A report released by the Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA) has indicated that companies with strong people management capabilities such as talent and leadership management and HR strategy and data-driven insights show significantly better financial performance than companies that are weaker in those areas.
The report titled How to Set Up Great HR Functions: Connect, Prioritize, Impact,
segregated the top 100 and bottom 100 companies according to financial performance, as measured by average operating margins and average revenue changes during 2012-2013.
According to the report, strategic investment is one possible explanation for the superior HR achievement of high performers. High performing companies are “more strategic in the way they allocate their efforts; they take a systematic approach to improving capabilities; they are able to accurately distinguish high-
priority topics from lower priorities; and they can then direct their resources accordingly.”
The areas of greatest difference between high performing and low-performing companies were found in HR internationalization, employee engagement, career models and competencies, and behaviour and culture. High and low-performing companies also have different priorities in terms of future importance, with global HR, workforce analytics, recruiting strategy, and career models and competencies significantly more important to high performers than low performers.
The survey results also found that data- driven, analytical HR departments that can quantitatively demonstrate supporting the organization’s strategic decisions are more likely to play a strategic role in those organizations.
“HR functions that use people-related KPIs and steering tools to measure areas such as workforce productivity and personnel costs, and then analyze and communicate the results throughout the organisation, have a greater strategic role in the organization,”the report said.
In many organisations, the HR function is perceived as not meeting the expectations of its internal clients. “To address this misalignment, HR departments must better align with business units throughout the enterprise, to increase the impact of HR and generate stronger business performance,”the report said.
These findings led BCG to conclude that“ great HR functions are critical differentiators that separate high-performing companies from the rest.”