How the HR-function adds value to the company

Introduction and summary

Over the many years I have been a Chief HR Officer, I have forged a view on what an HR-team in a company should look like (I wrote about that topic some months ago) and how the HR-function adds value to the company. 

The creation of a companywide People Services organisation which takes care of all servicing to employees (administrative issues, delivery of individual learning, recruitment operations and so on), the establishment of companywide centres of expertise who sustain first class HR-knowledge and who build people solutions: it serves both a cost-efficiency aim and the aim to build a differentiating employee experience. Even more essentially it frees up  the HR business partner to focus on the four people priorities that in my view create company value: performance management, succession management, leadership development and capability building. Wherever the HR-function has the strategic impact it desires to, it is because of focus on these four processes and of our capability to do so. At ING we are transforming the HR-function along these lines, which will by 2020 result in a reduction of annual HR costs per employee of over 30% and our team focusing on our priorities form the value creation perspective. 

Why is a company there?

Put simply a company exists since it is an indispensable vehicle for the profitable delivery of a set of products and services. Its foundation may have been from a strong purpose or the purpose may gradually have developed; yet essentially it creates value for its stakeholders, which reflects in the value of the company. 

It is important to understand, I think, that everything a company does or refrains from doing should be decided on from the angle of value creation.  Of course there are laws and regulations to be abided by and decent values are assumed to be in use as well. Even a company with a compelling purpose which it delivers on, will be an unsustainable activity if it does not create company value. To have an engaged workforce is indispensable for creating value, yet it is a means to an end. Likewise, for the company to offer employment to numbers of people is great, yet again the employment is a means to an end. The company is responsible for growing its value and this will result in the possibility for people to make their living, to enhance their capabilities, to live the lives they aspire to live. The impact of the HR-function sits in driving such value creation, in my view mainly by enhancing management’s capability to do so. 

Four people priorities

In order to drive value growth there is only so much we can do. It is tempting to want to be everything to everyone, yet I have experienced how a very clear distinction between the main jobs in HR (servicing, solution design and business partnering) has helped my team and myself to unclutter our agenda and really focus on what matters for value creation. There are no silver bullets however, if we want to impact our businesses it will be by focusing on a number of priorities and by focusing on output rather than process (we can get so carried away by processes and tools, forgetting about what they should deliver; I find the heated discussion around having or doing away with annual performance review a most amusing example). 

I see four people priorities that more than anything else can create company value: performance management, succession management, leadership development and capability building. Now you could say this actually describes the entire professional domain, which is a fair point, so let me qualify. This is about focus on four things, guided by the aim to enhance the value of the company. So it is both about stopping all those activities that are beyond these priorities and within those priorities to doggedly keep in mind it is all about value creation and nothing else (besides what the law and probity require us to do or not to do). 

Performance management. For me performance management is the ultimate pivot of all people management. Here are the questions good performance management answers:

-      What am I supposed to be doing?Which creates the line of sight between the strategy of the company and individual priorities;

-      How am I doing?Which is about the current performance of the employee against the set priorities;

-      What should I change?Which is about granular plans for performance adjustments;

-      What are the consequences? Which is about the financial or non-financial recognition following from the performance assessment.

At ING we have transformed our performance management practice by moving away from detailed instructions and guided distributions, handing back performance management to management. We called it ‘Step Up Performance Management’. We are finding out it is all about the capability of a manager to have a continuous performance conversation with their people, essentially doing two things: providing their people highly frequent, very honest and granular feedback on their performance (You would be surprised to see how very few managers are really good at that) and offering them very practical help to improve. Most performance management practices die in beauty and complexity. In reality you need a rigorous practice whereby managers keep each other on the straight and narrow path of honest and ambitious feedback. We are also finding out the performance management is the vehicle, the ambition level is the real thrust. The impact of the HR-professional sits in building the capability of managers for such a practice, as well as in ensuring the set ambitions and the performance conversation are tightly linked to the company strategy.  In ING I see how the scores on the performance management practice in our Organisational Health Index (OHI) have soared since we introduced Step Up. 

Succession management. I am indebted to my manager from many years ago, Sandy Ogg, for my thinking about succession management. All people are equal yet some jobs are much more equal than others. There is a very limited number of job in the company, no more than 1% of all jobs, that are critical to value creation for the company. This is not to say we can do without all the other jobs. This is to understand that a very limited number of jobs are key to driving the performance the company needs for value creation. In those jobs you need people that have a proven ability to deliver at the level of the ambition, not just at the level of the current performance of the business. For those jobs the HR-professional has a crucial role to play, which is to collect and scrutinise all information needed on the talent base inside and outside the company and to guide the decision process. There are many jobs in the company where you can try out people, where you allow them to build up experience they need for future jobs. But for these key jobs you need a ruthless process to identify the people that right from the beginning are up to the job. Conventional thinking in many companies normally underestimates how these jobs differ from others in their contribution to value delivery.

