Human Resources (HR) covers a lot of ground. In a given organization, HR can play a direct role in everything from recruitment, hiring, and firing to training, evaluation, and oversight of company ethics. While the exact duties charged to an HR department may vary from one company to the next, the importance of a strong, functional and rational HR department is indisputable.
Of course, not every company has an amazing HR department, or even an HR department at all. Small businesses and family-run companies may consider this a gratuitous use of labor and capital. And if a company is small enough, this may be true. But for mid-sized and larger companies, the need is much greater. Companies that fail to take Human Resources seriously do so at their own peril, both legally and in terms of their competitive edge.
But what makes HR so important? Why does HR matter? On the surface, the answer may not be so obvious. After all, your HR personnel won’t actually make you money…not directly anyway. While it’s easy to quantify the value, for instance, of your sales team, your product development personnel, or your managerial leaders, your Human Resource department doesn’t technically show its value in dollars and cents.
That’s because the value of a good HR department is incalculable. The improvements to your organization’s performance, productivity, efficiency and outcomes will translate into a value that is difficult to put into numbers. So whether you run a once-small company verging on a new stage of growth, you’re a key decision maker for mid-sized organization in serious need of an efficiency-check, or you’re part of the braintrust for a big company reexamining the effectiveness of its existing HR strategy, take a moment to consider the critical responsibilities vested in your HR team.
But before we dive into the reasons that HR is so valuable, let’s take a quick look at exactly what HR is and where it came from.
What is Human Resources?
It can be difficult to pin down exactly what Human Resources means because the HR needs of every organization are unique. In the most basic terms, Investopedia defines HR as “the division of a business that is charged with finding, screening, recruiting, and training job applicants, as well as administering employee-benefit programs. HR plays a key role in helping companies deal with a fast-changing business environment and a greater demand for quality employees in the 21st century.”
But the day to day functions of HR personnel can go much deeper than that. In reality, a Human Resources department will often be charged with an incredibly wide array of matters impacting personnel in your organization. This touches on issues of performance, conduct, compensation, conflict, morale, ethics, health and wellness, and virtually any other aspect of company life with a direct impact on the humans powering your business.
Who coined the term Human Resources?
Fun fact…everybody has a slightly different answer to this question. Perhaps the best way to address this is to recognize that each thinker who contributed to its development added just a bit more nuance to its meaning. According to Investopedia, the American institutional economist John R. Commons first published the term “human resource” in his book The Distribution of Wealth in 1893.
However, according to an article from the Academy of Management, management guru Peter F. Drucker actually coined the phrase as we understand it today in his influential 1954 text, The Practice of Management. Here, says the Academy of Management, “Drucker presents three broad managerial functions: managing the business, managing other managers, and managing workers and work.”
For good measure, we’ll also mention that, in 1969, HR pioneer Leonard Nadler expanded on the concept by coining the term Human Resource Development (HRD). In doing so, he proliferated the idea that HRD should consist of three basic elements—training, education, and development.
More consequential than how and when the term was coined is what the growing interest in HR represented at the mid-century mark for American businesses. As America moved further away from the Industrial Age, which relied largely on technology and unskilled labor, many employers came to recognize the importance of nurturing and cultivating human capital. From this imperative emerged the idea of company and employee relations.
Today, just a half-century removed from the mainstream emergence of Human Resources, an HR department is considered a necessary part of any functional mid- to large-sized company.
Why do you need a good HR Department?
A functional HR department is not just valuable, but absolutely essentially, to the effective stewardship of any mid-sized or large company. For many organizations, HR can be the difference between success and failure; ethical behavior and corruption; a positive public image and a destructive scandal. But the impact of HR need not be so dramatic. Even simple day to day functions and procedures can be improved and streamlined with the involvement of an effective HR department.
