HR Leaders - Wake Up to the Realities of Your Business

For many decades now, HR Leaders have been justifiably criticized by CEOs and line executives as having little or no pragmatic understanding of the strategic, financial or operating aspects of the business while wanting to be considered as an equal business partner to their line executive peers which is best illustrated by a seat at the C-Suite table. While the current crisis has HR leaders being seen in a different light, many still struggle to acquire that much-desired seat at the table.

Accordingly, this overall lack of business acumen has caused many CEOs and line executives to view HR primarily as an administrative afterthought with little or no direct impact on the business itself.

Most HR leaders fervently hope for a CEO or line executive who appreciates the worth of the function and will grant them such a seat.  However, most CEOs and line executives are looking to their HR Leader to chart its own path to business success and earn its business legitimacy.

After decades of trying, the vast majority of HR leaders have not achieved the reputation as an equal business partner to the other executives in the company. In fairness, over the last decade or two, many HR leaders have tried valiantly to achieve HR’s business legitimacy by implementing several different approaches to the problem, but all have been unsuccessful.

Unsuccessful HR Approaches

Here are some of these unsuccessful approaches.

1. Soft Skills and Leadership Development – these programs are almost exclusively designed for low to middle management situations where the problems discussed are usually one-dimensional easy ones with relatively simple solutions, while avoiding the senior or upper management situations where the problems are far more complex and the answers are much difficult to identify and implement.

Similarly, such programs typically avoid the discussion of any appropriate job-related hard skills that line executives consider critically important to the achievement of their quantitative business results. To be valued by CEOs and line executives, soft and hard skills should be taught together within the practical context of the leader’s business objectives, plans, challenges and risks.

2. HR Metrics – these HR functions track various quantitative measures that deal with recruitment (such as cost of hire, offer-to-acceptance ratio, internal vs external hires, etc.), management development (such as average number of training hours, average program evaluation rating, training costs, etc.), compensation (such as compensation cost as a percent of sales and operating costs, average merit increase percentage, etc.), benefits (such as cost as a percent of payroll and operating expense, medical/dental claims cost per covered employee, etc.) and employee relations (such as voluntary turnover rate for all employees and new hires after six months, absenteeism rate by department, number of employee absences by department, etc.) and so on.
3. Company Initiative Support – many companies have one or several strategic initiatives that they feel are critical to their company image, culture and competitive success. Some examples might include technology, innovation, teamwork, benefits, continuous improvement and customer care, among others. For any particular company initiative, HR will typically provide support in recruitment and staffing, corporate culture, management training, and other related programs.
4. HR Analytics – the use of analytics in HR is still emerging, even though several advances have been made in a relatively short period of time. However, it is still a costly effort that needs to be funded year after year. Moreover, to be effective, these analytics must identify the right metrics which must be accurately measured in order to identify actionable items that hopefully will yield a more positive and quantifiable impact on the desired outcome. Unfortunately, it usually takes several efforts over a relatively long period of time to achieve such success.

In the end, it has a high price tag for which its return on investment must be measured and quantified.  It is not a panacea for HR.

5. HR Technology – like any other function within a company, HR is constantly striving to improve its own technological capabilities. Unfortunately, when a company has to prioritize its technologically-related expenditures, it typically has to give preference to those that directly impact the company’s products and services to its customers.

Overly relying on technology has a significant and distinct disadvantage for HR because it keeps its own people in their offices, away from the hectic world of its customers, employees and management where the real business needs exist.

Common Denominator

The common denominator that runs through all the above approaches is that they concentrate on HR trying to improve the effectiveness and/or efficiency of its traditional administrative duties which, even if successful, typically have only an indirect impact on the profitability and long-term strategy of the business.

Conversely, the CEO and line executives are primarily concerned with achieving specific quantitative business objectives that have a direct impact on the business, such as increasing sales, improving cash flow, reducing costs, improving productivity, enhancing customer care, achieving new product development, improving innovation, increasing market share, improving operational effectiveness, and so on. 

ALSO READ: Becoming a More Effective HR Business Partner 

Importantly, they are committed to the Board of Directors to achieve them in an effort to improve the company’s shareholder value while directly responding to your customer’s needs. When HR assumes the responsibility for an HR project that helps a line executive to achieve a specific business objective, it is having a direct impact on the business.

How the HR Leader Can Identify the Realities of the Business

Every fiscal year, most CEOs and line executives still operate their businesses by setting specific quantitative business objectives in such areas as earnings per share, sales, market share, cash flow, new product introductions, improved customer care, etc., that are consistent with the company’s overall business strategy.  Therefore, any HR project that can support and enhance the executive’s ability to achieve any one of those objectives in a practical way is very well received.

