October 17 , 2017

Clarifying the Strategic Role of HR

HR “work” can be classified into five distinct levels from the basic to the most strategic. Those levels include:

Image 

Level One –Information Management and Basic Transactions

Every HR department must provide basic information, answer employee and manager questions and complete operational level transactions. These most would agree are the oldest and most elementary of HR services and include:

  • Processing of new-hire documentation, payroll, separations and benefits enrollment/changes
  • Providing answers to employee and manager questions pertaining to policy, benefits, employment law

Level Two – Providing Functional Services

In addition to level one activities a majority of HR departments provide several services that comprise what many would agree are the essential services that keep an organization staffed. This level incorporates many of the activities that create the standard functional areas within HR including staffing, compensation and benefits, employee relations, and training. Each functional department maintains its own goals and objectives and although there is some interaction, services are provided relatively independent of each other. Several examples of activities that exist at this level include:

  • The formation of standardized processes and policies for requesting more staff, developing staff, compensating staff, and performance management
  • Basic reporting on the status of talent management efforts

Level Three – Coordination of Efforts to Improve Productivity

In level three HR activities begin to fall under the umbrella of some larger planned contribution and take on more of a tactical emphasis. This coordinated effort exists to impact one of the primary goals of every major corporation, increasing productivity. In the case of HR that goal translates into increasing or maximizing workforce or employee productivity.

Any effort to directly impact workforce productivity requires specific resources dedicated to improving productivity, metrics for assessing productivity and an organizational component that encourages (or forces) the distinct HR functional departments to work as a team for this goal.

Improving the over-all productivity of the workforce requires that HR develop initiatives to continuously increase the dollar value of employee output while maintaining or reducing the average labor cost per unit.

The traditional HR functional work that goes on in level 2 is to isolated and finite in focus to have any real impact on workforce productivity. In fact, typically none of the independent functional units in HR even have workforce productivity as a goal. Some of the non-traditional HR activities that are “added” to traditional functional offerings include:

  • Development of tools and strategies to retain key employees
  • The redeployment of employees from areas of low business impact to high
  • The introduction of non-monetary motivation and recognition systems
  • Usage of workforce analytics or metrics
  • Coordinated efforts for knowledge capture, sharing, and management

Level Four – Development of Competitive Advantage Through Talent

Level four signifies a major transition point as HR work begins to provide a strategic contribution. Increasing competitive advantage is a focused effort to ensure that each key HR program and service is best in class when compared directly to that of competing firms. In level four the focus of HR efforts take on an external environmental component where prior to this every HR effort was internally focused. Rather than simply tracking what competitors do, the goal in level four is to identify and exploit weaknesses found in competing organizations. To date, only the most elite HR organizations have funded efforts in this level. Typical competitive advantage building efforts include:

  • Competitive analysis of people programs found in competing organizations
  • Workforce planning and productivity forecasting
  • Employment branding
  • Competitive intelligence gathering

Level Five – Develops Solutions to Strategic Business Problems and Opportunities

Level five represents the pinnacle of work providing strategic contribution in HR. Efforts in this level go well beyond influencing employee productivity. They attempt to address strategic business problems in areas such as product development, product/service quality, customer service and corporate position. Few HR organizations attain this level of strategic contribution, of those that do, most are found in performance driven cultures. Typical strategic business problem and opportunity efforts include:

  • HR involvement in turnaround swat teams
  • HR consultation in product design and development efforts
  • Analysis of workforce management impact on time-to-market and innovation
  • Management of performance culture
  • HR involvement in merger and acquisition planning (prior to decision to MorA)

WHO IS HR’S CUSTOMER, MANAGERS OR THE EMPLOYEES?

It's not unusual for HR departments and factions within each department to debate for hours about “who is their customer?” For HR departments whose goal is to become a strategic partner that debate should end quickly. All strategic businesspersons define their customer as the ultimate end-customer of the firm’s products or services. Everyone and function inside the firm should have as their priority increasing value to the end customer. However, when providing services internally it is also important to define the internal customer.

During the 1990’s most HR executives listed earning a seat at the executive table as their most important goal. Fortunately, many HR leaders succeeded and now enjoy a new level of visibility that has dramatically changed the game and redefined the internal customer of HR services. To those who have achieved senior leadership team status and those currently pursuing it, it should become abundantly clear that if you wish to demonstrate strategic impact, you must define “your internal customers” as the other senior managers of the corporation. There are a variety of reasons why senior managers must become your primary HR customer. They include:

  • The senior managers are “by definition” strategic. They control resources and business units and as a result, anyone expecting to have a strategic impact must seek their cooperation and support. Few if any mid-level managers or employees can ever have a strategic impact, so defining them as customers ends any chance of producing strategic results.
  • Senior managers have supervisory responsibility for the line managers under them. As a result, their influence and cooperation are needed to help persuade managers and supervisors to follow your advice and utilize your programs.
  • If HR executives want to be consulted in other areas of management, they must first establish a track record within HR of advocating productivity, profit and attainment of corporate goals that are shared by other members of the senior management team.

