How to make HR deptt as a Profit Centre??? - annual returns
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tarun Started The Discussion:

Dear HR Leaders

Kindly suggest that how can we make HR dept as a profit center as still most of the organizations feel that HR is burden and increase cost and most of the time HR people have to face this bitter fact.

Your creative ideas can strengthen this department in a new way.:idea:

Everybody is requested to give their inputs.

Best Regards
Tarun Sharma
Senior Executive - HR

leolingham2000 -  Member Since: Apr 2005
[quote=tarun;612675]Dear HR Leaders

TARUN,
HERE IS SOME USEFUL MATERIAL.
REGARDS
LEO LINGHAM
==========================================
You too can help the organization
to drive the business.


1. Analyze the organization’s vision
– Evaluate, articulate and clarify the organization’s
strategic plan for accomplishing its vision. Every firm should have a unique vision
and a specific plan to achieve it. Consider all the ways that the HR department
currently helps or hinders the company’s mission. How could changes in HR policies,
procedures and practices positive affect the strategy? What can HR do to make
it more likely that employees will achieve the company’s vision according to its
strategic plan?
2. Create a business case
– Clearly show upper management how and why HR is a
strategic asset and how it can increase profi ts. Explain how HR will provide the
organization with its most critical resource: qualifi ed, valuable employees capable of
implementing and achieving the strategic plan. Show how HR can build employees’
knowledge, skills, abilities and attitudes to help the company achieve its mission. It
used to be that typical companies regarded the HR function in terms of "how can we
cut costs." But, today’s most profi table, forward-looking organizations view HR in
terms of "how can an HR strategy result in increased profi tability?" The answer to
this question will help upper management see the value of strategic HR.
3. Determine how the company creates value
– How does the organization serve its
customers or clients? Draw a strategy map that illustrates the steps toward meeting
strategic goals. Identify the behaviors that achieve those objectives.
4. Identify HR enablers and performance drivers
– Use the strategy map to diagnose where
HR can make positive changes to elicit behaviors that mark good performance.
5. Evaluate the current HR system
– Look at your organization, policies, procedures,
compensation and reward programs. Does the system augment the company’s key
performance drivers? Do your policies attract, develop and retain staffers who
produce the results the company wants? If not, the policies are misaligned.
6. Define what you need to measure
– What factors can you measure to show if HR
is helping or hindering strategic performance? Create a system to collect data and
measure those factors. This will be your company’s "HR Scorecard." Its numbers are
only as valuable as the relevant information they provide about specific situations.
Much of this data may not be readily available because it wasn’t previously measured.
Since irrelevant data is of no benefi t, you may need to collect new types of data, more
frequent data or data from new sources.
7. Implement the HR Scorecard
– Gather data, measure performance outcomes and
analyze the results. This information lets you tweak HR’s activities and approach to
support the company’s strategic objectives more powerfully.
================================================== ==
An effective HR Scorecard serves two purposes as an management tool:
• It gives you the information you need to adjust HR’s actions and behaviors to achieve
better results.
• It validates HR’s contribution to the company’s success in financial terms.

WHAT YOU CAN DO WITH YOUR SCORECARD
• Focus the Scorecard on the most important goals in terms of the firm’s strategy.
• Determine how the elements of HR’s own system reinforce (or contradict) one
another. For instance, if you are always at full staffi ng levels, but the quality of the
staff is inadequate, then HR is not meeting the fi rm’s needs or supporting a strategy
that requires a high quality staff.
• The things you decide to measure on the HR Scorecard will attract attention, thus
they are the elements that will get managed. Select them carefully.
• Showcase the relationship between the cost and benefi ts of HR deliverables. For
example, it may cost more per hire to attract, recruit and retain high-quality staff,
but the benefi ts may outweigh the additional cost.
• Help upper management understand how HR can create value, so executives see that
it may be fi nancially wiser to invest in HR than to cut its expenses.
• Differentiate between HR doables (what HR does) and HR deliverables (something
that creates desired employee behaviors that drive the company’s overall strategy).
• When evaluating measurements and results, recognize the difference between
leading indicators and lagging indicators.
• If the company’s strategy changes or the performance drivers affecting that strategy
change, HR’s strategy must also change and you must update the Scorecard.
• Conduct a Return on Investment (ROI) analysis to determine the best way for HR to
produce results that abet the company’s strategic plan.
===================================