Preferably before the start of the fiscal year when the annual financial budgets are being developed and finalized, the HR leader should meet with the CFO to understand the critically important numbers in the company’s upcoming Income and Cash Flow Statements, and any other financial priority. With that background information, he/she should meet with the CEO and/or appropriate line executives to understand their specific business objectives for the upcoming fiscal year. 

For each business objective, the HR leader should ask the following question:  Is there a related HR project that can help the line executive to achieve the business objective?

HR Project Examples for Typical Business Objectives

Many HR experts, especially Dave Ulrich from the University of Michigan and the RBL Group, call for the HR function to do a much better job in connecting it to the needs of the company’s customers and, thereby, business. Unfortunately, many HR leaders struggle in doing so. Therefore, here’s a practical way to do it by following the examples of several HR projects that can support some typical financial, operating and strategic business objectives.

Financial Objectives

To improve earnings per share from “X” to “Y” dollars/share.

o With Finance, implement a Cost Control/Profit Improvement workshop to identify and quantify potential cost savings and profit improvement opportunities.

o With Engineering and Marketing, implement a Product Improvement workshop to identify some product and service innovations that can help gain market share and/or reduce product cost.

To increase cash flow by “Z” dollars.

o Train Sales staff how to resolve and collect outstanding receivables to bring in more cash.

o With Manufacturing, implement an Inventory Reduction workshop to identify and quantify items that can be eliminated, reduced or replaced by less expensive ones.

Operating Objectives

To reduce time-to-market for product “A” by 30%.

o With Engineering and Marketing, implement team projects to reengineer and streamline the design and launch cycle, while recognizing quality, cost and manufacturing standards.

o Retrain appropriate management on key changes before implementation.

o Conduct a Project Management workshop to ensure that this project, and all subsequent product development projects, are achieved on time.

To improve customer care to exceed industry standards.

o With Customer Care (CC) staff, survey outside and company experts to catalog new key service principles, standards, measures and reporting requirements.

o Determine the CC needs for the next generation of company products.

o Determine the new key skills areas required for success and assess the competency level of current staff on all required skills.

o Identify new positions and retraining that are needed for all staff on new principles, standards, processes, measures and reporting requirements.

o Establish on-going Innovation Workshops to continually improve CC.

Strategic Objectives

To develop 20 general managers who can operate a $50M/year business.

o Develop a seminar workshop that covers strategic planning, financial management, product/market development, sales, customer service and leadership with outside experts.

o Set up a personalized development plan for each general manager.

o Review the entire compensation package for each general manager annually.

To increase sales 20% by acquiring a business that uses an important new technology.

o Update the Sales Incentive plan to recognize the new technology and improved profit.

o With Sales, evaluate the competency level of the Sales staff in the new technology.

o Evaluate the current recruiting sources for the new technology and identify new ones.

Conclusion

Understanding the realities of your company’s business, while effectively directing HR’s administrative duties, and then selecting HR projects that directly impact the business is not for the faint-of-heart.  The task is not easy, is fraught with many difficult challenges, is risky from a compensation viewpoint and is time-consuming.  It is not recommended for any incumbent who enjoys the cozy warmth and quiet aspects of HR’s administrative life and is comfortable in it.

However, if an HR Leader really wants to connect the function to the company’s business and is willing to put in the necessary time and effort to better understand the realities of the strategic, financial and operating business objectives, the task can be accomplished.

In doing so, he/she must think and act as a businessperson first when applying various innovative HR projects to the company’s business objectives that are crucial to its profitability and long-term strategic success.

If the HR Leader desires to pursue this challenging path, there is one hard truth that must be understood and personally internalized. 

INVESTORS AND THE MARKET HOLD THE TOP MANAGEMENT OF ANY COMPANY ACCOUNTABLE FOR ACHIEVING CERTAIN BUSINESS OBJECTIVES OVER THE SHORT AND LONG TERM. 

Therefore, meeting or exceeding these business objectives every fiscal year is the top priority of the CEO and line executives. It should be the HR leader’s top priority too.

When the HR Leader successfully connects the function to the company’s business objectives, he/she will gain the respect of the CEO and line executives as a business person, become an equal business partner and will finally get that much desired seat at the C-Suite table. In doing so, the HR leader will bring the function into the company’s operational mainstream and gain the full measure of respect from the CEO and line executives for the function’s true worth.

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