These points highlight the need to establish upfront that the senior managers of the corporation (general managers and above) are HR's primary internal customers. HR must identify the senior managers business objectives and their expectations when it comes to HR and then design systems to ensure that HR is contributing directly to meeting those needs and objectives. All HR plans, services and performance metrics must be designed with the goals and objectives of this customer set in mind.

Naming senior managers as a primary HR customer has been known to “irritate” some HR traditionalists. Because they feel so strongly that HR should be an employee advocate it’s appropriate to spend a little time demonstrating the negative business consequences of such an approach.

Being Strategic Means Being A Proponent Of Productivity Not Employee Advocacy

Many traditional HR theorists and practitioners have cast the role of HR as that of an “employee advocate” or someone who helps employees when they have conflicts with their managers. In sharp contrast, others (especially those who advocate a performance culture) accept this notion as the antithesis of being strategic. While neither position is totally “right or wrong”, the “employee advocate” position has some inherent weaknesses. Some of them include:

  • Assuming that employees need an advocate categorizes them as second-class citizens that are not capable of defending themselves. In addition, advocating for them might actually make them weaker, which could eventually make them less capable of making decisions, advocating their own position and pushing their ideas within the company
  • Making HR an employee advocate creates an “us against them” situation, when in fact increasing productivity requires both managers and employees to work together as a team. Providing employees with too many “third party” options might actually hurt direct employee/ management relationships because instead of talking face-to-face they get in the habit of bringing in a third-party
  • In most countries, unions are by law advocates for the employee. Whether you have a union or not, advocating for employees could be construed as usurping an employee's right to representation
  • HR managers are paid by management and the business not by employees so HR might not even appear credible to employees

HR professionals are paid by the corporation to represent the company's interests. Because HR’s strategic role is defined as increasing workforce productivity the HR department must assume the role of “asset manager” for what in most cases is the most expensive corporate asset. Any focus on workforce productivity and profitability can get blurred when HR considered the employee perspective because quite frequently, employee self-interest is not consistent with increasing productivity and profit. Whether we like it or not, HR's job is to help get employees to do things that they wouldn’t do “naturally”. If employees naturally produced at the highest level possible, we wouldn't need performance pay, incentives, rules, training and numerous other tools that help manage talent.

It may sound a little “dehumanizing” on the surface, but the primary job is to increase the workforce's output using all the management tools available to us.

CLARIFYING HR’S ROLE AND RESPONSIBILITY IN MANAGING THE PEOPLE ASSETS

Often when HR professionals accept their role in increasing worker productivity and building a performance culture they also, not to subtly, complain that it’s “unfair” to expect them to manage workforce productivity because the actions of managers and employees and so many other factors impact HR’s ability to produce results. Most would agree that accepting responsibility without authority is difficult but not uncommon in today’s complex business world.The next few sections will highlight the importance of HR accepting responsibility and accountability in spite of their lack of control.

Being Strategic Means Taking Responsibility And Ownership For Things You Don't Control

As previously established, being strategic means producing results that impact business objectives. In order to take credit for success at something, you first must take responsibility for it. What that statement means is, that if you want to take credit for some strategic result, you must first assume some degree of “ownership” over that strategic area. In this case, HR needs to assume responsibility and ownership for employee productivity, so that when employee productivity improves, HR can legitimately take credit for their part in the accomplishment. Unfortunately, all too often HR professionals want to take credit when productivity is high but they refuse to accept the blame or responsibility when it falls.

Many people equate being strategic with having some degree of formal authority or control but there is really no automatic connection between the two. Strategic individuals seldom have as much power as they would like. For example, the CFO takes responsibility for all financial actions but in fact, they have little direct power over how money is spent. In most cases, they don't formally own or even possess the funds that they must take responsibility for. Most of the CFO’s power comes from educating and influencing others, not from any formal authority to change direction, make product/service decisions, or even manage execution. In short, what CFO's do is take responsibility for the things that they have determined to be important to the success of the organization, even though in most cases, they do not have total control or power over the entire situation.

In a similar light, even though HR is classified by some as an overhead function, (where overhead functions do not by definition, have direct “line” manager authority) it cannot use this “I’m powerless” excuse if it ever expects to be considered a strategic function. Strategic individuals, rather than making excuses “find a way” to influence others, so that the net result is that people together toward a common goal. Taking responsibility for things you don't completely own or control is known as the “captain of the ship” approach.

