Take Your Seat, HR!

People-related concerns are at the top of most, if not all, corporate agendas. Yet, many organizations fail to exploit HR as a powerful asset in their quest to attract, develop, and retain talent. Human resources has always played its part in enabling business success, even if it was involved in strategic decision making a little late. But, as a discipline, HR continues to battle a familiar demon - the perception that it lacks the strategic mindset to play a greater role at the executive level.

With oversight of a company’s most precious resource and largest expense item, how can it be that HR is still the designated corporate punching bag that has to continually prove its worth to the organizations it serves? Why is it that in so many companies HR is still positioned as the implementer of management plans, rather than a key partner in their development? And, why is it that while other functions assuredly take their seat at the executive table, HR still speaks in terms of earning its place? Blame for HR's predicament lies not just with business leaders, who often view HR as a transactional and administrative function, but little else. It also lies with HR itself, which in many companies struggles to develop and champion the capabilities that could significantly advance talent efforts in their organizations and earn it the status it warrants. 

For as long as I've been in HR, the discipline has sought to elevate its status to that of "strategic business partner". As a function, HR has shored up its business and financial acumen. It’s made strides in aligning functional priorities to enterprise strategies. It has demonstrated statistically how companies with a strong commitment to talent development and employee engagement consistently outperform those that do not. HR has even subordinated its love for and interest in people to do what’s best for the businesses it serves. Yet, many leaders still hold the belief that HR is not a strategic function, which has resulted in critical people initiatives being delayed or losing funding altogether. To make matters worse, when cost cutting initiatives begin companies typically look first to HR as a source of budget slashing. Why? Because in many companies investing in HR is not viewed as having the same ROI as investments in R+D, physical assets, or marketing.  

In today's economy of knowledge workers where people, not products or equipment, generate the lion's share of revenue, corporate leaders must re-examine the impact of HR on the bottom line. The ability of non-financial measures to drive business performance is considerably underrated, and there is a wealth of empirical evidence available to quantify the value of HR initiatives. Examples include:

• Companies that have a performance management culture grow net income by 756%, versus 1% growth over the same period for those who do not (Kotter & Heskett)
• Companies with low engagement scores earn operating income 32.7 percent lower than companies with more engaged employees (MacLeod & Clarke)
• Disengaged employees cost an organization approximately $3,400 for every $10,000 in annual salary (McLean & Company)
• High impact learning organizations earn profit growth three times that of their competitors (Bersin)
• Companies that invest in talent management initiatives yield 27% greater shareholder return (Michaels, Handfield-Jones, & Axelrod)

The illustrations above beg the question of why HR continues to be perceived as non-strategic when people-focused investments yield significant competitive advantages. The answer may lie in the fact that, historically, HR has been financially accounted for as a cost center and, therefore, a prominent target for cost reductions. Most HR budgets end up being curtailed because the ROI on initiatives, such as recruitment, selection, and development are not perceived as impacting sales and profitability. However, if the cost savings and increased revenues generated by HR initiatives were allocated back to HR financial reports, CEOs and CFOs would be astonished by the ROI.

One need not look far for further evidence indicative of the ROI for people-focused initiatives. Witness the talent management software market, including recruiting, performance management, and learning platforms. System implementations yield significant financial gains not only in terms of reduced labor and physical costs, but also increased goal alignment, improved feedback, and higher employee engagement. Unfortunately, because of the failure to measure intangible assets using financial and accounting reporting systems, many of these benefits often go unreported on P+L statements.

Despite overwhelming evidence that effective talent practices drive bottom line performance, people-focused initiatives are still not viewed as strategic priorities in many companies. The examples cited above make a compelling business case for the investment in people-focused initiatives. Still, it seems that – at least for the time being – it will be incumbent upon HR to continue to prove how it contributes to a company's bottom line and competitive advantage. HR has never been better positioned to impact company performance, and advances in people analytics have certainly helped HR leaders to quantify ROI. HR must continue to innovate and communicate the strategic value of its work in ways that resonate with executive teams so it can confidently assume the leadership position it rightly deserves.

Below are three things CHROs can do to get started:

Ensure the people strategy is in lockstep with the organizational strategy

Simply put, HR programs must link to and impact business strategy. A Harvard Business School study found that 80% of HR departments lack a strategic planning process that aligns its budget with the organization’s strategy. As a function, HR needs to become more symbiotic with other business units to ensure the achievement of collective goals. A good first step is to review the company’s business strategy – both short- and long-term objectives - with the CEO to ensure HR is aligned to the right priorities. But, don’t stop there. Regularly review the HR strategy to confirm that it remains aligned to business objectives.

Determine what metrics are most important and measure the heck out of them

HR will never achieve its full potential until it can demonstrate how it creates organizational value and return on investment. Thus, care should be taken to identify the people initiatives that most impact the achievement of business goals. Together with the CEO, CFO, and other members of the executive team, determine how each HR area (recruiting, learning, etc) contributes to achieving these objectives and determine the metrics that provide pertinent information about how those functions enable or impede progress.

Once key metrics have been defined, identify the tools that are available to collect and measure these data. To quote Peter Drucker, “what gets measured gets managed.” So measure with abandon, but not in a vacuum or in isolation from other relevant data. It’s common for different HR teams to use different tools. For example, Talent Acquisition may use a system for applicant tacking, while Talent Management uses another for performance management and learning. Total Rewards may use yet another platform for compensation and benefits administration. It’s imperative to have a plan for how to integrate and leverage the data collected. These days, almost every talent platform connects with one another. By integrating these tools, HR teams can prevent the needless loss of data, boost efficiency, and increase visibility and availability of information across all lines of business.

Shore up HR team competencies

For any HR function to rise up and meet the challenges it faces, it must have the right people. Others have defined the competencies required for HR leaders to be recognized as strategic contributors, but a few that stand out are strong business and commercial acumen, technology savvy, a consultative mindset, and data fluency. It's this last one that, in my opinion, holds the most promise for elevating HR's status. Like other functions, data science has dramatically altered HR's landscape and afforded new ways to correlate HR investments with business results. When HR leaders master this competency, they will not only be perceived as more effective professionals, they will add unequivocal value to their organizations.