HRCS Round 8: Navigating HR's Impact

By Patrick M. Wright, Mike Ulrich, and Erin Burns

The movie “The Perfect Storm” sought to tell the story of how the fishing boat the Andrea Gail sought to navigate through the 1991 Halloween Nor’easter, albeit unsuccessfully. The term “Perfect Storm” emerged from a meteorologist’s description of the perfect situation where three weather-related phenomena come together to generate an extremely devastating storm. 

The past 18 months has seen a confluence of health, economic, and social phenomenon has generated a storm through with the HR profession has navigated. The COVID pandemic brought about a sudden increase in anxiety, sickness and death. The economic shutdown to slow the spread created an economic crisis never before seen. And the death of George Floyd created social unrest as many sought to build a just society. This perfect storm formed the backdrop for the 2021 Human Resource Competency Study (HRCS) in which we sought to explore how HR professionals and departments have sought to navigate the impact of HR on business results. We were poised to begin the study when the storm hit and so we delayed its implementation until stability was beginning to re-emerge. This has allowed us to explore the how HR has navigated these crises to deliver results. Below is the model we used to guide the research.

We begin with the Results component of the model. Since its inception in 1987 and over the course of all 8 rounds of the study, one primary focus has been not just to be descriptive, but to provide normative recommendations, i.e., not just what is, but what matters. This means identifying not just what are the competencies HR professionals currently have, but what will increase an HR professional’s personal effectiveness and their ability to meet the needs of both internal and external stakeholders? Similarly, we did not seek to just describe the current characteristics of HR departments, but to examine the characteristics that will drive business results. The results act as the lighthouse in the storm that enable HR to navigate in the storm.

Next, the study has consistently maintained a focus on identifying the competencies of HR professionals that positively affect these three categories of results. In the next article we will  describe these competencies in greater detail. But based on the responses of roughly 3600 focal HR professionals and approximately 26,000 HR peers, non-HR peers, and supervisors evaluating them, we identified the following five competencies: Accelerates Business, Advances Human Capability, Simplifies Complexity, Mobilizes Information, and Harnesses Uncertainty. Note that these competency names focus on what HR professionals do, as opposed to who they are. 

Third, we explored the characteristics of HR departments that we predicted would be positively related to business results. Again, we will explore these characteristics in greater detail in later articles, but the seven characteristics we measured were: Employee Practices, Practice Alignment, Capability Support, Stakeholder Value, HR Department Credibility, Information and Analytics, and HR Reliance. In essence these comprise the processes delivered by HR departments, the perspective they take in delivering them, and the position they have achieved in the minds of others in the organization. 

Finally, we examined the key business capabilities enabling organizational success that HR most strongly influences. While capabilities may seem a new term in HR, we refer to capabilities as the combination of people, systems (technologies for managing information, communication, manufacturing etc.) and processes (business processes and procedures) that enable a firm to do something better than their competitors. The ones we focused on in this study were Aligning Capabilities (to create strategic differentiation), Creating Workforce Agility, and Delivering Diversity, Equity, and Inclusion (DE&I). While we identified these capabilities before the crises, clearly the latter two seemed almost prescient in their inclusion in the study. 

Again, over the coming weeks we will post articles with more detailed descriptions of each component to the model and more detailed results regarding how the subcomponents impact different Results measures. But for today we present a broad summary of the model and how the general components drive business results. 

To begin, we would note that the three components together explained over 25% of the variation in business results. One way to think about this is to consider all of the variables (business strategy, economic conditions, direct competitors, products, customer preferences, etc.) that could cause the variation (i.e,. why one organization performed better than another). Our results suggest that one-quarter of the variation in the close to 1000 organizational units in our study is accounted for by the three components we examined. 

Second, the numbers in the figure below provide an measure of the relative impact of the three components in explaining that 25% of variation. As you can see, the competencies of individual HR professionals has a very minor impact (3.5%) relative to the impact of the HR department (48.2%) and the business capabilities (48.3%). While at first glance this may seem disappointing, it is not at all surprising. First, it essentially mirrors the results of the HRCS 7 that found the impact of organizational characteristics far outweighed the impact of the HR competencies. Second, in later articles we will show how the competencies, while not having a strong direct impact on results, have a strong indirect impact through how they help create the HR department characteristics and business capabilities that do have strong direct effects on results. Finally, why would we expect one individual to have a greater impact than the entire team within the HR department? As King Solomon wrote “Two are better than one, because they have a good reward for their toil. For it they fall, one will lift up his fellow…And though a man might prevail against one who is alone, two will withstand him—a threefold cord in not quickly broken.” (Ecc. 4:9-12). Clearly, the 2021 HRCS demonstrates that a team of HR professionals in a department focused on building the right capabilities can have an impact on business results.