Non-strategic individuals in HR take a narrow perspective and accept only the responsibility for the “operation” of people management systems. This narrow perspective guarantees you will not be considered strategic because the very definition of strategic moves beyond taking responsibility for the “operation” and instead focuses on taking responsibility for the “results”. If you accept this broader view that HR is responsible for the “output” or results of the people management systems (not just the operation of the systems), then you are already taking a strategic view of HR. If you assume the “captain of the ship” role you must move beyond accepting responsibility for the operation of all people systems and you must add to that the broader responsibility for the actions and the performance of the employees, which were hired, trained, rewarded and appraised by using those systems.

When you adopt this view, you accept the fact that you must advise, cajole, educate and somehow influence managers and employees throughout the organization so that they can “execute” and produce the highest workforce productivity.

Chief “People” Advisor To The CEO

Before leaving the topic of accepting responsibility for all people management, it's important to determine if there are any limits on that people management with regards to “responsibility and ownership”. This important note is added because many individuals in HR assume that their people results responsibility goes only in a downward direction. This means that while many vice presidents of human resources accept their responsibility for the people and systems “below them”, few even consider their people management responsibility “above them”.

Win HR takes an upward view, the question often arises “Who is responsible for advising the CEO in the management of their executive team?” Unfortunately this is a question most VP's of HR are afraid to address. Yes it is true that technically the CEO is responsible for managing the executive team but it's equally true that not every CEO gets promoted to that level based on their strong people management skills. There are numerous accounts of CEOs that lack people management skills and as a result, the CEO's executive team does not operate as an effective unit. I am not proposing here that the VP of HR actually run the executive team but what I am suggesting is that great VP's of HR must “manage up” and serve as the chief people advisor to the CEO on the management of his or her executive team.

HR TRADITIONALLY FOCUSES ON COSTS BUT INCREASING REVENUE IS MORE STRATEGIC

One final area that is important to address when defining the strategic role of HR is HR’s historic emphasis on cutting costs. While cutting costs are important there are several reasons why it is essential that HR shift its focus away from cost cutting and towards increasing output and revenues.

Every major corporation strives to increase its profits, however in striving to meet that goal it is important to realize that there are two distinct parts of any profit loss equation, revenue and costs. A business can increase profits into basic ways: first, by reducing costs and second, by increasing revenue (either by charging more or selling more). HR has traditionally focused almost exclusively on the cost cutting portion of the equation, quite possibly because cutting people cost is relatively easy.

Unfortunately, cutting people costs can have some disastrous consequences. HR’s long-standing practice of “undercounting costs” is one of the prime reasons that HR fails to increase worker productivity. “Undercounting” is the process of omitting the additional costs caused by a bad practice or process because these “unintended consequences” are not directly connected to the initial action by HR. Some obvious examples of dubious cost cutting and the “undercounting” might include:

  • Hiring workers with fewer skills in critical positions is certainly cheaper than hiring individuals with superior skills but it may negatively impact product quality and innovation
  • When top performing workers demand more money, they can be replaced with cheaper, albeit less effective workers that in the long run creates the need to hire significantly more workers just to maintain the same level of production
  • Ignoring market compensation rates and underpaying in salary and benefits that ultimately hinders he ability to hire and retain top people
  • The substitution of low cost training for average cost training that results in increases in error and safety rates

As you can see, there are some potential negative consequences of arbitrarily cutting costs without simultaneously looking at the impact of cost cutting on revenues and productivity. In fact, any accountant can blindly cut costs but it takes a true productivity expert to understand that cutting costs and “undercounting” can actually have a significant negative impact on the firm.

The strategic target for HR should be to increase revenues and productivity while simultaneously maintaining or reducing your relative labor costs. If you give any CEO a choice as to whether they would prefer increasing revenues or cutting costs, they invariably pick the option to increase revenues. This is because whenever you increase revenue in a competitive marketplace it's obvious that you are improving your products and services, which are long-term competitive advantages. Short-term cost cutting might actually improve short-term profits but in the long-term, profits may go down and careless cost cutting may permanently harm our competitive position and image among customers.

CONCLUSION

Strategic HR presents a new challenge that few HR departments universally accept today, the challenge of managing workforce productivity. For some the reluctance to accept accountability for managing productivity is an issue of control, while for others it is the lack of a clearly defined customer the muddles their existing efforts. Regardless, becoming strategic requires that all HR efforts become coordinated and united under a uniform set of goals and objectives. Firms can use the “Five Levels of HR Contribution” model to determine their current standing and map out a course to becoming more strategic.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.