australian Bureau of Statistics reported Australian organisations spent $295,373 million on labour costs. Yet the conversations regarding labour costs and the bottom line are usually led by the CFO and finance department or other functions seen to have a direct impact on revenue or financial performance, for example, sales. It would be rare indeed for the HR function to be seen to have a direct impact on the bottom line (except perhaps as a cost to be managed), let alone lead the conversation regarding the cost of labour and the financial implications of same.

So why isn’t HR in this discussion? Unfortunately, HR still has a credibility problem. All too often HR is seen as either soft and fluffy – developing and implementing programs that no one sees the benefit of, or process and policy police, with little ability to adapt to the needs of the organisation and the workforce. Rarely will they be seen to have a good grasp of critical financial metrics.

However HR can be done well, and when it is, it can have a significant impact on overall workforce effectiveness and a positive effect on the bottom line. Human Resources is all about people. people can make or break a business and therefore, shouldn’t HR be taking a lead role in managing the financial and other implications of those people?

Effective human resources practices are critical to productivity. Let’s take a deeper look at how.

Talent management

HR has a critical role to play in targeting, attracting and retaining the very best talent for an organisation. The talent strategy needs to align to the business strategy and the people hired need to align to the culture and purpose of the organisation. An article by US talent solutions company, Apollo Technical report poor hires are estimated to cost 30% of the employee’s salary in the first year and as much as US$240,00 per person, in lost productivity and the expenses of hiring, retention and pay.

Employee engagement

There has been much research on the causal link between employee engagement and the bottom line. Research by Hay Group suggested revenues could be as much as 4.5 times higher for those companies with an engaged workforce than those without.

Skills for the future

Australia is facing major skills shortages. More than 80% of jobs created between now and 2030 will be for knowledge workers. Deloitte report that the right response to addressing the shift in skills required can deliver a $36bn economic windfall. This should be front and centre in the HR plan and strategy. The implications for hiring, engaging and developing talent are significant.

Performance and compliance

Significant time and effort has gone into complex and usually ineffective performance management processes and systems. However, employee performance is important to productivity and the bottom line. When non-performance is not addressed it can have serious impacts on the rest of the workforce. If high performance is not recognised, this can have a significant impact on engagement.

Similarly, non-compliance with employment laws if discovered can be costly and time consuming. The recent example of payroll non-compliance and serial underpayment of employees is a good case in point.

Data, analytics and technology

Human Resources functions have been slow to utilise the power of data and analytics. The irony of this fact is stark given the significant cost of labour and its impact on the bottom line. The use of automation to streamline processes and provide autonomy and ownership back to employees and their people leaders will drive efficiency, productivity and improve engagement. The use of people data and analytics will enable business leaders to identify, analyse and report on significant workforce issues early and plan for future workforce requirements.

For HR to demonstrate tangible benefit to the organisation, they must first understand the business they are in. The relationship between finance and HR is also critical and both teams should be pulling in the same direction. It is also incumbent on managers and leaders to involve HR in critical business discussions and decisions. All too often HR is an afterthought. In the examples discussed above, most managers and leaders will know their HR team is focusing on recruitment, talent, engagement and compliance, what they may not know is, that if done well and with the business strategy firmly in mind, these initiatives will lead to significant productivity improvements and a significant impact to the bottom line.

Written by Ilona Charles.