If you’re still not convinced, let’s take a closer look at a few of the key reasons that HR is so important to both the short- and long-term outlook of your organization. Read on for Ten Reasons You Need a Great HR Department…
1. Payroll Management
While the HR department may not technically make you money, it will handle a lot of money. First and foremost, many HR departments are charged with the duty of processing payroll. This isn’t quite as simple as just making sure a bunch of paychecks are mailed or deposits made. Payroll also involves the calculation of taxes, compensation for freelance workers, adjustments for bonuses and raises, reimbursements for expenses, and a host of other intricacies involving variables in employee benefits, health plans, and pension plans. Even for companies who employ third-party payroll services, your HR department will remain an essential line of communication between personnel and these services. Sounds like a lot, doesn’t it? And it is. It’s a lot of money and a lot of detail, which underscore just how critical it is to have a competent HR department.
2. Improved Use of Labor
Employees are not interchangeable parts. Every member of your team brings a unique set of skills, talents, and potential career tracks. A robust HR department can help you identify these strengths and place your personnel on the best path to individual and collective success. Your HR department will oversee what Lucidchart refers to as the “employee life cycle.” Essential to this cycle are the recruitment, training, and development stages of the process. Here, your HR department will play an active role in evaluating employees not just for their compatibility with the organization but for their fitness in certain roles as well as their long-term potential for management, leadership and executive positions.
3. Conflict Resolution
Even in a company overflowing with talented and virtuous individuals, conflict can arise. Colleagues may disagree on the best path forward for a specific action item; internal competition may boil over into interpersonal tension; or personalities may simply clash. In cases where those in conflict both represent value to the organization, conflict mediation is essential. An effective HR department will include personnel with background in organizational psychology, employee counseling, and conflict resolution. In an ideal world, we’d all get along great. But in the real world, conflict happens, even between two well-meaning people. Your company should be equipped with the tools to bring these individuals to the table for meaningful mediation and resolution.
4. Employee Conduct
Of course, sometimes resolution simply isn’t possible. This is especially true when employee misconduct is present. One of the key functions of your HR department is to intervene in the event of misconduct, which can run the gamut from minor infractions like habitual lateness and company dress code violations to far more problematic transgressions like bullying, sexual harassment, unwanted physical attention, assault, unlawful conduct, financial misappropriation, or public behaviors unbefitting of a person representing the organization. This is another area where the competence of your HR department is critical. Human Resources will take steps to determine the best course of action for a given offense, anywhere from a verbal warning all the way up to termination and even notification of the proper legal authorities. Not only is this a critical function when it comes to protecting your company against internal misconduct but handling disciplinary actions and terminations by the book is also vital to protecting your company against legal retaliation, either from employees who feel your company failed to protect them from the misconduct of others or from former employees who believe they have been unjustly terminated.
5. Legal Protection
On the subject of legal protection, the role of your HR department extends well beyond prevention of liability in the event of misconduct. In many ways, your HR should serve as an in-house checkpoint for all matters relating to your company’s internal liability. Employee-related litigation can be costly, and it can emerge from a wide range of pain points including labor violations, safety hazards, financial mismanagement, and even a failure to bring order to a generally hostile work environment. This means the onus is on your HR department to ensure full compliance with the most up to date terms of the Fair Labor Standards Act (FLSA), Occupational Safety and Health Administration Laws and Regulations, anti-discrimination policies in both hiring and management, and effective training in areas like sensitivity, equality, and environmental citizenship. It’s also the HR department’s job to maintain, update, communicate and enforce company policy in ways that are consistent with employment laws and rules of compliance. Documentation is also a central function of the HR department. Your HR department should be able to produce comprehensive documentation tracking the history of employee disputes, legal issues, disciplinary matters, and more. This paper trail is essential when a company is faced with legal challenges both frivolous and serious.
