Fundamental Belief # 3 of 11 The HR-to-Employee Ratio does not work and it is not a 1-800 Number

It is a misnomer to believe that an organization need not have dedicated HR support upon inception of the business enterprise. In fact, I believe that even one employee equally presents opportunity as a potential brand ambassador for the business. In contrast, every employee can also be a risk as a potential liability. Allow me to explain. When I was early in my career, I was taught that the HR-to-employee ratio was 1 to 100. Of course, much has led this metric to be long outdated. Yet, it seems I continue to discover businesses that operate under this premise.

“Why do I need HR and what do I need exactly?”

     This is a question I rarely get and yet I believe it is the first question that should be asked. In fact, the question I more often hear after explaining what I provide is, “What is HR because what you just explained is not what I thought of when I think of HR?” Another favorite is “How does HR impact business profitability?” The simple answer is significantly. If you have one employee, you have at least 35 laws that apply to your business, much of which requires you to proactively do something. The myriad of workplace challenges are not for the untrained eye.  About a month ago, I was on a call with a successful CEO. As we talked freely, he shared that he enjoyed our conversation but that “HR is not an impact for my organization” and that was only moments after he explained he had some legal troubles with former personnel to the tune of “settlements”. He has chosen to outsource his HR services to a Professional Employer Organization, commonly referred to as a (PEO) provider. A practice I believe is relevant given his organizational size but his choice in outsourcing seems to have not prevented him from experiencing impacts to his bottom line. There are several variations on the PEO models that exist today, differing in the nature of the relationship formed between PEO and Client Company. PEO models are typically co-employer relationships. In 2012, according to National Association of Professional Employer Organizations (NAPEO), there is now approximately 700 PEO's operating in all fifty states. Three such firms caught some negative publicity recently in 2014 when three PEO owners and one former employee were sentenced in a $133 Million Fraud Scheme. The case was investigated by agents with the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation Division. Overall, the PEO market was responsible for approximately $81 billion in gross revenue in 2010 thus outsourcing HR is big business. Other HR service organizations include Administrative Services Organizations (ASO). These models provide the principal difference between the two types being of service (PEO vs. ASO) in that, in an ASO arrangement, the employer remains the employer of record for tax purpose, thus the limitation of the employer’s liability is a mere perception if in fact it is perceived at all.

     There is certainly a space for such service providers but I must share that in my experience, I have learned two things key to the employee and employer relationship. Discretionary loyalty and effort is not tapped over the phone and I believe I would be hindered despite my experience to serve a leader well without being onsite, reviewing the files, meeting the people and learning the business. With that being said, throughout my years in the field I have worked in organizations as large as a Fortune 500 with 6000 + employees situated internationally to as few as 10 employees in my Consultant practice. In my experience, if I waited for the CEO’s I worked for to call me, it would often be too late and I would be working towards cost containment vs. cost avoidance or prevention. I firmly believe the relevance of outsourcing can be compelling however. Considerations must be given to enabling the presence of HR practices in an organization for the benefit of the business not solely for compliance. The objective should not be to simply eliminate transactional responsibilities but rather automate what is necessary and providing little value adds. One must still align what is necessary, thus tactical components should not be designed in a silo. There are hundreds of tactical components that must align to uphold strategic HR tactics as both relate to the profitability of the business. For example, a company can put an incentive or recognition program in place. Such a program could easily be established and in fact automated; readily available to managers and/or employees. To do this alone is not enough. Leaders must identify success through reward in such a way that it reinforces the value system, the desired behaviors and the revenue driving competencies that define success. Often, the tactical components of HR are set forth with a lack of connection to the strategic tactics.

Fundamental belief # 4 Business must have tactical (transactional) and (strategic) HR tactics aligned to fully optimize and witness (transformational) work.

     I have witnessed the outsourcing phenomenon that has taken place in recent years. In fact, I often see marketing campaigns for HR “optimization” with respect to outsourcing. In my opinion, optimization has more to do with how a business structures its personnel on an organizational level and the methods the organization uses to organize how work flows through the business to align with the business’ objectives to carry out the business strategy, not just the tactical necessities. How can a business experience “optimization” to the point of transformational HR if the business seeks only to “optimize” the tactical necessities meanwhile neglecting the strategic HR tactics that will truly “optimize” the business strategy? I believe in the relevance of outsourcing especially for organizations that find it cost prohibitive to employ a full-service HR department. Regardless, I would advise careful consideration of the presence of strategic interplay between business strategy and HR strategy integration to realize the benefits of how HR can “optimize” the business not just the tactical components.  It was 2007 when I, the Director of HR for a mid-size printed circuit board manufacturer, was presented the PEO services of a large provider targeting small and mid-size businesses.  I recall finding how fantastic the tactical streamlining could be as it would allow a strategic minded HR professional to focus primarily on strategic business initiatives that are often put on the back burner for the sake of day to day tactical necessities. However, smaller businesses are being sold on the fact that these models are full service HR. Yet, they can lack the strategy of HR in alignment with the business strategy if in fact they stand alone. In my case, it was cost prohibitive for the business I served to accept the proposal for the services presented even if the business had elected to replace my position entirely.  I have come to the conclusion that while there are software platforms on the market that can streamline much that is transactional in HR those systems alone cannot help a business to realize the truly strategic benefits true HR “optimization” can deliver.

