Organizations make strategic investments in business functions when they are shown to lead to better results, whether that’s increased attention from prospects, a stronger bottom line, or improved performance across teams. When these investments are put towards human capital — and, by extension, HR teams — organizations see results across all these aspects and more.
That’s because an investment in human resources has significant impacts on your workforce, improving results across your business. Employee engagement is improved, leading to a stronger talent pool you can entrust with complex projects or even promote to leadership. Productivity increases, since you’re giving teams the tools and models they need to do better work in less time. Finally, your organization’s performance as a whole skyrockets as teams collaborate more cohesively.
Modern HR departments aren’t just for resolving disputes between employees or creating policies to help everyone work more effectively. They’re strategic allies in every organization’s drive for growth and an essential asset for staying competitive.
If you’re considering where you should invest to get the best productivity bang for your buck, you’re in the right place.
Key takeaways
- A strategic investment in human resources leads to higher employee retention, stronger succession planning, and a boost in shareholder value.
- Human resources is a critical function for optimizing your workforce.
- Investments in HR lead to savings in recruitment costs and a stronger bottom line.
- Leveraging HR technology and upskilling HR professionals allows your HR function to scale with your organization.
Why should companies increase strategic investment in human resources?
An organization’s level of investment in HR should rise to match the shift in HR’s priorities. No longer a business function solely for managing hiring, resolving disputes, and enforcing policy compliance, HR is a strategic partner and a key driver of business growth. Your HR team is responsible for upskilling talent throughout your organization, improving employee retention, and maximizing the value of your talent pool. They’re the department taking care of one of your organization’s greatest assets. Its people.
Investing in your HR department means investing directly in your workforce. That’s because HR is responsible for brainstorming, implementing, and optimizing initiatives that contribute to acquiring the best talent and keeping them on for longer. And when you consider that replacing an employee can cost up to twice as much as their salary, employee retention becomes an essential priority.
HR also has an important role to play in company culture. They help leadership craft that culture, establish its values, and reinforce it throughout the organization. HR can identify opportunities for promoting company culture, spot situations where it might be in trouble, and ways to rework that culture as your organization grows.
At the end of the day, investing in HR means investing in your organization’s future. According to data from the Academy to Innovate HR, HR represents a larger proportion of total headcount at successful companies than other organizations, 1.9% and 1.3% respectively. That significant additional investment (a 46% difference) is a signal of success.
Why is HR important?
HR is no less than the central nervous system of your organization’s operations. While many leaders still see their HR department as mostly responsible for maintaining compliance with company policy and managing paperwork, forward-thinking organizations know HR has a much larger role to play.
For an example of this mindset in action, look no further than Zappos, where former CEO Tony Hsieh made company culture a key priority when he built up to a billion-dollar business. The HR team at Zappos wasn’t relegated to processing paperwork and resolving issues between employees. They were an essential part of designing and sustaining the company’s customer-first culture. HR’s role as a strategic partner didn’t just create a better place to work, it translated directly to customer satisfaction, brand loyalty, and financial performance.
While HR still has a heavy hand in recruiting—even at companies like Zappos—they’re also involved in every aspect of the employee experience:
- Talent optimization: Making the most of your current talent pool by aligning their skills and training with business objectives.
- Performance management: Including transitioning from outdated methods like annual reviews to continuous feedback systems.
- Cultural architecture: Building and designing norms for your workplace that support each employee in driving innovation and executing on essential tasks.
- Change navigation: If employees show resistance to organizational change, HR is usually in charge of addressing their concerns.
The data is clear. Investing in strong HR practices can boost shareholder value by up to 26%, according to consultancy Watson Wyatt. Where competitors might focus narrowly on product features and pricing to stay ahead, organizations with strategic HR functions can build an adaptable, engaged workforce that executes on essential initiatives faster, innovates consistently, and weather market disruptions more effectively.
When was the last time your HR team was invited to the strategic planning table from day one? Not as an afterthought, but as key players in executing on strategy? HR professionals reading this already know their value; they just need to prove it.
The benefits of continued investment in human resources
Whether your organization survives the ups and downs of the market or consistently thrives comes down to how much it invests in its people functions. But while that causal link is clear to HR professionals, it isn’t always easy to communicate to leadership. Here are the tangible and intangible returns that make HR investment an imperative.
Improved employee retention and satisfaction
Top talent is one of your organization’s most valuable assets, making employee retention a priority. When your organization invests in strengthening its HR function, you’ll see measurable improvements in your ability to keep key talent.
When HR teams are properly funded, their retention strategies have a massive impact:
- Voluntary turnover rates can decrease significantly as HR remains on top of employee issues.
- By investing in widespread retention initiatives, organizations can spend less of their hiring budget on replacement.
- As HR teams increase employee engagement, customers feel the impact.
- A growing base of institutional knowledge.
- Long-term, stable client relationships.
- Projects that stay on track without disruption.
Stronger leadership development and succession planning
Replacing a leader is one of the most difficult and expensive things an organization can do. But with proper investments in strategic HR, you can plan proactively for this instead of rushing to hire reactively. With these investments, you’ll be able to:
- Create leadership pipelines that identify suitable talent early.
- Implement upskilling programs that give you a steady supply of new leaders
- Reducing the costs associated with searching for executives externally.
- Ensuring business continuity during leadership transitions.
A key leader’s departure can completely derail important projects and cause hiccups in your business strategy. But with strong investments in HR, you can source the leaders you need without costly recruiting.
Increased operational efficiency through HR technology
To become strategic partners in your organization, HR professionals need the right technology. Investing in this technology has a ripple effect throughout your workforce:
- Automating routine processes allows HR to focus on strategic initiatives.
