HR’s Hand in Productivity

By Dr. Sullivan

May. 1, 2006

I routinely ask HR leaders around the world, “Do you see increasing productivity of your workforce as a primary part of your job, and do you compare your results with those of your worldwide competitors?” The response of most leaders is the same: bewilderment, a long pause, a blank stare. It continues to amaze me that HR leaders do not recognize that every business function, whether it be marketing, finance, production or HR, is in the productivity business. That means continually getting more out of every dollar you spend on the resources that you control.

    Workforce productivity is in the news: I am highlighting this issue because workforce productivity is in the news on a daily basis. Corporate giants like Ford, Kraft, Hewlett-Packard, United Airlines and General Motors are being pounded by analysts because their labor costs are skyrocketing past those of their domestic and foreign competitors.

    My point is simple: Despite the constant rants by analysts and CEOs, few HR leaders attempt to take responsibility for their workforce’s productivity. In finance, for example, calculating the productivity of financial investments is a common practice, as in real estate, marketing, manufacturing and supply-chain management. Measuring workforce productivity is not that hard. The most basic measure is simply the cost of the inputs (all salaries, benefits and HR department costs) compared with the value of the outputs (production output value, revenue or profit).

    HR must declare itself “captain of the ship”: One argument I often hear is that HR does not directly manage the workforce and therefore cannot be held directly responsible for productivity. That argument is weak. Every other corporate function is held accountable when the resources that it manages do not produce adequate results, so why should HR be exempt? HR must declare itself accountable and then design systems that influence, cajole and sell managers and employees so that the productivity levels of the workforce remain competitive.

    Cutting costs is easy; managing strategically is hard: Occasionally HR leaders will respond that they do manage the productivity of the workforce by manipulating labor costs. Any accountant can figure out how to shave 10 percent off the budget, but developing systems to maximize the output of all the budgeted pieces requires significant thought and coordination. This, in my estimation, is the true purpose of HR: to increase workforce productivity through activities that increase the other (but most important) side of the ROI equation, which is revenue. If HR leaders can shift their emphasis to driving increases in workforce output without increasing people costs, they will have demonstrated that they can strategically manage the workforce.

    Global competition is forcing HR to change: Globalization and economic growth in China, India and Eastern Europe, where labor rates are significantly cheaper than in the United States and Central Europe, will make managing workforce productivity an imperative for organizations that wish to survive. This new imperative means that HR must monitor labor productivity and advise senior management when moving offshore or outsourcing presents an opportunity to better compete. HR must begin to look at what type of work must be done and under what parameters, and then suggest to management what labor type to use and where such labor should be sourced or located. In addition, HR must advise managers when they have too many employees before a wide-scale correction is needed. Labor costs will be a component of the analysis, but they cannot be given more weight than quality, innovation and agility.

   I argue that these wake-up calls signal that it is time for the DNA of HR to change. The new HR leader learns from the old slogan “What’s good for General Motors is good for the country.” But the lesson learned is a new one: Managing workforce productivity like HR at GM has may be the cause of your organization’s downfall.

Workforce Management, April 24, 2006, p. 50Subscribe Now!

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