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Transform HR Into a Revenue-Impact Function to Increase Your Strategic Impact

by Jan 23, 2012, 5:06 am ET

Note: I’m writing this “think piece” as part of a series of articles designed to expand your thinking about strategic HR.

HR and talent management leaders are constantly striving to become more strategic. But more often than not it seems that when they are presented with a strategic alternative that really breaks new ground, they retreat and stick with the status quo. However, if you are serious about making a strategic impact and you take a minute to reflect, it’s hard to think of many things that could have more of a strategic impact than increasing corporate revenues.

This is because increasing revenue or “topline growth” is on every CEO’s agenda and it is also almost always a top corporate goal and an executive success measure.

Other business functions like marketing, sales, supply chain, and product development have become corporate heroes (and are richly budgeted as a result) because they have demonstrated that they have a direct and measurable impact on this critical strategic goal.

HR has historically focused exclusively on cost cutting, but realize that increasing revenue is a far superior goal. That is because almost anyone can cut costs using an arbitrary number. However, in order to generate more revenue in the marketplace from your customers, you must meet a much higher standard, which requires that you be competitive in every aspect of the business.

Now if you are an HR traditionalist or someone who is happy to maintain HR’s status as a service/overhead function, you are probably already thinking that a strategic goal to impact revenue is a ridiculous idea. However, you would be wrong. We know that HR can directly increase revenues because several firms have already succeeded in demonstrating to their CFOs that they could directly increase revenue. At least take a minute and look at a quick example where HR has increased revenue.

Think it’s not possible? Here is a quick example to demonstrate the possibilities.

It’s obvious that average salespeople produce revenue and good salespeople produce more. So in an attempt to hire better salespeople, this technology firm analyzed its current sales hiring process and reengineered it, so that it measurably identified and hired better salespeople.

If the new process hired salespeople that sold on average 10% more (than those hired under the previous recruiting process), you could (with the CFO’s blessing), publicly state that this HR action had improved sales revenue by X dollars (i.e. the actual amount would be the 10% improvement in the average salesperson’s yearly sales revenue, multiplied by the number of new salespeople who were hired under the improved process).

Still skeptical? Here is another quick example of how HR can increase revenue.

The recruiting function at this Midwest bank realized it was losing significant revenue every day that a loan officer position was vacant. Obviously, with no one in the position, you can’t make or close any revenue-generating loans. In order to reduce the number of days that loan officer positions were vacant, it called on recruiting to apply its speed-hiring techniques on these positions.

By speeding up the requisition process, placing the best recruiters on these positions and identifying and eliminating “deadtime” throughout the hiring process, it cut the number of vacancy days nearly in half. At $5,000 per eliminated vacancy day, over dozens of requisitions, it increased the bank’s revenue by millions. Everyone from the CFO on down agreed that HR had substantially increased revenue. If these two brief examples are not enough for you, the next section contains the top 15 HR actions that can lead to increased corporate revenue.

The Top 15 Talent Management Actions With the Highest Impact on Revenue

Even if you’re not ready to implement an HR-wide coordinated “revenue impact strategy,” realize that there are many independent actions that the functions within talent management can take in order to increase organizational revenue. If you’re looking for some “low-hanging fruit” actions to take, here are some to consider (those with the potential for producing the most revenue impact listed first).

