Quo Vadis, HR?
Thomas Stewart wrote a scathing comment in the January 15, 1996 issue of the Fortune Magazine about the HR function:
“Nestling warm and sleepy in your company, like the asp in Cleopatra’s bosom, is a department whose employees spend 80% of their time on routine administrative tasks. Nearly every function of this department can be performed more expertly for less by others. Chances are its leaders are unable to describe their contribution to value-added except in trendy, unquantifiable & wannabe terms – yet, like a serpent unaffected by its venom, the department frequently dispenses to others advice on how to eliminate work that does not add value. It is also an organization where the average advertised salary for professional staffers increased 30% last year… I am describing your human resource department & have a modest proposal: why not blow it up?”
The article raised a howl of angry reactions from HR practitioners in America. Some called the smug article stupid, a little more than attention-getting rhetoric. The Personnel Journal of America called Stewart’s article an “Un-Fortune-Ate Suggestion.” It admitted that its policy-enforcing bureaucracy was true in the mid-80’s and still true in a few organizations.
Overall, the journal said, “it has done a better, more compelling job of reinventing itself to face the 90’s and beyond than most corporate functions.”
Last month, while sitting in a Sta. Clara, California library, browsing on a Time Magazine, the cover article of the July-August 2015 Harvard Business Review issue was staring at me right across from its shelf. With a picture of ignited dynamite, the cover article blares: “IT’S TIME TO BLOW UP HR.” I gasped and thought to myself: “Again?” I heaved a sigh of relief when I read the smaller sub-headline: “And Build Something New and Here’s How.” The first page of the article even started in big bold letters its left-handed suggestion: “Why We Love to Hate HR… And Here’s What HR Can Do About It.”
Peter Cappelli, the author in the first article, echoed the most common criticism about HR managers: their too much focus on “administrivia” and lack of vision and strategic insight.
Basically, other managers don’t want to be told how to behave and “no other group in professional life, not even finance, bosses us around as systemically as HR does.” They seem to resent the advice of HR on how to interact with people especially those who report to them directly because that goes right at the core of who they are. And they hate documenting problems with employees. HR policies are sometimes viewed as annoying and superfluous.
The Personnel Pendulum
In the so-called “gray flannel suit” era of the 50’s (in contrast to the jean-wearing era of the 90’s led by the iconic Steve Jobs), the modern HR was born, “ushering practices such as coaching, developmental assignments, job rotation, 360-degree feedback, assessment centers, high financial tracks, and succession plan.” Those schemes arose from an urgent need then to develop and retain talent. HR was considered a powerful function, voted the most glamorous job in business.
Times have changed. Only a third of today’s hire are internal. The rest are sourced through external manpower agencies. Besides, with the excess of labor supply, the search for the right person for the right job is no longer critical. Training & development take the back seat. Poa-ching from other competitor companies like what is happening now in the BPO industry is a common practice. One executive abroad was quoted to have said: “Why should I train people when my competition are willing to do it for me?”
Moreover, more and more tasks traditionally done by HR are now being performed by line managers – from hiring to development to compensation decisions on top of their main duties. HR ends up with trying to get those beleaguered managers to follow procedures and practices without having a direct power over them. The author refers to this euphemistically as “managing with ambiguous authority.” But to the line managers, it is like nagging and meddling.
The importance of HR also depends on some cyclical issues. For instance, in a unionized company, when CBA negotiations are on-going, where there is the imminence of a strike, or when the company is struggling with some other labor issues, HR is seen as a valued leadership partner. When there is industrial peace, HR’s importance again fades into the shadow of the management hierarchy.
What HR Should do
Cappelli suggests the following proactive actions:
1. Set the Agenda
HR must address issues that matters to the business. It must exert its influence on workplace issues like lay-offs, how to execute them with minimal risks on employee morale and lawsuits. Structured interviewing techniques must be taught to the hiring decision makers. This assures hiring of the right people for the right jobs and mitigates risks of employee litigations. On performance management, HR must do away with forced ranking as most companies are veering away from it.
Supervisors must be trained by HR on the importance of serious conversation with their subordinates about performance designed to improve skills and results.
2. Acquire Business Knowledge.
Business knowledge usually involves analytics. Analytics employs extensive use of mathematics and statistics. And this is one of the weaknesses of HR.
He/she must acquire this knowledge to be able to make hard number decisions that helps the bottom line results of the business. Just to cite a few, Microsoft and Google mine their own data to predict good hires. IBM uses its enormous employee database to create project teams more effectively.
