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Rethinking HR

Rethinking HR | Human Resource Executive Online The current recession finds HR leaders doing far more than simply surviving. Many are employing progressive strategies not tried in past recessions to better prepare for the recovery.

Wednesday, September 2, 2009
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Bruised by the blows of the recession, Tom Waldron, executive vice president of human resources and brand for ING Americas, says he has regrets. He regrets the loss of about 750 employees who once worked for the company, headquartered in Atlanta. He regrets the lost retirement savings.

"I wouldn't wish that on anybody," he says.

All the same, Waldron cites a quote from White

House Chief of Staff Rahm Emanuel: "You never want a serious crisis to go to waste."

Waldron is among a chorus of HR executives and analysts who seem to share that view. No one could have wished for the torturously harsh realities the recession brought to their organizations. Now, after cost reductions in services, after the renegotiated contracts and after rounds of brutal layoffs, some are saying they have begun to peek at an altered landscape before them. 

Perhaps an evolution of the HR function is occurring, thanks to the external pressures of the recession, new technologies and new ways of viewing talent in an organization. The struggle is far from over, some say, but HR leaders have discovered new weapons and new approaches to help them fight for survival -- both for their organizations and for their own jobs.

Peter Cappelli, a professor at the University of Pennsylvania's Wharton School and director of the school's Center for Human Resources, says he believes there is greater pressure on HR executives to demonstrate value to an organization, and he thinks that pressure won't ease up after the recession.

In previous downturns, organizations took chainsaws to talent-management and training programs, and transactional services such as benefits and compensation. When it came time to lay off staff, across-the-board reduction was the rule of thumb.

This time around, things are different. Employers are instead taking smaller scalpels in hand, shaving away only those programs and services that may not be needed in the brave new post-recession world. They're bringing training in-house or blending it with e-learning programs. Many are using metrics to increase efficiency, save money and identify and track the stars of the future -- a future that Waldron and others hope will find them stronger and more competitive.

Thomas Carroll, chief human resource officer for Chicago-based RR Donnelley, says the tools of today's HR executives have begun to change, thanks in part to the recession. HR executives who show up at C-level meetings these days had better come with more than a wish list, he says.

"One of the things about HR is that we're really good at doing PowerPoint, but we're not really good at Excel," says Carroll. "I think that one of the things that business is calling the HR function to do is step into doing more analytics around data."

To Carroll, human-capital metrics represents a fundamental shift in the way HR plans and manages talent to meet today's business needs. For compensation, benefits and productivity, Carroll says, data speaks louder than words. He's in the process of creating a data warehouse that will let him analyze the business case of every HR program, from benefits to recruiting.

R.J. Heckman, president and CEO of Personnel Decisions International in Minneapolis, is a big believer in using analytics to determine efficiency and in providing what he calls "business savvy." But while it may be true that an evolution is occurring in HR, accelerated by the recession, he says, evolution is a process, not an end result.

"If we take our lessons and our cues from other functional areas of business, it will take awhile," he says. He likens the current shift in the HR function to the way the Great Depression helped reshape the finance function. "When that happened, people started looking at money and capital and the overall field of finance differently," he says. No longer were companies viewed as worthy investments simply because of their size, he says.

The rules for delivering value are changing in the HR function as well, Heckman says. Those who can align with the business strategy, maintain talent-development programs and deliver analytics to demonstrate a return on investment are the ones who will earn their stripes. "You have to drive the organization from the nice-to-haves to the must-haves," he says.

The End of "Nirvana"

Andy Liakopoulos, a principal with Deloitte Consulting's Human Capital Practice in Chicago, says the recession is forcing many to reconsider what a must-have is.

"A lot of the HR executives that we have been working with were trying to work toward that 'nirvana' model," he says, balancing multiple transactional services for employees while trying to form a closer partnership with the business. When the recession hit, Shangri-la became a mere mirage, replaced by survival mode, as organizations turned to cost-cutting measures and reductions in staff and services.

Unlike previous recessions, though, organizations have been sifting through far more data and crunching far more numbers to help them determine the talent that's performing now and the talent they'll need in the future. "Instead of going through and slashing across the board, they said, 'Let's get a little more laser-focused,' " says Liakopoulos. " 'Let's go through and look at the skills and the talents that we're no longer going to need when we come out of the recession.' "

Sometimes, that focus can yield surprising results. Waldron says the recession caused executives at ING to create a new set of criteria in their reviews: resilience, forecasting ability and "bandwidth." Resilience measures the capacity to withstand sudden upheavals and forecasting ability determines a leader's knack for spotting a crisis and responding.

