Understanding HR's Value

Understanding HR's Value | Human Resource Executive Online An HR professor writes about putting the R back in HR: How HR can better sell its ideas by impacting the firm's value-creating capabilities.

Tuesday, June 2, 2009
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There is an evolution coming occurring within HR often referred to as "HR Transformation". Many firms are looking at where they are and have been as they attempt to transform HR's back office to become more administratively efficient. At the same time, some HR functions are more focused upon the future and how they can impact the strategic success of the business. To their credit, some are doing both. The later is more critical to a firm's survival in a world where firms compete with "brainware warfare" to create economic value. Neither firms, nor HR can save their way to prosperity. The firms that have the right strategy, have identified the right work, have the right workforce and the right workforce practices have a substantial chance to out-compete others in the emerging market spaces no matter how much more efficient HR may become.

To be successful in this new environment, HR needs to focus on redefining the "to" part of the from/to transformation paradigm. HR must increase focus on how HR and line managers best utilize the workforce to impact the creation of customer and economic value. For HR to fulfill its promise of becoming strategic, it must significantly influence how the workforce impacts the scorecard of the business and enable "HR to score on the business scorecard".

In many respects the "to" is the "above the line" segments of Dave Ulrich's famous HR Champions (Harvard Business School Press, 1996) mandate, where HR is to impact strategy execution and change management. This is not to say that administrative efficiency and employee advocacy are not required--they are--yet changing in ways that often reduce investments in these activities as HR realizes its strategic leverage (and respect as a profession) lies more in enabling the firm to better utilize the workforce as a resource to execute the firm's strategy.

To set the stage for putting the R back in HR managing the workforce as a strategic organizational resource, we need to briefly review how firms will need to manage their resources even more differentially in the future. Effective firms determine a strategy and then decide how to execute that strategy. Strategy execution involves the differential allocation, management, measurement, and decision making with the firm's resources. Each resource is to be leveraged to the firms' best advantage and systems built to assure accountability of each resource.

Examples of such systems include budgets for the use of financial resources, supply chain management for material resources, and schedules for time. Managers and the respective functions which house these activities are held accountable for leveraging these resources to create and extend the firm's competitive advantages, as well as provide consequences to managers for the effective (or ineffective) use of these resources. But what is the accountability system for the resource we call human resources--our function and profession? We must be held accountable for workforce utilization and develop systems to do so if we are to become the profession with the impact we desire. In doing so, selling our ideas will become much easier, but we must first upscale our capabilities in business strategy (i.e., value creation) and data analytics to put the R back in Human Resources. This is what we have attempted to do in our book The Differentiated Workforce (Becker, Huselid and Beatty, HBS Press, 2009).

HR has long wanted to be a strategic partner, or better yet, a strategic player. This requires knowing what strategic means and understanding how to impact the only scorecard that matters. The word strategic is often carelessly used in organizations but really concerns how firms create value. Customer value first by providing offerings to society that society wants and is willing to pay for. Second, firms must be sustained by creating wealth to pay their employees, invest in growth initiatives and satisfy investors. Thus the organization must perform in an economically efficient way and use every resource as effectively as possible.

Strategy means focusing on the outside. Internal is tactics, external is strategic and firms must ask (and answer) these basic strategic questions:

* How will we grow the business?

* In what markets will be play?

* How will we win in those markets?

Strategic alignment is when firms identify how they intend to differentiate themselves by differentially investing in capabilities that will enable them to win a disproportionate share of the marketplace in which they have chosen to compete.

Organizations are systems perfectly designed to deliver what they are delivering now. If you want different outcomes, you have to do different. Data analytics helps firms to do that. The only real data worth collecting in organizations is data that is interventional. That is, data that can be used to identify issues, when addressed, will have a profound impact upon the strategic success of the firm. Most data in HR seems to be reporting data which is after the fact and not used to intervene and achieve more desirable outcomes. But asking and providing answers to questions such as...

"What is the strategic mindset of our firm?"

"To what extent do we have strategic talent in those roles that make a difference?"

"To what extent are we holding line leaders accountable for the management of strategic talent?"

... provide critical information that can be used to intervene and achieve more desirable Firm outcomes. The concept is simple, the delivery is difficult. But, those that collect and act on strategic workforce data will win, those who don't may not.

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Firms are beginning to understand that talent significantly impacts a firm's value creating processes with customers. That is, identifying the roles that really make a difference and how well talented our firm in those roles is essential. In the future, the emerging role of Chief Talent Officer will focus more and more upon determining the extent the firm has top talent, emerging talent, career-level talent or talent that does not fit those roles. The actions taken based on a rigorous analysis of such data will have a profound impact on the creation of customer value and subsequently economic value.

This moves HR into a new area of data analytics. Google and IBM have teams focusing on HR data analytics (see Steven Baker's Numerati), knowing and understanding what workforce is necessary to create customer value and doing so in an economically efficient way. Data analytics will be absolutely essential for HR's future. HR must be able to win arguments with numbers. After all, the language of organization is numbers and we have not necessarily used numbers effectively in the past.

Finally, HR must sell ideas. The best way to sell ideas, especially with an executive team, is to sell ideas that impact value creation and impact the scorecard that the executive team cares about. Knowing and understanding the strategy of the business, the work required, the workforce necessary and the HR practices which leverage the firm's competitive advantage is the path to HR's impact on the firm's success and the respect we seek. Regrettably, many HR professionals believe they are effective in the strategic understanding and data analytics described above, but I believe we must move to a much higher level of sophistication in strategic thinking and data analytics if we are to have the impact and gain respect.

For many HR leaders, this may be a difficult challenge because it means differentiating as never before. Differentiating around talent has a profound impact upon the value created by the firm. Without which the organization will underperform at a minimum and/or run the risk of extinction. This does not mean that you take away the support from other roles in the organizations that do not impact the firm's strategic success. It merely raises a question, "what are we going to do different for the workforce that makes the difference in firm's strategic success?" Otherwise, we may never be able to attract and retain the strategic talent (in increasingly competitive labor markets) that has the primary impact on our firm's ability to create value.

This is a perpetual challenge. Markets have changed, strategy has changed, and organizations must change. It will require a far more focused and flexible workforce for organizations to succeed in the future. Without such, it is very difficult to sustain an enterprise. Thus HR must be at the top of its game--not only understanding strategy but contributing to the creating of strategic value. If HR leaders can manage the workforce as a value-creating resource, not only will they be successful, but also (and more importantly), their firms will be successful and sustainable. What a beautiful challenge, what a great opportunity. HR can become the profession that can do this, but it will require us to challenge ourselves to think differently, but most importantly to do differently.

Richard Beatty is director of the global executive master's in HR leadership program at Rutgers School of Management and Labor Relations.

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