With business now at risk from recession, there is a
pressing need for the HR function to add value and prove its effectiveness. If
strategic planning has not been a strong point in the past, then now is a good
time to establish a framework.
The start point for judging effectiveness must involve
identifying some basic benchmarks.
This does not simply mean looking at numbers of people in HR
or ratios of personnel people to other employees. Some key indicator values
appear to be common across a large number of industries.
For example, a critical and extremely stable indicator is
the HR reward cost as a percentage of the organisation paybill.
When this exceeds 2 per cent, all employers should start
questioning what the extra cost is adding to the output of the organisation.
This is a figure that has been (within very limited margins)
an exceptionally stable measure accepted by several hundred employers in the
APAC benchmarking database over the last decade.
Then, employee numbers aside, HR strategists should turn to
how the HR cost associated with this 2 per cent figure (typically £300 to £500
per employee) can be justified.
How much is (and should in the forthcoming year be)
allocated to recruitment, training and development and other key activities?
Unquestionably the 80 or so top performing organisations that we work with in a
year do not leave the resourcing of these activities to chance. Of the 300-plus
benchmarked organisations these winning players devote significantly less than
the 30 per cent norm to non-productive support issues such as clerical,
administration, secretarial and "department management" activities.
While the precise balance of other activities must be related to corporate
needs, there are absolute parameters within which top performers operate
depending on their circumstances.
Take as an example recruitment cost. There are some fairly
tight limits relating to the internal HR cost inputs to recruitment – centred
around £1,500 per new management employee and £800 per clerical recruit.
Obviously the nature of the local or specialist labour
market plays a part in variations around these figures – but only to a limited
degree. The key point is that the best HR departments know what their
expectations are related to HR activities and costs, and whether in service
level agreements, or just from a departmental budgeting and planning
perspective – they know how much time (and salary cost) should be devoted to
each of the 40 or so key HR activities during the next budget year.
They also have a clear perception of what
"acceptable" levels of turnover and absenteeism are and a good
understanding of the costs incurred in replacing lost employees or covering for
By Derek Burns, Partner, MCG Consulting Group