HR Business Impact

One month into the new year and many organizations are recovering from a past year that was unique and difficult. After accelerated growth, organizations faced economic challenges and had to (re)focus on operational efficiency. There's a hunger for results. For leaders in Human Resources (HR), that means they're under increased pressure to show how the efforts of their teams are positively impacting business outcomes.

Organizations are "right-sizing" their workforce. It's one of the more abrupt choices leaders make to become more efficient. Yesterday, Bloomberg broke the news that United Parcel Service (UPS) is cutting 12,000 jobs and will order the remainder of its employees to return to the office five days a week. The jobs impacted by the layoffs are mostly managerial. These jobs will not return because of the enhanced use of Artificial Intelligence (AI). The decision cuts UPS's labor force by 14% and is expected to save the organization one billion US dollars. The extreme action doesn't stand on its own. Many organizations took similar draconian measures following disappointing earning reports. Leaders across organizational units are experiencing increased pressure from the top to show results. Executives expect to see better performance and a bigger impact on business outcomes. As HR teams claimed a more strategic role in recent years, their leaders now have to show how their activities support improving the bottom line. 

Determining the exact impact of HR on business outcomes is complex. The role of HR is often seen as managing people programs and, therefore, solely as an expense. To uncover the business impact of HR, executives would have to expand their view. People programs are designed to target employee satisfaction, engagement, and development. Those are not business outcomes. What executives must look at is how changes in employee satisfaction, engagement, and development impact productivity, cost savings, revenues, product and service quality, and customer satisfaction. Leaders in HR are convinced that they contribute to these outcomes but there's a shortage of metrics to show they do to the C-suite. That's why HR leaders, with the support of the C-suite, have to invest in more quantitative measures of how their programs and activities impact business outcomes. It requires an intricate process to identify what indicators to use and how to accurately backtrack and attribute changes in business outcomes to changes in employee satisfaction, engagement, and development. When successful in adopting the right metrics, the crucial impact HR is having on business outcomes will become clear. Until then, the only way to measure the impact of HR on business outcomes is to compare organizations against each other.

Communicating measurable results will relieve pressure on leaders. The pressure originates from distrust. HR leaders have to address the disconnect between their teams and the C-suite. Using the right metrics does that. In 2024, Lattice published findings that showed executives don't believe in the impact of HR teams as much as HR leaders. They found that only 27% of executives believe in HR's impact on revenues compared to 53% of HR leaders (Lattice, 2024). That gap is comparable to their views on customer satisfaction, cost savings, and other business outcomes. 61% of the C-suite believes in HR's impact on productivity against 83% of HR leaders (Lattice, 2024). Distrust is bad for leaders and their teams. The lack of confidence from executives in HR teams negatively impacts their engagement and sense of job security. Today, 64% of HR teams feel engaged and 65% feel confident about their job security (Lattice, 2024). Internal metrics must mirror or outperform external data. Gallup (2023) researched the impact of employee engagement on business outcomes and found significant differences in top and bottom-quartile business units and teams. Organizations in the top quartile reported various benefits including 23% higher profits, 10% higher customer satisfaction, and 41% fewer defects. The trust of the C-suite in HR teams will increase when HR leaders start to report similar results through internal data.

Winning the trust of executives will require more from HR leaders than just presenting the numbers. To get there, they'll first have to adopt technology that enables them to measure, monitor, and influence their impact on business outcomes. Second, leaders will have to connect their objectives with the overall strategy, vision, and mission of the organization. Third, they'll have to start having more conversations with existential questions and empirical evidence stressing the importance of human capital. And, fourth, HR leadership will have to engage everybody. The C-suite, peers, HR teams, and employees must support and collaborate on HR objectives. That includes constantly providing feedback on the way HR functions. Through these actions, leaders will go beyond establishing trust with executives and win over the trust of people across organizational layers. 

Organizations are tweaking their operations and the size of their workforce as they adjust to a new economic reality. HR leaders, under the watchful eyes of executives, find themselves in a situation where they must use data to connect the dots between their HR initiatives and business results. The situation requires them to adopt quantitative metrics showing their unit is essential to the organization and delivers a significant positive impact on business outcomes. Implementing such metrics enables them to build trust with the C-suite and thereby improve engagement in their teams. By taking additional measures such as aligning their objectives with the company strategy and continuously collecting feedback from employees they'll also build trust across other organizational levels. Gaining trust through data and actions enables HR teams to get buy-in and make their organization more efficient. It also helps alleviate the burden on HR leaders.