by | May 28, 2007 | Brazen Leader, Human Resources, Organizational Effectiveness
Well, I had several people ask additional questions about real budgeting for Human Resources. I’ll try to expand a bit on my earlier post…
First, a microscopic finance lesson: Gross Profit is the total revenue or sales, less the cost of generating that revenue (COS or COGS). It tells you how much money a company would make if it didn’t have other costs, such as most salaries, taxes, interest, etc., normally referred to as Operating Expenses and typically including S, G, & A.
Operating Expenses are those incurred by the business that are not directly related to revenue production, such as most utilities, salaries, office supplies, etc. Operating Expenses do not typically change significantly when the organization’s level of production rises or falls — they aren’t usually “variable.” Sometimes referred to as “overhead,” “fixed,” or “indirect” costs.
Here endeth the finance lesson…
Though HR expenses are typically an Operating Expense, direct value-add from Human Resources comes from Gross Margin contribution — increasing revenue or decreasing the direct costs to produce that revenue. Cost-reduction strategies are usually outside of Gross-Profit, and can also have a significant influence on earnings. Assuming a company delivers 10% to the earnings or EBITDA line, it would take $10 of additional revenue to deliver earnings equal to your saving a dollar in Operating Expense, so don’t throw away those last few Post-It Notes.
The real “meat” of strategic Human Resources, however, comes from a significant contribution to the Gross-Profit line through various methods. We’ll discuss those in-depth in later posts.
by D. Kevin Berchelmann | May 28, 2007 | Brazen Leader, Human Resources, Kevin Berchelmann
So, you’ve done a great job of negotiating, gnashing, arm-twisting and crying, along with some redesign choices that made the numbers get all dizzy in your head. The results are in: you actually will not see a net increase in cost of medical benefits for the upcoming renewal year.
Don’t laugh, it can happen.
So, do we pass along this miracle event to employees in the form of a zero-contribution increase? Wow, would that be amazing or what!?
Don’t do it. Continue the gradual increasing of employee contributions every single year. The fact that this ONE year prevented the company from realizing additional expenses doesn’t negate the prior 15 years with consistent double-digit trending. In all likelihood, you haven’t passed along all the increases to employees — why, then, would you not afford yourself a modicum of recovery in your one good year?
Manage the communications; speak to your ability to maintain costs better than the public this year, resulting in a nominal increase to employee contributions. Employees expect it, and the business needs to share as many costs as possible regarding healthcare. We can’t afford NOT to.
by D. Kevin Berchelmann | May 28, 2007 | Brazen Leader, Human Resources, Miscellaneous Business Topics, Organizational Effectiveness
So, what does 2007 hold for the human resources community? More of the same (fortunately and unfortunately), and some new things to consider. Using my Kreskin-like powers (age-check…?), my crystal ball, and reading the Earl Grey leaves in the bottom of my Costa Maya coffee cup…
E-Learning will finally take hold. Content is rich, lower lost productivity costs are necessary and reasonable, podcasts and videoblogs make distribution inexpensive.
The war for talent will get worse. Executive talent is in high demand for the fourth consecutive year; companies must continue to add more incentives, including bigger bonuses, to their compensation packages in an effort to lure top talent from competitors and keep key leaders from walking out the door. Developing existing managers, via succession planning and professional growth initiatives, will be crucial.
Increased focus on non-executive staff development. In the face of the growing war for talent all industries, companies are spending more money to develop formalized training programs to ramp up staff more quickly. These programs can also help improve the odds of retaining employees, make companies more attractive to potential recruits, and can help firms get as much productivity as possible from a staff that may not be as large as they would like.
Outsourcing will continue to increase, particulary specific Business Process Outsourcing. Big market, getting bigger. Mid and small markets are underserved (or not served at all) by the big players, yet cost efficiencies are greater there.
Demographic issues will become even more important. Hispanics are our largest minority, immigration non-reform is emotion-laden, boomers are retiring (the workforce is aging), generational issues continue to grow, and work-life balance is becoming more important — all of this in the face of the second prediction above. Medical cost increases will continue at a double-digit clip.
Continued M&A activity will lead to further downsizing/talent shifts, and significant bankruptcies will continue.
Employee productivity must increase. Talent shortages, earnings demands, heavy M&A activity… add to that a growing need for a positive link between pay and performance, a demand for flextime, and idiotic CA laws that potentially mandate additional time off. All point to the need for increasing indiviual employee productivity.
Ethics and social responsibility are replacing “cutthroat” as the official corporate badge of honor. Transparency in dealings, pressure on corporate socialism and philanthropy… ethics are no longer “soft” skills relegated to those who can afford them. They now include CEOs, sales people, and others previously exempt. The world is watching…
HR strategy will become a business unit objective. HR has become too important to be the sole purview of human resources. Strategic-focused HR initiatives — staffing, development, succession, and performance — will become part of general managers’ lexicon. Corporate HR staffs could shrink accordingly, caught between increased strategy ownership in the GM’s office and outsourcing at the transactional levels.