  1. Prioritize revenue-generating business units, jobs, and employees — the highest impact and the lowest cost action is prioritization. HR needs to work with executives, the CFO, and risk management to identify and then prioritize the specific business units that generate the most revenue. You should also identify the highest revenue-generating jobs and employees. Next, you must also identify revenue “impact” jobs, which are jobs that don’t directly generate revenue but the actions of the employees in the jobs directly “influence” the likelihood of subsequent revenue generation. You should also identify revenue “impact” functions (note that product development and customer service are often the highest revenue-impact functions). Finally, you should identify and prioritize jobs where a major error would significantly decrease revenues or increase costs. Obviously after setting your priorities, you need to develop processes that ensure that the most HR resources and the best HR personnel are allocated to those priorities.
  2. Targeted recruiting from competitors — recruiting talent away from your direct competitors has a high ROI, because if you are successful, your revenues will go up and theirs will go down. Start by “mapping” the revenue-generating talent at your competitors. Next, recruit away the top sales manager or exceptional salespeople from your competitors. Once you land a “magnet” individual, others are likely to follow. Other high-impact targets for your recruiting from competitors might include innovators, game-changers, pioneers, and individuals with expertise in monetizing products and services.
  3. Retain revenue producersretention has a high ROI because most of the factors that cause top revenue generators to leave are not related to their pay. Interview the most successful revenue producers and those who significantly impact revenue. During the interview, identify the factors that currently frustrate them, as well at the factors that would make their job a dream job. Put together a personalized retention plan to minimize the negatives and to increase the positives.
  4. Hire revenue producers — external hiring brings in individuals with a proven track record for generating revenue. External hires also bring with them revenue-generating ideas. Focus your employer branding and recruiting processes on revenue-generating jobs. Reengineer the process so that it leads the industry in its ability to identify, attract, and hire individuals with a superior revenue-generating track record. For example, a major mobile phone network provider found that by adding an online testing component to its hiring process , the resulting call center rep that were hired produced over 10% more revenue than the untested hires.
  5. Training on how to increase revenue — revenue generation and the related skills that support it must become a key corporate competency. The T&D function must target its offerings so that they cover all aspects of revenue generation. The quality of the offerings must also be improved, so that individuals show at least a 10% improvement in revenue generation after returning to their jobs after completing the T&D programs. In addition to targeting revenue-generating employees, revenue impact learning modules need to be developed so that every employee (regardless of their position) can understand the concept and subsequently improve their support of revenue-generating employees and business units. In this light, Wal-Mart routinely makes it a part of pre-shift store meetings to make all employees aware of which specific products produce the highest margins and revenue. This awareness allows employees to focus their sales and customer service efforts.
  6. Identify barriers — HR must proactively use surveys, interviews, and metrics to forecast upcoming revenue-generating problems and opportunities. HR must also have a process for rapidly identifying current problems and the barriers that restrict revenue generation.
  7. Create a fast-reaction team — HR must put together a team of specialists that can respond rapidly to the identified revenue problems that occur anywhere in your organization. Team members should excel at discovering HR related “root causes” and have the skills and experience necessary to solve sudden revenue generation problems.
  8. Leadership development and succession must focus on revenue-related competencies – revenue generators also need to be effectively led and managed. So as a result, the leadership function needs to make revenue generation a key competency and development area for leaders. The ability to increase the revenue impact of their team should also be added as a key criterion for promoting managers and leaders.
  9. Proactive internal movement — employees and contingent workers need to be proactively placed into the “right jobs” where they can have the highest possible revenue impact. The initial placement of top revenue producers needs to be regularly re-assessed so that key individuals (and even teams) are redeployed to the needed business areas. Seasonal and business cycle rotations may also be required to ensure that there is no excessive idleness among revenue generators.
  10. Identify those who support revenue producers — once a year, survey your top revenue producers and ask them which individuals or support positions have directly helped/contributed to their revenue production. Make sure that these impactful support personnel are rewarded and recognized.
  11. Release poor performers quickly – the performance management process must be redesigned so that it focuses on rapidly identifying, fixing, and releasing employees who fail to meet their revenue or revenue impact goals. The recruiting function should also continuously be on the lookout for top-performing talent that can be “swapped” with these lower-performing current employees.
  12. Implement revenue-impact metrics and rewards – work with the COO, the CFO, and performance management to develop a process and a set of metrics that accurately assess an individual’s revenue generation and revenue impact. Rewards and recognition programs must also be focused and reengineered to better encourage revenue generation.
  13. Onboarding — even the onboarding process can impact revenue generation if a weak process means that new-hires get up to speed slowly. As a result, the onboarding process must be reengineered so that new-hires on the first day clearly understand the importance of revenue generation, no matter what job they have. They also need to be informed about how their revenue generation/impact will be measured and rewarded. And finally they need to be educated as to where they can go to get help in this area.
  14. Contingent workers and vendors must be included — because a significant percentage of the “workforce” are not technically employees, HR must also work to ensure that contingent workers are hired and evaluated based on their ability to impact revenue. HR should work with purchasing to ensure that vendors, contractors, and consultants are also all capable of increasing revenues.
  15. Generate a direct profit — the least ambiguous of any HR action is directly generating revenue from external activities. Firms like Disney, HealthEast, Southwest, and Wachovia have generated revenue as a result of offering their HR services externally in areas including training, temp services, building a culture, and executive recruiting.

The Benchmark Firm to Copy

In addition to the 15 examples that were provided above, you should also know that the HR function at Google is the world’s leader in operationalizing a business-impact strategic approach. HR leaders at Google consistently use metrics and mathematical algorithms to scientifically improve business performance from programs like hiring, retention, and leadership. HR leaders can tell you the revenue impact of people management offerings like 20% time, free food, workspace design, and collaboration practices. They can also easily show you which business units (i.e. Adwords) have the most impact on revenue.

Understanding the five key components of a “revenue focused” HR strategy.

If you decide to implement this revenue-focus strategy, be aware that there are five key components that make a “revenue-focused” HR strategy successful.

