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HRM: do you show your bottom-line impact?

I am back in the traces teaching HRM at under-graduate level and Strategic HRM at post-graduate level.

The undergraduates have been well prepared and readily match HRM ideas to ideas they have already learned in Management.  I mention “hard & soft”; they counter with McKinsey‘s 7 S’s.  I talk about strategy; they counter with contingency theory and scenario planning.

The HRM book that we are using is not quite up-to-speed, I think.  We are always lamenting that line managers don’t take us seriously.  Yet, we readily regress to operational HR.  No where in this book do we make a direct case for impacting on the bottom-line.

My post-grad class includes an owner of a bus company.  His business provides a ready example of bottom-line impact.

  • If I have 5 buses and 4 drivers, I am losing the opportunity to make money out of the 5th bus.
  • If I have 5 buses and 6 drivers, then I am paying wages for someone to do nothing.
  • If I have 5 buses and 5 drivers, what do I do when someone is ill or on holiday?

This looks like “hard HRM”, and so it is.  But “soft HRM” provides solutions to the same dilemma.  I might have a ‘culture’ in which a bus driver happily takes on other tasks when s/he is not driving; just as I might have a culture in which I readily reschedule work to allow drivers to attend to personal business.  I might have a culture where bus drivers cooperate so buses don’t “all come together”.  They informally resolve scheduling problems that would otherwise be the province of expensive management scientists.

Good HRM delivers economy.  The ratio of HR costs to Sales Dollars should be optimal.  As a rule-of-thumb, in manufacturing 10 cents of every sales dollar is spent on HR.   Without the “soft”, I will never achieve this goal.  Without the “hard”, I may achieve my goal but I would never know!

I wish HRM textbooks would show the “vertical integration” they talk about and show the link to the bottom line!  And on that note, I must ask the bus company owner to ask his accountants what is their ratio of HR costs to Sales. And we can call up a few other companies to compare!

Teaching is perpetually fascinating!

UPDATE: For an HR Managers perspective on the Recession, I have written a summary on a new post.

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