Recognising the organisational value of HR in business terms

By Tom Fisher

For too long, HR has been overlooked, labelled as a costly administrative function or worse, “the fun police”. Undervalued and underappreciated, HR’s impact has gone unacknowledged by too many for too long.

We are here to change that. HR is the glue that holds your workforce together. From driving employee engagement, to fostering a positive company culture, and ensuring legal compliance, HR has a profound impact on a company's bottom line. So let’s take a closer look at the value it offers in tangible business terms.

According to a study by Gallup, companies with highly engaged employees outperform their competitors by 147% in earnings per share and have 21% percent higher profitability. This statistic underscores the significant impact that HR has on business performance and productivity.

In this article, we'll delve into the tangible business value that HR offers organisations and why it deserves a seat at the table. We'll explore HR’s impact on the employee lifecycle, from recruitment and retention, employee development, performance management, compliance, and risk management. What’s more, we’ll even provide some practical strategies for leveraging HR to drive business success.

Understanding HR's impact on business performance

HR is a function that has often been relegated to the sidelines, labelled as a necessary evil or even dismissed altogether. However, its true financial value cannot be overstated.

In fact, The Society for Human Resource Management (SHRM) found that for every 10% increase in employee engagement, companies experience an increase in profits by $2,400 per employee, per year.

This demonstrates the significant financial impact of investing in your workforce. And is it really that surprising? An organisation is only as good as the people who power it. When you invest in your people you are investing in your greatest organisational asset. It’s just good business.

If it’s not landing yet consider this. When asked what was his favourite product he ever created, Steve Jobs said, “the team”. With the right people in the right positions the sky is the limit… and it all starts with a solid hiring strategy.

HR’s role in talent acquisition and retention

Securing the right talent is the first step to succeeding in any industry. HR plays a central role in this process, identifying candidates who not only possess the right skills and experience but also align with the company’s culture and goals.

In other words, they are responsible for building your greatest asset, “the team”. Pretty important when you put it like that. Hiring the right people first-time-round is critical to keeping costs low, contributing to long-term growth and closing talent gaps.

Once you’ve got the right people in the right positions, retaining that talent is critical to reducing turnover. This is a must as the cost of turnover is extremely high. Research estimates that losing an employee can cost a company one half to two times the salary of that employee.

When an employee leaves, your organisation faces a double challenge: the need to invest time and resources in recruiting, onboarding, and training a replacement, while also experiencing internal setbacks as the role remains unfilled. Apart from the direct costs incurred from this loss, like missed or delayed revenue or lost customers, other less tangible but equally valuable outlays include lost productivity and knowledge.

Understanding these costs puts into perspective the importance of retaining existing talent. HR departments work strategically to ensure employees feel valued and motivated to stay with the company long-term through various retention strategies.

Employee engagement and its link to productivity

Employee engagement is a key driver of productivity, innovation, and overall business performance. Engaged employees are more committed to their work, more likely to go the extra mile, and less likely to leave the company.

HR plays a crucial role in fostering employee engagement by facilitating open communication, providing opportunities for feedback and development, and rewarding employee contributions.

According to Gallup, highly engaged teams show 21% greater profitability. This statistic highlights the direct correlation between employee engagement and business success.

The impact of company culture on organisational performance

A positive company culture is essential in creating a strong employer brand that attracts talent and gives employees a reason to stick around in the long-term. HR helps shape and maintain company culture by defining core values, promoting inclusivity, and fostering a sense of belonging.

A strong company culture not only enhances employee satisfaction and morale but also improves teamwork, collaboration, and innovation. The cost savings from reduced turnover and the enhanced productivity of a stable, engaged workforce contribute significantly to the company's financial performance.

Making a financial case for HR

Say it louder for the people in the back… HR IS A STRATEGIC INVESTMENT! When your HR practices are aligned with your organisational objectives, you can mitigate potential losses and even generate significant financial returns.

In this section, we'll explore the top five financial benefits of HR and how they contribute to the bottom line.

