Human Resources News & Insights

Having HR ‘at the table’ improves profitability: Study

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Finally — some strong evidence that giving HR pros the proverbial “seat at the table” actually can raise company profits.  

A recent Fortune 500 research study by SuccessFactors took a look at the role of Chief HR Officers (CHROs) on companies’ executive boards. The conclusion: An effective CHRO — with a strong overall plan for talent management — has a measurable positive effect on the organization’s bottom line.

Here’s what SuccessFactors had to say about the research in a recent press release:

[SuccessFactors’] audit of Fortune 500 companies identifies companies with an HR executive in their C-suite as high performers. In fact, these companies are on average 105 percent more profitable than their industry peers, who don’t have HR representation in the executive board. By exploring how CHROs impact an organization’s bottom line, this study uncovers the value of HR in strategic decision making. The research also presents the need for businesses to create robust HR functions and invest in effective technology solutions.

According to SuccessFactors’ customer analysis, proactive talent management is one of the best practices embraced by CHROs. Notable tactics that correlated to superior performance included exposing HR risks, such as the need to retain key talent in annual reports and instituting ongoing reviews of goals and performance throughout the year. Specifically:

  • Companies that identify HR risks in their annual reports outperform their industry peers without risk identified in key financial and market metrics, such as return on assets (by 55%), operating profit (by 95%) and earnings per share (by 54%).
  • Companies that review employee performance throughout the year more consistently meet quarterly financial estimates and experience a better average compound annual growth rate (CAGR) compared to their industry peers that only review performance on an annual basis.
  • Companies with a higher percentage of goals aligned and completed do better than their industry peers in key financial metrics – including quarterly financial estimates, operating profit, earnings per share, and price-earnings ratio.

“We found having a CHRO is correlated to a company’s bottom line, demonstrating the important connection between effective talent management and business performance. But simply having a CHRO is not enough,” said SuccessFactors president Shawn Price. “Today companies equally benefit from leveraging the insights that only come from advanced, connected HCM solutions that manage the entire employee lifecycle – from recruit to retire – taking the role from transactional to strategic and even predictive. The true value of our applications is in how they support HR in understanding tomorrow’s needs before it’s too late to proactively address them.”

Traditionally, human resource professionals were aligned with administration and finance – bogged down in paperwork and removed from C-level leaders. Today, organizations are acknowledging the value of employees as their key resource and are calling on HR to become a strategic partner with the leaders of the business.

This shift in HR’s role is driving a need for companies to invest in advanced technologies that enable them to effectively manage the workforce while allowing HR to spend more time focusing on making valuable contributions.

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