Alvarez & Marsal Analyzes Business Value of HR Functions
Consulting firm Alvarez & Marsal has released an analysis examining how businesses should measure the value of their Human Resources (HR) departments. The report emphasizes HR's evolution into a strategic function.
In April 2018, Alvarez & Marsal published a report detailing methods for measuring the business value of Human Resources (HR) functions. The analysis highlights how HR departments have transformed over the decades, moving beyond transactional tasks like compensation and benefits to play a strategic role in talent acquisition, retention, and development.
As industries become more technology and innovation-driven, competition for top talent intensifies. This shift necessitates appropriate investment in HR to maintain competitiveness and compliance with evolving employment standards and regulations. The report posits that HR functions are now critical for improving corporate performance and creating a competitive advantage by reducing turnover, growing in-house capabilities, and ensuring a steady talent pipeline.
Alvarez & Marsal suggests that measuring HR costs solely as a percentage of revenue can be misleading. Instead, evaluating HR costs per employee served is presented as a more reliable benchmarking method, especially when comparing different industries. The oil and gas sector is cited as an example where HR costs appear low as a percentage of revenue but are among the highest when measured per employee.
The report indicates that HR costs typically constitute 4% to 5% of total SG&A (Selling, General & Administrative) costs. For a company with $1 billion in revenue, this could represent a potential savings opportunity of $2.8 to $3.5 million within the HR function alone. Alvarez & Marsal offers proprietary tools and expertise to assist companies in performing these assessments and identifying areas for improvement.