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Getting a bang for the HR buck

IF AN HR department is not managed effectively, it may be time to consider outsourcing some personnel activities. However, how do you know if your HR department is not performing as it should?

IF AN HR department is not managed effectively, it may be time to consider outsourcing some personnel activities. However, how do you know if your HR department is not performing as it should?

PricewaterhouseCoopers (PwC) Slovensko says an effective HR department should regard staff as capital that may continuously be improved through investments and benchmarking, rather than as a cost.

According to PwC, effective HR management rests on three important principles: first, HR strategy should support the business strategy of the entire company; second, HR efforts should be focused on four tasks - strategy, consultancy, advisory and administration - and managers should be aware of how much time is being spend on each; and third, HR performance should be benchmarked against key competitors on financial, productivity, behavioural and skills grounds.

The powers of the HR management should be clearly defined in keeping with the company's strategic objectives. The new HR challenges are higher value added activities such as filling key positions, developing action plans for each individual, development centres, training programmes, workshops, and coaching and mentoring. The importance of these functions allow HR departments to become an equally important cog in the business as other departments and the company's top management.

In its regular HR Benchmarking study, PwC Slovensko evaluates the effectiveness of HR departments at companies in Slovakia. It looks at the relationship between HR management and the financial results of the companies.

In the first phase of its 2005 study, PwC tracked what financially successful and fast-growing companies do differently in their HR management from other companies. They found that these companies were better at controlling costs and securing a higher return on their HR investments.

"These companies are able to get back Sk4.1 for each crown invested into their employees, while other companies get only Sk1.5 back," Natália Ďurigová and Zuzana Lemaire from PwC Slovensko told The Slovak Spectator.

The study also examined what financial results were reached by companies with the best HR management conditions (the latter was defined as those whose HR strategy is formulated in a written document, whose HR director is part of the top management, and which regularly assess the benefits of HR management).

"These companies are interesting because while they show an almost identical growth in turnover to other companies, they have 20 percent higher labour productivity and 23 percent higher profit per employee," Ďurigová and Lemaire said.

In addition, companies that regularly assess the benefits of HR management reached a 97 percent higher profit per employee on average than companies without such regular assessments.

From the strategic point of view, the position of an HR director in a company's organisational structure is also important, as is who controls HR department activities.

If an HR director is part of a company's top management, HR strategy tends to be more in line with the company's overall strategy. Similarly, in companies that regularly change their corporate strategy, the HR director reports directly to the general director.

"We can conclude that when HR management conditions are optimal, they not only improve the quality of HR management, but they also have a positive impact on a company's financial results," the PwC managers said.

Two-thirds (64 percent) of the companies surveyed by PwC use either full or partial outsourcing for at least some of their HR activities.

Outsourcing is most often used for recruiting and selecting staff (48.2 percent of companies) with annual costs coming to Sk3,925 (€105) per full-time employee (FTE); these activities tend to involve partial outsourcing.

For training and developing staff (46.9 percent of companies) the annual costs of full outsourcing come to Sk14,500 per FTE, or Sk10,255 per FTE for partial outsourcing.

The third most outsourced activity is health and safety at work, which is fully outsourced by 32.1 percent of companies. Payroll services are outsourced with a similar frequency for annual costs of Sk7,745 per FTE (full outsourcing) or Sk1,259 per FTE (partial outsourcing).

PwC Slovensko said it is optimistic about the way in which HR departments at Slovak companies are developing, among other reasons because companies are more and more interested in taking part in HR benchmarking studies.

In the initial year of the PwC study in 2000 only 20 companies took part, by 2005 the number stood at 81. This year, 108 companies have so far expressed interest in taking part in the HR benchmarking study.

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