FINALLY WHAT HRM SHOULD DO
1. HRM VISIBILITY --Make regular presentations about your successes/
contributions/ upcoming programs.
--------------------------------------------------------------------
2. HRM credibility – Sustain credibility by "living" the values you espouse, working
with others, establishing win-win relationships, being honest and taking initiative.
-----------------------------------------------------------------------
3. HRM Ability – Show you are able to organize, orchestrate, manage and deliver change initiatives.
which should aim at the HR objectives aligned with corporate objectives
-----------------------------------------------------------------------------------------
4. Cultivate the company’s culture – Deliberately weave the company’s values, mission,
vision and strategy into the HRM way into the business operation on day-to-day basis.
-------------------------------------------------------------------------------
5. Proficiency – Become capable in HR practices, theories and procedures. Commit to
learning and to delivering results based on what you learn from the company business.
-----------------------------------------------------------------------------------
6. Business knowledge – Understand how your company operates. Know its
technological, strategic, fi nancial, sales and marketing functions. Understand how
they interact with each other and with HR, so you can identify ways HR can help.
--------------------------------------------------------------------------------------------------
7. Strategic performance management -Identify and link the strategic ways
that HR can contribute to the company’s
overall strategy and success.
------------------------------------------------------------------------------------
8. HR SCORECARD - Identify and implement appropriate, accurate ways to measure the infl uence of
HR activities on performance drivers and corporate strategy.
----------------------------------------------------------------------------------------------
9. HRM IMPACT - Estimate the potential implications of a change in HR to identify patterns and
connections in seemingly unrelated data, and to determine the impact that this
change will have on the company’s profits.
------------------------------------------------------------------------------------------------
10.THE MOST IMPORTANT OF ALL - HR COMMUNICATION -
Communicate how HR affects overall strategy and profits, so senior management
can understand that the change in HR represents a positive return on investment.
================================================== ========
################################################## ###############

If You Don’t Measure it, You Won’t Improve it
There are two ways, the HRM can contribute to the
GROSS PROFIT CONTRIBUTION.

1.GROWTH ORIENTED INITATIVES.
2.COST EFFICIENT INITATIVES.
==========================================
1. THE GROWTH ORIENTED INITIATIVES.
Your impact on corporate performance is indeed measurable.
A statistical technique called regression analysis is one excellent way to measure your impact. The guiding principle of an effective regression analysis is to isolate certain variables (i.e., more effective talent management practices) in order to better measure their impact.
An example of this is focusing on a specific group of employees who can be tied to revenue, and implement initiatives or programs targeted toward these individuals.
Microsoft is even beginning to experiment with this technique in its workforce-planning efforts.
These are just a few of the ways you can demonstrate your impact on revenue and profits:
Improving the selection process for revenue-generating employees by implementing online assessments. This works particularly well for salespeople.
Increasing the return from your employee referral program; referred employees stay longer, produce faster, and perform better.
Ramping up proactive sourcing efforts to identify game-changing, high-impact employees who drive higher returns for the company.
Implementing an idea or innovation recruiting initiative that yields products or services that your company sells.
Targeting internal mobility/continuous recruiting initiatives to top performers and subsequently reducing the turnover rate of these individuals, who drive significantly more revenue and profits than their peers.
Implementing "source optimization programs" to ensure that the top-performing sources of hire as measured in revenue generated are optimized and used more often.
You can, of course, continue to operate as a service provider that handle TRAINIING AND DEVELOPMENT
PROGRAMS TO IMPROVE THE SKILLS AND KNOWLEDGE LEVEL TO IMPROVE
THE PERFORMANCE / PRODUCTIVITY/ HENCE THE RESULTS.
================================================== ====

Align tactics with strategy and monitor performance with scorecarding.
Greater efficiency—align tactics with strategy to use resources effectively.
Increased accountability—assign owners for each metric and responsibility for performance.
Increased focus—concentrate on priorities and eliminate distractions.
Improved communication—communicate results and actions taken to manage performance.
Improved collaboration—use metrics to link together people, departments, and processes.
================================================== ===============
2.THE COST EFFICIENT INITATIVES.
-these initatives can help to enrich the bottomline.
HERE WE MOSTLY USE METRICS AS STANDARDS.


1. Strategic Perspective — the results of strategic initiatives managed by the HR group. The strategic perspective focuses on the measurement of the effectiveness of major strategy-linked people goals.

EXAMPLES
-change management capability of the organization
-organization compensation and benefit package with respect market rate.
-HR BUDGET / ACTUAL
-HR COSTS BENCHMARK EXTERNALLY
-HR annual resource plan.
-skills/ competency level
etc

2.Operational Perspective — the operational tasks at which HR must excel. This piece of the Balanced Scorecard provides answers to queries about the effectiveness and efficiency in running HR processes that are vital to the organization.


