Most Don’t Rate HR As Strategic – Here’s Why (Outside the box actions for making HR strategic)

Not once in our history has HR convinced a majority of our business leaders that we were strategic. Yes, despite the fact that I’ve never met an HR leader who didn’t continually talk about becoming strategic. New survey data reveals that all of that talk hasn’t translated into results.

And our rating is, unfortunately, a full 21 points lower than finance. Sadly, we haven’t been able to make much progress lately because HR’s strategic rating has only risen 1% since 2018. 

This think piece… is designed to convince you to try a bolder approach to becoming strategic. 

HR has not been rated as strategic. Despite the fact that total people costs (HR and labor costs) are frequently the largest single corporate expenditure (they can exceed a whopping 70% of total corporate variable costs). So imagine, for a moment, how much HR’s total business impact would grow if the largest corporate budget line item suddenly became one of the most strategic? 

You Can’t Become Strategic With a Focus On Tactical Issues

Since 2005, when I wrote the seminal book “Rethinking HR,” I have continuously argued that “getting a seat at the table” won’t ever be sufficient to get our function recognized as strategic. With this startling new data, it’s time for HR and Talent Management leaders to stop trying to become strategic by merely tweaking HR tactical processes like payroll, performance appraisal, and employee communications. Instead, to “grow a pair” and find the courage to take the bold “out of the box” actions necessary to raise our strategic impact to a point where every executive will definitely take notice. 

A List Of Bold Actions… That Are Guaranteed To Make HR Strategic

In my view, if we want the label and the resources provided to all clearly strategic functions. It’s time for a radical shift in our strategy and actions to become strategic to guide those who really need to be strategic. The remainder of this article will provide the reader with a list of the strategic HR actions that have been proven to get you there. Sadly, the reader should also realize that almost none of these listed “outside the box actions” are currently implemented within most corporations. Note that in this list, the most impactful actions appear first.

The Top Five Essential Foundation Actions For Becoming Strategic

  1. HR accepts full accountability for improving people management – is simply a fact. One of the primary indicators of a strategic function is that its leaders clearly take ownership and accept accountability. The “Captain Of The Ship” role is the name I give to functional leaders who openly and without reservation accept this complete “the buck stops here” accountability.

    Unfortunately, few HR leaders have publicly declared that they accept full responsibility and accountability for improving people management results. Instead, they waiver. In many cases, they openly complain that they can’t accept accountability because they don’t control all aspects of people management so, even though this shared responsibility is factually true. It’s time to realize that individual managers will literally never actually accept their share of responsibility. Rather than wait for their acceptance, once and for all, HR leaders must accept the manager’s perspective. HR creates, designs, manages, and monitors all talent processes. It must accept this “captain of the ship” accountability. And forever stop whining about how they don’t have total control (because, in reality, no functional leader ever has total control).
  • An example where HR accepts accountability – is in the case when you lose your top candidate because they accepted a speedier offer rather than lecturing the manager on how they took too much time during the hiring process (even though they did). HR, instead, must gracefully accept accountability for the loss. And then, it must proactively act to minimize the delays throughout HR’s own hiring process. So, in the future, any delays caused by a manager will have much less of a negative impact.
  1. HR is laser-focused on increasing workforce productivity when you ask executives what they expect from strategy. The most common response is “to provide our organization with the most productive workforce in the industry.” Which, in lay terms, means that “your employees produce more high-quality output per dollar spent on labor.” My recommended measure for determining the productivity of your entire workforce is a revenue per employee metric (divide the number of employees by the total revenue). You can easily compare your productivity results against all other corporate competitors.

    Fortunately, you can go to sites like MarketWatch.com, where the revenue per employee metric is already listed under the efficiency section of each company’s profile (you can find an employee/revenue example here). Incidentally, the best way to increase the overall productivity of the workforce. It is to build a performance culture, which is where pay, recognition promotions, and individual and team goals are directly tied to productivity.

    Next, your productivity focus needs to permeate every HR process. You can accomplish that by adding “performance targets” to the standard goals under each of your important HR processes (i.e., recruiting, retention, development, internal transfers, compensation, etc.).

    For example, a typical HR hiring goal is to “hire 12 people.” However, when you focus on productivity, this goal stops short. So, an “increasing productivity version” of that goal would be to “hire 12 people that produce an output that is at least 15% above average). On the same outcome focus, a productivity goal for the training function would be for “the performance of those that you train to increase at least 20%” within three months after they complete your training.
  • An example of how HR can encourage managers to focus on workforce productivity – HR can change the promotion criteria for current managers. So that only the managers of teams that produce above-average performance would be eligible for a promotion. 
  • An example of a productivity improvement action – show executives that the teams that we allowed to opt out of our performance appraisal process. Experienced an 11% drop in team performance in the six months following the elimination of performance appraisal.
  1. HR shifts to impacting strategic goals and increasing HR’s business impacts – under the current “internally focused model,” HR focuses primarily on efficiency and tweaking its own processes. However, in order to be strategic, HR must add to this focus ways to increase its direct business impacts. The first step in this “external focus” is for HR to stop being satisfied with merely “aligning with strategic goals.” And instead to directly impact each individual strategic goal.