Leadership development. Over my career I have been privy to very many leadership programmes. Some I only joined as participant, many I co-developed. Some were poor; some were great, quite a few were OK. What they had in common is that none of them resulted in any discernable change in leadership. From that sobering lesson we started from scratch when we launched the Think Forward strategy at ING. From a number of sources, like the OHI, our engagement survey, senior management assessments, our behavioural Orange Code, we identified the capabilities senior management agreed they were indispensable for delivery of the strategy. So we did not venture into any definition of leadership, we stayed away of the tempting romantic ideas of what it takes to be a great leader. We focused on what was needed for delivery of our strategy.  We then designed a programme, the Think Forward Leadership Programme (TFLP), working with a number of vendors and using a variety of learning techniques, to enhance those capabilities of our management. Over 6000 managers are in the programme and the OHI indicates our employees notice the difference. The programme is short on big events and very long on repetition in many small bits, to drive actual change of behaviour. I am very happy with the results and this confirms to me it is wonderful to romanticise about leadership, but focusing on what is needed for value creation really generates impact. The HR-team designed and delivered the programme. Yet what is the role of the HR-professional beyond it? Remember, it is only about leadership because leadership helps to drive value growth. We don’t create leaders for the sake of creating leaders (unless that is our business). The capabilities we identified are needed in the daily work of our management. We are there to keep them on that path, to enhance their leadership by our working with them.

Capability development. I think the conventional management development with relatively stable career templates across the company and predictable steps to be made, no longer fits the volatility and pace of change of the current economy. With most companies reducing their number of management layers, the conventional idea of a career as a series of promotions to ever more senior jobs is developing towards the concept of careers as successions of roles that expose individuals to new, enriching challenges, where pay is no longer related to seniority or tenure but to market value. When people priorities are driven by the company interest to create value growth, the primary interest of the company will not be to guide careers but to develop those capabilities that are needed for value creation.  It is for the HR-professional to drive a rigorous process by which the company identifies the organisational capabilities that are needed for value creation, to translate those in underlying people capabilities, to select those that are most critical and to develop a plan how to build those: by hiring, grooming or buying. Then, in the performance management cycle we ensure individuals are offered the learning they need to build the capabilities following from the capability plan.  In most companies and certainly at ING, every employee can get any training programme they wish if it costs less than EUR1000. You know why? Because we don’t think in terms of Learning from the perspective of value creation, but often in terms of non-financial recognition. It is so understandable and even not wrong, but it is a practice indicative of our lack of focus on the real interest of the company. Which is to do everything it takes to create value, and nothing else.

So where does culture sit. So am I really stating culture is not a key priority to drive company value creation? Well, not exactly. I think culture is an output rather than an initiative or a key priority. As Johnson & Scholes put it, organisational culture is the taken-for-granted assumptions and behaviours of an organisation’s members. Which shows in how people behave towards each other, in stories, symbols, control systems, etc. By working with the leadership of the company on the key people priorities for driving company value creation, we capitalize on these behaviours or change them for better alignment with the company strategy and with value creation. So to well understand the culture of the company is relevant for value creation, to change it requires work on the key people priorities. 

No word about strategy?

Good point. In this article I assume the company strategy for value creation is set, the choices regarding the people priorities being made in close collaboration between the HR-professional and their management team. Historically this collaboration is already a big step forward for HR-relevance from where we were 15 to 20 years ago. And yet, as Don Barton and Ram Charan state, in a further step ahead the triangle of CEO, CFO and CHRO drive the deployment of human capital and financial capital to create company value. I think as HR-professionals we would strengthen our business credibility by moving away from being the jack of all trades to become focused contributors to company value creation, from where a next step would be a much deeper involvement in strategy setting.

This touches on what all of this requires from the knowledge and skills and behaviours of the HR-professional. That is for a next article. 

That’s all very nice, but how about the employee?

Very good point. Let me tell you about my own assumptions around human beings who join a company. I assume they are responsible and capable individuals able to take many decisions in their lives, like marrying, having  children, buying houses, making a career and so forth. So when they enter the realm of business life they do not suddenly stop to be responsible and capable individuals.  The psychological and economical contract between the company and the employee, I assume, is such that the employee will like to stay, otherwise the company would lose a lot of them. So even beyond legal obligations and decent moral principles there is a great interest for the company to create a work environment that is to the liking of the employee, in challenges, complexity, development opportunities and company culture. I am personally strongly driven by the desire to enabling people live up to their full greatness, to live their lives to the fullest from a perspective of responsibility and development. And I think this very often combines very well with the interest of a company to create value. At the end of the day we rather be clear who has to carry what responsibility: to live our lives to the fullest is for ourselves, not for companies. 

Finally

There is much more to be said about the above. I am keen to enrich my views with your comments. The central thesis in this article is about the strategic importance of four people priorities, on the delivery of which the HR-profession can have a powerful impact, if we focus on them and move away from all the conventional activities that keep us away from an existence with real challenge and real value.

Hein J M Knaapen

Amsterdam, September 2018