HR needs to measure up

9 May 2001 - A new Arthur Andersen survey shows that Human Resources (HR) executives say they’re missing two things that could improve their effectiveness - support from top management and sufficient financial resources.

The survey of 90+ Australian-based HR practitioners from 70 different firms, with more than 2 million global employees, found that HR executives believe HR and people strategy can significantly improve profitability. But it seems that top company managers are less likely to see a direct link between people and profits. And this divergence of views exists in spite of the presence of a HR Director on the Executive Committee of each of the organisations in the survey.

"Closing the gap in thinking between executives and HR Directors is possible", said Nick Pond, Arthur Andersen’s head of Human Capital in Australia. "But today’s discussion is very different from even six months ago," Pond said.

"Executives today are asking two questions of HR: first, can you reduce your costs? And, second, can you do it while still implementing the programs that will improve the bottom line?"

HR Directors are now starting to follow common practice in other business functions - measurng input costs, establish ongoing performance metrics, and building business cases for new initiatives.

"We’ve found that when we help HR Directors build stronger financial measures around HR, they end up having a different kind of conversation with their executives," Pond said.

"They develop a shared understanding of where the real costs are, and they agree on which metrics to put in place, the result is often that costs come down and the bottom line improves. The end result for both HR and top management is that the most important HR initiatives get the broad support and the funding they need," Pond said.

"Survey respondents stated their top two organisational challenges as developing new markets and improving profitability," Pond said. "HR strategy has been shown to be invaluable in both areas, yet organisations still see HR as an administrative rather than a strategic function," he said.

"55 per cent of those surveyed said they had moved to online HR administration systems," Pond said. "This means HR Practitioners have more resources to contribute at a strategic level. However, they need to be more proactive in communicating this message to stakeholders," he said.

Arthur Andersen's survey highlighted a need for better HR effectiveness measures, particularly in respect of employee productivity, satisfaction and retention rates.

"If HR is to be taken seriously as a strategic function, measurements should better reflect the scope of practitioners’ roles and encompass all stakeholders. This will enable practitioners to better articulate the importance of HR to senior management," Pond concluded.