Being Strategic Means Taking Ownership And Being Accountable
Almost by definition, strategic people assume responsibility for getting things done and for producing results. For example, CFO's assume responsibility for financial systems, CIO’s for information and computing systems and the head of retail operations for producing retail sales results.
Individuals in HR claim that they are "strategic partners" but for some curious reason, they almost universally fail to accept the actual responsibility for producing strategic "people results". The reasons that HR professionals generally give for not accepting responsibility for people results can generally be grouped into two categories. They are:
- We have no control over what managers do, so it's not fair to hold us accountable.
- We're just administrators not decision makers or a profit center. Key people decisions are made by top management.
Let’s start with the “no control” issue to see if it's valid.
Argument #1 – We don’t have total control, so holding us accountable is unfair
No Strategic Player Ever Has Total Control
It is certainly true that HR does not have total control over all aspects of people management. HR serves as only one part of a joint effort, along with a senior executives, line managers and even employees. The question then arises, is it fair to make HR accountable for people management results?
Many people equate being strategic with having a formal authority or control but there is really no automatic connection between the two. Strategic individuals don't always have as much power and control as they would like and almost no one has total control over their functional areas. . For example the CFO takes responsibility for all financial actions but they, in fact, have little direct power over how money is spent on a day-to-day basis. Managers routinely go "over budget" and others managers frequently violate financial guidelines but in reality, the CFO has no real power to punish individuals or departments that violate financial guidelines. Yes, you might think that CFO's have total control over budgets but in fact, all budgets are reviewed and approved by the executive team and the CEO. CFO really just implements budgets. In most cases the finance department doesn't even formally own or even possess the funds that they must take responsibility over. The lesson to be learned here is that, despite the fact that the finance department lacks total control over financial matters, it still accepts the responsibility and accountability for financial results. Unfair perhaps, but they don't whine about it. Instead, they realize that everything in business is a team effort. Instead of expecting total control they realize that most of their "power" comes from educating and influencing others not from any formal authority to fire or even punish individuals that violate financial standards. In short, what CFO's do is take responsibility upfront for the things that they have determined to be important and strategic to the success of the organization, even though financial managers do not have total control or power over the entire situation.
Let's look at another example. Store managers in a retail chain like Starbucks have little or no control over the product mix, the prices, the brand, the location or even the wages they can pay. It’s clear that they depend heavily on the decisions of others. In spite of their limited control, they still accept accountability for store sales and profit. If they don't succeed, regardless of corporate regulations and constraints, they are replaced. But rather than whining about their lack of control, store managers learn to accept that they must produce results no matter what. In short, they are accountable without total control. The same can be said for advertising, where a great campaign can fail to produce results because of inappropriate pricing or a weak supply chain. In the same light, individuals that manage the supply chain don't have total control over suppliers, the weather or transportation tie-ups. But all except responsibility and accountability for producing results.
Now let's shift to the HR situation. It's a fact that expenditures on wages, benefits and HR department costs often average 60% of total variable expenditures for a firm. No one can argue that it's a huge expenditure of money but who is responsible for ensuring that this expenditure produces great results.
Are Line Managers Responsible?
You could argue that line manager should be responsible for people results, but if you did, it would be difficult to find more than a few line managers that would agree with you. Certainly most line managers almost automatically blame HR for handcuffing their ability to produce results with their people. If HR believes that line managers should be responsible, it is certainly within their power to design metric and compensation systems that hold them accountable for producing great people results. However, in less than 40% of firms are managers actually held accountable (where they are measured and rewarded for great people management results). And since HR controls the compensation and reward system, it seems clear that even HR doesn't believe (at least in the remaining 60% of the firms) that managers should be accountable for people results.
Is Senior Management Responsible?
