In my last blog, I talked about how HR can impact the bottom line by turning their asset, people, into a competitive advantage and aligning HR responsibilities with the company’s key performance metrics. For the HR team looking to become more strategic, I suggest starting by measuring one simple metric – labor cost as a percentage of revenue. Simply put, labor cost as a percentage of revenue explains how efficiently a business is operating. The formula for calculating this metric is:
Ultimately, HR’s responsibilities fall into three areas, recruitment and on-boarding, retention of good employees and reputation. A strategic HR professional understands how each of these core responsibilities affects the company’s labor cost as a percentage of revenue.
Several HR factors impact labor cost as a percentage of revenue both positively and negatively. When HR recruits talented, productive people, workforce efficiency improves. By retaining good talent, HR reduces not only turnover, but also all the costs of on-boarding and training new employees. Over time this cost savings can amount to a significant financial advantage. Ultimately, these store associates are the retailer’s sales force and the brand’s main point of interaction with customers. Good employees successfully up sell customers, provide great customer service and foster customer loyalty. Combined, these efforts drive increased basket size, repeat visits and increased sales.
At the same time, employees who are not aligned with the store’s goals can hurt the store’s performance by reducing overall efficiency, creating resentment among the team, being rude to customers or worse of all committing fraud or theft. It’s critical for the retailer to quickly identify these employees and take corrective action before they can do major damage to the store’s profitability and the company’s brand.
Let’s take a look at four areas where HR can make an immediate impact on labor costs as a percentage of revenue.
1. Time and Attendance
Since payroll is one of the largest, if not the largest, costs for retailers, it’s important that it be accurate. Time card fraud is an easy way for employees to get paid for time not worked. Fortunately, it’s just as easy to identify and correct with video-driven business intelligenceTM. When data from the time clock (or POS if employees clock in on the register) and access control are combined with video, it’s easy to see who clocks in early, late, when they are not scheduled to work or for someone else. HR should partner with loss prevention to create exception reports that identify when potential cases of time card fraud occur.
HR Tip: Read the Spot Time Clock Abuse chapter of the Loss Prevention Playbook.
MVaaS systems are already combining traffic counting data with video and POS data to help retailers better understand the marketing, sales and operations components of sales conversion. Using the same tool, HR can also glean important insights into staffing levels to help supervisors schedule. Efficient workforce staffing finds the balance between providing excellence customer service, which can boost sales, and minimizing labor costs of overstaffing. In addition to reducing labor cost as a percentage of revenue, better insight into staffing enables supervisors to spend less time in the back office and more time interacting with customers and coaching store associates.
Training is critical to ensuring consistent operations, excellent customer experience and repeat visits across multiple store locations. If a picture is worth a thousand words, imagine the impact video can have in a training environment, in particular for visual learners. Leveraging video of actual store situations gives new hires a clear understanding of corporate policies. The video also subtly reinforces that company recognizes its employees are essential to achieving its performance goals and uses technology to help identify and correct activity detracting from those goals. Videos have the added benefit of standardizing and streamlining training. A MVaaS solution can easily give HR professionals remote access to store-level operations from the same system that LP already uses.
HR Tip: Read the Keeping Honest People Honest blog post to understand the importance of clear communication in deterring unwanted behavior.
4. Performance Evaluation
Video can be an extremely powerful tool in coaching employees on how to improve and reviewing issues like performance and inappropriate behavior. Video removes he said/she said situations and provides concrete examples of performance for evaluation discussions. HR should team with operations to define company expectations around how store managers should use video in employee reviews and when it’s appropriate to involve HR. Best practice is to only have employee performance evaluations or discipline discussions in an area with video recording. Ideally this is the back office and also has audio coverage. Another best practice is to require store managers to save video clips of positive and negative behavior and share those clips with HR for the employee’s personnel file. Using a MVaaS system, this can easily and securely be achieved in the cloud without much effort on either the manager’s or HR’s part.
Finally, as with any strategic initiative, it is important to test and measure the initiative’s impact. In this case I’d advise that HR pilot any new initiatives in a subset of stores and measure the change in labor cost as a percentage of revenue compared to a control group of stores. If the initiative has a positive impact then it should be rolled out to every store. If the initiative has an unexpected impact, then HR should try to understand the outcome by watching the video of how the initiative was carried out in the store and interviewing store managers and associates.