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BCG report on HR correlation with financial performance

Stronger HR teams lead to better financial performance

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Research has proved what most of us have long suspected – there is a direct link between the strength of a company’s HR team, and the organisation’s financial performance.

A comparison of companies’ 10-year stock performance with 10 HR performance indicators demonstrated that high-performing HR teams can truly add value by helping to drive financial performance of their companies.

High-performing HR teams were identified using Fortune magazine’s ‘Best companies to work for’ rankings in 2014, while financial performance was studied using the S&P 500 Index.

“The 100 best companies – those with the strongest HR performance – outperformed the index by nearly 100 percentage points,” found the study.

The report put this link down to HR departments at financially top-performing companies being able to identify clear priorities to improve their HR performance. This, in turn, enabled them to target their investments and future efforts more effectively.

“Companies with lower financial performance adopt a more arbitrary approach to investments in HR topics. They don’t identify clear priorities, and they don’t focus their investments,” said Rainer Strack, a senior partner at The Boston Consulting Group, and co-author of the report.

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However, the report stressed that this was the case only in companies where HR leaders were equipped to partner with business leaders.

This strategic role that HR aspires for, was far more likely to be attained if HR teams made use of the growing availability of analytics and other data-driven approaches to management.

“The findings indicate a strong correlation between the use of HR key performance indicators (KPIs) and analytics and a more strategic role for HR overall,” the report stated.

“This entails going beyond rudimentary metrics that look at things such as personnel cost and headcount, and toward more sophisticated output indicators, which can gauge employee productivity and other critical data.”

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