Yes, HR Really Does Make a Difference – HR Factbook Research Proves Business Value

This week we published the first ever HR Factbook®, a comprehensive benchmarking study which summarizes almost two years of research into the spending, resource allocation, and staffing levels of corporate Human Resources.  I am particularly proud of this research, because not only does it provide valuable benchmarking information for any HR manager, it also clearly proves the value of HR to business.  (You can download the executive summary at no charge.)

General Findings

A few of the overall findings you can find in this research:

  • Companies spend between $748 and $1500 per employee on HR administration (separate from training and payroll expenses), up approximately 1.4% in 2011 over 2010.
  • Only 1/3 of this money goes toward what we would call “strategic services” (ie. Talent Management – recruiting, management development, leadership develpoment), although this percentage varies widely depending on the company’s HR maturity level.
  • Right now companies are investing heavily in compensation analysis (to understand the impact of the global recession) and in services to better tune and understand how to best deliver healthcare benefits.
  • Only about 8% of spending goes toward what we call “strategic” programs – workforce planning, employee wellness, and employee engagement programs.
  • Two key topics which have become “front of mind” for HR and business leaders are engagement and retention.  With the labor market starting to become tighter and skills gaps becoming more acute, more than 40% of respondents told us they are now concerned about turnover and employee satisfaction.
  • The “borderlessness” of the workforce emerges as a theme this year.  Many of the companies we interviewed talked about the increasingly contingent nature of their workforce and the need to extend their HR policies to part-time, contract, and alumni workers.

The research itself breaks down spending, resource allocation, and program allocation by company size and industry for benchmarking. If you would like to benchmark your HR organization against direct peers, please contact us.

HR Spending and Maturity Directly Drives Business Results

Using our WhatWorks® methodology and the data collected over the last several years we developed our four-stage maturity model for the HR function.  This HR maturity model, which is described in this report and throughout our research, shows the four stages an HR organization goes through as it evolves from a tactical, non-strategic function into a fully integrated value-add business process.

 

Fig 1:  Bersin & Associates High-Impact HR Maturity Model

(Bersin & Associates Research Members can read more details about the four stages, and assess themselves against this normative database. )

What our research has found is that spending levels, resource allocation, and staffing levels and structure vary across these four levels – so it is really misleading to benchmark yourself by simply asking “how much should I spend on HR.”  While spending levels on Human Resources are important, the way money is allocated is much more important.  It turns out that companies at level 4 actually spend almost 70% more on human resources than those at level 1, and the return they get on each dollar is dozens of times higher.

HR is a Business Support Function and Drives Impact through Leaders and the Workforce

As we discuss in our High-Impact HR and High-Impact Learning Organization® research, we must remember that Human Resources is not a “business unit” like sales or customer service, but rather a “support function.”  It exists, just like IT, to enable, empower, and improve the financial and functional operations of the company.  When Human Resources is optimized, the company builds better products, delivers better customer service, and generates more revenue and profit.  HR does this by enabling and empowering business leaders and employees to do their jobs better – not by delivering any particular value or savings in itself.  This is why looking at spending levels alone can be such a misleading exercise.

What our HR Factbook research shows, for example, is that Level 4 HR organizations have 38% higher retention rates and generate almost three times the revenue per employee of Level 1 HR organizations.  And they do this by allocating resources in very different ways – they spend a smaller percent of their dollars on HR operations and a much larger percent on talent management, workforce planning, leadership development, and other strategic functions.  So rather than try to benchmark how much money you should spend on HR, it is far more valuable to look at total spending coupled with resource allocation and other staffing ratios.

At level 4 (which fewer than 10% of all organizations have achieved) the HR team is not only administering the basic personnel functions, but staying intimately involved in strategic decisions about where to invest, how to grow the business, and where performance can be improved.  The additional money spent on HR in these organizations pays for itself hundreds of times over.

We are very excited about this research, and you will hear a lot more from us on this topic.  I encourage you to either purchase this study or better yet, join our membership program and let us show you how to apply this valuable research to improve the impact of your own team.

(For more information on Bersin & Associates’ rigorous research methodology, please read our comprehensive methodology oveview,  The Value of Research in Corporate Learning and Human Resources.)

 

 

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  • What industries do the level 4 companies fall into? Sophisticated service business would have higher level HR by your definition and you would expect them to have higher revenue per employee – are there are also manufacturers, construction, municipal services demonstrating these types of return per employee with level 4 HR structures – now that would be exciting to know about!