HR from Cost Center to Profit Generator - Impacting Businesses Directly
Subir Verma, Head – Business HR (Generation), Tata Power, 0
It is interesting to compare the list of Fortune 500 companies of 2014 and 1955, only 61 companies appear in both the list. This means 88 percent of the companies have either merged, gone bankrupt or fallen significantly. It can also be perceived that constant turnover in Fortune 500 companies is good as it reflects dynamism, innovation, business execution and excellence displayed by the new companies.
In highly competitive and global environment, disruptive changes, responsiveness, technological updates and path breaking innovations have to be the core competency of any organization, which also separate the winners from the losers. Managing these are a difficult process, but indeed essential for all functions including HR. Time has come when most of the HR professionals need to move from generic models of HR and ‘best’ practices syndrome to organization based customized people,practices and business programs which directly impact top line and bottom line of the company to drive excellence and command respect for the function.
HR must transition from HR partner(a cost center) to part of business(a profit center) mode. HR professionals should not pay much attention to the advice of becoming a good business partner, align with business but focus on innovation, and create & contribute through new business model, may be in a small way to start with.
Besides core HR activities, here are two category of thoughts to improve top line and impact bottom line, which can help HR gain more perceived importance by driving business excellence and direct growth of the company.
1.Create impact with HR initiatives
2.Create impact with beyond HR initiatives
1.Create Impact with HR initiatives
a.Productivity Improvement - Everyone knows that a good salesperson revenue generation will be more than average salesperson. HR must analyze current sales hiring process, reengineer them so that it is measurably identified and hire better salespeople, which can be exhibited with data and trend. If the new hired salesperson whose revenue generation is more than 10 percent, you could (with little blessing from CFO & Sales Head) publicly state that HR played a great role in impacting the top line.
b. Make Customized Solutions– Emulating the best practices is not enough, customized practices suiting the business needs must be made. For small/ growing startusp, having bench strength is not possible. Here, HR needs to work along with business from proposal submission stage and track progress (probability of getting business by sales team) and make plan to acquire talent based on that probability. Some organizations have successfully managed to achieve what can be called as ‘Just in Time’ hiring, ‘Probability based hiring’ and stop revenue loss due to non-availability of billable resources or hiring before winning the project.
c.Prioritize Revenue Generating Business Units, Jobs & Employees — Revenue generating people/ role and non-revenue generating people/role must be tracked and prioritized differently for the purpose of hiring, attrition, engagement, and others. All know that highly engaged employees generate high revenue. But, it must track and ensure high engagement for revenue generating and customer engagement roles specifically.
e. Similar Focus on Outsourced Workers & Partners — At least in manufacturing and service based organization, the number of outsourced workers are many times the number of permanent workforce. Yet, generally very less focus and attention has been given to them for productivity, effectiveness and excellence enhancement. They are and will be an integral part of the business, hence they must be made part of the all such initiatives and ecosystem to improve organizational excellence.
Time has come when most of the HR professionals need to move from generic models of HR and ‘best’ practices syndrome to organization based customized people, practices and business programs
2. Create Impact with Beyond HR initiatives
a. Generate Direct Revenue — It can be tough to offer HR services to external clients as well (at least in similar sector)to generate direct revenue. Companies like Disney, Southwest and Wachovia have generated revenue by offering HR services externally. By using this strategy the business would retain the revenue made from these external services, while also making the company more visible in the community.
b. HR should Act as Revenue Enhancer – Sales and business development is no longer restricted to sales team. Like many CEOs prefer to have business people in HR role, HR too should influence or at least provide lead/support for new client generation. HR by virtue of its role is well connected and passing the sales leads may convert into revenue generation for the company. It may be a good idea to have a nominal sales target for HR team too!
c. Convert Employee Innovation/Idea into Revenue by Promoting Entrepreneurship – Some companies have started innovation practice, incubating right idea to promote within company entrepreneurship. Creating new product/services should be promoted so that in future, these initiative can become new revenue generation stream for the company to fuel future growth.
HR function at Google is effectively using operationalizing a business impact strategic approach. HR leaders at Google consistently use metrics and mathematical algorithms to scientifically improve business performance and excellence from programs like hiring, retention, and leadership. Such algorithms can generate data like revenue impact of people management offerings for each HR initiative like free food, workspace design, and collaboration practices. This helps in focusing on HR activities which has highest impact on revenue.
Gartner CEO and senior business executive survey found that growth remains a top priority of most of the CEOs, and technology related change is viewed as the primary tool to achieve the growth in 2020. High profit always has two elements, improving top line and reducing bottom, which is also the top agenda of any CEO. Marketing, Sales, Supply chain and Finance have become corporate heroes because they have demonstrated that they have a direct and measurable impact on both or one of his critical strategic goals.
Now is the time for HR to demonstrate and prove before more experts start questioning value added by HR in a company!