    Being strategic is unambiguous – you must initiate actions that have a direct and unambiguous impact on at least one corporate strategic goal. Literally, everything else is tactical.

    The first step in impacting corporate strategic goals is to realize that these goals are labeled as strategic, specifically because the areas that they cover have the greatest strategic business impacts. Next, HR needs to acquire a list of your company’s corporate strategic goals (they often include increasing revenue, profit, product development, production, inventory, customer service, and innovation). Then, HR must work closely with the leaders in each priority business area. In order to determine which HR services are most likely to impact each strategic goal.

    Finally, as part of HR’s role as a business problem solver. HR must develop a process for identifying the current major business problems and opportunities that leaders of your high-priority business units currently face. And then immediately begin contributing to solving these problems using people management methods.
  • An example of HR impacting a strategic goal – a common strategic goal is increasing revenue. HR can demonstrate that it has increased revenue by hiring salespeople who sell at least 25% more than the average current salesperson.
  • An example of the strategic impact of diversity – show your executive that revenue-generating teams become at least 40% diverse (as a result of your diversity hiring and retention processes). Produce 18% more revenue than non-diverse teams. 
  • An example of the impact that strategic HR has on business outcomes – make your executives aware that organizations where HR was considered to be strategic had 10% higher business outcomes. When compared to organizations where HR was rated as nonstrategic.
  1. Every manager is accountable for great people management results — the motivation of most managers is easy to understand. They pay the most attention to the things that are talked about, measured, recognized, and rewarded. Unfortunately, fewer than 40% of all managers are measured and rewarded for great people management. So, as part of your HR performance effort. It’s essential that each of the managers in high-priority business areas are measured and significantly rewarded for producing every aspect of great people management results. 
  • An example of the impact of manager accountability – we have known for years that 42% of our individual managers were literally holding back or “hoarding talent.” Because losing it would hurt their business results. However, once we changed the promotion criteria for managers to exclude those that hoard talent. The practice literally stopped.
  1. HR shifts to data-driven decision-making – in a fast-changing world, many of HR’s historical best practices become less effective over time. However, without solid proof that these processes are now less effective, these processes will likely remain unchanged. In order to provide decision-makers with information on “what works and what doesn’t.” HR must shift to a data-driven decision-making model. The foundation principle under this model is that every HR process must have metrics for measuring the volume, the timeliness, and the quality of its output.

    Next, HR must literally stop using any process that doesn’t have data proving that the process unambiguously improves employee or team performance. And because there are so many unexamined and unreported failures in HR. We must begin measuring and reporting our failure percentages in hiring, retention, performance management, and training. And to prevent future failures, we must also conduct a failure analysis on each major failure.

    Finally, as hackers become more sophisticated, HR must be able to guarantee the continued protection of all employee and people management data.
  • An example of how data can improve new-hire performance – is because hiring managers prefer them. For years, we required college degrees for all of our professional positions. However, after collecting data on our most successful new hires. We found that only 13% had college degrees in their functional area. So, we ended the requirement.

—————————————–

Additional Strategic HR Actions That You Should Consider 

There are some additional outside-the-box strategic actions (each with a slightly lower impact). HR should consider including it in its plan for becoming truly strategic. And once again, the highest-impact actions appear early on the list.

  • HR quantifies its results in dollars – although it might appear to be a minor step. Calculating the dollar impact of your people management results may have the highest ROI of any strategic HR action. This is because the universal language of business and all executives is money. So, showing the dollar business impacts of your HR actions. Makes it easy for leaders/managers who deal constantly in dollars to understand the relative impact of what you are doing.