- Self-service platforms reduce HR’s administrative burden while improving employee experience for processes like performance reviews and engagement surveys.
- Platforms that provide data-driven insights empower HR teams to implement proactive workforce planning rather than reactive staffing.
- Integrating performance management systems with business objectives maintains alignment.
HR technology doesn’t just save your teams time, it completely transforms how they work. It unlocks opportunities you might never have seen when you were still working with spreadsheets.
Better alignment between HR and overall business strategy
Building a relationship requires investment, and that’s just as true when making HR a strategic partner. But the end result, perfect alignment between HR and other business functions, is essential to making the most of your talent. Through these investments, you’ll get:
- HR leaders with a better understanding of the organization’s strategy who can design talent strategies that support growth.
- Performance management systems with the data and the ability to incentivize behaviors that drive strategic priorities.
- Proactive workforce planning aligned with business goals becomes the norm.
- Employee experience initiatives reinforce brand promises to customers.
This isn’t the kind of alignment you can just stumble into. It requires consistent, intentional investment in HR, represented by involving HR in strategic conversations and giving them the technology they need.
What is the value of HR: Understanding HR ROI
HR teams often face a paradox. While executives readily acknowledge that people are the organization’s greatest asset, they deeply scrutinize HR budgets. The solution? Giving HR teams the ability to clearly articulate the return on investment for their initiatives. By translating their objectives into clear, measurable metrics, HR teams can demonstrate the value of their work in a way any leader can understand.
The first step? Turning the seemingly unquantifiable—like alignment and employee satisfaction—into clear metrics. Here are just a few of these key indicators:
- Revenue per employee: This shows how effective your workforce is as generating value for the organization.
- Human capital ROI: How much is the organization generating in relation to the benefits and compensation provided?
- Quality of hire: The performance ratings of new hires when they hit the 90-day, six month, and one year marks.
- Training effectiveness: Quantifying skill improvements throughout your workforce.
- Engagement-to-profit correlation: Tracking the relationship between engagement scores and business unit performance.
With metrics like these in hand, HR teams can clearly calculate the ROI of their initiatives across two primary vectors: direct cost reduction and value creation. HR teams help an organization reduce its costs by:
- Reducing turnover costs with effective retention strategies that reduce voluntary turnover.
- Making recruitment more efficient by reducing the time and money it takes to fill a vacancy.
- Reducing absenteeism throughout the organization by making it a better place to work.
HR teams can also demonstrate a clear impact on value creation in their organization through:
- Enhancing productivity with performance management systems.
- Accelerating innovation by reinforcing an inclusive culture with psychological safety.
- Establishing a direct link between increased employee engagement and customer satisfaction.
Key to demonstrating value through quantifiable factors is the ability to produce, process, and analyze HR data. Performance management tools like 15Five turn everything from employee engagement to performance into data you can turn into actionable insights without being a data analyst yourself.
What about intangible factors?
Not all HR impacts can be captured in metrics. But by using the right language when describing the results of their initiatives, HR professionals can still demonstrate their value even when numbers won’t do. Some examples of these intangible benefits include:
- Organizational resilience: A more engaged workforce is more flexible and more likely to innovate when faced with changing market conditions.
- Employer brand equity: Your organization’s reputation as a great place to work can make hiring more efficient, secure long-term relationships with clients, and more.
- Cultural alignment: When employees are more aligned with your company culture, they’re more likely to gravitate towards decisions that align with your broader objectives, improving efficiency.
- Leadership readiness: Many HR initiatives center around upskilling employees at all levels, getting them ready to take over if a leadership position becomes vacant.
How to grow human resources teams in your organization
Your people needs will become more complex as your organization grows. Whether you’re scaling rapidly, navigating a transformation, or simply maturing as a business, basic HR administration eventually becomes inefficient and inadequate. Here are some factors that might signal your need to expand your HR function:
- An imbalanced employee-to-HR ratio: Exact benchmarks might vary by industry, but service quality and strategic capability decline when your ratio exceeds 100:1.
- Increasing compliance complexity: Expanding into new markets or growing your headcount can both trigger the need to comply with increased regulations.
- Leadership bandwidth: When existing HR leaders spend more time on administrative tasks than strategic initiatives, you’ll know they need support.
- Business transformation: Mergers, rapid growth, and strategic pivots can all stretch your HR team’s capabilities to the limit.
How to scale HR in alignment with business growth
Growing your HR function isn’t as simple as adding more HR professionals. You need to consider their specialization and align this with your organization’s needs. Examples of these specializations include talent acquisition, learning and development, and employee relations.
Additionally, leaders need to properly prioritize growth in HR functions according to their broader business objectives. For example, a tech company in a period of high growth will want to hire HR professionals who specialize in hiring and onboarding. This is known as strategic sequencing.
Using the right technology is also an important part of scaling; you can only get so much out of your headcount without the right tools. An organization with an army of HR professionals handing out and reviewing performance reviews will be quickly outperformed by a team of just a few professionals who are leveraging the right tools.
Finally, upskilling is just as important in HR as it is in other functions. HR professionals need to constantly develop their skills to meet their organization’s evolving needs and reduce the need for hiring externally.
Leaders have a clear role in positioning HR as a strategic partner rather than a transactional function, and involving them in business planning as early as possible is a key part of this. By doing so, they’ll open opportunities for investment that contribute to the organization’s growth and overall stability.
HR investments bring clear ROI
Investing in HR ensures that they remain a key strategic partner in optimizing your talent pool, streamlining hiring, and growing your organization’s bottom line. HR professionals have a direct impact on reducing an organization’s costs and generating value across its workforce, leading to more resilience, greater workforce satisfaction, and long-term profitability.
