Accelerating Business Through Human Resources
On February 12, 2013, Pearson Partners hosted the bimonthly DFW HR Roundtable, a networking and knowledge-sharing group of senior human resources executives in the North Texas area. The topic was “Accelerating Business Through Human Resources,” presented by Jay Beck, account director, and Vic Dayal, executive compensation consultant, in the Dallas office of Towers Watson, a global HR consulting firm. Here is a summary of their remarks, followed by two case studies and questions and answers.
Focus on the Financials
Senior leadership looks first at the financial performance, and then at human resources. So, if you want a seat at the table in the C-suite, and/or on the board, you need to understand the business operations and how they fit into the organizational strategy. Then, you need to use your HR tools and skills to accelerate the business process and move the needle to impact the financial results.
For example, to increase revenue, you might improve the employee onboarding process or leverage and better manage sales talent. To decrease expenses, you might benchmark and adjust compensation by position or refine incentive plans. Accelerating business through HR can be viewed as a four-step process.
First, you need to understand your company’s business and the metrics for your HR department. That means mobilizing your resources, including building a team, determining the scope of your intervention and collecting data. In many cases, this will take about one or two weeks.
The next step is identifying goals for approximately the next 36 months by creating an HR scorecard with six to eight potential targeted actions. For example, your team might examine ways to address issues such as turnover, engagement, or benefits spending. It’s important to note that in a large organization, the issues may differ by profit center. This step can take three to six weeks.
The third step is to assess the internal rate of return, or IRR, for the various HR interventions, and set priorities based on the financial projections.
Finally, the senior HR executive should recommend actions where the IRR is greater than the hurdles. From start to finish, this process can take eight or nine weeks.
Case Study 1: Reducing Turnover
A luxury goods retailer with 12,000 employees in the United States, Canada and Puerto Rico was experiencing greater than 20 percent turnover in year-of-hire for customer-facing employees. That was resulting in significant losses of initial investment in employees, estimated at $36 million (replacement-related costs above the targeted turnover level of 8 percent.)
The consulting team researched the existing new retail associate training and onboarding program, as well as the first-line manager training programs. That included observation of instructor-led training, stakeholder interviews and participant interviews, as well as examining industry practices for benchmarks. That led to detailed recommendations for improvement, a redesign of the program and development of an implementation plan.
As a result, the employee training became better aligned with the organization’s business needs. Turnover was reduced by half within the first 24 months of implementation, resulting in estimated savings of more than $30 million, through a combination of reduced training expense and higher revenue through increased productivity.
Case Study 2: Optimizing Workforce Sizing
A well-known greeting card and party goods manufacturer and retailer had an 8,000-strong servicing organization responsible for maintaining card aisles at retail stores. This organization was staffed by a part-time workforce, largely consisting of retirees, that was assigned stores and given a certain number of hours per week. The consulting team collected and analyzed data on store type, characteristics, sales, employees and hours spent on servicing, in order to develop predictive models that could establish a relationship between servicing and sales.
The consulting team developed a tool for regional management to use to determine servicing hours, and then piloted the tool via in-person meetings. After implementation, the program reduced servicing expense by 10 percent at select stores, with no reduction in sales. In other stores, servicing expense rose by 10 percent, with an accompanying nearly 25 percent year-over-year increase in sales. This result was in stark contrast to previously flat same-store sales across the organization, demonstrating the financial benefits of a well-aligned HR program.
Questions and Answers
Q. How important are the data?
A. It is essential to be able to determine the most effective target actions and methods of assessing results. One of our clients has a full-time HR metrics person, who looks at those targeted actions and ties everything back to the company’s financials. That client’s C-suite monitors three key financial measures: top-line growth, operating margin and EBITDA (earnings before interest, taxes, depreciation and amortization), and their senior leadership wants to know how HR is impacting those numbers.
Q. How can you measure the impact of changing the onboarding process?
A. You can look at the loss of productivity while the position is empty. In many cases, a front-line position will be vacant for three to five months, and the lost productivity is typically equal to the base salary. You can also look at engagement survey results to see if you have moved the needle with a new program or process.
Q. Can you tie an engagement survey to financial results?
A. Definitely. In working with a retail client, we conducted an engagement survey of employees at the top 10 stores by sales, as well as those at the bottom 10 stores. We then looked at the contrasts to find the correlations. In this case, the differences were largely related to the supervisors and managers, and we made several tactical suggestions to the client.
Q. How can you use compensation as a business acceleration tool?
A. One approach is to maintain the total compensation level and apply a rebalancing strategy, such as reducing base salaries for everyone and creating an incentive pool for managers to allocate to higher performers. However, going to a program with a very high incentive and a low base can lead to less loyalty among employees.
Q. What if you’re working for a new company without metrics?
A. You try to find data on large companies in the same industry, and make extrapolations.