EXAMPLES
-time taken to fill vacancies
-cost per recruitment promotions
-absenteeism by job category
-accident costs
-accident safety ratings
-training cost per employee
-training hours per employee
-average employee tenure in the company
-lost time due to injuries
-no. of recruiting advertising programs
-no. of employees put through training.
-turnover rate
-attrition rate
etc



3.Financial Perspective — this perspective tries to answer questions relating to the financial measures that demonstrate how people and the HR function add value to the organization.

EXAMPLES
-compensation and benefits per employee
-sales per employee
-profit per employee
-cost of injuries
-HR expenses per employee
-turnove cost
-employee '' workers compensation costs''
etc

================================================== =====
HERE ARE SOME COMMON EXAMPLES.
FOR EACH ELEMENT, YOU CAN SET YOUR OWN
THRESHHOLD, BASED ON YOUR COMPANY
STRATEGY/ HR STRATEGY.
================================================== =====
1.ABSENTEEISM PER EMPLOYEE [DAYS]
2.AVERAGE RECRUITMENT TIME [DAYS]
3.EMPLOYEE TURNOVER [ % ]
4.EMPLOYEE SATISFACTION [ LEVELS ]
5.AVERAGE EMPLOYEE TENURE [ YEARS]
6.INDUCTION TRAINING [ % OF NEW EMPLOYEES]
7. TRAINING WORKSHOP [ % ] CONDUCTED/PLANNED
8. TRAINING AT EXTERNAL COURSES [ %] ACTUAL / PLANNED
9.PERFORMANCE APPRAISALS [ NOS.] AGAINST TOTAL EMPLOYEES.
================================================== ===
HERE ARE SOME
PROBABLE HR METRICS IN COMPENSATION ONLY

1.ANNUAL TOTAL COMPENSATION INCREASE RATE [%] [this year vs last year]
2.ANNUAL TURNOVER RATE.[this year v s last year]
3.COMPENSATION &BENEFITS AS A % OF SALES.
4.COMPENSATION & BENEFITS AS A % OF OPERATING EXPENSES.
5.COMPENSATION & BENEFITS PER EMPLOYEE [ this year vs last year]
6.COMPENSATION & BENEFITS COMPETITIVENESS INDEX.
7.INCENTIVE PAYMENT AS A % OF TOTAL COMPENSATION & BENEFITS.
8.BENEFITS SPEND AS A % OF TOTAL COMPENSATION & BENEFITS
9.COMPENSATION & BENEFITS BY LEVELS OF STAFF
-senior mgnt/ executives/middle mgnt/ junior mgnt/supervisors/staff etc.
10.NEW COMERS COMPENSATION & BENEFITS AGAINST TOTAL FOR THE YEAR.
11.% OF EMPLOYEES SATISFIED WITH CURRENT SYSTEM [ SURVEY ]
12.MEDICAL BENEFITS EXPENSES TOTAL [ THIS YEAR VS LAST YEAR]
13.MEDICAL BENEFITS EXPENSES PER EMPLOYEE.
================================================== =====
HERE ARE SOME STANDARDS METRICS
1
HR UTILIZATION
%
TOTAL PAYROLL $ / TOTAL SALES $




