What’s the purpose of HR?

Human Resource Management is deeply misunderstood. You could say HR suffers from bad PR. Robin Kramar and Jawad Syed’s explanation is that:

1. HR deals with human behaviour, an inherently complex and unpredictable beast at the best of times.
2. There is a wide variety of HR policy instruments and practices, making it difficult to navigate and implement consistently.
3. Even when implemented, the success of HR initiatives is often challenging to evaluate accurately.
4. Unlike other business areas like accounting, HR lacks globally accepted professional standards, leading many managers to mistakenly believe that HR is simply common sense.

Another way to think about why HR is so misunderstood is that HR is “everything people,” and people are complicated. Stefanie Greve put it in such terms along with the graphic below which will live rent-free in my brain forever.

Because the inevitable automation and artificial intelligence acceleration cannot, almost definitionally, replace jobs that require high EQ and a nuanced understanding of human relationships, HR is too important for it to succumb to confusion.

Before I jump to my own view of what HR is, let’s address what HR is not. I’ve noticed that people pigeonhole HR into one of three boxes:

1. “HR exists to advocate for staff” — I mean, yes, but mostly in situations where managers have overstepped their bounds or some harm has been inflicted on an employee. But to confuse HR with your union rep is a mistake. It’s best to think of HR as the “referee” or the system that allows issues to progress towards resolution.
2. “HR exists to create more unnecessary red tape” — Modernity invented HR, and a layer of procedure inevitably came with it. Yes, it's added bureaucracy (it'd be disingenuous to claim otherwise). Still, when done well, these systems bring order and clarity to otherwise messy human relations. It's a bit like traffic lights—annoying, yes, but imagine the chaos without them.
3. “HR exists as a two-faced puppet for profit-maximising executives” — HR is an organisational arm controlled by leadership. Still, it is too cynical a view to say that HR is simply a capitalist bulldozer with a friendly face. Often, employees' interests are aligned with those of their employer. When there is gross misconduct at the workplace, it's in everyone's interest to contain the situation and not exacerbate the harm caused.

With that out of the way, let's turn to my view of HR.

HR’s long game: Productivity

Let’s dehumanise human resources for the sake of an explanation. Let’s think of an organisation’s people as a jukebox: you feed it some inputs, and it spits out some outputs. The obvious input is money, in the form of people’s salaries, which leads to those people building widgets or providing services.

Simply put, HR's role is to increase the jukebox's productivity. There are only two ways to do this: decrease inputs or increase outputs. I know how this sounds, so bear with me a little longer.

How can we measure the jukebox's productivity? Let's put some numbers on it. Say a factory produces 10,000 widgets (O) and has 100 workers (L) who are each paid $1,600 a month (W). So, the total labour cost is $160,000 a month (T). From this example, we can derive the unit labour cost (i.e. the cost incurred to produce one widget), which is $16 a month (P).

HR’s task is to reduce $16 a month to a smaller number.

HR’s role is to reduce unit labour costs.

HR’s role is to improve productivity.

The many levers behind productivity

At this point, you probably think I’m some sort of Thatcherite anarcho-capitalist and are readying your pitchfork. I don’t blame you. In my defence, the ways in which HR achieves lower unit labour costs are varied and state-of-the-art HR teams implement creative and innovative solutions that go beyond pay cuts, redundancies and hiring freezes.

For example, great HR teams can implement salary sacrifice schemes that allow staff to make pre-tax deductions. This effectively lowers their gross salaries, reducing their income tax and, importantly, lowering their employer’s tax bill. This means that the total amount spent on employing staff decreases, thus lowering the unit cost of labour without asking people to do overtime or cutting their pay.

Another example involves sick leave. While there is undoubtedly a baseline level of sick leave that is inevitable for all employers to experience, it can reach excessive levels. Outstanding HR teams can monitor sick leave data and identify individuals or times of the year causing spikes in total sick leave. It could be as simple as tracking people's accrued paid annual leave and encouraging them to take it when too much has been accumulated. More frequent rest breaks are an evidence-based way to avoid burnout (and the associated sick leave that comes with it) which effectively increases the jukebox’s output (as people on sick leave don’t produce anything).

A final example involves staff growth and professional development. The simplest version of this is technology, which consistently proves an existential threat to workers. Top HR teams would’ve seen the arrival of ChatGPT and immediately started thinking about upskilling or embedding the tool within other teams that could most benefit from it. Similarly, people’s performance evaluations should yield a set of improvement areas which can be shared among several people. HR should be actively monitoring this and spearheading professional development to ensure these gaps are plugged in and people can rise to their full potential.

HR can be transformational

There is a certain power in the fact that HR teams can rally around one overarching goal. Divided attention and trying to optimise for too many things often lead to optimising for nothing at all. So, when done well, HR can be a transformational force within an organisation and serve as a key source of comparative advantage. But we can’t achieve that unless HR teams, organizational leadership, and, most importantly, staff are all on the same page about the purpose of HR.