Summary of Key Points
The mid-year review of human resource efficiency (HR efficiency) is often presented as an HR report by companies, but its essence is part of business analysis—the focus should not be on the actions taken by HR, but rather on whether human resources investments have supported profit growth and business expansion. This article identifies three common misconceptions in HR efficiency reviews and proposes a correct approach that follows these three steps: “evaluate results → analyze processes → identify root causes.” It also suggests conducting review meetings using a structured process involving collaboration among business, finance, and HR departments.
Detailed Explanation
The Three Most Common Mistakes in HR Efficiency Reviews
Many companies start off on the wrong foot due to these issues:
- Mistake 1: Treating the HR efficiency review as an HR-specific report
For example, HR may simply state, “We hired 50 new employees in the first half of the year, conducted 10 training sessions, and achieved an 80% performance completion rate,” without mentioning the revenue growth or profit increase these efforts have brought. This is like asking a child about their exam results and only hearing, “I did 10 practice tests,” without knowing the actual score—missing the key point entirely. The HR efficiency review should focus on business outcomes, not just an HR task list.
- Mistake 2: Focusing solely on individual indicators without considering their interrelationships
Relying on metrics like “revenue per employee” or “personnel expense ratio” (the proportion of labor costs to revenue) is insufficient. For instance, if revenue per employee has increased but labor costs have increased faster, HR efficiency may actually be declining. It’s important to consider the overall balance: do revenues and labor costs match? Is there a balance between gross profit (revenue minus direct costs) and expenses? Are outcome indicators (such as revenue) consistent with process indicators (such as customer conversion rates)?
- Mistake 3: Concentrating only on cost reduction without considering quality improvement and employee empowerment
The tendency to think of HR efficiency as simply reducing staff or controlling salaries addresses short-term issues. A comprehensive approach includes three aspects: cost reduction, quality improvement (e.g., increasing customer repeat purchases), and employee empowerment (making them more effective). Focusing solely on costs can lead to demotivated employees, which hinders long-term growth.
Evaluating Results
The first step is to determine the actual outcomes of the investment in human resources:
- Use different indicators for different business stages
For growing businesses (e.g., new stores), focus on revenue (scale expansion); for established businesses (e.g., mature stores), focus on gross profit/net profit (profitability). If business scale has increased but profits have decreased, focusing only on revenue can be misleading.
- Standardize the measurement criteria
Clearly define the scope of the review: is it the entire company, a specific business unit, or an individual store? Should you consider revenue, gross profit, or net profit at this stage? Also, use appropriate metrics—“number of employees” or “labor costs” (more accurate for companies with many part-time workers)?
Analyzing Processes
If there are discrepancies in results, don’t immediately blame a lack of staff; instead, identify issues in the business processes:
- Break down process indicators
Evaluate indicators such as “output efficiency” (number of orders completed per employee per day), “time efficiency” (time taken to complete an order), “quality efficiency” (rate of rework), “customer efficiency” (revenue generated per customer), and “space efficiency” (revenue per square meter). These can help identify bottlenecks, such as redundant processes or inefficient staffing.
- Remember: HR efficiency is a business issue, not just an HR one
For example, low HR efficiency in a restaurant might be due to poor layout in the kitchen (e.g., chefs having to walk long distances to get ingredients), not a lack of hires. Improve processes before considering staff adjustments.
Identifying Root Causes
The root causes of issues lie with the employees and their capabilities:
- Consider three key dimensions
1. Time: How much effective working time do employees have? Are meetings productive, or is there much downtime?
2. Skills: Do team members’ skills match the business needs? For example, does a live streaming sales team include professionals in operations and traffic management?
3. Motivation: Are incentives aligned with performance (e.g., only focusing on sales volume without considering customer satisfaction)? Are management practices disruptive (e.g., frequent rule changes that confuse employees)?
- Don’t just focus on reducing staff
If the wrong people are in the right positions (e.g., data analysts managing operations) or if incentives are ineffective, simply cutting staff won’t improve HR efficiency in the long run.
Conducting an Effective HR Efficiency Review Meeting
Follow these five steps to transform the review from a mere report into a solution-oriented process:
1. Standardize the approach
Define the scope of the review, outcome indicators, and measurement criteria (e.g., “Review stores in the Beijing region, focusing on gross profit using labor costs as the denominator”).
2. Evaluate results
Compare targets with actual performance to identify gaps (e.g., target gross profit for Beijing stores was 1 million, but actual was 800,000).
3. Analyze processes
Identify inefficiencies in business processes (e.g., lower customer efficiency due to long customer waiting times).
4. Identify root causes
Determine why specific issues occurred (e.g., insufficient customer service skills or poor scheduling).
5. Develop action plans
Assign responsibilities among business, finance, and HR (e.g., the business team optimizes customer flow, finance monitors gross profit changes, and HR manages employee training and scheduling).
By following this approach, HR efficiency reviews can become a tool for improving business performance.
Finally, remember: When reviewing HR efficiency mid-year, don’t just go through the motions. Ask yourself, “How can this review help solve the company’s operational challenges?” This is what management truly cares about.