Quantifying the contributions of Human Resources Management

Human Resource Management (HRM) is a vital part of creating and maintaining an effective organization that is able to meet its goals and gain a competitive advantage over the competition.. HRM includes myriad activities ranging from recruitment to training and even the development of compensation systems. HRM has evolved significantly since the early 1900s. The need to deal with labor unions, as well as global competition, technological advances, and the changing nature of work make it ever more imperative that companies employ effective human resource managers and maintain effective programs of HRM. (Dessler, 2008)Human resource managers must be prepared to quantify their overall contribution to the company.

A balance must be struck between managerial and organizational requirements, while ensuring that staffing goals are met in a way that contributes to organizational objectives. The reasons an organization would want to measure the efficacy of a HRM program include; to identify HR contributions to organizational effectiveness, to determine whether or not the HRM program is meeting its own objectives, to identify strengths and weaknesses of the HRM process, to calculate a return on the companies investment into the HR department, to determine if a HRM program justifies an investment of further resources or capital, and to establish a database that can be used to assist management in making decisions related to HR.

There are a number of ways available for managers to quantify the contributions of the HR department. These include surveys, Cost- Benefit and ROI Analyses, Activity Based Costing (ABC), Benchmarking, and Strategic Analysis using HR as a portion of a balanced scorecard approach.

Surveys work as a means of measuring HR effectiveness by providing both customer and employee feedback that managers can translate into data that can be used to; asses organizational strengths and weaknesses, provide a basis for effective action-planning to determine training and organizational change strategies; and establish measures for benchmarking and evaluating change in organizational performance over time.

A return on investment (ROI), cost benefit analysis is an effective way for HR managers to justify themselves and their departments, such analysis shows in financial terms, how the HR department contributes to the company’s bottom line. HR has been historically viewed as a an expense, rather than investment, quantifying the contribution in financial terms helps organizations fully understand the value of effective HRM in helping achieve organizational goals and allows HR managers to become full strategic partners in terms of corporate level planning and decision making.

Activity based costing (ABC), is a process that is used to identify the costs associated with each step of a given process. Just like other processes a company will use, the HRM process can be quantified in this way. Breaking down costs and tracing them to a particular activity, rather than spreading them arbitrarily across the board increases visibility and transparency and allows managers to prove the efficacy with which resources they have been allotted are being used. ABC can be used with the HRM process to show corporate level management to inform the budgeting process, help benchmark company HRM costs against industry standards, and quantify the HR contribution to overall organizational effectiveness. (“Evaluating HRM’s contribution to Organizational Effectiveness”, 2004)The Balanced Scorecard approach provides a way to align business activities with the overall organizational goals, by monitoring the performance of specific functions over time. This method was developed by David Kaplan and Robert Norton and outlined in their 1996 book, “The Balanced Scorecard”. (Balanced Scorecard, 2008).

One company that has used such an approach is the Ritz-Carlton hotels. As part of the “Internal Business Process” part of their scorecard, the hotel chain conducts daily and monthly performance reviews, an HR activity, to help measure product quality indicators within each of their hotels. Being a customer service business, with repeat business depending upon satisfied customers, an effective workforce is a top priority for the hotel chain. Their employees must be able to help the organization meet the expectations of customers. The chain conducts a daily Service Quality Indicator, evaluating the top ten service indicators that reflect the overall quality of service. This information is used to provide further training, another HR activity, to personnel in order to help improve the overall effectiveness of the workforce. (“Information, Analysis and Scorecard: The Ritz Carlton Hotel Company L.L.C”, 2008)Before taking this course, I had no real idea of the extent of the duties performed by HR managers.

My understanding of HR was limited to the idea of hiring and firing and largely based on the character of Toby on the sitcom “The Office. I now understand that HR managers are responsible for and contribute to a wide variety of activities within an organization, and recognize the importance of an effective HRM program when trying to gain a competitive advantage over competitors. Personal within a company s must not be viewed as an intangible asset and expense if one hopes to succeed. Human capital is the most valuable resource a company can obtain, brining with it knowledge, experience, and expertise that can be difficult and costly to replace. Viewing human capital as an asset and rescource allows HR managers access to the same scientific tools and methods of quantification that all other types of managers use as well. This let’s HR managers and departments show exactly how valuable they are and what they contribute to the bottom line.

References

Dessler, G. (2008) Human Resource Management, 11th ed., Prentice Hall.

Evaluating HRM’s contribution to Organizational Effectiveness. (2004, August 9). In CheatHouse. Retrieved 10:04, August 8, 2008, from http://www.CheatHouse.com/essay/essay_view.php?p_essay_id=48452Wikipedia (August 2008) Balanced Scorecard, Retrieved 7 August 2008, fromhttp://en.wikipedia.org/wiki/Balanced_scorecardInformation, Analysis and Scorecard: The Ritz Carlton Hotel Company L.L.C. (2008, May 20). In CheatHouse. Retrieved 10:06, August 8, 2008, from http://www.CheatHouse.com/essay/essay_view.php?p_essay_id=124846