Collaboration with the CFO — the first component is collaboration with the CFO. HR leadership must work directly with the CFO’s office (who is the undisputed “king” of measuring revenue). Together they must develop a credible process for proving when an action has a revenue impact and what the value of that impact actually is. Next, HR can provide the CFO’s office with a list of its intended actions and then finance can help to sort out any on the list that simply wouldn’t be credible no matter what the data said (i.e. an example of an action that might be sorting out as not credible could be the premise that hiring and retaining better janitors would increase revenues).

Make it an HR goal — the second component of the strategy is goal setting by making “impacting revenue” a major HR and talent management goal. As a major HR goal, it would need to be part of every HR function’s execution plan. The importance of the goal would be reinforced by adding revenue impact to the HR reward and metric structure. Together these actions would help to get everyone in HR to focus on this goal.

Prioritization — the third component is prioritization. If you start with the assumption that there will be no additional budget at least initially for this strategy,focus and concentrate your current HR budget and your best HR people on the business units, the jobs, and the employees that have the most impact on increasing revenue. Instead of equal treatment or first-come first-serve, high-priority jobs and employees would be serviced first. Resources would also be channeled toward the HR programs and processes which proved to have the most success on increasing revenue (i.e. usually they are hiring, retention, training, metrics, and rewards).

A process for identifying problems and barriers — the fourth component of the strategy involves identifying barriers to prohibit revenue from increasing. By applying benchmarking, research, and analyzing metrics, HR can determine which “people management problems” or barriers are having the most impact on reducing revenues. (Examples of problems include extended position vacancies in revenue-generating jobs, high turnover among top salespeople, salespeople unwilling to attend sales training etc.). The same effort should be put into identifying “positive people management opportunities” that when taken advantage of, directly increase revenues.

Best-practice sharing – the final strategy component is best-practice identification and sharing. Under this component, HR uses research, benchmarking, and metrics to proactively identify and then rapidly spread the implementation of the most effective revenue improving “people management practices” to all managers throughout the organization.

Final Thoughts

If you are still skeptical about this strategy and approach, ask your CEO whether they would prefer that you hire great clerks versus great salespeople. Also ask them if they would prefer that HR excel at low hiring costs, hiring without fewer legal issues, or would they instead prefer you to hire innovators and individuals who can increase revenues by 10 to 20%?

Although the initial concept might seem daunting, a number of advanced HR departments have been using a piecemeal approach to increasing corporate revenue for years. If you’re HR department were to adopt “revenue impact” as a primary HR strategy, the net impact for even a medium-sized firm would literally be in the hundreds of millions of dollars. If you implemented the strategy, not only would you “have a seat at the table” but you would be listened to and respected because you successfully made the transformation from “overhead function” to a strategic contributor. Your work would be noted in the annual report, so even the shareholders would become aware of the major contribution that HR made.

And incidentally, if you like this strategy, you should also consider related HR strategies. Where instead of focusing on revenue, the strategy would focus on increasing quality, speed/agility, customer service or innovation throughout the organization as a result of HR actions.

And one final question … Did this article succeed in expanding your thinking?

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • http://stratumconsulting.com/corporateblog/ Madhur Ramani

    I have been in this industry for just 3 yrs, and because I was in Pre-Sales for 7 yrs prior to that, the difference in importance given to these two functions (by organizations) was immediately apparent to me within a few months. For the last one year I have been trying to convince clients that HR is a strategic business function and not a support function. But with very little success. Now I have come to believe that most of the blame for this perception falls not on the CXO, but on the HR itself since HR people (on the client side) themselves don’t display enough professionalism when it comes to dealing with external stakeholders (recruitment firms, potential candidates, etc) and internal stakeholders (current employees).

    The change needs to begin from within first before expecting anyone else (read the CXOs) to take your (read the HR) function seriously.

    We infact wrote about this same thing a few months ago. It is however not as elaborate and detailed as your post :) http://stratumconsulting.com/corporateblog/2011/08/08/is-hr-perceived-as-a-business-function-or-a-support-function-within-your-organization/

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  • Larry Clifton

    Great stuff John — right on-target. Bottom line is we in HR know the enemy — it’s us. I’m convinced your views here are the new HR so we can either get on-board with them or our replacements will–Larry

  • Keith Halperin

    Thanks, Dr. Sullivan. I think I may be missing a point here. If I understand you correctly, your point is that to be considered as “strategic” (aka “taken seriously”), HR needs to concentrate on prioritizing on the hire, retention, etc. of top revenue-generators i.e. “*Sales Reps”. So to re-state/summarize: “HR needs to concentrate on getting/keeping great Sales Reps to be taken seriously”?
    Please advise.

    Cheers,

    Keith

    *Unless you’re also including the designers, developers, and providers of the company’s good or services.

  • http://www.techtrak.com Maureen Sharib

    Another good reason HR (at least Recruiting) should report to Finance!

