Shawnee Love • August 23, 2018
The link between good Human Resources Management (HRM) and increased company value is not so obvious as how increasing revenues or margins affects a company’s value to investors.
However, good HRM creates the tools, systems and ecosystem which lead to higher revenues, increased productivity, lower costs, and increased creativity and innovation which is how company value is enhanced.
Tools and systems created by HR include:
- Communication and feedback systems such as the performance review and employee recognition programs designed to align employee efforts with business goals, identify those who need additional help or who shine, and correct those who fall short of standards and expectations,
- Recruitment programs which consistently and readily source the right people for the current and future openings ensuring limited downtime due to turnover,
- Training and Development which improves employees’ skills and therefore enhances quality and efficiency of work as well as prepares employees for the future needs of the organization,
- Rewards programs which ensure competitive compensation which attracts and retains the the talented people necessary to meet customer expectations and grow the business,
- Policies and procedures designed to provide clarity on parameters and enable employees to easily understand what is expected of them.
Good HRM also intentionally:
- Designs the culture and environment such that the right people will feel at home and able to work to their fullest potential on behalf of the business, and
- Hires or grooms the people leaders who walk their talk, get results, and inspire their employees to give their best efforts.
When you have good HR programs and practices in place, you will notice things work smoothly. You will have a good reputation, customers will be well served, and your employees will be happy. If you have good HRM, you might not notice it at all except for the fact that revenues will be growing, and costs will be as planned. But if you have bad HRM, you can recognize the signs through conflict, absenteeism, poor workmanship or work ethic, disloyalty (from theft to disparagement of the company), turnover, apathy, and even lawsuits or legal claims through workers compensation boards, employment and/or labour standards, privacy laws, etc. When these signs arise, costs to correct and make reparations will balloon and revenues may stop growing or even decline.
Good HRM is an investment which pays dividends beyond business value as well. It reduces the time and attention an owner must spend on people issues and questions which many entrepreneurs complain is the most stressful and unproductive aspect of running a business. However, like most investments, HRM takes time to pay off. Changes made today might take two to three years to be entirely adopted by employees and thus show up on the bottom line. If you are thinking of selling your business in a few years, the time to work on the people and culture side of your business is now to ensure you reap the greatest value from your business.
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