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Why Is Human Resources Important? 8 Top Reasons

Written by Gem Siocon

9 minutes read

Why is human resources important? Could it be because organizations with strong HR practices are 1.4 times more likely to outperform their competitors and 2.5 times more likely to report effective talent management? Or it’s because organizations with high employee engagement experience 23% higher profitability. Take your pick.

Knowing why HRM matters requires a holistic approach and learning how it affects your organization’s success and growth. Let’s explore how HR supports and nurtures an organization’s most critical asset – its workforce.

Contents
What is HR?
What is Human Resources Management (HRM)?
8 Reasons why HRM contributes to business effectiveness
The changing role of HR and its ongoing importance
The cost of not having HR in the organization
How to pursue an HR career

What is HR?

HR is a department within an organization that deals with various aspects of employee-related matters. The primary functions of HR include recruitment and hiring, employee onboarding, managing employee benefits, payroll, employee relations, handling workplace issues and conflicts, and ensuring compliance with labor laws and regulations.

Modern organizations cannot be without HR. In the past, many organizations saw HR as a function to hire, fire and protect against compliance risk. Today HR is much more important, and the contribution stretches even further. Given the challenges of AI, an aging workforce, and global skills shortage, a good HR function is key to the success of the organization. Dieter Veldsman, Chief HR Scientist – AIHR

HR is responsible for maintaining a productive and harmonious work environment and supporting the organization’s overall goals by effectively managing its human capital.

What is Human Resources Management (HRM)?

While HR and Human Resource Management (HRM) are often used interchangeably, there is a slight difference between the two. HRM encompasses the strategic approach and philosophy of effectively managing human resources. It includes various activities, processes, and policies that aim to align an organization’s workforce with its strategic objectives, ultimately enhancing overall performance and gaining a competitive advantage.

These activities include:

Talent acquisition, selecting qualified candidates to fill job vacancies, and ensuring a fair and unbiased recruitment process.
Training and professional development by identifying training needs and designing, implementing, and evaluating the effectiveness of training programs.
Employee engagement and satisfaction by creating a positive work environment that fosters employee engagement and satisfaction.
Compensation and benefits management through offering fair and competitive pay and benefits. HR professionals conduct salary benchmarking, set pay ranges, manage payrolls, and designs benefit plans.
Resolving conflicts between employees or between employees and management amicably and within the organization’s guidelines. It also guides conflict resolution strategies, handles disciplinary procedures, and maintains a harmonious work environment.
Employee performance management by setting clear expectations, evaluating performance, and providing feedback.
Managing the organization’s reputation and image with employees, customers, and the public. It upholds ethical standards, promotes diversity and inclusion, and communicates the organization’s values and culture.

8 Reasons why HRM contributes to business effectiveness

HRM is integral to any organization’s success. By effectively managing human resources, HRM ensures business effectiveness by:

1. Fostering organizational culture

According to Forbes, organizational culture refers to the environment that employees are constantly immersed in. The human resource management (HRM) department plays a crucial role in shaping and cultivating this culture by establishing values, norms, and behaviors that align with the organization’s mission and vision.

Additionally, HRM creates and sustains a positive work environment that fosters employee engagement, morale, and wellbeing. This supportive environment and positive work culture have increased employee productivity, satisfaction, and retention.

A recent Deloitte Review found that organizations with strong cultures experience 40% higher employee retention and 30% higher levels of innovation.

2. Driving strategic planning

As defined by the Harvard Business School, strategic planning refers to the continuous organizational process of utilizing existing knowledge to outline an organization’s intended direction. The HR department collaborates closely with senior leaders to align HR strategies with the organization’s objectives.

Through this collaboration, the HR department identifies talent gaps, formulates workforce plans, and implements strategies to attract, develop, and retain skilled employees. This proactive approach ensures that the organization has the right motivated individuals in the appropriate positions, which fosters business growth and success.

HR has developed in leaps and bounds over the past decade. We have moved from a compliance function to a true strategic partner in business performance and an essential ingredient to sustained organizational success. Dieter Veldsman, Chief HR Scientist – AIHR

3. Promoting business sustainability and growth

HRM is on the frontline to support an organization’s long-term sustainability and growth.

