Human Resources (HR)… Major Profit Producers? You Bet!

    October 5, 2006

If you are an HR Professional and you are not tracking your department’s specific profit contribution, you should be.

HR heads have been reporting this incredibly important fact for decades. One reporting HR VP was rated number one nationally two years in a row for “best practices”. He knew exactly how many millions of dollars his department put on the corporate bottom line from the day he started until he retired. The President and the other key executives where equally aware of the dollarized bottom line contribution consistently generated by his HR department.

In Business Week, Jack and Suzy Welch took on the issue of what HR must do to leave the line-item overhead category on most business balance sheets. Any HR professional who has experienced cuts in HR budgets, reductions in staff and outright elimination of HR departments will understand the importance of this move. Every HR professional should read the article, or stop pretending to want a strategic role in the company.

The Welch’s say that HR must first become a functional part of corporate financial management. Quantify and Dollarize. Given the very large, real and documentable costs of vacancies, turnover and legal problems, this is relatively easy. The real payoff, though, is on the positive side of the coin; when HR can track and document the dollars associated with productivity increases, longer tenure, reduce employee turnover, better managers and employee satisfaction. In assuming this role, HR professionals have two major obstacles:

1) Lack of training in finance, numerical reasoning and communication of financial impacts (and worse);

2) Lack of interest in any of these things.

Traditionally, people go into HR because of the warm and fuzzy, intuitive, “health-and-happiness” approach. Welch even counsels, “Drop the socialist ‘treat-them-all-the-same’ mentality.” In the words of cartoon character Pogo, “We have met the enemy and he is us.”

If you’re still not convinced you can (and must) take this route, answer the Welches’ challenge: “What could possibly be more important than who gets hired, developed, promoted or moved out the door?”

If you’re having trouble with the numerical side of this challenge, make the CFO your ally. As John Sullivan noted in his Workforce Week review of the Welch position, “The CFO is the undisputed king of placing valuations on activities that are difficult to enumerate.” By the way, your CFO is probably as uncomfortable with your warm and fuzzies as you are with the financial reports. But together, you can make things happen.

Look at a specific example of this way of thinking: Talent retention – As far back as most of us care to remember, HR has tracked “turnover” as one of our few consistent metrics. As commonly used, however, turnover is at best a hodgepodge statistic, lumping together the results of current hiring practice, past practice, management change or failure to change, the winds of the economy and goodness knows what else!

Succession Planning and Talent retention, on the other hand, are more focused on current practice. According to Leslie Stevens-Huffman, writing for Workforce Week, “Nearly 70 percent of executives say that they view talent retention as important or extremely important.” Identify the costs (both direct and indirect) of replacing talented individuals in your company, learn when new hires are most likely to leave and identify the factors causing them to leave.

Design a program to extend the average life of talent in your company by even a few months and calculate the direct dollar impact. Consider how some of today’s validated pre-hiring assessments, personality assessments and job matching tools can enhance your employee development. You will find you have reduced the costs of hiring, training, unemployment insurance, workers’ compensation, management time and negative impacts on coworkers. Simultaneously, you will have improved productivity, job satisfaction and leadership, while holding on to valuable company knowledge and loyalty. The total positive financial impact of your talent retention initiative alone may well pay for your entire HR operation!

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Chris Murphy is a freelance writer dedicated to providing accurate, informative topics for readers. For more information and ideas, please visit