Why Human Resources is Critical to Business Success
People are the heart and soul of any business, and any successful business knows that their employees are their greatest asset.
To organize and align everyone, the human resources department plays a primary role, but what makes their work mission-critical?
Here we break down the specific ways human resources contribute to building successful teams and businesses in today's workforce.
To help you leverage this critical function in your business, we include a few best practices from Fractional Chief People Officer, Alexis Kavazanjian.
What is human resources?
Every organization, big or small, comprises at least a handful of employees, contractors, or temporary workers. Every person requires support and management to fulfill their role successfully.
While HR is often known or portrayed in the media as a "hire-and-fire" role, human resources professionals are the key people that help keep an organization's employees happy, motivated, and productive.
As a whole, a company's human resources department acts as the backbone of an organization. They play the essential role of structuring and coordinating essential people management functions including recruitment, training, performance management, and managing employee pay and benefits.
Overall, they ensure that the processes of managing people, sustaining a business' culture, and promoting company values come together to become a well-oiled machine.
Within an organization, there are several titles for HR professionals, some of which are used interchangeably, but typically reference the experience level and focus of their work.
Entry level: These roles include HR assistants, interns, analysts, associates, staff coordinators, and some recruiters. Rather than being tasked with high-level decisions, they handle the day-to-day tasks that help drive human resources management forward.
Mid-level: HR team leaders, managers, trainers, technical recruiters, and specialist roles can be found at this experience level. For smaller organizations where HR departments aren't extensive, these roles serve as senior-level positions. Altogether, they're in charge of overseeing day-to-day activities and strategy.
Senior level: High-level roles are typical in larger organizations, but can be found in smaller companies based on team needs and responsibilities. These roles oversee operations and strategy in their specialized area of HR expertise and report to the CEO and other executives on the team. These roles include specialist managers (i.e., talent acquisition, etc.), consultants, brand managers, directors, and vice presidents, along with the Chief Diversity Officer and Head of HR for most companies. At large companies, there may also be a Chief Human Resources Officer.
Outside of these roles, there are a variety of newer titles that exist within HR, such as Human Resource Business Partners (HRBPs), Employee Experience Architect, Director of Rewards & Recognition, and Chief Human Capital Officer.
For each of these roles, the requirements and expectations of the job have changed over the years, so let's take a look at that next.
The Role of Human Resources: Then vs. Now
In line with a constantly evolving workforce, human resources has transformed as a whole. Rather than being focused on carrying out administrative processes like payroll and recruiting, HR roles now take on a strategic stance. This means they act as business partners who help drive the vision and operations of the business. This is the case for the newer role of the Chief People Officer who acts as a human resources manager at the executive suite level.
The newer HR roles mark a bigger shift in people management as organizational leaders realize the role that human resources have to play. This change is noted by Dr. Ronald Morgan, the Faculty Director for the Master's in Human Resources Management program at Georgetown University:
“A fundamental difference is that, years ago, [human resources] in these organizations were thought of as a cost. Today, many organizations recognize the workforce as a valued asset—an asset that if managed well will grow in value and be a source of competitive advantage.”
One way that human resources professionals now take a strategic approach to people management is by developing the company culture and business image. In a study conducted by Glassdoor, 77% of job seekers revealed that they consider a company's culture before applying. Cielo Talent and CR Magazine ran a survey showing that 86% of women and 67% of men would not work for a company with a bad reputation. By supporting positive culture and team dynamics, HR helps sustain a positive company image, which in turn leads to better word-of-mouth to attract future talent.
To meet employee expectations, HR plays a critical role in ensuring that organizations can attract and retain top talent. Today, this means making an organization's open positions appeal to prospective applicants who are actively seeking jobs that offer work-from-home (WFH) and hybrid options, parental leave, and better work-life balance, among other factors. This leads to titles like the Employee Experience Architect, where HR is now expected to take the lead in creating and maintaining an "employee experience" where employees feel supported and engaged from day one of recruitment through future promotions.
AI and automation are also on the table when it comes to strategizing around today's workforce. Research from McKinsey notes that AI can potentially add around $2.6 to $4.4 trillion in value to the global economy based on increased productivity. Regarding an employee's day-to-day work, tasks that absorb 60-70% of the day can be collapsed to nearly half the time. Interestingly, McKinsey notes that AI impacts knowledge-based work related to occupations with higher salaries and greater educational requirements. For HR leaders, this means crunching the numbers for current and future hires and thinking strategically about the contexts where automation can handle human-oriented roles and tasks, whether analyzing data and creating a marketing strategy, or taking on HR-exclusive tasks, such as assessing candidates.
When analyzing the makeup of the workforce, the gig economy has notably changed HR's hiring strategy for companies. Rather than hiring full-time employees, contractors and freelancers are now a potential consideration when recruiting where they once weren't, offering flexibility and cost-savings for an organization.
Another indicator of the evolving role of HR is software. 58% of businesses now use HR software to eliminate guesswork and hire the right people. These platforms help human resource teams become even more efficient and productive in managing people with benefits and payroll management, along with generating reports and analyses to guide improvements.
