How HR can boost business profitability

During the past few years, human resources (HR) has undergone a significant transformation. It’s evolved from being a passive support function into a strategic driver of profitability.

This shift is due in part to a changed workforce landscape, including the rise of hybrid work, talent shortages, and evolving employee expectations.

Recognising that talent is a critical business asset, organisations empower HR managers to play a more strategic role in attracting, retaining, and developing top performers. Advancements in HR technology are further fuelling this transformation by streamlining processes and turning data into actionable insights.

An ongoing evolution

Traditionally seen as an administrative function, HR is now positioned to shape the future of businesses through strategic talent management. The COVID-19 pandemic significantly accelerated this shift, forcing organisations to adapt to remote and hybrid work models.

Virtual recruiting, building culture in a dispersed workforce, and staff retention are just some of the challenges HR leaders now face. While some employees prefer remote work, others value in-person collaboration. HR must, therefore, develop strategies to address these evolving preferences and ensure continued productivity.

The so-called Great Resignation, a period of mass employee turnover, further highlighted the need for HR transformation. With millions of workers leaving their jobs, companies found themselves struggling to fill open positions. Additionally, a tight labour market empowers jobseekers, making it crucial for HR to attract and retain top talent.

Technology continues to be a key driver of HR transformation. Previously manual tasks, such as job postings, candidate interviewing, payroll processing, and performance reviews, are now often handled through online platforms.

Virtual tools have also improved efficiency and facilitated communication, especially for geographically dispersed teams. At the same time, automated solutions for payroll and time tracking have not only increased accuracy but also freed up HR professionals to focus on more strategic initiatives.

The impact of HR on operating margins

A company’s operating margin, a key metric of profitability, reflects how much money it makes per dollar of sales after accounting for operating costs. HR plays a significant role in influencing operating margins by managing human resource costs, the largest component of selling, general, and administrative expenses (SG and A).

With salary budgets expected to continue rising, HR leaders must find ways to optimise costs without sacrificing productivity.

There are five key strategies that HR managers can leverage to improve operating margins. They are:

1. Reduce recruitment and retention costs: Recruitment and retention are significant HR expenses. Online recruiting can significantly reduce time and costs associated with traditional methods. Additionally, implementing effective retention strategies, such as competitive compensation packages and robust employee engagement initiatives, can help lower attrition and reduce the need for frequent recruitment.
   
   
2. Invest in talent management: A skilled and motivated workforce is essential for maximising productivity and operational efficiency. HR can implement performance management systems that track individual and team goals to identify top performers and provide targeted training for development. Data analysis allows HR to identify areas for improvement and invest in programs that enhance employee skills and capabilities.
   
   
3. Streamline HR processes: Automating administrative tasks, such as timesheet submission, can free up HR professionals to focus on strategic initiatives. Workforce analytics systems that track time automatically can provide a clearer picture of employee engagement and work patterns.
   
   
4. Increase employee engagement and productivity: Employee engagement is a key driver of productivity. HR leaders can leverage workforce analytics to identify areas for improvement and implement initiatives like recognition programs, flexible work arrangements, and a supportive work environment to boost engagement and overall business performance.
   
   
5. Develop a workforce optimisation strategy: Workforce optimisation involves using data and analytics to improve organisational efficiency and reduce costs. Key aspects include aligning workforce planning with business goals, ensuring optimal staffing levels, and eliminating unnecessary labour expenses. Effective workforce analytics software enables data-driven decision making regarding workforce allocation and resource utilisation.

By following HR strategies such as these, organisations can optimise their workforces while also improving their profit margins. HR teams will be able to readily track factors such as staff utilisation and outputs while also identifying areas that need adjustment.

In the future, successful businesses will be those that view HR as a business enabler with a direct impact on the bottom line.

Brendan Maree is the vice-president and country manager ANZ at ProHance.