    It is necessary that you work closely with the offices of the CFO’s and the COO’s. To ensure that your direct business impacts and their dollar value are credible. Incidentally, after you have quantified in dollars HR’s total business impacts. You can then add them together and show that your function’s ROI is higher than those of finance and supply chain.
  • HR is future-focused, and it accurately predicts – in a world that is rapidly changing, every business function must be future-focused. So, in order to be labeled as strategic, HR must begin showing that it is forward-looking. By forecasting likely upcoming changes in both the talent and the business environment. After it forecasts, HR must also develop a proactive process that periodically warns managers in advance, about the upcoming people management problems and opportunities that they are likely to face. Providing this early warning will provide managers with enough time to mitigate many of these upcoming problems. This focus also means that HR must reinvigorate any meager effort that they might have in workforce planning.
  • HR provides a measurable competitive advantage in people management – corporate executives are among the most competitive people in the world. So they are seldom satisfied when important things are only done well. Because in addition, they have learned to expect that your work will also provide them with a competitive advantage over competitors. So, HR must make it a goal to continually provide that measurable competitive advantage. And to semiannually report to executives how each of your HR processes produces superior results. Also, specifically, how each process is differentiated and hard to copy. And that each one also has a continuous improvement component that will ensure that results will continue to be superior to those of competitors.
  • HR ensures that the company has a flexible and scalable workforce – in our rapidly changing up-and-down world. One of the key corporate success factors is ensuring that you have a scalable and flexible workforce. Because this flexible design will allow us to reduce labor costs rapidly without major costs, layoffs, or legal issues. In addition, the workforce must also be quickly scalable so that we can also rapidly add talent, capabilities, and skills to our growth teams and business units. In order to maintain this flexibility, as many as 30% of those doing work for the company may need to be vendors, contractors, robots, or gig workers.
  • HR has a program for identifying weak managers research has revealed that often, the #1 cause of poor performance in an individual team is a weak manager. And 57% of employees report that they have left a job because of their manager, however, despite all of the damage that a manager can do to a team. Few organizations currently have a formal process for identifying weak or bad managers (Google is an exception). So, in order to be strategic, HR must create such a weak manager identification program.” Then, HR must develop strategies for fixing these managers, transferring them back to more technical jobs, or releasing them.
  • HR helps to identify each employee’s motivators and excitement factors – it has been well established that high levels of employee motivation and excitement directly improve a worker’s performance. Unfortunately, individual managers (almost without exception) know very little about the real motivators of each of their individual employees. However, HR can help managers identify these motivation factors. By creating an employee survey that a manager can use once a year to determine which non-monetary motivators drive each employee. Then, instead of trying to motivate every team member the same way. A manager can increase employee productivity by tailoring their use of motivators to the individual.
  • HR coordinates internal best practice sharing – traditionally, best practices in people management are held tightly by individual managers and HR professionals. However, if HR accepts the role of identifying and then widely distributing these proven best practices. More managers and HR professionals will fully utilize them. And that faster and broader sharing of “things that really work” will result in the continuous improvement of everyone’s people management results.
  • HR can send a crisis management team – in our topsy-turvy world where significant people management crises occur quite frequently. In order to ensure that each crisis is quickly resolved before it can have a major strategic impact. HR must have a designated and well-trained crisis management team. That will not only be able to resolve the current crisis. But that will also gather data on the best ways to avoid similar events in the future.
  • HR ensures that objective criteria are used to determine “who” should do new work – HR leaders must realize that as technology, robots, and AI inevitably become viable alternatives to “hiring people.” HR will need to develop expertise in maximizing productivity within a mixed human/robotic work environment. As the number of cases increases, a decision must be made covering whether people or robots should do any new work. HR will have to develop an algorithm that ensures that only objective criteria will be used for that decision. In addition, as a higher percentage of work is done by machines, a much larger percentage of your remaining employees will be technologists and information specialists. And because the expectations of these types of employees will be different. HR will have to develop new ways to help managers get the most out of these types of employees.
  • Complementary HR is a standard practice – currently, all too often, the different HR functions act as silos. Unfortunately, too high of a level of independence and lack of coordination often means that HR is too slow to act. In other cases, this independence may allow for unnecessary duplication or an inappropriate mix of services to be provided. So, HR leadership must have a process that ensures that each of the provided services is provided by each separate HR program. Works in unison with the HR processes that come before and after it.

    For example, HR wouldn’t qualify as being complementary. If a development plan was created for every member of a team, that was soon to be reduced by half in a layoff. And finally, managers need a seamless process from HR. One that provides individual managers with the precise services that they need without having to make half of a dozen inquiries into HR.
  • HR limits future budget cuts by revealing the unintended costs that result from HR budget cuts – HR is a function that is subject to frequent budget cuts. One reason for these cuts may, of course, be the fact that HR is not considered a strategic function. However, HR can’t have its maximum impact without sufficient resources. HR must proactively act to reduce future budget cuts. One way to do that is by demonstrating to those who make budget decisions that excessive budget cuts can create other hidden unintended costs. In some cases, these costs may actually exceed the dollar amount of the actual budget cut. So, HR should proactively develop a process for identifying each of the different areas of damage caused by previous cuts.

    For example, you can show that cutting the sales training budget last year by $100,000. Actually, over six months resulted in a $1.2 million reduction in revenue from your (now poorly trained) salespeople. Obviously, HR should work with the CFO’s office to ensure that the estimated actual dollar loss created by these unwise cuts is credible to your executives. 

Final Thoughts

One of the unintended consequences resulting from not being recognized as a strategic HR function is this lack of strategic recognition will hurt the psyche of many HR leaders. And as a result, many of them will begin to feel less valued. There is, unfortunately, some evidence that this psychological pressure may actually be occurring now. Because currently, only 51% of HR leaders feel valued by their organization’s leaders. And unfortunately, the percentage that feel valued is now much lower (it was 58% last year). 

So, in closing, I hope that this article succeeded in making you rethink your organization’s current approach to making HR strategic. And that now, after reading it, you will become an HR champion for advocating more effective and outside-the-box approaches for becoming more strategic. If that has happened in your case, I declare the mission accomplished.

Author’s Note

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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.

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