"Bandwidth" is a term Waldron coined to gauge the ability of a leader to handle multiple crises simultaneously.

"There were some who had, basically, a meltdown," says Waldron, adding that star performers sometimes "let us down," while others who may have performed in the shadow of greatness turned into the equivalent of rock stars for the organization.

Cappelli says organizations have begun to pay more attention to identifying the high performers, in part because of the tough economy.

"[There's a] movement away from a kind of quality model of human resources, about treating everybody the same way," he says. "[There is] more pressure on differentiating people, especially based on performance and on market power. If you're in a job that's highly marketable, you get treated differently than if you're not."

Companies have been trying to differentiate talent for some time, Cappelli says, but efforts have intensified as a result of the recession.

Kathy Anthony, a partner with the O'Sullivan Creel CPA firm, says her company has used performance analytics for about six years to help distinguish the low and the high performers over time.

"We know who the best players are and who's got potential," says Anthony, who oversees HR at the Pensacola, Fla.-based firm.

Anthony notes that performance metrics allow O'Sullivan Creel to identify and track employees' progress on achieving their long-range goals. In the short term, she says, an employee may appear to be productive, but metrics allow HR to identify those individuals who should be the focus of the company's training and development efforts.

"Even when times are tough, you can't afford to cut back on training," Anthony says. Rather than travel to in-person coaching and development sessions, she says, the firm has brought training in-house to save expenses.

Training and development programs are emerging as a high priority as HR executives look beyond the recession.

Max Caldwell, the leader of the workforce-effectiveness practice at Towers Perrin in New York, says businesses have gained a better understanding of the value of talent-management initiatives during this recession and the return on investment they can deliver.

"It's not just episodic; you have to sustain it," says Caldwell. Although companies have tightened their belts and sliced their budgets, he says, "I think that HR leaders understand that these are long-term investments."

But just because HR leaders have maintained a focus on training and development doesn't mean they aren't finding ways to cut costs. Many are mixing and matching external and internal staff training through lunch-and-learns, mentoring programs and e-learning. Both Heckman and Liakopoulos say the recession has led many HR leaders who were unsure about the effectiveness of e-learning to pull the trigger in order to rack up savings in travel and hotel expenses.

Richard Wellins, senior vice president of global marketing and business development for Development Dimensions International in Pittsburgh, says the increasing reliance on e-learning is one of the few fundamental changes he sees from HR leaders in this recession.

"I think there's much more embracing of virtual technologies for development and learning," he says. "I don't think that we're going to go back to the same amount of in-person training. I think those technologies have advanced and become more sophisticated."

Wellins describes himself as "sort of a naysayer" when it comes to whether the HR function itself has changed because of the recession.

"I don't see this major transformation of the HR function when we start the recovery, and I haven't seen a major transformation of the HR function during the crisis, other than the fact that budgets have been cut and resources have been cut."

Lately, Wellins has been emphasizing the importance of employee engagement to his clients, to prepare for the eventual rebound.

"There's two roles of HR right now," he says. "One is to get us through the crisis, and two is to simultaneously make sure we're ready for the rebound. If you do too much of the former and not enough of the latter, your recovery is going to be longer and more painful. We feel that there needs to be attention paid to both."

Ilene Gochman, Watson Wyatt's global practice director for organizational effectiveness, says employee-engagement considerations have emerged as cutbacks have subsided at many organizations. Yet, even though employers are concerned about engagement, Gochman says, that doesn't mean employers are going to randomly reinstate programs and services that were cut.

"There's recognition that employee perspectives may have shifted," says Gochman, who works in Watson Wyatt's Chicago office. "Some of the psychological contracts may have been broken, so engagement may be down." Employers are trying to measure employee engagement and employee satisfaction, she says, to determine how to align their workforce practices with the business strategy.

"I wouldn't call it metrics, but more of a fact-based approach to try to figure out" the challenges that lie ahead and whether employees are capable of addressing them, she says.

Relying on Metrics

Carroll says he's convinced that human-capital metrics will play a greater role in HR's ability to align with the organization's strategy. To him, it represents a fundamental shift in the way HR plans and manages talent to meet business needs.

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"Everybody is looking for revenue-generation and cost-cutting, and those are the big things that are going on in business right now," he says. "I think if you are truly going to be an HR [strategic] partner ... you start digging into your own data to discover what is working, what is cost-effective, what is not cost-effective, and literally begin to show up at the table in a whole new way around the analytics."

