The question of the return on investment (ROI) from Human Resources (HR) is not new, especially for small and medium-sized businesses (SMB). Many perceive HR as a cost center, unsure if it adds any tangible value to their bottom line. In this blog, we delve into the often-overlooked potential of HR in contributing to business success. 

By examining the ROI from a strategic HR approach and exploring the benefits of outsourced HR services, we aim to dispel the notion that HR is merely an expense.

Please read on for more and if you’d like further clarification on any of the topics, reach out to us HERE.

The Skepticism Surrounding HR ROI:

The skepticism surrounding the ROI from HR is a sentiment that resonates with many business owners. It’s fair enough. Human Resources departments have a reputation the world over for being a paper-pushing drain on budgets, how could there possibly be a Return on Investment from HR for Small Businesses?

In one of my first high-level positions within HR, over a decade ago, I reported to a CFO who’s first ‘diktat’ was that I should prepare a report on the ROI of HR. 

He didn’t believe for a second that HR could actually be a net asset to a business’ bottom line. 

So can HR actually make money for the business? 

To address this, it’s essential to shift the perspective from viewing HR as a cost center to recognizing it as a strategic partner in achieving business goals. This is something that we often see when working with business owners. 

As an outsourced HR company, our relationship with SME owners tends to get off on that foot anyway. We’re often pitched as a strategic partner that can help to grow their business, keep them compliant and save them the expense of hiring an internal team. 

This is a huge advantage for us actually, because we’re forced to operate on that basis. It means that we have to be very value driven, and as a result: we can clearly define our ROI. 

How can HR Deliver a return on investment for small businesses? 

The answer lies in understanding the multifaceted role HR plays, beyond traditional administrative tasks. Let’s explore how a comprehensive HR plan can contribute significantly to the success and profitability of a business.

The Comprehensive HR Approach to Achieve a Return on Investment For Small Businesses:

A comprehensive HR plan encompasses various aspects, with a focus on:

• Performance management
• Compensation
• Attraction 
• Retention 

These components collectively contribute to building a high-performing workforce and, consequently, improving the bottom line.

Attraction and Retention Strategies: One of the most impactful ways HR can contribute to ROI is through effective attraction and retention strategies. 

The Importance of Retention:

I’ve heard it said by business owners: “What if I train them up and they leave?” 

Well what if you don’t and they stay?!

By attracting top talent and retaining them for longer with opportunities for advancement and personal growth, businesses can mitigate the costs associated with turnover. Something we developed as part of our report on the ROI of HR was the “ghost tracing method”. This illustrates the long-term impact of losing experienced employees due to lack of training opportunities, and having to onboard new talent. 

Trust me: it’s much more expensive than keeping the employees you’ve got!

Retention is a key factor in realizing an ROI from HR. The ability to retain knowledgeable and high-functioning employees sets a business apart in a competitive market. Consistent, reliable, and knowledgeable staff are assets that resonate positively with customers, providing a competitive edge.

Think about your experiences with vendors who constantly change your point of contact. It’s deeply frustrating having to build a relationship from scratch. Say nothing of the time it wastes. 

TOP TIP: If you want to learn more about how to strategically check for areas of improvement within your work force, read our blog on Performing a Skills Gap Analysis.

The Outsourced HR Advantage for Achieving a Return on Investment for Small Businesses:

Can outsourced HR save money and deliver a return on investment for small businesses?

The answer is a resounding yes. 

Outsourcing HR allows businesses to access expertise without the burden of maintaining an in-house HR department. This can be particularly advantageous for SMEs seeking cost-effective solutions without compromising on the quality of HR services.

As I touched on before: because companies like ADDA are independent enterprises, we have a very clear understanding of what it takes to run a business. An internal HR manager, whereas, will not. 

Outsourced HR providers in Colorado, and elsewhere, understand the unique challenges faced by small businesses. They offer customized solutions that align with the specific needs and goals of SMEs, ensuring a tailored approach to HR management.

Being an independent HR provider also means having a network of clients and access to top talent. We’ve experienced a significant advantage over companies with in-house teams, because we’re constantly talking to other businesses, gleaning information and building a very comprehensive picture of the market. 

Outsourcing your HR plugs you into this network and affords you access to a much higher standard of employees.

The Big Bang for the Buck:

Where does HR provide the most significant bang for the buck? The answer is in the strategic focus on retention, acquisition of staff, and maintaining a motivated, high-performing workforce. 

By investing in HR strategies that prioritize employee satisfaction, businesses set the stage for long-term success.

Don’t wait to find out what your team really thinks as they’re on their way out the door! Don’t just conduct exit interviews, HR’s role should also include stay interviews! Fostering ongoing engagement with the workforce. Understanding the sentiments of employees and addressing their concerns can significantly impact retention and motivation levels.

Conclusion:

In conclusion, the return on investment for small businesses from HR is not only achievable but can also be a driving force behind the success of small businesses. 

By recognizing HR as a strategic partner and exploring the benefits of outsourced HR services, SME owners can transform HR from a perceived cost center into a valuable asset that contributes to the bottom line. It’s time to view HR not just as an expense but as a strategic investment in the long-term success and profitability of your business.