It’s easy to see results from Sales and Finance data. But in the HR function, where it’s practically impossible to assign people a single number, it can be hard to measure outcomes.
For this series of blogs about the impact of HR, I’ll be sharing some key case studies of businesses that measure the value of their HR inputs and show results in numbers. First up is consumer electronics retailer Elkjøp and its recruitment advisor, a recruitment analytics firm called Cut-e.
Elkjøp is the largest electronics retailer in the Nordic countries with 400 stores across 6 countries and 9,500 employees. At the time of the intervention their company was suffering from 20% annual staff turnover, including some recruits who only stayed for very short periods at the company. Recruitment processes were taking too long, making them expensive and inefficient. The company was paying significant amounts to headhunters for external candidates for management positions. Finally, choosing to hire people who turned out to be unsuitable for sales roles was costing the company potential revenue.
At the start of the intervention Elkjøp chose four areas to improve recruitment, measured through cutting costs and increasing sales:
- Failed hires: new recruits who left in their first 6 months, and the losses involved. Elkjøp calculated that 200 failed recruitments annually cost it €4.6 million per year. By reducing this by 80%, they aimed to save €3.68m euros.
- Internal resources: Elkjøp identified recruitment process improvements that could take 3 hours off each hire, saving 6000 hours per year, at a value of €241,800.
- Internal recruitment: by recruiting managers internally as opposed to via an external supplier, Elkjøp would save €864,150 euros.
- Psychometric tests: Elkjøp used psychological tests to select the right people for the right position. Elsewhere, cut-e had shown potential to increase sales by 14% by choosing suitable candidates. If similar results could be achieved by Elkjøp, this would translate into €29m in extra revenue. Together Elkjøp and cut-e designed an assessment including ability tests, personality tests and interviews to find the best candidates. They prepared bespoke reports on progress for regular updates, then fine-tuned the process continuously using feedback from applicants and store managers.
Here are some examples of the tests they used:
By addressing these four areas, the recruitment team was able to cut costs, save time and increase sales revenue. Here’s how the company expects to benefit:
- €3,680,000 was saved by reducing failed hires by 80%
- €241,800 of time was saved by saving 3 hours in administration per hire
- €164,215 in external costs was saved by recruiting 30 management positions per year internally
- €5,800,000 in extra sales/margin from having the right personality types in sales roles
Based on this, the company estimated a total upside of €10.5m.
However, a follow up studies conducted in June this year indicated Elkjøp actually gained higher benefits from addressing these four areas . Sales figure actually increased by 18% instead of the estimated 14% -giving a €7.5m added margin and a total impact of €12.3m to the company.
This graph shows Elkjøp’s largest source of gain: the extra revenue from right personality types for sales.
The intervention was hailed as a massive success. Store manager Elgiganten Täby said: “The person who came up with using cut-e is a genius and deserves a medal!”
By looking at impact, not only did Elkjøp drive 12.3 million euros of benefit to the bottom line but they showed the value of HR. Elkjøp’s HR team was highly disciplined in setting out the case for change, intervening in a flexible and evolving way and tracking the impact afterwards.
If HR ever wants its strategic seat at the board table then this is how; by doing something well and making sure the business recognises it has done something well. This means showing the business the results in numbers. I am excited to see more and more of these case studies emerge as increasing HR functions start demonstrating the power of their role and the power of people within the organisation.
Look out for my next post in the HR impact series. If you have a great story about how HR has changed your business, please share it with me: Giles.Slinger@orgvue.com. I’d be happy to write it up and share it here.
Download the full case study here.