Business Impact

Identifying a Business Problem and Showing The HR Solution Has a Business Impact

by Dr. John Sullivan

HOW TO MEASURE A BUSINESS IMPACT - METRICS

Programs or systems that have a measurable impact on the bottom line are the ones that have the most business impact. Words are NEVER proof. Some possible measures might include:

A direct increase in profitability in the product, division, group, team or individuals that used the most (more) of the “solution” and a corresponding lack of profit increase in those who used less or not at all.

A direct increase in the gross margin (gross profit less direct costs) of the product, division, group, team or individuals that used the most of the “solution” and a corresponding lack of margin increase in those who used less or not at all.
A direct increase in the productivity (outputs minus inputs) of the product, division, group, team or individuals that used the most of the “solution” and a corresponding lack of increase in those who used less or none.
Any measurable increase in the stock price as a result of industry / financial analysts reports or press coverage that can be attributed to the implementation of the “solution”
The rank of the solution as a major contributor to business success as a result of a forced ranking by top executives of all “solutions” implemented this year.

BEWARE OF SOME “SMOKE BUT NOT FIRE" MEASURES OF BUSINESS IMPACT

Increases in factors that usually (but do not automatically) have a direct provable relationship to an increase in profitability. Sometimes an improvement in, for example, quality becomes irrelevant when that product is being phased out or efforts toward improving customer satisfaction for customers that have marginal incomes may have no (or less than other customers) significant business impact. Be cautious of improvements in areas such as : a low margin product, an marginal customer, an administrative process or for a marginal job, group or division. All things (individuals, departments and processes) should NOT get equal attention or treatment. Some possible “smoke” factors might include improvements in things WITHOUT a corresponding measurable increase in total profit:

Sales
Market Share
Employee Satisfaction
Quality
Customer Satisfaction
Retention Rates
A high ROI but where the total dollar impact is not significant
Any data indicating an increase in productivity that is not compared to other data (this year to last, us to the best in the industry etc.) or that have not been sustained for more than 2 quarters
Any change that “Averages” the data over all employees, products or customers. All things are NOT equal and the impact on high margin / high producing areas are more important then any “averaged” impact
A program that other companies use does not mean it makes a profit for them and definitely does not mean it will make a profit for us in our unique environment!
WORDS ARE NEVER PROOF. Profit is proof! Describing a proposed new program in painful detail so everyone understands what it will look like and what you believe it will do DOES NOT mean it will work and have a business impact. Good descriptions do not make good proof or business solutions. Correlation’s, data, pilot programs, a history of success in our environment are proof it will probably work. Assume every new HR fad or buzz word will be hated by line managers and will fade into oblivion in a year or two unless you have overwhelming numerical evidence (evidence is not defined as everyone is doing it) to the contrary! Be aware that even when line managers ask for it the program may still be a fad that will not have a significant business impact.
Cost savings do NOT automatically result in a positive business impact. Do not assume that projected savings will actually occur (especially if they are salary or time savings), and that if time is actually saved that it will automatically be used for something of business impact. Saved time in HR could actually be used to increase the bureaucracy and rule making. Saved salaries or time seldom result in a decrease in headcount that lasts. Savings in HR is only savings if it is cash returned to the treasury as a direct result of a specific action.

EVEN PROGRAMS THAT “TURN A PROFIT” CAN BE JUDGED AS “LESS THEN SUCCESSFUL” IF :

You can not statistically and logically show WHY your program works. You must know what factors and program elements are essential (and non-essential) for success to occur. This means you must have a weighted list of the World Class Characteristics of a successful program or “solution”. You MUST also show how each WC element was actually met in your program. Otherwise luck or some other variable may be the “cause" of your success.
The program must be repeatable / replicatable in other parts of the corporation. You must be able to logically explain the steps in the program / process (EX. A Process Map) and how and why each decision was made in order to be able to teach others how to copy your program.
There are no effective monitoring, forecasting and adjustment mechanisms to ensure the program “stays on track”.
Their “payback” period is too long to meet our needs for immediate success.
The potential risks are either too poorly defined, the total potential dollar loss is low or the probability of failure is too high for our “culture" of risk taking.
They include too much HR jargon, are presented in a less than convincing way, or that are run / sponsored by a team without a proven track record and excellent information and consulting resources.

