Increasing HR's impact on the business
Hey, have you heard this joke? “How do you tell the HR leader in a business meeting?” Answer: “That’s the person without any data.” Many of us do not believe that the HR function will be seen as a business partner in most companies until its insights on human capital are based on good data and business-based metrics. Yet in no area did a recent study by Sibson Consulting see less evidence of progress than in HR metrics.
Having solid HR metrics is only one six key areas that HR must improve in if it is to claim a place at the decision making table.
Last year, Sibson Consulting conducted the “HR At the Table” study to better understand how HR leaders can adapt HR policies, practices, and behaviors to support the strategic needs of the business. They collected interview and questionnaire data from the top HR officers of 35 American and British organisations. The key findings were:
A Seat at the Table is Available for HR
Forging HR priorities in the context of real business imperatives is critical to getting and keeping a seat at the decision-making table. Study results indicate that those HR organisations considered “strategic players” get and keep a seat at the table by:
- Demonstrating a detailed understanding of their organisation’s key business issues and clearly identifying their human capital implications
- Demonstrating a high degree of flexibility to change the direction of the function according to business needs
- Using fact-based information on the business impact of human capital programs to enable senior leadership to make informed decisions
- Developing a strong relationship between the HR leader and peer business leaders, that enables HR to play an influential role in key business decisions
- Flawlessly executing basic administrative processes and programs
- Employing a HR staff that has business acumen, analytic skills, and the desire to impact business results
- HR Must Lead the Charge to Improve the Talent Portfolio
Human Capital is arguably today’s most important lever to achieve competitive advantage as other sources of capital have receded in their relative importance. Sustained competitive advantage mostly comes from having the right number, type and quality of talent to execute a company’s business strategy. The importance of having the right talent in place at the right time is reinforced by Jim Collins in his book, "Good to Great: Why Some Companies Make the Leap... and Others Don't":
First Who…Then What…. they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then figured out where to drive it. The old adage “People are your most important asset” turns out to be wrong. People are not your most important asset. The right people are.”
Much of HR’s influence comes from its expertise in helping to attract, develop and retain the right number, type, and quality of employees. A key finding from Sibson’s study is that most participants identified attracting, developing, and retaining the right talent as a critical business issue. They were especially concerned about two talent segments — next-generation business leaders and employees with the skills most critical for executing the business strategy. These findings indicate the importance of HR’s ability to help executives understand the talent implications of their business strategy and implement a clear action plan that ensures management has the talent it needs to run the business profitably.
HR Must Leverage Total Rewards for Competitive Advantage
Total Rewards program design is one of the main opportunities for HR to influence the performance and focus of the organisation. Nine out of 10 survey participants said their top company executives see “using limited compensation dollars more effectively” as a top priority for HR in the next year. Over three-quarters of survey participants stated they are experiencing “severe pressure” to contain compensation and benefits costs.
Those HR organisations that can refine a total rewards program design according to changing business needs earn a place at the table. Total rewards design goes beyond managing cost, competitiveness, and internal equity. It helps employees to focus on the right measures, giving their best effort and co-operating with other individuals and groups.
HR Must Demonstrate and Measure its Value
The problem is not that HR lacks information and performance measures. Survey results indicated that companies are using three broad types of measures: traditional HR measures, transactional measures and business metrics.
Traditional metrics assess either HR activity (for example, number of hires, training hours delivered) or employee outcomes (for example, employee satisfaction or morale, employee turnover). Transactional metrics are somewhat newer, and assess the efficiency and cost-effectiveness of the HR function in delivering services. Examples include cost per hire, the time it takes to fill open positions, the ratio of HR staff to employees, and HR operating costs per employee served. The third type of measure is an HR business metric, typically a ratio that ties a standard business metric to HR investments. Examples include gross margin per employee, revenue per employee, ratio of total employment cost to total revenue, and EBITDA per full-time employee.
The majority of companies in our study used both traditional and transactional HR measures. However, only 17% of our sample used HR business metrics, and their use was still a work in progress even at those companies. Interestingly, the strategic players were not more likely to use HR business metrics than the other companies in the study.
Outsourcing and Technology Don’t Mean Eliminating HR
Like many of you, we have heard rumours of entire HR functions being outsourced to drive down costs and improve service efficiencies. Companies that specialise in business process outsourcing (BPO) are able to take “your mess for less,” enabling companies to redirect the money spent on the function to areas of the business where they believe a better ROI will be realised.
Study results clearly indicate that participants are realising the benefits of technology, thus enabling HR to improve the cost and quality of service through employee self-service and manager self-service desktop capabilities. However, there continues to be a measurable level of dissatisfaction with the technology available. Sibson found that participants who are most satisfied with technology have developed their own applications that integrate with their HRIS platforms.
The HR Function Must Transform Itself
A seat at the table implies HR leaders working with business leaders, but the study participants told us that it really requires transformation of the whole HR function. First, HR must apply the Collins “right people” formula to itself. And secondly, HR must get out of its own way. Survey results indicate that the biggest barrier to transformation is the HR function itself.
Those companies that were farther along in their transformation used transformation techniques that were not simply copied from other companies. Those having difficulty often quoted the source of the technique or practice they used (i.e., someone else’s organisational model), while those making progress talked more about the actual change that occurred and the results that came with it.
Transformation does not always require new HR leaders, but it does require leaders who recognise changing business needs and can shift HR's capabilities and priorities accordingly.