Now, let's explore the specific ways that HR is a strategic necessity for organizations of all shapes and sizes.
What do HR Managers do?
Image Source: The Balance
The typical human resources manager balances numerous tasks in their day-to-day, including:
- Identifying job vacancies
- Screening resumes
- Conducting interviews
- Hiring and onboarding staff
- Maintaining employee records
- Managing employee benefits
- Planning training sessions
- Organizing employee events
- Mediating employee conflicts
These tasks lend themselves to several core business areas, each of which easily can become a dedicated HR role as a company scales.
Employee Recruitment and Onboarding
When thinking about human resources, the responsibility of talent acquisition often comes to mind. Human resource managers or recruiters are responsible for identifying the best candidates and preparing them for the interview process (and for those who are hired, the first day on the job.) Essentially, HR helps create that ideal first impression for a new hire.
This involves creating the job post and description, which outlines the knowledge, skills, and experience required for the job, along with details that help market the role to applicants. Once candidates apply for the job, HR reviews their resumes, conducts interviews, provides constructive feedback, and checks references to ensure a good match.
Once selected, HR guides new hires through onboarding, which involves training and orientation on the workplace culture, policies, and expectations. Interestingly, onboarding is a common issue for organizations, with a Gallup survey finding that only 12% of employees reported that they received a good onboarding experience at their job.
HR's role in onboarding plays a massive part in setting up each employee to feel welcome and confident in their new role, which sets the stage for better performance and employee retention in the long term. That last point is key, considering the fact that employee turnover can be around 50% in the first 18 months on the job!
Training and Development
Part of a successful business comes down to the work they do in supporting the continued learning and development of their employees.
Companies that have training programs in place are also shown to have 24% higher profit margins. Regarding employee impact, teams become more effective, knowledgeable, and efficient. Regarding the Millennial workforce, 87% rate professional and career development as being highly important.
In the 2020 Workplace Learning Report by LinkedIn, 94% of employees report being more willing to stay at a company that invests in their learning, so HR's efforts in this area create a true win-win scenario. Within the company, human resources will identify the gaps in employee knowledge and skills and then design and implement training and development programs to address them.
In practice, professional development and training can look like implementing an upskilling program for employees to master a particular software. Development programs, on the other hand, help prepare high-potential employees for future leadership roles within the organization.
Safety and Compliance
HR is key in this area, to say the least. Every company has to navigate certain laws and regulations. By creating and enforcing policies and carrying out safety programs, HR ensures employees feel safe at work. They are the ones to educate employees on safety policies and procedures, provide safety training and equipment, and conduct safety audits to prevent accidents and make improvements.
HR also has to stay up-to-date with current legislation surrounding compensation and benefits and carry out the process of documentation and record-keeping to show the company is adhering to all policies. One timely example of this is the mounting challenges businesses face in complying with data protection laws while harnessing AI solutions, like ChatGPT.
If a company does not maintain compliance, they risk receiving fines and negative publicity, losing permits and licenses, and even facing criminal charges. WeWork is one highly-publicized example of non-compliance.
Employee Pay & Benefits
It goes without saying that employees need to be compensated for the work they do, and HR makes sure workers are paid on time and receive competitive benefits.
Benefits include healthcare, life insurance, paid time off, and retirement savings plans. HR works with benefits providers to ensure that employees receive the best plans possible. The other aspect is determining which benefits most apply to their workforce, which is partly dependent on age and industry.
According to the 2019 Employee Happiness Index, each generation has a different ranking of their "most important" benefits:
Image Source: 2019 Employee Happiness Index
Given that employees spend a good chunk of their time at work, providing them with the proper benefits is key to promoting their happiness and well-being long-term. Human resources help make this a reality.
HR's efforts also reduce the likelihood of turnover. It turns out that 49% of employees will look for a new job in the next 12 months if they are confused or dissatisfied with their benefits. On the other hand, 78% of employees report they are more likely to stay with an employer that provides a benefits plan that reflects their needs.
Employee Engagement & Satisfaction
The level of engagement that employees feel with their work is a crucial aspect of any organization that's looking to create a healthy and productive work environment to ensure their growth and success.
However, fostering engagement is not an easy task, and the starting point for many organizations is "satisfaction". This is where employees are content with their pay and work schedule, but does not necessarily mean that are engaged while at work.
Employee engagement is the extent that employees feel fulfilled and purposeful in the work they do. Engagement also stems from a sense of connectedness, whether that's with fellow employees, their boss, or with the mission of the organization. Engagement fuels motivation and job satisfaction, which both have an impact on a company's bottom line.
Image Source: HR Cloud
By effectively engaging employees, HR creates a ripple effect within an organization, leading to increased productivity and better performance in the long run. Other unexpected benefits include employees being more likely to show up for work, with engaged companies reporting 81% lower absenteeism. In another Gallup study, engaged employees reported eating healthier and exercising more frequently during the week. All of these habits end up feeding back into a healthier and more productive work culture.