Recently, Carroll found himself in a quandary when about 11 percent of the giant printing company's U.S.-based employees didn't fill out a health-risk assessment survey, even though they would save $1,000 in annual healthcare premiums were they to participate. ( RR Donnelley has about 65,000 employees worldwide.)

To find out why such a sizable group of employees declined to participate, Carroll turned to Joshua Schwarz, a professor of human-capital metrics at the Farmer School of Business at Miami University in Oxford, Ohio.

Since 2005, Schwarz has partnered with private- and public-sector organizations to use real-world examples of human-capital metrics for his classes.

"The students benefit by getting the experience of analyzing the data that companies have already, or, in some cases, by giving us the permission to gather the data," says Schwarz. "The companies benefit from having an analysis of their human resources and how it's connected, or not connected, to their organizational performance."

Even though some organizations may have sophisticated HRIS programs to gather data, Schwarz says, very few have the time or the resources to actually analyze that data. That's where his class comes in.

As if that's not enticing enough, Schwarz offers the service for free -- an offer Carroll found hard to resist.

"I can get a bazillion consultants that can tell me something," Carroll says. "But ultimately, it will cost me a lot of money to come in and apply their model and take my data into the analytics and come back with their report, and $50,000 later, I'll have an answer."

As it was, Carroll says, the company actually saved about $50,000 by utilizing Schwarz's class, which created focus groups at several RR Donnelley facilities comprised of those who opted in to the wellness program and those who apparently refused. They speculated that there were concerns over privacy, or that the $1,000 incentive was too low.

Instead, what the class uncovered was that many of those who were the exception either thought they had correctly filled out the questionnaire or had difficulty filling it out. In the end, adjustments to the administration of the questionnaire returned a higher opt-in rate -- and saved RR Donnelley the expense and hassle of dumping and replacing the program.

Carroll says he's become a true believer in the value of analytics. He estimates that he has saved his company hundreds of thousands of dollars by doing an employee survey in-house. But he also hopes the initiative will result in a workforce that's more tightly aligned with the overall business strategy.

"This also guides future HR work in a direction that is meaningful to employees," he says.

Relying on human-capital metrics, says Heckman, does represent an evolutionary development that's occurring in the HR function, but he cautions that there are subtle differences between metrics associated with measuring efficiencies and those that discern quality of talent and the financial impact that talent makes on an organization.

Heckman says the latter, which he calls "high-impact metrics," goes well beyond identifying the number of employees needed to meet or exceed certain expectations, or measuring the quality of talent in the organization, to assessing the efficiency and effectiveness of the talent and how it relates to the financial goals of the business.

"To have 'high-impact metrics' requires both strategic logic -- or business savvy -- and a sophistication in the measurement of your processes that gives you data beyond just how many did this review or took the training," says Heckman, adding that these metrics might actually predict an outcome a CFO or CEO cares about.

Hitting the Reset Button

ING's Waldron believes he's got a plan that successfully links managers and employees to the long-term business strategy.

In August, he was scheduled to bring together 200 of ING's HR leaders from across the United States and Latin America for a conference entitled "Americas 2.0: The New Reality."

He laughs at first when he explains that the theme of the meeting leverages computer-related terms, but he says the terms are suited perfectly to ING's plans for the future. Like a computer's operating system, the new iteration of ING Americas will upgrade some services, create new opportunities and shed the unnecessary.

"What was in 1.0 that was OK, and what was in 1.0 that we're no longer going to keep?" he says. "And what's new in Americas 2.0?"

At the meeting, Waldron says, leaders were to be separated into groups to discuss improvements in products, distribution, human-capital services and additional categories.

"We're calling them 'reset sessions,' " he says. "We're 'resetting' the strategy here, and talking about what's new and exciting in 2.0."

But Waldron says the groups are the ones that are going to be responsible for helping to plan which features of 1.0 stay and which are dumped, and he's planning on using a card-sorting system to let them pick and choose the winners and losers.

"I want them to visibly see what might shift, based on the new reality of the marketplace," he says.

Waldron, of course, hopes they're ready. But regardless of an organization's preparedness, Cappelli says he is skeptical businesses will take away lessons learned from the current recession and build upon them when the pendulum inevitably swings toward another downturn.

"Here's what I think they ought to take away from it, and that is some recognition that the problem they're facing is uncertainty," he says. "So much of what companies do is predicated on the assumption that they can plan their way around problems. We've got to find a way to operate differently, and the way to operate differently is to worry more about responsiveness and less about planning, per se."

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