The HR Value Chain Model is a useful tool for businesses because it displays how the advantages of HR operations contribute to the attainment of corporate objectives. This methodology aids HR teams in persuading business management of their contributions to the company's overall growth. It not only demonstrates the importance of HR but also provides a foundation for analytics.
What is the HR value chain?
It is a useful tool for demonstrating how the HR department contributes to the achievement of business objectives. It is true that firms struggle to demonstrate HR's value. One reason is that each company is distinct. Some things that may work for one company may not be suitable for another. Another factor is that demonstrating value in a practical manner is challenging. The HR value chain approach is designed to address this issue.
The HR value chain shows how the outputs of HR activities and practices contribute to company objectives. It demonstrates that the department has a number of processes and actions that result in HR results, which help the organization achieve its goals.
HR Value Chain Model
A value chain is defined as a series of business actions that involve the creation, sale, and correction of goods or services.
The manufacture of ABC water bottles is an example of a value chain. Someone proposed the idea of ABC water bottles first. Then they had to use software and other resources to design the unique water bottle. Then they needed to find a manufacturer to help them create the product. They may need to obtain raw materials after finalizing the producer.
They must sell the product after it is developed, which in this situation is a combination of wholesale, retail, and direct to consumer. After that, they must service the product, which in this case most likely entails handling returns. They must manufacture and deliver the product to the ultimate customer, whether it is an individual or a retail store, regardless of their business strategy.
All of these phases form a value chain, which is a chain in which value can be extracted or contributed at any point along the way.
HR value chain model: Porter's model
Michael Porter devised the value chain concept. Porter's value chain identifies the fundamental and secondary activities that any business engages in while creating value for customers. Porter's five forces were also devised by him.
These elements are used in the equation that gets us the margin calculation. The revenue earned by the value chain is referred to as margins. The activities are divided into two:
Activities in the primary value chain
Operations, inbound and outbound logistics, sales, marketing, and services are the core activities of a value chain. Every stage in the physical creation, sale, maintenance, and support of a product is included in primary value chain activities. It refers to the full process of developing a new product. Porter's value chain model can be used to break down these individual tasks.
Activities in the secondary value chain
Secondary or support value chain activities, on the other hand, are everything that helps each segment of the value chain run smoothly. Procurement, HR management, technology, and infrastructure are also included.
Value chain analysis
Businesses use value chain analysis to assess each of the actions involved in the manufacture and delivery of a product. When companies seek to figure out how to save costs or differentiate their products, they perform a value chain study. A value chain analysis should produce recommendations for optimizing each phase or step of the value chain in order to increase margins.
A company can obtain a competitive advantage in one of two ways: cost reduction or product differentiation.
The purpose of a cost leadership strategy is for a company to become the cheapest alternative for the end consumer. Companies that succeed in cost leadership typically employ low-cost materials, outsource manufacturing to low-cost manufacturing centers, and maximize operational efficiency.
Cost-cutting examples include McDonald's and its dollar menu, as well as generic store brands.
The competitive advantage of a product differentiation strategy is having a unique offering or a specialized completed product. This allows the business to charge a higher price. Research and development are frequently the sources of product differentiation. This method is used by inventive companies who create unique items, allowing them to charge a greater price.
We will see mass personalization becoming a leader in product differentiation tactics during the fourth industrial revolution. Apple and Louis Vuitton are two examples of product differentiation.
It's critical to determine which competitive advantage is your primary emphasis while assessing your value chain. This will help you focus your efforts while also allowing you to assess the value chain analysis' success. When doing a value chain analysis, organizations are often focused on either product diversification, which typically entails a larger investment in support activities, or boosting margins by decreasing costs, which mostly involves optimizing primary activities.
HR Value Chain Template
You can use the HR value chain template to emphasize a wide range of subjects. For example, you can focus on career development, retention, and recruitment, among other areas of HR operations. It also facilitates the use of analytics in various aspects of the HR value chain. These templates save time, effort, and money by removing the need for the HR staff to create a framework for adopting the HR value chain model. You can download HR value chain templates from here.
HR Value Chain in Action
In order to implement an HR value chain model, you must first create a chain of people and procedures. It entails data analysis that ties what HR departments do to the company's bottom line. Here are some examples of HR value chain components in action.
You need HR enablers. These are business influencers who help with HR procedures such as design, marketing, and budgeting.
There are going to be some HR activities. These are the tasks involved in human resource management, such as recruitment, training, planning, and remuneration.
The activities will generate an outcome. These include metrics like engagement, retention, cost, performance, and talent management that are measured.
Your organization needs to have a strategic focus. This is an examination of HR strategy that informs metric measurement and HR results.
Measure the key performance indicators. These are divided into three categories: customer-focused, financial, and process key performance indicators. HR outcomes support the monitoring process, and data is incorporated into the outcomes.
Consider raising a company's training expenditure as an example of an HR process. It is an HR outcome if it leads to improved workforce performance. When a performance boost leads to greater sales, however, it establishes a link between HR outcomes and business goals.
Another example is the HR procedure of providing equitable compensation to employees. It may lead to higher retention, which is a positive HR outcome. As a result, cost reduction, which is an organizational goal, may be achieved. Positive links between HR practices, outcomes, and organizational goals eventually lead to HR value being recognized within the company.
Optimization of the HR value chain
Comprehend the basic concepts of value chains. To optimize the HR value chain and drive strategic decision-making, organizations can leverage the power of large action models that analyze vast amounts of employee data to uncover insights and predict outcomes, enabling proactive talent management and workforce planning.It is the first step in lowering costs or increasing profit margins through product diversification. Porter's value chain model is an excellent tool for optimizing each aspect of your company.
Break down your future company strategy into primary and supporting tasks, as well as how you may optimize each aspect of your strategy. Always keep your margins in mind, as well as the end user's experience, and you'll discover ultimate success.
HR Value Chain Examples
There are three steps in the HR value chain. It begins with HR activities and attempts to demonstrate the impact on entire company objectives. HR teams in firms are classified into three levels based on how they view the HR value chain model. Let's use an example to try to grasp these concepts. Consider making it a company objective to improve learning.
A level 1 corporation invests more in employee learning and development, believing that better-trained personnel will benefit the company more. A level 2 organization not only invests additional funds but also monitors the investment to see if it pays off. They take steps to track knowledge retention and see if it leads to better employee performance. If they don't get the intended result, they adjust their training plans to get the best results.
This scenario is handled differently by a level 3 organization. It is understood that the budget was raised in order for the company to become more profitable. It will replicate the actions performed by the level 2 organization and assess the impact on key performance indicators. It will be fulfilled only when the KPIs and the budget have a favorable relationship.
Conclusion
We have explained the HR value chain model. It is an important tool for articulating the value that human resources bring to an organization. Though implementing an HR model is not always simple. However, if you can do it correctly, it benefits the entire workforce and aids in the achievement of the organization's goals.