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Can We Consider Hr Department As A Profit Center
We can find advertisements for HR professionals like ...
"on the look out for dynamic professionals with hands on experience in HR Polices, Compensation and Benefits, Learning and Development, Talent Management, Disciplinary procedures,Employee systems...to support our USD 1 billion distillery business restructuring initiative. Should be competent to handle multi cultural workforce, systems and OD strategies. You will be reporting to CEO and total compensation would be approx ....."
Let's assume that an employer has hired an exceptional HR Lead and given authority to head the HR department to achieve certain business goals. But how do you track return on investment? Is there a practice of calculating the ROI of HR Practitioner? That is if the total cost towards maintaining the professional is 25 lakhs per year, what would be CEO’s take with in 1 year, 2 years or 5 years down the line. While employing HR Head, CEO might be defining a target like this ( or it can be KPA of CEO) "If I get productivity boost of 10 to15% with in a year, which will reduce cost of production by 8 % and increase volume of sales by 5% and net profit by 2%". For more clarity, if we equate the 2% increase in net profit to 10 Lakhs, we can say CEO will get full ROI if the HR professional completes 2 years in the firm and helps to achieve 2% net profit for the company, every year. If the HR Practitioner has proposed/committed additional investments through adding more people, failed to manage attrition, failed to retain performers, additional infrastructure investment etc. Then all these expenses need to be tracked and considered while arriving at the ROI.
Recently one of my friends, a practicing Chartered Account told me an interesting case. According to him a company with 200 people employs more than 10 people in HR department itself and spending approximately Rs.10 million towards departmental expenses per year . Additionally they are spending another 2 million towards outsourced consultants (recruitment, payroll, statutory,legal etc). More interestingly the company is famous for its chronic attrition.
This can be a typical case but we can't consider this particular HR department as profit center....but i think CEO can make HR, a profit center.
- Set the expectations of HR in quantifiable terms like reduce recruitment costs to Rs X, increase productivity by Y% etc
- Restructure salary of HR professionals and incorporate performance pay
- If already hired professionals with talent hunting skills, either cancel all agreements with consultancies
- Study expenses pattern in HR department and direct HR Head to come up with a list of expenses in to two separate heads (items which will add value to business, items which will not add any value to business) and ask for proposals to reduce cost by Z%
- Direct HR head to come up with JDs and KPA-KPIs of all team members in HR. If finding that people are not over loaded, ask to stop all outsourcing contracts. In case people are not comfortable with this, verify at the staff utilization levels and go for a rationalization move.
- For small or medium sized organizations, usually this may not be the case and many times, HR Professional can go out of direction because of non-core HR activities. HR Head may propose to hire more people in HR to respond to mails, issue offer letters etc. But if we hire a fresh HR professional for all these jobs, with in 3-4 months, she/he will get bored and either quit the job or become non-productive. So better option would be automating all non-core activities in HR department or outsource it.
- When HR face difficulty in managing employee information, routine requests from employees, analytical report requests from business managers or CEO, better to go for a cost effective and ready to use integrated HRMS. Otherwise HR Head would be spending so much time among paper files or file folders and spread sheets to dig the information and forced to delay some other mission critical HR tasks and finally CEO will fail at ROI factor. Similarly, when HR face difficulty in processing salary using spreadsheets, better to use Payroll software or outsource entire salary calculation, printing pay slip , IT declaration/ deduction/return processes to payroll consultants.
- A very small violation of the labor laws may incur non-recoverable costs with additional legal implications on employer. An error in pay slip may create unnecessary tension among employees. So care should be given while handling statutory, legal and emotional aspects of employees.
The new economic scenario has changed the role of HR, more demanding. Company /CEO promotion to existing / potential employees is an important HR task but apart from that, strategic business support,expertise in branding, change management are some of the critical HR tasks. New age employees are expecting their HR representative to be more keen on instant peer support, counseling, career management, single window problem solving and above all their trusted messenger to CEO.
What doyou think? Please share your feedback here