How does HR make this a reality?
Human resources play an active role in fostering positive employer-employee relationships by proactively resolving conflicts and fielding employee concerns and needs as they come up.
HR is charged with creating and maintaining open communication channels between leadership and employees through conducting surveys and feedback sessions, which help to demonstrate to employees that their thoughts, opinions, critiques, and suggestions are heard and considered. All of this information helps HR introduce wellness programs, recognition initiatives, or creative employee benefits that can further foster engagement.
Understanding the Value of Human Resources
If you take a look at the list of Fortune's 100 Best Companies to Work For, you will see a list of companies that meet the definition of what it means to have an effective people management strategy in place.
With a great HR system in place, businesses reduce the risk of running into problems like toxic and unsafe work environments, disgruntled employees, and below-average benefits and pay. Even the hiring and assessment process is affected, leading to prospective hires being passed on, while the wrong hires make the team.
HR plays a key role in organizations, leading to higher employee engagement, better culture and well-being, increased efficiency, and a better bottom line. Plus, the organization becomes known for being a great workplace, whether it makes Fortune's list or not.
To dig deeper into HR's impact on organizations, we interviewed Alexis Kavazanjian, a Fractional Chief People Officer with over 15 years of experience in human resources. Prior to starting her own business, Alexis worked with a series of high-growth, seed-stage startups, and was most recently the Chief People Officer at Sendoso.
Navigating the Evolution of HR and the Workforce
In her career, Alexis has clearly seen how the hiring landscape has changed. I asked her about the biggest trends she's seen and what the future of human resources looked like from her perspective.
Along with seeing the "pendulum swing" from a candidate market to an employer market, she noted some key changes that HR leaders and companies must adapt to.
The role of HR over the last few years has become increasingly dynamic. The way that people work is evolving, and HR has an opportunity to play a greater role in enabling employees to do their best work. Hiring top talent is only one part of the employee life cycle, and companies need to continue to find ways to drive performance and employee engagement.
With that in mind, I wanted to know what effective employee engagement meant based on Alexis' extensive experience:
The way we think about employee engagement has evolved in the remote environment that we are increasingly operating in. People want to know that the work they're doing matters.
As an organization, it's important to have a clear mission and ensure that everyone understands the importance of the work they are doing and the impact they have. Being really clear about what success looks like and ensuring that people have the tools they need should be a top priority.
Tackling a Blind Spot
In working with numerous businesses in her career and fractional role, Alexis shares a core theme at the heart of businesses that are seeking support in the area of human resources:
When I’m engaging with a company it’s typically because leadership doesn't have the expertise to take on the human resources role and will often say something lofty and vague like, "We need help with our people strategy."
When I hear this, I make sure to spend a lot of time upfront in determining their specific goals and outcomes so we can be hyper-focused on what matters when it comes to creating the ideal people strategy needed.
She shares that each business comes with its own unique set of challenges. In her work, that means determining where business leaders and teams are at today, what they want to accomplish, and whether they have the talent needed for their goals.
How to Build an HR Department From the Ground Up
Alexis also shared some of her best practices for companies to think about when starting to think about adding an HR function to their teams.
When should companies think about adding HR?
Alexis shared with me that she's heard horror stories of businesses that wait too long before putting an HR function in place. She shares two critical questions to consider:
The questions I always ask business leaders are:
- What is happening because you don't have someone owning this?
- What are the challenges you are experiencing because you don't have this in place?
It's never too early to invest in building a solid people strategy. If you plan to wait until you have people challenges, it’s probably too late. The earlier the investment, the better prepared you'll be when things are difficult. Set yourself up for success early to navigate the tough road ahead.
How to Get Started Building Your HR Strategy
Getting started is tricky, so I asked Alexis what business leaders should consider in creating their initial human resources management strategy.
In hiring HR professionals, fractional or otherwise, Alexis pointed out that businesses should look to hire human resources professionals that they can see as being able to help them carry out their vision and will be able to add a constructive perspective to the executive team.
When it comes to building the overarching strategy, she outlined her tried-and-tested approach:
It's really important to start with the business goals. Based on your business goals, identify which areas drive the most value and prioritize for improvement. The questions I typically ask are:
- Why is this important?
- Why does it matter?
- Why now?
Once you have a solid understanding of the top priorities, create a quarterly roadmap and set goals and metrics based on priorities. From there, I recommend reviewing and updating the roadmap on a quarterly basis. Continue to review and update your strategy, because what worked 12 months ago may not be effective today.
Acting as a Partner
I asked Alexis what she wished more people knew about the role HR plays in business:
I think that HR still gets a bad rap sometimes and can be seen purely as a support role. The primary function we serve is to drive the growth of the business. I think where we have the opportunity to continue to shine is by being a true partner to the business.
Finally, she notes:
It's important that we all have the capacity to evolve into interdisciplinary thinkers that understand the impact of our work on every individual function and how that impact drives business success.