6. Training and Career Development
Not all of the HR department’s responsibilities carry the heavy burden of disciplinary action. According to business consulting firm Eide Bailly, “HR teams can also provide training and development opportunities to make sure current employees are able to improve on their skills and qualifications. By identifying areas for improvement, HR professionals can work to improve the skills of your current workforce, saving you time and money in hiring and training new employees.” Indeed, one of the top functions your HR department can perform is to provide effective training and career development for new employees, existing employees aspiring to new roles in the company, and preparing to ascend into leadership positions. An intuitive HR department should offer a comprehensive training program that includes a structured introduction to company policies and procedures, immersive practice in specified roles, and even partnership with role-specific mentors. Your HR department can also identify opportunities for improved outcomes through better training and, in the process of training, pinpoint ideal roles and opportunities for employees. At the heart of human resources is the understanding that talent is easier to cultivate than find. Once you’ve found it, make the most of it with a meaningful training and development strategy. This is a major key to retention and long-term leadership development.
7. Addressing Employee Morale
Speaking of retention, a good employee is a happy employee. Consider your HR department an essential line of defense against bad feelings. In a sense, Human Resources is meant to serve as an objective, third-party complaint department where employees can raise grievances, state conflicts of interest, identify disputes or conduct problems involving other personnel, or just generally venting about areas of discontent. HR should provide a context where this can be done confidentially and without fear of reprisal from management. In other words, HR provides an outlet where employees can direct concerns that might otherwise spill over into far-reaching issues that can erode broader company morale. From here, each situation may dictate the need for legal action, employee reassignment, referral to a conflict mediator or counselor, or any number of additional steps. Your HR department will be charged with determining the proper course of action in a wide range of areas that can have a direct bearing on the energy and emotion flowing through your workplace.
8. Health and Wellness
Employee morale extends well beyond personnel disputes and payroll issues. On an individual level, employees can face a wide range of challenges to health and wellness, some arising in connection to work and others extending from personal matters. In either case, it is incumbent upon the fair and ethical employer to provide meaningful support to employees as they manage all manner of health needs. This support role may be performed through an HR department with an open-door policy. Lucid Chart points out that “It’s important to remember that employees are people. They’ll need help weathering mental illness, health issues, debt, pregnancies, adoption, and myriad other life occurrences. HR can help support employees through any of these and other circumstances.” Employees need to feel that they can speak freely, honestly and safely to HR personnel about managing everything from regular doctor’s appointments to serious medical or mental health crises. Be sure that the HR department is equipped to provide the right measure of compassion, privacy, and procedural guidance to employees who are balancing medical issues with work needs.
9. Performance Management
Balance Careers makes it a point of distinguishing performance management from more performance evaluation. While annual performance reviews and self-evaluation forms can provide some basic metrics on performance, this is merely a starting point. Balance notes that performance management should not be minimized to include only those tools used to evaluate employees. Performance management should, instead, take a holistic view on the way employees conduct their responsibilities. The career counseling site notes that “Performance management defines your interaction with an employee at every step of the way in between these major life cycle occurrences. Performance management makes every interaction opportunity with an employee into a learning occasion.” This means that your HR department and your employees should enjoy open lines of communication and regular opportunities for positive interaction where engagement is prioritized over evaluation.
10. Attracting Top Talent
According to the Small Business Chronicle, one of the best ways to attract top talent is to earn a track record as a good employer. As the items on this list above clearly demonstrate, a strong HR department should ultimately make your company into a better employer. The Chronicle notes that top businesses are often also recognized as “employers of choice,” those “companies that receive recognition for the way they treat employees; they are the companies for whom people want to work. Becoming an employer of choice means human resources balances recruiting the most qualified applicants, selecting the most suitable candidates and retaining the most talented employees.” In the simplest terms, the better and more effective your HR department is, the better the position you’ll be in to attract, hire and retain excellent employees.
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By the way, if all of this talk about the value of Human Resources has you considering a career in this area, you may be encouraged to note that many excellent and well-paying opportunities abound. According to the Bureau of Labor Studies, those with a bachelor’s degree in human resources or a related area earned a robust median pay of $121,220 per year in 2020. At a projected rate of 9% growth between now and 2030, roughly 15,000 new HR jobs will likely be created in the next decade. If you’re interested in contributing to employee satisfaction, corporate citizenship, and organizational success at a core level, this could be a great career path.