2.
HR PRODUCTIVITY
%
TOTAL EMPLOYMENT COST $/TOTAL



PRODUCTION VOLUME IN $ X 100




3.
HR BUDGET
%
ACTUAL $ / BUDGET $ X 100




4'.
ACCIDENT COSTS
%
CURRENT ACTUAL $ / LAST YEAR $ X 100




5'.
ACCIDENT SAFETY
%
CURRENT ACTUAL $ / LAST YEAR $ X 100

RATINGS






6'.
EMPLOYEE
%
EMPLOYEE BENEFITS $ / TOTAL PAYROLL $ X100

BENEFITS









EMPLOYEE BENEFITS $ /TOTAL SALES $ X 100








7'.
HR BUDGET
%
ACTUAL HR EXPENSES $ / TOTAL SALES $ X 100

sales effectiveness






8'.
HR EXPENSES
$
TOTAL HR EXPENSES $ / TOTAL NO. OF EMPLOYEES

per head






9'.
HR EXPENSES
%
HR EXPENSES $ / TOTAL EXPENSES $ X 100

cost effectivenss






10'.
NO.OF COURSES
%
ACTUAL CONDUCTED / PLANNED X 100

CONDUCTED






11.
NO. OF SAFETY
%
ACTUAL CONDUCTED / PLANNED X 100

training programs






12.
TRAINING DAYS
%
ACTUAL TRAINING DAYS / PLANNED X 100

EFFECTIVENESS






13.
EMPLOYEES
%
ACTUAL TAKING PART / PLANNED X 100

involvement in train






14.
SICK DAYS
nos.
TOTAL SICKDAYS TAKEN/ TOTAL EMPLOYEES

managemeent effectiveness






15.
STAFF orientation
%
NO. OF NEW STAFF LEAVING IN THREE MONTHS/

EFFECTIVENESS

TOTAL NO. OF NEW STAFF ORIENTED



X 100








16.
TIME TO FILL AN
NO.DAYS
TOTAL NO OF DAYS / TOTAL NO positions filled

OPEN POSITION










17.
TURNOVER BY
%
TURNOVER / TOTAL RECRUITMENTS X100

RECRUITING source





BY EACH SOURCE








18.
TURNOVER BY
%
TURNOVER / TOTAL EMPLOYEES BY EACH

EACH JOB

CATEGORY

CATEGORY

X 100








19.
WORKERS
%
ACTUAL $ / PLANNED BUDGET $ X 100

çompensation costs










20.
HR STAFFING
NO.
TOTAL HR STAFF / TOTAL EMPLOYEES

EFFICIENCY







================================================== ============
Pulling it All Together-----Building a Scorecard
Zeroing in on Metrics that Matter
Begin your program with a solid foundation of basic metrics: cost-per-hire, turnover, etc.
Ask managers what issues concern them – what impacts productivity, makes their lives easier?
Based on the responses, determine which metrics affect the areas identified, and then determine which measures provide results that clarify the values identified.
Benchmark what others are doing in terms of the specific metrics you choose. Don’t spend valuable time on benchmarking until you know which metrics are important to your organization.

Zeroing in on Metrics that Matter
Take a numerical snapshot of your present situation.
Analyze the outcomes of the proposed action.
Decide what tools are needed in terms of technology and outside assistance.
Make a business case for the action and outcome you decide to pursue.
Show managers updated report (via metrics) on how HR has contributed to their success.

Strategic Relationships
Process must be owned by Executives, Managers, HR, Finance, and IT
Takes time and will power
May require an investment in information technology support services to support human capital measurement and reporting opportunities
Requires the fostering of key strategic relationships to ensure favorable outcomes
Wrap-Up
Take "baby steps" by starting with a few key metrics.
You don’t have to change the whole organization at once.
Measurement and management go hand in hand.
################################################## ########



captaincook -  Member Since: Dec 2008
Dear Lingu, By the time he read and understand what you said in this post he will reach to the age of retirement......... captain

K.Ravi -  Member Since: Jul 2007
HI LEO ,,

mmmm post by old member after long time,,,

btw the truth is HR does only PAPER WORK,, all people just copy paste the policies and what to do and what not to do in their files, put posters in their offices etc, but truth is implementation mein kuch nahi hota, that is sad about HR, and as CAPTAIN SAAAB told when will this fellow understand what you wrote and when would he implement it and see the fruits of implementation...

tarun -  Member Since: Feb 2006
Dear Members Inputs shared by Leo are really wonderful, we all need to appreciate. Will use these inputs at my young age!!!:-P

vivekreliance2006 -  Member Since: Nov 2008
Dear Lingu,
I really appreciate the time consumed over this for real information shared with HR team. I believe if truely studied and implied as required then ought to give definate result.

By the Mr Captain, never critisize on some innovative ideas shared. If this is not of your use, pls that cannot to for everybody use.

Being the HR professional from good institition pls use sofisticated language and make enabling environment

Vivek
General Manager
Radhika Corporation Ltd




chirag_savajiyani -  Member Since: Jun 2008
Hii Leo, This is very good post, very high efforts seems in this post, it will be worth if we implement some of these. Thanking You, Chirag S. Officer (HR)

sukanya_vish -  Member Since: May 2008
The input by Leo sir is truly commendable.
Yes it is a fact that when it comes to implementation, there are sevral hiccups that the HR's have to face but overcoming them needs a strong conviction and belief in what is to implemented.
There was a time when appraisals, KPI's and goal sheets etc were all theoritical but today even small companies base their manpower decisions on them and have agreed to their usefulness.

I think the only way we can make the presence felt in the corporate world is by believing in what we design and its utility.

Thanks
Sukanya

hrssonepat -  Member Since: Feb 2008
Very informative positing indeed. We can further learn from this post on how to strengthen the HR Deptt & its activities. Thanks,

BADLOOSER -  Member Since: Nov 2008
Dear Lingu,

Profit centre means revenue generating...............

But your schemes are mainly emphasis on the money saving and efficiency factors....

In my understanding the term profit centre is to generate revenue for business as one major source of income..

please enlighten us with your theories........

Badlu




 
 
 
 





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