Understanding How HR Creates Value for Your Business

CoAdvantage- Traditionally, business leaders have seen Human Resources as a cost center functionally oriented around transactional tasks like processing payroll and administering benefits.

That view is rapidly changing, and HR is increasingly serving as an active, collaborative, and strategic partner to the C-suite. That’s because it has become increasingly apparent that HR can actively create value for the organization. Indeed, a quarter of respondents to an HR Dive survey about HR trends in 2021 said that “their highest priority is maximizing value.”

Industry analysts at consultancy group KPMG agree: “It is time for HR to be a preeminent value driver.” KPMG found that an overwhelming majority (70%) of HR leaders believe that HR needs to reinvent itself along these lines.

What value does HR create, and how?

This is a question that The Hackett Group looks at it intensively. We know that high-performing HR teams (what The Hackett Group calls “world-class HR organizations”) significantly outperform traditional HR. But in what ways?

According to their most recent research, high-performing HR organizations operate at 25% lower cost while requiring 31% fewer staff. They are also, notably, 91% more likely than other HR groups to “act as strategic advisors to the enterprise.”

But that’s HR-specific. What about producing value for the rest of the organization? A classic study from the UK-based Institute for Employment Studies found that organizations that increase investment in HR and people management by 10% can realize a 44.8% increase in gross profits per employee.

More recently, Bryan Hancock, the global leader of talent work at consultancy firm McKinsey & Company, has said, “HR has too often been in a world of budget cuts. And for it to turn the tables and say, ‘Hey, I can drop an extra $10 million to the bottom line with a $1 million investment in this set of tools’—trust me, that’s incredible.”

This is because a world-class HR organization outperforms its lower-producing peers in almost all HR-related functionality.

They select and onboard candidates more efficiently and more effectively, more successfully recruiting high-caliber talent. They’re adept at matching staffing levels to need. They are also more successful at fostering employee engagement, which by itself can improve business outcomes. High levels of engagement can lead to 10% higher customer ratings and 20% higher sales, according to Gallup.

But achieving these outcomes means treating HR as a value generator rather than cost center. HR can’t produce value like this if the department is still locked into a traditional operating model and divorced from organizational strategic initiatives. In other words, if HR’s work is siloed from other departments and devotes a disproportionate amount of its resources to administration (or doesn’t have to resources to do otherwise), it won’t have the fuel it needs to help drive the organization to better outcomes.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.