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HR Practice
and the Bottom Line
By Michael Alan Hamlin
December 13, 1999
You’ll probably agree with me
when I suggest that human resource practice is not hugely appreciated
for its impact on the bottom line. Last week, Mariano Galicia, a
senior vice president at Fort Bonifacio Development Corporation,
showed me a study conducted over a 10-year period by the Institute
of Work Psychology at the University of Sheffield and the Center
for Economic Performance of the London Business School that clearly
demonstrates the dramatic impact HR practice has on profitability.
Mr. Galicia is one of the Philippines’
most prominent — and accomplished — HR practitioners,
and so it wasn’t much of a surprise to find him promoting the
benefits of solid HR practice. Just how profound those benefits
are, according to the study, was a surprise. Indeed, the study showed
that people management has greater effect on profitability in the
1,000 companies participating in the study than competitive strategy,
focus on quality, deployment of technology, and investment in research
& development.
Before looking more closely at the
results, I should note that from my perspective at least its credibility
was in large part determined by its promoter, Mr. Galicia, rather
than the excellent reputations of the two institutions that actually
performed the investigation. Like many HR practitioners, Mr. Galicia
began his career in a very different capacity, one that is at the
forefront of corporate strategy and economic growth today: IT.
Starting out as a programmer Mr.
Galicia worked for two domestic corporations before joining Del
Monte, where he worked for 15 years and during that time shifted
careers. The career shift took place when the giant multinational
was looking for someone to manage the HR function regionally from
within the organization. Three people were tested and interviewed,
and Mr. Galicia was offered the job, making him one of the first
— and likely the first — Filipino managers responsible
for regional HR for a multinational corporation.
He would likely be there today if
the local company hadn’t transferred most of its administrative
functions to Mindanao, which required Mr. Galicia to live separately
from his family for two years. That arrangement was unacceptable
and so he left Del Monte to join Johnson & Johnson, where he
worked until 1993, departing to become an entrepreneur in yet another
field.
This time Mr. Galicia went into construction-related
services, founding a firm that provides structural testing for major
projects all over the world. The initiative not only made Mr. Galicia
a successful entrepreneur, but established him in an international
service industry in which earnings are in foreign exchange. He did
good for the country, as well as himself.
There was still more excitement —
and change — ahead for Mr. Galicia, however. When Metro Pacific
went looking for an HR executive soon after Mr. Galicia established
his firm, a headhunter recruited Mr. Galicia back into the corporate
fold. The clincher for Mr. Galicia was his boss at Metro Pacific
— Ricardo Pascua. "HR doesn’t work if the HR head
and the chief executive don’t share the same vision,"
Mr. Galicia said. "We did." The team worked so well together
that when Mr. Pascua moved over to Fort Bonifacio, he asked that
Mr. Galicia be seconded to him to develop the complex HR function
for the developer and its many subsidiary corporations that range
from a plant nursery to a fiber optics communications firm.
Since then, Mr. Pascua has managed
to make Mr. Galicia a permanent member of his team, and put him
back into IT — in addition to his HR responsibilities.
Mr. Galicia’s career has gone
full circle.
But what about that study, which
shows just how important Mr. Galicia’s HR role is? The first
question in the study was, "Do employee attitudes predict company
performance?" Of the factors that contribute to profit and
productivity, the responses showed that the impact of job satisfaction
was five percent and a whopping sixteen percent, respectively. The
contribution of employee commitment was five percent to profit,
and seven percent to productivity.
The second questions was, "Does
organizational culture significantly predict variation between companies
in their performance? If so, which aspects of culture appear most
import?" The answers showed that a positive culture boosted
profitability in the firms participating in the study by 10 percent,
and productivity by 29 percent. The most important aspect of culture
that affects company performance was "concern for employee
welfare."
In other words, employees took care
of firms that took care of them. So much so in fact that when asked
"Which management practices are most important in predicting
performance?" competitive strategy was seen to enhance profitability
by just two percent, and productivity by three percent. Similar
results were shown for emphasis in quality — which was seen
to boost both profitability and productivity by less than one percent
— and the introduction of technology. Research and development
did better, boosting profitability eight percent and six percent.
But HRM practice was the clear leader,
enhancing profitability 19 percent and productivity 18 percent.
Clearly, executives concerned about profitability and productivity
should make HR a top-of-mind priority.
So it’s no wonder why Mr. Pascua
keeps Mr. Galicia nearby.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
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