Measurement of all things — including people-focused initiatives — will become a necessity, not simply a differentiator. Someones’ got to explain why we should do this over that, and when I can expect to see a return on my investment of limited capital. Measure or die.
EXCLUSIVE PREVIEW
I interviewed several hundred senior executives — all C-levels, and over 20% were CEOs. In order of significance, their top-5 short-term priorities came in as:
1. Talent management & acquisition.
2. Revenue & earnings enhancement.
3. Performance management, employee productivity.
4. Management/leadership development, performance and motivation.
5. Market pricing, share, and new product/service development.
I don’t offer these things as private or special knowledge of mine; undoubtedly, many of you have arrived at some of these same thinkings. I wanted to put this in writing since that helps me, and maybe offer as help to you as well.
Pay attention to what’s happening around you, your company, the country. It’s not important whether you agree or disagree with my predictions; just arrive at your own thinking by using something other than simple “hope.” As the author said, that’s a lousy business strategy.
Stay alert, focused, and continue to add value.
Happy New Year…!
by D. Kevin Berchelmann | Sep 4, 2006 | Brazen Leader, Human Resources, Kevin Berchelmann, Miscellaneous Business Topics, Organizational Effectiveness
Well, not exactly. But close…
So, you feel that your organization’s culture – its core behaviors, mannerisms, decision-making processes and “way things are done” – is a bit less that desired. How do you change it?
The most effective and efficient way to change and guide desired culture and organizational behavior is through compensation. Not just “pay more, they’ll do more,” since most of us have tried that and know it’s a crock. But behavior-driven compensation does work.
So, how do we go about this? Well, it’s easier than you think, though I must warn you: be careful what you wish for, you may just get it. A basic tenet of compensation is “that which is rewarded is repeated.” I’ll say that again: That which is rewarded is repeated. In other words, you don’t get what you want, you get what you compensated for.
So, compensation is certainly the best route to culture maintenance and change, and behavior modification. But make sure what you want is what you are trying to pay for…
by D. Kevin Berchelmann | May 28, 2006 | Brazen Leader, Human Resources
After 20-something years of Human Resources management, many of those at the senior-most level, I’ve developed some beliefs.
For example, I believe:
…that HR is, sometimes, too important for human resources professionals. It ain’t about party-planning, tranascations, and rote compliance. If that’s your emphasis, it isn’t necessarily bad, it’s just not HR leadership. If you aren’t part — and integral part — of an organziation’s future success, you should be outsourced. Or something equally painful.
…that HR isn’t really changing much, but it should be. HR leadership should be about aligning HR strategies, efforts and resources directly with organizational goals. Can that be done by a “non-” HR person? Maybe so, but a better question is, “Should it be??” A competent senior-technology executive MAY be able to lead a progressive HR shop, but a competent senior-HR executive SHOULD be able to. Where’s the disconnect?
…that not all HR can be “strategic,” in the common definition. Face it — block-and-tackling is what day to day functional work is all about. Transactional HR can be a part of HR’s strategy, but it can’t be strategic HR. Finance can be strategic, but they still have to close monthly and quarterly. Nothing strategic about calling an Ops Manager and asking why an invoice was coded as is. Strategic is merely properly aligning with business objectives; it’s not a lofty, unreachable ideal.
…that competent senior Human Resources leaders can make great business leaders, as long as the business believes they can lead. That requires risk-taking (personal and professional), incredible accountability, and in-depth competence in business. And finally, it requires successful alignment with HR efforts and business strategy. In other words, the work must matter.
Oh, well, just felt the need to ramble. Too often, we get caught up in matters of little importance (and perhaps this fits there also), and wanted to just take some time to put words to what I think regarding the profession.
But, that’s just me…
by D. Kevin Berchelmann | May 28, 2006 | Brazen Leader, Human Resources, Kevin Berchelmann, Organizational Effectiveness
I have a huge library. I like to read, and I like to stay abreast of current business thinking, in a variety of disciplines.
So, I have the 1969 edition of Dartnell’s “Personnel Director’s Handbook,” which is just chock full of valuable tidbits. For instance:
Personnel administration is never a job; it is a vocation, a ‘calling,’ carrying with it divine undertones.
And another…
As we said at the outset… women are really competing in a man’s world. Right or wrong. the simple fact is that man was here first.
Interestingly, we all realize how we’ve evolved regarding the second comment. Woman have ascended to all levels of organizations, including the CEO’s office, as well as reaching a great degree of parity in general development. We have work to do still, of course; but no one can argue that we’ve made incredible progress since those 1969 comments.
More disturbing, though, is the first comment. I have a friend who — long before I read this — would say simply, “It’s a job, not a calling.” He is so right.
HR professionals are business people first, functional (human resources) experts second. Our focus is not a “calling;” we shouldn’t provide anything to an organziation except better pathways to success through available human capital. Yet some of us remain confused — and believe that we are the “keepers” of an organization’s “soul,” or something similar.
We are not. Stay focused on measurable deliverables, and let the clergy worry about the other stuff…