3. Highlight Financial Results
Many HR practitioners don’t calculate ROI even when other functions have been doing so for decades. That lends more credence to business leaders’ view of HR as a cost center instead of a profit center. We tend to hang on to non-quantifiable standards such as job satisfaction, or high employee morale.
We should come to grips to what is financially good with our activities.
Let me share you one little example. In our company’s medical benefit program, we covered our senior managers with an individual hospitalization plan up to Php 2million maximum benefit per year. We paid a hefty amount of insurance premium. Yet, based on our experience for the last 5 years, only very few were hospitalized in this group. We decided to self-insure this group. We save annually almost a million in premiums.
Summing up, Cappelli says “HR managers can score big wins for their companies by rethinking programs that have been around since the 1950s, making a business case for the initiatives that matter, and cutting loose programs that lack impact.”
Creating a G3
The next article entitled, “People Before Strategy: A New Role for the CHRO” is even more interesting. It is co-authored by Ram Charan, one of our professors in our Special Management Studies in Evanston, Ill. many moons ago. A co-author of the famous book, “Execution,” Charan, a Hindu-American, is a valued consultant in big companies like G.E. KLM, Bank of America.
Success of the business, according to Charan and his co-authors depends on human resources. “Businesses don’t create value, people do.” The problem is, a lot of CEO’s are dissatisfied with their chief human resource officers (CHRO). A research by McKinsey suggests that CEOs worldwide see human capital as a top challenge; yet, they ranked HR as only the eighth or ninth most important function in a company.
This has to change, says Charan and company. “It’s time for HR to make the same leap that the finance function has made in recent decades and become a true partner to the CEO. Managing human capital must be accorded the same priority that managing financial capital came to have in the 1980s, when the era of “super CFO” and competitive restructuring began.”
The authors suggest the CEO’s new contract with the CHRO. The CEO should create a triumvirate at the top of the corporation composed of himself, the CFO and CHRO. “Forming such a team is the single best way to link financial numbers with the people who produce them.” The G3 as a core group should steer the company and meet apart from everyone else. It shapes the destiny of the company by looking at the big picture while others bury their heads in operations.
These G3 meetings expose the CHRO to the business side of the organization. The CHRO, working with the CEO & CFO, should examine some misses in the business targets because most problems are people problems. Judging people is a special skill of the CHRO, just as the CFO has a knack for analyzing numbers.
CHRO’s Critical Activities
The three activities that are critical to the CHRO are: predicting outcomes, diagnosing problems, and prescribing actions on the people side that will add value to the business. He should be able to assess the chances of meeting the business goals using his knowledge of the people side. Because company’s performance depends largely on the fit between people and jobs, the CHRO can significantly help by assessing whether the assigned person meets the requirements.
Charan assumes that 2% of the people drives 98% of the impact. CHRO should assess the gaps in behavior or skills especially on the 2% as job requirements change. The CHRO, with the CFO, should consider whether the key performance indicators, talent assignments, and budgets are the right ones to deliver desired results. Both should develop metrics for incentivizing and assessing performance.
Like Cappelli, Charan and his co-authors, suggest that the transactional and administrative work of HR, including managing benefits should be reassigned somewhere else to enable CHRO to focus on activities that are closely linked to revenue, profit margin, brand recognition, or market share. Creating value defines the new mission of a CHRO.
What these authors were articulating somehow validate what I learned from my interview of a successful CEO who was once a CHRO. He talked about HR’s adding value to the company. He believed that HR has a very important job. “In fact,” he said, “if you want an effective CEO, let him handle HR first.” HR’s job gives him the opportunity to look at the Key Performance Indicators of the other functions. What HR has to do is to go beyond his silo & look at the silos of the other departments. That’s already doing a CEO’s job because you look at the macro side of the business.
So, is there anyone else who thinks HR should be blown up? If so, let’s have his head examined.
(Noli is Chairman of Change Management International, Inc., a management consultancy firm. Past president of PMAP and SOF and currently Vice-President of ECOP, he is a member of the Tripartite Industrial Peace Council (TIPC), Tripartite Executive Committee (TEC) and a Commissioner of the Tripartite Voluntary Arbitration Advisory Council (TVAAC). He is co-author of the revised PMAP book entitled: “Personnel Management in the 21st Century” and author of the book, “Human Resources Management – From the Practitioner’s Point of View.” His email address is: [email protected])
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