Human Resources as a Strategic Partner

Article

Businesses that can remain solvent during economic hard times typically expect their managers and officers to think like business people first and technical specialists second." - Prof. Ken Moore, 2012

It is heartening to see that an increasing number of CEO’s, department managers and Human Resources practitioners are subscribing to the vision of HR as a strategic partner to business. This concept is rapidly gaining credibility as HR delivers major contributions to the establishment and maintenance of competitive advantages and overall corporate health. As a result, more and more leaders are demanding, and getting, higher levels of performance from HR.

This movement has not been easy, and for justifiable reasons. First, for decades HR has operated under a narrow-minded focus that their inherent value has been on process efficiency. With advances in technology and competitive pressures, process efficiencies have indeed been achieved, leaving HR leaders time to work on more strategically beneficial work. Benefits, payroll, and some recruiting functions have been digitized and outsourced to agencies that can do the same work at a lower cost. HR technology has advanced to the stage where individual managers, with appropriate security safeguards, can now access relevant data used in making personnel decisions.

Secondly, regulatory compliance – a staple of HR work - is becoming more and more complex, and it is not confined to Human Resources. Indeed, The Economist, in a May 5, 2012 article, observed that even boards of directors are spending more time managing regulatory compliance matters rather than overseeing the company’s performance and planning for the future. In the U.S. the nation’s new Patient Protection and Affordable Care Act will have a major impact on corporate health care and administration costs. These expenditures will have to be factored into the cost of doing business. To do so, HR will be expected to provide quantitative analysis of these costs and provide recommendations that will enhance the company’s business plan. Absent further legislative and judicial review, companies are considering opting out of the health care program because it is cheaper for them to pay the penalty than it is to participate in the plan. This raises some serious ethical concerns for which HR is expected to provide counsel.

What has changed is that individual functions such as HR can no longer exist solely within their silos of expertise. Individual departments have become inter-dependent upon each other in order to achieve their objectives. For example, production cannot produce without a sufficient number of trained and responsible employees, a finance system to provide the economic platform to produce the product, and a marketing team to sell what they’re making. A weakness in any of those functions degrades the ability of the department to achieve its production objectives.

Departments such as HR are moving away from their inward focus. Their very survival as an internal asset is forcing them to consider the impact of their work on customers, owners or shareholders, and other crucial stakeholders who are also invested in the company’s success. This additional focus is new to HR, but it is not new to business leaders. In 1981, Jan Carlson, a Swedish businessman, became the CEO of SAS Group, an airline that had a poor reputation among business flyers. He achieved remarkable results by addressing the problems from the customer’s perspective. These included problems with scheduling, on-time performance, lost baggage, and ease of booking passage. Each manager in charge of these operations was responsible for contributing to improvement of passenger perceptions of the entire flight experience. When he took over the job, SAS Group was reporting losses of $17 million per annum. A year later, the company made a profit of $54 million.

In 2000, Dr. Jac Fitz-enz of the Saratoga Institute published his influential book entitled: The ROI of Human Capital. His thesis was to teach CEOs, line managers and HR professionals how to measure human capital through several variables: 1. Tangible contributions to organizational goals, 2. Impact on processes 3. Value-added propositions 4. Leveraging a company’s human capital ROI

The result for HR was a significant shift away from qualitative standards – which were inherently biased in nature and subject to multiple interpretations- to a quantitative effect that measures the impact on bottom line performance.

Further studies by Professor David Ulrich of the University of Michigan identified six core competencies that HR must demonstrate in order earn a seat at the executive decision making table: 1. A credible activist; 2. A culture and change steward; 3. A talent manager and organizational designer 4. A strategic architect; 5. An operational executive; 6. A business ally

Of his six competencies, being a business ally is most closely aligned with quantitative (i.e. financial) success. Ulrich states that “HR contributes to the success of a business by knowing how it makes money, who the customers are, and why they buy the company’s products and services”. It is from this knowledge that HR can now link its work to the performance metrics that drive departmental and corporate decision making. One must be careful here. It is not HR’s responsibility to solve or even oversee the production department’s performance. Rather, by understanding the nature of the production process, HR can now speak credibly about potential solutions involving the employees, e.g. improved staffing levels, enhanced training, improvements in compensation & benefits, etc.

What are HR leaders doing to advance their strategic qualifications? Preliminary research indicates that there are three general areas of development and contribution:

First, CEOs are demanding that all of their top management team be financially literate. Understanding a company’s financial condition and the threats against it leads to smarter decisions within HR and enhanced career opportunities. Whether it involves the design and administration of health care and pension benefits, compensation programs, or talent acquisition, it will all have an impact on the company’s bottom line. Labor contract negotiations are frequently based upon what the company is willing to afford and considers the business consequences of multiple options. With strategic thinking, labor negotiators on both sides now argue their interests, not their positions. Financial analysis does not always generate proper responses. But, without understanding the financial ramifications of an HR proposal, their arguments are substantially weakened.

Second, corporate leadership is expecting HR to possess a comprehensive degree of business intelligence. They expect Human Capital managers to continually monitor the business climate and scan the horizon for threats and opportunities to their market. Changes in demographics, politics, cultural diversity, the economic make-up of the workforce, and regulatory issues significantly impact HR’s ability to deliver value to multiple constituencies, not just the employees. For example, younger employees entering the workforce have a different set of expectations about work than their older managers. This can be a recipe for conflict. However, progressive HR managers now see this as a recipe for opportunity.

Randall Cunningham, Senior Vice President for IBM, is a leader in strategic HR thinking and has helped IBM improve its position as a world-class business. He believes that typical HR organizations operate out of silos – talent, learning, employee relations, benefits, diversity, etc. – a structure that is ineffective and inefficient. “Blow it all up is my attitude. Don’t think about silos; think about end- to-end processes.” Third, HR practitioners who are masters of their technical specialty have gained credibility within the organization. Dr. Ulrich has observed that they get the right things done the right way the first time and they accept accountability for the outcomes. When a government regulation requires a company to do something, credible HR activists not only master the intricacies of the law, but also determine how to turn a seemingly bureaucratic demand into a competitive advantage.

Technology and globalism is generating intense competitive pressure in a fast changing business world – pressures for sales, talent, and profits. Business leaders are held accountable for at least four general but powerful results: Increasing revenue, reducing costs, generating cash, and conducting its business legally and ethically against robust and nimble competitors on an increasingly un-even playing field.

It is gratifying to see that HR leaders in companies such as IBM and General Electric are rising to the occasion and delivering HR services that focus on delivering these values. With the complexities and conflicts of modern business life, the solutions to the problems are not found in textbooks. Workable solutions require HR people who can see the business from several viewpoints, think creatively, and deliver above average results for their demanding customer base.

It’s a great time to be in Human Resources.

Works cited 1. HR Competencies – Mastery at the Intersection of People and Business, Ulrich, David, et al, RBL Institute, 2008 2. Jan Carlson, SAS Group, Transformation Managed with Inspiration, http://www.tmiaust.com.au/track_record/case_studies/scandinavian_airlines.htm 3. HR Magazine, Society for Human Resources Management, Vol. 52, No. 4, April 1, 2007 4. Getting to Yes: Negotiating Agreement Without Giving In, Fisher, Ury, & Patton,; Simon & Shuster, 3rd Ed, 2011 5. The ROI of Human Capital, Fitz-Enz, Jac, American Management Association, 2000 6. The HR Scorecard, Becker, Huselid & Ulrich; Harvard Business School Press, 2001

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