What would you do if you had a professional who could improve the company's profit margins, positively impact the cost of goods sold, lower the days' sales outstanding, and increase the price/earning ratio - all while delivering flawless transactional and traditional HR services?
Most CEOs would react two ways:
1. Why is this individual wasting his/her time in HR?
2. Why didn't I demand this level of HR performance five years ago?
The concept of human resources as a profitability contributor is fast gaining currency in US businesses and bears closer examination. Indeed, Professor David Ulrich of the University of Michigan, a leading expert on HR competency models, sees the changing business world as a 20-20-60 proposition:
" 20% of executives surveyed currently use HR as active and innovative business solution partners.
" 20% insist that HR should remain as administrative overhead and only perform transactional work.
" It's the 60% who are holding HR accountable for partnering with other departments to improve the company's core competencies and competitive advantages. And more HR people are stepping up to the plate and delivering the goods.
A continual company-wide value chain analysis is critical to the success of any organization. Over the past decade, CEOs and senior HR executives are demanding that their teams deliver flawless functional work and become a fluent partner with all other disciplines to advance the business plan of the company. Such disciplines as finance, sales, marketing, operations and HR can no longer exist as standalone entities. They are inter-dependent with one another. The weakness of any one of the links inhibits other links from maximizing their efficiencies and productivities.
Can HR be linked to profitability metrics? Yes. Here are three examples:
" A well-known Fortune 10 company formed a group of HR professionals who developed processes and training programs in sales, customer service, workouts and leadership development that focused on critical performance issues for their internal and external customers. After two years, the group generated sales of $4 million and a profit margin in excess of 30% which was returned to the division budget at the end of the fiscal year.
" Secondly, an HR team, partnering with the audit staff, discovered that the accounts receivable turnover had moved from a preferred 30 days to 45 days during the past two years. It was determined that the chief credit officer should be let go. The HR staff then began examining candidates for their ability to reduce the ratio from 45 days back to 30 days. The HR staff recommended one candidate for hire. Within six months, the company's ratio was reduced to 35 days.
" In a third case, while designing and negotiating a new health care and 401(k) plan, the HR leadership partnered with the sales and marketing team to determine if the cost of the program would erode the company's market share and competitive pricing strategy. The resulting benefit program design achieved its cost/benefit objectives without jeopardizing the market share and pricing metrics.
The intense and brutally competitive business environment of our global and digital world needs the help of everyone in the company. Which group of 20-20-60 does your company belong to?
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Ken Moore is the president of Ken Moore Associates, a management consulting group in Ballston Spa, NY. In addition to his human resources and organizational development consulting work, he is also an adjunct professor at the State University of New York at Albany and at the Union Graduate College where he teaches graduate courses in strategic management. He may be reached at: kmoore01@nycap.rr.com or at (518) 885-3210.