It can achieve this goal by leveraging several strategies:

Support diversity and inclusion in the workplace
Invest in employee wellbeing
Promote ethical business practices
Advocate for, measure, and report on sustainable business practices, such as paperless communication, transportation, recycling, and energy efficiency.
Promote a healthy work-life balance
Attract, retain, and develop top talent through continuous learning and development initiatives.

4. Ensuring legal compliance and risk mitigation

Title VII, the ADA, the Age Discrimination in Employment Act, the Equal Pay Act, the FLSA, the Immigration Reform and Control Act, and the FMLA are some statutes regulating the US labor sector.

HRM ensures that organizations adhere to all federal and local labor laws, regulations, and industry standards. HR professionals must stay current with legal labor-related requirements to mitigate legal risks, avoid costly penalties, and maintain a compliant work environment.

5. Enhancing employee relations and productivity

The success of an organization greatly depends on the productivity of its employees. To achieve this, the HR department is crucial in creating a positive work environment that maximizes employee productivity. They implement effective performance management systems, establish clear job expectations, and provide regular feedback and coaching.

These strategies help employees understand their roles and responsibilities, set performance goals, and continuously improve their performance. In fact, according to a survey, 89% of HR professionals agree that regular feedback and clear expectations are key factors in engaging employees and fostering high productivity.

By increasing employee productivity, operational efficiency and overall business performance are enhanced.

6. Empowering managers

Managers are crucial in leading and managing their teams, directly interacting with employees. Therefore, they require support to fulfill their responsibilities effectively.

HR support for managers includes guidance on people management practices, training and development opportunities, and assistance with conflict resolution or performance issues.

When managers are empowered, several positive outcomes result:

Enhanced employee-manager relationships
Increased employee engagement and retention
Improved decision-making
Increased innovation
Better problem-solving
Increased customer satisfaction
Enhanced organizational culture and agility

7. Attracting and retaining top talent

Recruiters and talent acquisition teams face significant challenges when it comes to attracting, hiring, engaging, and retaining top talent. To address these challenges effectively, the HR department focuses on developing recruitment strategies, building a compelling employer brand, and implementing efficient selection processes.

Additionally, they offer competitive salaries, attractive benefits, and opportunities for professional development. These efforts ultimately help organizations retain top talent, reduce turnover, and create a talent pool that drives business effectiveness and success.

8. Effective people management

HR leverages several strategies to optimize and achieve effective people management:

Developing clear policies and procedures that promote fairness, consistency, and transparency
Promoting a healthy work-life balance
Strategic talent management
Implementing performance management systems
Data-driven decision-making
Empowering managers and employees
Facilitating effective communication and feedback
Providing training and development opportunities

Strong people management practices build a motivated, engaged, high-performing workforce, increasing productivity and business effectiveness.

The changing role of HR and its ongoing importance

Technology has changed the workplace in recent years, transforming the typical HRM role in an organization. Today, the HR department must navigate emerging technologies, evolving roles, and an ever-changing workforce.

The emergence of AI

AI has emerged as a powerful tool to streamline HR processes. In recruitment, AI tools efficiently sift through large volumes of resumes, identify qualified candidates based on specific criteria, and even conduct preliminary interviews through chatbots or video analysis. This not only saves time for HR professionals but also allows them to prioritize strategic aspects of recruitment.

Moreover, AI-driven learning platforms personalize training and development programs according to individual employee needs and learning styles. This ensures employees receive targeted learning experiences, optimizing skill development and performance.

Additionally, AI automates repetitive and time-consuming administrative tasks such as payroll management, leave tracking and benefits administration. This frees up HR professionals to dedicate their time and effort to more strategic responsibilities.

Future-proofing the workforce

The HR department must create plans to enhance employees’ digital literacy and skills to succeed in a technologically advanced workplace. This includes training them on emerging technologies, such as Generative AI, providing training and development, and fostering a culture of continuous learning.

Investing in employee growth and development ensures that the organization remains competitive and flexible to embrace emerging technologies.

