Boosting Operating Margin: The Strategic Role of HR in Driving Efficiency

  Published : June 19, 2023
  Last Updated: May 23, 2024


In our last blog, we discussed how organizations drive shareholder value, the importance of operating margins, and how HR leaders are tapped to improve operating margins.

In this blog, we will discuss the options/steps available for HR leaders to meet new expectations.

Based on our conversations with HR leaders at our 200+ customers and various Fortune 200 prospects, we have consolidated the response in 5 broad areas.

Workforce optimization:

One of the primary areas where HR can significantly impact operating margins is through effective workforce optimization. By aligning workforce planning with business objectives and ensuring optimal staffing levels, HR can eliminate excess labor costs and improve productivity. This involves conducting regular assessments of workload distribution, implementing efficient scheduling practices, and identifying opportunities for automation or process improvement to streamline operations.

Talent Management and Development:

Investing in talent management and development initiatives can directly impact operating margins. HR can implement performance management systems that align individual goals with organizational objectives. It can identify and reward high-performing employees, and provide targeted training and development programs to enhance their skills and capabilities. A skilled and motivated workforce can improve productivity, reduce errors, and increase operational efficiency, leading to improved operating margins.

Cost-effective recruitment and retention:

HR can play a vital role in optimizing recruitment and retention processes to reduce talent acquisition costs. By leveraging technology, implementing innovative sourcing strategies, and enhancing the employer brand, HR can attract top talent while minimizing recruitment expenses. Moreover, implementing effective retention strategies, such as competitive compensation packages, robust employee engagement initiatives, and career development opportunities, can reduce turnover and associated costs. This leads to improved operating margins.

Streamlining HR Processes:

HR processes can also improve operating margins. By streamlining administrative tasks, reducing manual paperwork, and leveraging technology solutions, HR can reduce time and resources spent on routine activities. This allows HR professionals to focus more on strategic initiatives and value-added tasks, ultimately driving operational efficiency and cost savings throughout the organization.

Employee Engagement and Productivity:

HR plays a crucial role in fostering a positive work culture that promotes employee engagement and productivity. Engaged employees are more likely to take the extra mile, deliver high-quality work, and contribute to process improvement. HR can develop and implement initiatives such as employee recognition programs, flexible work arrangements, and a supportive work environment. This will enhance engagement levels and boost overall productivity, leading to improved operating margins.

Of the 5 points above, HR teams have done fairly well in 4 i.e. Talent Management and Development, Cost-effective recruitment and retention, Streamlining HR Processes, and Employee Engagement. Most companies have tools and/or processes in place for talent management, learning, and development, training, employee engagement/surveys, etc.

The most recent and most significant steps to the list are workforce optimization and improving productivity. Traditionally HR has not measured productivity, workload distribution, shift schedule/adherence, automation opportunity, etc. These activities were left to the business or functional head. HR’s role was to fill the open position, conduct a survey, performance appraisal and intervene if there was a problem.

It’s clear that from the 5 above, workforce optimization has the biggest impact on operating margins. For an efficient workforce optimization strategy, the HR department needs data, not data about how long it takes to fill the role. Instead, it needs data about how talent/resources in the organization are utilized. What activities are resources engaged in and how do they impact productivity and output? Which functions/teams require more resources and which functions/teams have excess capacity that can be re-deployed?

An effective workforce optimization strategy can reduce costs by 15% and improve productivity by 20%.

In our next blog, we will discuss how a workforce optimization strategy can be implemented.

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