    Yes, Dr. Sullivan, this article succeeded in expanding my thinking.
    It reminded me of an excited conversation we had on the subject a couple years ago:
    http://tinyurl.com/popuy6

    I hope your cogent arguments have more influence than mine!

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  • Dave Pollock

    I’m wondering how something called a “think-piece” could have offered up examples of revenue generation by saying: Hiring better sales people increases sales and filling an empty Loan Officer position more quickly means you can return to closing loans sooner.

    I read the examples 3 times wondering if I missed something that would exemplify a direct relationship between the “Duh!” I came away with and the “revenue generation” I was expecting to find. I surmised that my CFO would probably replace me if I equated doing my job with revenue generation.

    That is not to say that the 15 high impact actions are not excellent areas to support the goals (revenue or otherwise) of my organization. But those examples are vacuous.

  • http://drjohnsullivan.com Dr John Sullivan

    Dave

    Maybe your assessment of the examples provided would improve if you knew that the CEO of the bank mentioned in the example saw the connection so well, that he invited the Head of Recruiting to give a presentation on the $ impact of TA… to the annual shareholders meeting. As you probably know, regulatory agencies don’t sanction unproven data being presented to the owners of a public company. That is the first and only time I have heard of such a presentation from a recruiting leader (to shareholders) in my 40+ years in HR. In my experience, few people that bring in $100 million in revenue are replaced but a majority of TA functions have their budget repeatedly cut for NOT proving their impact in $.

    John

  • Sandra McCartt

    Did they fire the Sales manager and VP of sales and turn over sales to HR?

  • Larry Clifton

    Maureen: From my experience it doesn’t matter who HR/Recruiting reports to as long as they change their old school mindset and think/act like a business person as Dr. Sullivan mentions here. Once they do so HR will start producing results important to the company and no matter where they fall in the organization HR will get the attention and respect they rightfully deserve–Larry

  • Keith Halperin

    @ Maureen: Re: HR/Recruiting reporting to finance- ISTM that it would make as much sense for HR/Recruiting to report to Operations/Maintenance- we’re always cleaning up other people’s messes…

    @ Dr. Sullivan: Considering what a number of the largest and most powerful members of the banking industry have done to the U.S economy, its workers, and its homeowners over the past few years, there might be better examples than the actions of a bank executive to prove your point.

    @ Larry, IMHO, Dr. Sullivan’s premise is that in order to be “taken seriously” by corporate power, it’s necessary to speak in terms that the corporate powers can relate to- money, metrics, etc., and I think this is not a new idea. I believe this relies on the premise that “if you act like them and talk like them, they will think that you are one of them” and treat you accordingly. In the area of power-politics, I think this is an imperfect premise. I prefer to rely on the Frederick Douglass’s statement: “Power concedes nothing without a demand. It never did and it never will.” In other words: you don’t get power by imitating the powerful- you get power by giving them no choice….

    Cheers,
    Keith

  • Larry Clifton

    Keith: I hear you, but assuming a company is in business to make a profit and increase share holder value it’s not about power, it’s about delivering to the bottom line. HR needs to accept this reality if they are ever going to get a seat at the table–Larry

  • Suzanne Sears

    The biggest barrier to hiring talent that can generate real revenue is the modern obsession of hiring for “fit”……instead of talent.

    In other words: HR seeks out people who will fall in line like so many bowling pins on a platform: where no one pin will stick out and cause a visual distraction……

    HR further tends to put through the gates low drama people: rather than high energy revenue generators. They tend to prefer persons who wont rock the boat:….so that the harmonious team ends up thinking all like each other.

    Whoever dreamed up the nonesense of fit as the only hiring priority never had to actually make any money themselves: and most probably had lots of HR headaches that they assumed could be pacified by having all clones in the firm.

    No one is saying that a fashion firm shouldnt hire people also with an interest in the field…….but the use of all this standardized testing and evaluation means only either a) people who are good at tests get hired or b) all the hires will be nearly identical in mental process if they pass the test………..

    Mental clones all sharing the same identical ideas at the strategy table is not inspiration to solving revenue production. But it does create HR harmony.

    The mental talent of generating revenue would start with HR being also held accountable for how much money their hires produce! The whole obsession with little clone hiring would disolve rapdily if they were.

  • Keith Halperin

    @ Larry: Thank you. While companies may talk about being rational, pragmatic, profit-maximizers, most orgs run based on the GAFI Principles of the people in charge: Greed, Arrogance, Fear, and Ignorance/Incompetence. Power is a very primal need, and often trumps greed- look at very bureaucratic organizations as a prime example. Ignore that at your peril.

    @ Suzanne: It sounds as if you are saying companies should only hire really good sales reps- they’re the revenue generators. That’s like saying an army should only recruit elite combat soldiers.

    Cheers,
    Keith

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