Cost savings from reduced turnover: HR's strategic approach to talent acquisition and retention helps organisations save significantly on turnover costs. Research estimates that losing an employee can cost a company one-half to two times the salary of that employee. By hiring the right people and implementing effective retention strategies, HR minimises this turnover, reducing the need for costly recruitment, onboarding, and training processes.
Increased productivity and profitability: Employee engagement, fostered by HR initiatives, directly impacts productivity and profitability. According to Gallup, highly engaged teams drive 21% greater profitability. Engaged employees are more committed to their work, leading to higher levels of output and innovation, ultimately driving better financial outcomes.
Enhanced employer branding: A positive company culture strengthens employer branding and positions the organisation as an employer of choice in the marketplace. This improves the quality of hires and reduces recruitment costs. Research by Glassdoor found that companies with strong employer brands attract 50% more qualified applicants. Additionally, a survey by HBR found that companies with a strong employer brand experience a 43% decrease in cost per hire. This suggests that investing in company culture pays off in more ways than one.
Improved employee performance: HR's focus on employee development and performance management contributes to improved individual and team performance. By providing training, feedback, and growth opportunities, HR ensures that employees are equipped with the skills and knowledge needed to excel in their roles. According to a study by the Association for Talent Development (ATD), companies that invest in employee development experience on average 24% higher profit margins than those that don't.
Mitigation of legal and compliance risks: HR's role in ensuring legal compliance helps organisations avoid costly fines, lawsuits, and reputational damage. Compliance with employment laws and regulations is crucial for avoiding legal liabilities. According to a study by Ponemon Institute and Globalscape, non-compliance costs companies an average of $14.82 million per year. HR's proactive approach to compliance management protects the organisation's financial interests and reputation.

By understanding the financial impact of HR initiatives, organisations can make a compelling case for investing in their people and driving long-term business success.

Measuring the value of HR

Tracking key metrics helps organisations assess the impact of their HR initiatives. Here are some that we think are valuable measures of success:

Turnover rate: High turnover rates can indicate issues with employee satisfaction, poor management, or lack of career development opportunities.

Cost per hire: Cost per hire measures the total expenses incurred in the recruitment process including costs such as advertising, recruitment agency fees, and employee referral bonuses.

Employee satisfaction scores: High employee satisfaction is correlated with higher productivity, lower turnover rates, and better business outcomes.

ROI of training: Measure the increase in employee productivity and performance after training compared to the cost of the training program.

Revenue per employee: Revenue per employee measures the amount of revenue generated per employee. This metric provides insight into workforce productivity and efficiency.

When HR strategies align with the overall business objectives of an organisation they become powerful drivers of growth. By understanding the company's mission, vision, and strategic priorities, HR can develop initiatives that directly contribute to the company's bottom line and long-term sustainability. For example, if the company aims to expand into new markets, HR can focus on talent acquisition strategies to recruit employees with the skills and experience needed for expansion.

Aligning HR strategies with business goals

Driving innovation, growth and competitive advantage

HR is not just about managing administrative tasks. When leveraged effectively it can have a much greater strategic impact. Fostering the right culture can inspire employees to think outside the box and contribute new ideas that propel the organisation forward. They also help organisations to identify skill gaps and provide training and development opportunities to equip employees with the capabilities needed to drive growth and remain competitive.

About the author

Tom Fisher

Tom is Head of Client Engagement at Vitro which covers two key aspects: focus on maintaining and developing client relationships and using his experience as an implementation Consultant to lead solution ideation. Tom was a client within the construction industry before joining the team in 2018 and appreciates the importance of Vitro being a trusted partner.

Final thoughts

Recognising the organisational value of HR in business terms is crucial for driving long-term success and sustainability. HR is a strategic investment your organisations success. By aligning HR strategies with overall business objectives, organisations can maximise their return on investment and drive growth.

Quantifying HR metrics such as turnover rate, cost per hire, and employee satisfaction scores enables organisations to track the effectiveness of their HR strategies and make data-driven decisions. HR departments must use this information to demonstrate its value to key stakeholders, including senior management, by showcasing its impact on business outcomes.

Embracing HR as a strategic asset can unlock the full potential of their workforce and achieve sustainable success.

Don't let HR be an overlooked function in your organisation.

Our transformation consultants are here to help you align your HR strategy with your organisational goals.

Whether you're looking to reduce turnover, increase employee engagement, or enhance your employer branding, our experts can provide tailored solutions to meet your needs.

Get in touch with us today to discover how we can help you maximise the value of HR and drive long-term business success.

Supporting strategic initiatives

HR contributes to a wide range of strategic initiatives in areas such as diversity and inclusion, talent development, and succession planning. These strategic HR efforts not only drive long-term success but also create a more resilient and adaptable workforce capable of navigating challenges and seizing opportunities in an ever-evolving business landscape. By aligning these initiatives with business objectives, HR adds value to the organisation and drives long-term success.

Communicating the value of HR to key stakeholders

Effective communication is essential for HR to demonstrate its value to senior management and other stakeholders. HR professionals should articulate how HR initiatives align with business objectives and contribute to key performance indicators.

Data and analytics play a crucial role in demonstrating HR's impact on business outcomes. By collecting and analysing relevant HR metrics, such as turnover rates, cost per hire, and employee satisfaction scores, HR can provide evidence-based insights into its contributions to organisational performance. This enables HR to make informed decisions, track progress over time, and communicate effectively with key stakeholders.