EXAMPLES OF REAL BUSINESS PROBLEMS MIGHT INCLUDE:

The company is losing $5 million in profit as a result of a 10% increase in our production reject rate.
The Sales department is losing 2 million per year because of poor technical sales skills.
Manufacturing has increased our gross margin 5% (10K in profit a week) as a result of labor cost cutting with no decrease in speed or quality.
The PowerBook division has increased revenues by $500 million by improving the productivity per engineer by 22% as a result of eliminating duplicate work Engineering is doubling our margins 23 -46% ($34 million a month) due to our decreased time to market (TTM) as a result of their increased competencies in team management.
R&D is kicking butt ($135 increase in profit this quarter) due to the increased competencies of the newly hired C+++ team.

EXAMPLES OF REAL OPPORTUNITIES FOR HR TO CREATE BUSINESS IMPACT & INCREASE PROFIT

An HR generalist has been continually working (average 23.7 contact hours a week) with the production department. Because we monitor, reward and maintain World Class HR competencies we have built up trust and credibility in the production department. (Production rated us the #1 most trusted (both managers and employees) and #1 most competent (by managers ) [#2 (by employees] ) of all staff functions in our annual “all staff function” contribution to productivity survey). As a result of this level of confidence our generalist has been able to talk openly and work with the production team to determine the real problem.

The production team sees (and HR’s analysis of the production data support the finding) that the surface “symptom” is the high reject rate but the root cause is actually poor engineer level 1 & 2 competency in machine maintenance (Employees Sullivan, Au, Wooley, Cannon, Griffin and Lau account for 99.4% of the error rates). Each error is costing us $3,457 in materials, labor cost and wasted materials. HR, however has done a “connect the dots” analysis on other possible “unintended consequences” and found the total costs are actually triple the production departments estimate because the production delays are, unbeknownst to them. tripling shipping expenses (Because me must now use air freight 34% more often to still get the product to the customer on time ) due to the production delay.

We have a machine maintenance course with a 94.5% productivity improvement and a 98% maintenance down time success rate over the last 18 months. We last used it on production engineers level 1 & 2 last year and it worked even better than the standard productivity improvement. Our generalist noted that the production manager (Short) was on leave during the last training and was unaware of this training program. We, with his approval, piloted engineer 1 (Au) last week through the training and her error rate is already back above the bonus standard. We recommended to the manager to put all of the “offending ”level 1’s and 2’s through the training (@ $2,876 each including overtime) and he has agreed. We estimate a 6 day payback period, a (98% likelihood of success and a 3,897 % ROI (yes, that’s correct). HR further recommends we monitor the problem for 2 months until we can design a comprehensive periodic training program for the entire production function. Manager Short has also put his learning’s in our company wide electronic newsletter “Things that work”. The total estimated increase in profit by Short and the shipping department is $23 million over the next 6 months. We anticipate other managers will also take advantage of Mr. Shorts learning and also review their training needs resulting in additional savings of $1 million. Mr. Short has also set up a joint production/ shipping/ supply team to identify other possible “connect the dots” problems. The CEO sent an e-mail to our HR VP thanking them for once again being a business leader!

HR can provide proven sales competency training and demonstrate it’s positive ROI impact
HR analyzed over-time usage patterns and recommended a compensation solution.
Our insta-job analysis system found work redundancies that were eliminated through job re-design.
Our “It’s OK to be a Follower in certain situations” training program increased team decision making quality by 15% and the speed of decision making by 26%
Our new job simulation selection device is resulting in a 57% increase in the “day of hire” competency and a 38% increase in productivity of this years new C++ hires (compared to last years new hires).