A strategic partner and advisor in business decision-making

Strategic partnerships and advisory roles between HR and the play a vital role in influencing business decision-making. HR professionals collaboratively work with various departments to offer data-driven insights and expertise in several areas, including:

Strategic planning
Effective talent management
Organizational development
Employee engagement
Workforce optimization
Change management initiatives

These essential roles have become integral in shaping an organization’s overall strategy and driving its success.

The cost of not having HR in the organization

An ineffective or absent HR department can have financial and operational repercussions for your organization, including,

Reputational damage: A company with a poor HR record is at reputational risk, making attracting and retaining top talent difficult. It’s been found that reputation management can represent 25%-38% (or even up to 63%) of your organization’s market cap or annual turnover.
Increased recruitment costs: Hiring falls on managers without an HR department, resulting in more time spent on recruiting rather than on operational or managerial responsibilities. Additionally, there is an increased risk of hiring unqualified candidates. While the average cost of hiring a new employee is estimated at $4,129, hiring the wrong one can cost up to 30% of the employee’s first-year earnings. Unsuitable candidates mean frequent hires and increased recruitment costs.
Increased legal Issues and non-compliance fees: Lack of HR expertise in equal employment opportunities, wage and hour laws, and workplace safety can cause costly legal and regulatory non-compliance lawsuits and penalties. The U.S. EEOC received 73,485 workplace discrimination charges alone in 2022. Such lawsuits can cost you an average of $160,000 in settlements.
Decreased productivity and morale: An HR department ensures employees are engaged, happy, and satisfied. However, inadequate support for employees’ needs and concerns can lead to low morale, increased absenteeism, and decreased productivity. Such employees cost U.S. organizations $450-$550 billion annually in lost productivity.
Increased turnover: A lack of HR expertise or ineffective HR practices can increase employee turnover rates. Employees become dissatisfied due to poor onboarding, inadequate training and development opportunities, and lack of recognition and support and are more likely to leave. If they go, your organization will incur 1.5-2 times their annual salaries to replace them.

How to pursue an HR career

HR is a lucrative and rewarding career. Recent U.S. Bureau of Labor Statistics reports indicate HR managers earn a mean annual wage of $76,610-$224,360, while HR specialists earn $39,340-$116,060.

If you decide to pursue a career in HR, follow these steps:

1. Understand the HR field and its responsibilities

Research the various online resources in the HR field to understand its roles and intricacies. Alternatively, AIHR’s career map has a comprehensive overview and invaluable insights into different HR career paths. Explore HR professionals’ roles and responsibilities, including talent acquisition, employee engagement, performance management, and more.

2. Evaluate skills and qualifications needed and bridge any knowledge gaps

A qualified HR professional needs soft skills like communication, problem-solving, empathy and technical skills like data analytics and HR technology proficiency.

Once you assess your skills and identify any gaps, upskill with specialized HR Certifications, such as HR analytics, talent acquisition, and strategic workforce planning, offered by organizations like AIHR. Additionally, adopt a continuous learning culture for career advancement and deliver more value.

3. Leverage HR networks and stay updated on industry changes and trends

HR networks and communities provide industry-related advice, trends, and insights and help learners build meaningful professional relationships.

You can participate in HR forums, attend industry events, read industry publications, and follow HR influencers and thought leaders on social media. Keeping up with industry trends and the evolving HR landscape will help you grasp the current HR demands and challenges.

4. Gain relevant experience and keep up with HR technology

HR professionals need practical experience to complement theoretical knowledge for a successful HR career. Internships, entry-level HR positions, HR-related projects, or volunteer opportunities in HR departments or consulting firms are great places to start.

Additionally, keep up with emerging HR technology, such as HR Information Systems (HRIS), HR Management Systems (HRMS), applicant tracking systems, data analytics platforms, and employee engagement tools to streamline HR processes.

Key takeaway

Ensuring your organization has the right, motivated, and engaged workforce and creating a conducive work environment can lead to a productive workforce. That’s why HRM has become the backbone of any modern organization’s success.

However, HRM is evolving rapidly to include modern roles and technology. Our HR Certification Program and online resources can help you navigate these changes.

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