 The challenge for the smaller business is that often a growing enterprise can lack the time and resources to build infrastructure and processes that are beyond core business objectives. Typically, beyond attracting talent, entrepreneurs can miss the fact that HR process can be core and ultimately foundational in order for the smaller business to have the same competitive advantage through its people that larger organizations create with size. To do this every tactic in HR can be designed to specifically reinforce business strategy. The off the shelf, tactical approach that represents the mechanics of HR delivery vs. fully integrated HR Strategy can truly be a competitive disadvantage. This is especially true if the policy, program, process; even template form documents, etc. are not designed with the strategy of the business itself in mind. Both small and large businesses must attract talent, develop and retain the best talent for their business. Both must comply with ever changing state and federal regulations and global competition. Both must be concerned with issues related to compensation, benefits, training, employee grievance resolution, and cost control.

 Every business must operate between the constructs of efficiency and effectiveness. Efficiency is short term thinking and effectiveness is long term thinking. Analysis must be allotted by HR perspectives working with leadership to define how organizational theory interprets the current business strategy and the internal and external environment with respect to contextual and structural dimensions. The actual strategy and structure of a business cannot be optimized if HR strategy is not related in this context.

There are literally hundreds of tactical HR functions that support eleven HR tactics throughout the employee lifecycle (Talent Acquisition, Talent Attraction, Compensation, Benefits, Payroll/Tax Administration, Performance Management, Workplace Liability Management, Workplace Safety Management/Worker’s Compensation, Employment Compliance, Recordkeeping/HRIS Technology, and Separation). These eleven HR tactics support seven strategic areas that can drain, restrain and threaten profitability when not managed properly. The seven strategic areas include HR Expense Management (short term), Leveraging HR Time (HR Administration), Business and Asset Protection, Long Term HR Cost Containment (Health, WC, SUI), Turnover Reduction, Talent Attraction and Employee Productivity. Each of the aforementioned HR tactics and strategies has the ability to maximize profitability through Human Resources by influencing the bottom line. At the same time that small HR improvements can dramatically increase profits it is just as simple for small HR mistakes to devastate the bottom line. Small mistakes are missed when the trained eye is not in your process, observing your practice and in line with your vision.

              While I agree HR can be an overhead department, I would argue not every HR solution has to be and in all actuality I have seen more profit lost to CEO’s knowing full well each circumstance could have been prevented had a trained eye been involved in the process. In fact, the first time a CFO told me HR was overhead and had little value I began working to prove him wrong. Within twelve months on the team, our organization had been recognized as one of Best and Brightest Companies to Work For?. Back in 2005, I was pleasantly surprised; I was just seeking access to benchmark quantitative data.  Examining engagement metric tracking by company size, the SHRM GloboForce 2012 Winter Survey results showed us that larger companies are more likely to measure employee engagement than smaller ones (65 percent vs. 30 percent). Needless to say, I have befriended every CFO I have encountered since as the collaboration of HR and Finance in driving quantitative and qualitative data is something every business should be doing.  The difference then was that I was a peer to Finance and having the support of leadership was pivotal to my ability to be effective in the HR leadership role.

     It has been well known that for years there is a link between workforce engagement and corporate performance. In fact, the term “engagement” is the entire buzz. The term itself fails to truly capture what I have experienced in a culture as such because I believe the word “engagement” can seem too tentative.  I have become fonder of the term “entanglement” so coined in the book, “It’s my Company, Too!” by Kenneth R. Thompson, Thomas J. Walter, Ramon L. Benedetto and Molly Meyer. Companies that achieve qualitative and quantitative yield on engagement have achieved something more. Of 75 possible drivers of engagement the one that was rated as the most important was the extent to which employees believed that their senior management had a sincere interest in their well‐being. In fact, Towers Watson has published studies reporting companies with high engagement, enjoy 3x the operating margin. Other key factors to increases in revenue are attributed to 95% of employees believing they had the work tools and resources they needed to perform exceptionally compared to only 20% in contrasting organizations. Similar disparities appeared with regard to the ability to sustain energy throughout the work day (97 % versus 32 %), and a sense of personal accomplishment at work  (99 % versus 33 %).

However, only 38% of the Canadian respondents believed their organization and senior leaders encouraged and supported a healthy workforce and just 39% thought senior leaders were sincerely interested in their well-being. PricewaterhouseCoopers? released in 2012 that engagement and involvement are critical in managing change at work; yet 9 out of 10 of the key barriers to the success of change programs are people related. There you have it! The business can go nowhere fast without people.

     A Best & Brightest winner would rather re-post a job than give the position to a candidate who is not a fit. The culture of a company such as this is protected. The impact of a poor placement is viewed as more expensive than the delay in placement. I often observe many leaders in business discuss and debate the nature of culture. I believe every business has an opportunity to express an invitation to a culture. It is the invitation in fact, that requires careful consideration and development. When done well, talent is able to self-identify if the values of the business align with personal values. It is the invitation that establishes the intended culture but it is every communication, decision and behavior that follows in practice that in fact becomes the culture. Whether the lived culture and the invitation to culture are expressed as one is the basis for shared vision. As an entrepreneur and leader of a business, the vision is yours to establish and communicate for a shared vision.

      For HR strategy to integrate to optimize business strategy, the HR professional must understand external influences on your business as well as the internal value proposition that clearly communicates what is in it for employees.

   Why? What is the fundamental purpose of it all? To drill to that level of meaning is essential. HR must know business objectives in order to integrate HR initiatives that strategically support the workforce in performing to meet those objectives. I once referred to myself as conduit and the gentlemen, a highly respected veteran of our military and leader in his own right, corrected me and declared that I was a weaver. Honestly, HR should be able to tie your business strategy directly to their HR strategy which in turn supports management and provides visibility and transparency to employees with respect to their role in achieving it. It must be reinforced and reinstated time and again. Everyone must feel part of “it”, whatever “it” is!