Improving HR Profitability

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“YES YOU CAN” – Improving HR Profitability by 5% – Interesting or Not?

As a Director or line manager, are you a functional manager of sales, marketing, accounts, administration, a combination of two or more of these or even in very small organisations, several of them? If you take the view that you are responsible for a function, then, let me offer you a different insight to your role and help you achieve these financial savings and hence improve your bottom line profitability. The key is remembering that each employee is actually the means by which you are “investing” your monies, which can vary from £20,000 – £100,000 + salary for each person, so that they can make money and hopefully, profits for the Company. This does not mean that you need to solely think of them as money, just to recognize that how efficiently you monitor, manage and enhance this investment will determine whether it “pays off!” To learn more, read on…

As long established and commercially orientated HR Managers, with extensive experience of over 20 differing sectors, we recognize there to be two key characteristics that are prevalent within all sectors, whether it be manuafacturing, service, care, public or private sector. However, our readers can readily determine these for themselves by a simple management and HR management “health check”. Firstly, we invite you to conduct a brief review of your organisational overheads and to calculate the proportion of the overheads which are directly or indirectly related to your employees. Secondly, ask all of your management team to complete a simple survey of how much of their time is spent on the various aspects of their responsibilities and to break it down into approximate percentages. This analysis does not need to be precise, as from personal and extensive experience of the sector, the author is confident that the end result and outcomes will unambiguously be the same for the majority of organsations.

However, I will use one example health check that we have personally conducted to demonstrate the value that you can potentially add between 5% – 10% to your bottom line.

Financial Breakdown – This example organisation has 32 employees whose costs amount to £1.339m or an average £42K per employee and the total company overheads are £1.609m, hence the direct costs of employing these employees amounts to 83% of the organisations overheads. A substantial investment in any organisations language and yet we had to question if the  managers were really committing any time and resources in managing and improving the effectiveness and efficiency of this significant  financial investment!

Management Breakdown –  Using the primary responsibilities of each manager and supervisors role or job description, ask them to consider carefully what proportion and percentage of their time they spend on each aspect and responsibility of their role, such as liaison with other departments, administration, dealing with sales enquiries, etc. In this example, the average manager was responsible for 6 employees and hence was responsible for £250,000 of employee “investment” per year and given the average duration of employment as 3 years for each employee, a total investment for 6 employees of £750,000. However, despite being responsible for this substantial “investment”, the average manager in the company spent below 3% of their time recruiting the best staff or monitoring, managing, training and developing the investment for which they are entrusted. Like many managers, they spent the vast proportion of their time dealing with operational issues, or often, resolving problems for, or caused by, their weaker or underperforming subordinates. Most importantly, they were spending little or no time on the recruitment process to secure the quality of new staff and the training, development and enhancement of all their most valuable resource, their existing employees.

Summary – For example, from our experience, interview duration times are often no more than 30-45 minutes and involve limited time in preparation and chatting really about personal issues as opposed to fact finding, yet on the basis that the average employee will stay 3 years, this amounted to an investment decision in the example case of £125,000 (1/6th of £750.00). As professional managers, our readers should ask themselves the simple question, “if I was given either £125,000 for one employee who is likely to stay the average of 3 years or even £250,000 to invest (the cost of the whole team for one year), would I leave it in a non interest earning account or would I make sure that I invest it (read develop) wisely to increase its value”. This question should require little if any thought, as for a manager not to spend time developing and improving the efficiency and effectiveness of the investment for which they are responsible, would be simply a neglect of their core responsibilities.

Action – The management and development of the employee resource should not be an option, it should be an obligation and an essential part of a manager’s responsibilities, starting with an effective and thorough recruitment process and followed by an efficient and professional development plan for all employees.

“A journey over a thousand miles begins with a small step”. (Kung Se)

Are you ready for the journey?

Colin Perkins is a Director/HR Consultant with PSM HR Outsourcing and was previously the HR Manager for a major UK Freight Forwarder. Colin welcomes any comments and can be contacted through


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