How Human Resources Management drives profits in business?
Human Resources Management (HRM) is designed to drive profits by its very nature. Driving Profits through employees is the purpose of HR. To quote Inc.com encyclopedia:
“Human Resource Management (HRM) is the term used to describe formal systems devised for the management of people within an organization. The responsibilities of a human resource manager fall into three major areas: staffing, employee compensation and benefits, and defining/designing work.
Essentially, the purpose of HRM is to maximize the productivity of an organization by optimizing the effectiveness of its employees. This mandate is unlikely to change in any fundamental way, despite the ever-increasing pace of change in the business world.
As Edward L. Gubman observed in the Journal of Business Strategy, "the basic mission of human resources will always be to acquire, develop, and retain talent; align the workforce with the business; and be an excellent contributor to the business. Those three challenges will never change."
Optimising the effectiveness of an organisations employees is an essential component in driving profits in to the business. This process is not done once and then magically repeats. It requires a systematic and ongoing focus on activities that improve employee performance.
Human Resources Management drives profits by doing the following:
- Hiring talent
- Inducting or onboarding talent properly into the organisation
- Training talent
- Setting performance pay structures, incentives and rewards
- Setting Key Performance Metrics or KPI’s that align employee performance to profits
- Managing Performance to continually improve and monitor, setting boundaries and when required disciplining for improvement
- Employee engagement this is an area that is vitally important and of itself has many steps
- Aligning employees to the vision, mission and purpose of the organisation which includes the core values of the business or “The way we behave around here”
- Providing opportunities for employees to input into the business and its practices
- Training employees on new systems or new processes
Human Resources Management drives profits by also doing the following:
- Giving recognition where it is due and listening to the employees to ensure rewards and recognition are in align with their desires
- And much more read two good articles that cover this topic in more depth one from Gallup and one more here
- Ensuring safety at work and compliance with legislation
- Ensuring company compliance with Industrial Instruments, employee payments, over time, rosters, and of course with any legislation
- Working with company directors to maximise returns for the business while maintaining a high performing work force with minimal disruptions
- Maintaining a balanced workforce with sufficient employees to cover all areas while minimising cost overruns in payroll
- Working with Finance on employee benefits in line with budget and forecasts
- Juggling the payroll costs with economic conditions
- Working with the company strategic direction and changes to implement change management systems and practices to ensure the continual smooth running of operations
Human Resources Management drives profits when done right is backed up by substantial research
Furthermore, there has been a substantial amount of research in business profitability and its link to good Human Resources Management practices as sited here:
“Companies that are highly skilled in core HR practices experience up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of less capable companies," according to From Capability to Profitability: Realizing the value of People Management. The report from Boston Consulting Group and the World Federation of People Management Associations is based on a cross-industry study of more than 4,200 HR and non-HR managers in more than 100 countries.”
Small business can learn from this research about the effective use of human resources management to drive profits:
Human Resources Management is not simply something you must do to comply with the Law. Use effective human resources management to dive profits. By implementing only some of these steps in your business you could drive much more profit through your employees.
Follow some of these simple steps to drive profits through your employees:
Therefore, when hiring staff for your business look at how they will contribute to your profits. Don’t just look at the tasks they will do, rather how those tasks contribute to your profits. Include the impact on profit in the position description. To assist with calculating revenue per employee read this article. To learn more about hiring read here.
Include reward, bonus or performance-based pay into their package, based on what you can afford. Especially look at rewards for high performance for achieving significant contributions to the business. Give a thank you card when someone does a great job. It is a simple, low cost, gesture that will reap huge rewards.
Implement and or invest in a system for monitoring performance and/or bring in a specialist to help you set it up. Thereby, you and your employees will see the results of their performance. Implement a regular catch up with employees to have 2-way discussions on performance. Regular performance management check in's with your employees rather than waiting for something to go wrong before commenting on performance will result in improvements.
Listen to your employees, especially if their contributing ideas on improvements. Place equal importance on noticing when something goes right as well as wrong. Read more about performance management here.
Performance improvement is a pivotal component of how human resources management drives profits. Therefore, performance management and review is imperative to obtain results.
Set the right expectations up front
In the first place, be clear about what you expect from employees. Therefore, have a “Company Code of Conduct regarding behaviour expectations and how that links to profits.
In the event you do not currently have a code of conduct in place, invest in getting one unique for your business. As a result, it will take the headache out of having those awkward discussions about behaviour expectations.
Allow employees opportunity to advance, either by supporting their training with time off or paying for courses that will improve their skills. Consequently, it will be of benefit to your business.
Take the time to listen to employees and encourage innovative thinking. As a result, they may come up with more efficient, better ways to do their job so, encourage them to speak up. In front of, challenges ahead give employees an opportunity to suggest solutions.
When something really goes well for the business, take the time to celebrate it with the employees. A simple morning tea or Friday afternoon pizza goes a long way towards engaging employees.
Take a moment to notice employees, especially the star performers. Let them know you notice and encourage them. One way to encourage high performance in the team is to ask a star performer to mentor others to encourage similar performance. Be part of the team not just the boss.
Get your employees talking with you. Allow them to share their ideas. Encourage open dialogue at the right times.
Be available to your employees to talk about their ideas and any difficulties they are having. Personal issues can quite often spill over in to work, allow people the opportunity to talk with you.
Of course, set boundaries and limit such discussions to work relevance, but don’t be completely closed off.
As a result, you may find yourself in a position to give some wisdom to your employees. Accordingly, if you do not allow open dialogue with you, you may end up surprised when something happens.
Collaborate with your team to find performance improvements. As a consequence, they may well be part of the solution. If there is an issue, do not assume they are deliberately not performing to expectations. They may have a justifiable and good reason. Therefore, you need to ask them not accuse them.
As a result, of implementing just a few of these human resources management practices you will drive profits. In the final analysis, if you go about implementing these human resources management practices the right way you will have a more robust and cohesive team . Read more on why do Human Resources Management here.
Written by Sonia King of King Consulting HR. King Consulting HR our outsourced Human Resources Management Consultants in Sydney. You can read various articles relating to driving profit through your team here.
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