The next logical group to shift the accountability to would be the CEO and the senior management team. It's generally true in organizations that the senior management team does make decisions on the overall compensation, employee headcount and HR budgets but those decisions are made in conjunction with the VP of HR. However, it is also true that the Board of Directors sets the CEO’s measurement and reward criteria and great people management or people productivity appears in the assessment criteria only in rare cases. When you talk to CEO's, they expect all senior-level executives to take responsibility for the functions they oversee. CEO's expect finance to produce financial results, production managers to increase production results and for supply chain managers to get the product on the shelves. So the question arises, why should the VP of HR (who we all would agree now has a seat at the executive table), be exempt from being responsible for their functional area, i.e. producing great people results?
HR Must Be Accountable
The key lesson to be learned from this analysis is that the CEO expects people that lead a function to be responsible for the results of that function. This is clearly true for line functions but it is also true in such overhead areas as finance, supply chain and yes HR. Executives in HR further add to the confusion by demanding a seat at the table and by proclaiming themselves business partners while simultaneously failing to step up and to clearly and publicly accept responsibility for producing great people results.
It has been a long tradition for non-strategic individuals in HR to 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 means moving beyond taking responsibility for "your own operation" and instead taking responsibility for the "results" even though these results may occur outside your functional organization. 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 have the courage and foresight to assume the "captain of the ship" role you must move beyond accepting responsibility for the operation of HR departmental processes and you must add to that the broader responsibility for the actions and the performance of the employees, which were hired, trained, developed, rewarded and appraised by those processes .
Everyone else at the executive table has long ago gotten past the issues of lack of control.
It's time for HR to realize that no critical business function, whether it be line management or overhead has more than partial control over processes, decisions and resources . Like all other critical business functions, HR must get results through other people and other functions. In short, HR must assume the "captain of the ship" responsibility for producing great people results in spite of, or with the help of line managers and senior executives. Obviously HR doesn't have literally the power to force managers to act correctly or to force the CEO and the executive team to make the "right" decisions on compensation, headcount and HR budgets but the CIO, CFO and head of supply-chain don't have that power either.
You Can't Reap The Rewards Unless You Accept The Responsibility
In order to take credit for something you have to take responsibility for it first. The corollary to that 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 productivity improves, HR can in turn take credit for that accomplishment. Unfortunately, all too often HR professionals want to take credit when productivity is high but they don't want to take the blame and the responsibility when it drops.
Other senior functional heads long ago learned to accept and even demand accountability because they realized that accepting responsibility is a requirement for being strategic. They further realized that even though accountability can mean blame and criticism, on the positive side, accepting responsibility can also mean praise, recognition and rewards for producing great results. In fact, anyone in HR with compensation experience should be the first to recognize the fact that with increased responsibility and accountability (i.e. Hay points), come increased base pay, bonuses and promotional opportunities. Perhaps one of the reasons that the VP of HR has become a "terminal job" (where if you move beyond it) is because all of the jobs above it require clear public accountability for producing results.
Education, Influence And Persuasion, Not Control Are The Keys To Success
The conclusion that great HR leaders must reach is that they will never have complete power or control over people issues. They must realize that they can only succeed with the help of others so they must learn from other "accountable" senior executives what approaches and tools that they use to get the results they need "through others". Some of the tools that HR must learn to utilize in the absence of total control include:
Educate managers — Educating others that the importance of great people management in producing business results. This includes quantifying the dollar impact of great versus poor people management.
Rely on metrics — Providing metrics that demonstrate that they cannot meet their individual departmental goals unless they are effective at managing people (i.e. Great people management is a critical success factor in business success). HR must demonstrate that the most successful managers follow HR's recommendations and that the least successful ones suffer when they take another course.
Become an expert – demonstrate to line managers and senior executives that you are truly an expert in business problem solving. In addition demonstrate you are an expert in preventing and solving people problems and in getting increased productivity. Learn to use persuasive arguments and how to build strong relationships in order to influence managers to adhere to HR guidelines and recommendations.
Provide comparison data — Provide the senior executive team with benchmark data demonstrating how the leaders in their industry fully fund HR programs and initiatives. Also demonstrate the economic costs of "underfunding" HR.
Become a consultant — Stop being an “HR cop" and instead become an internal consultant with the same credibility of a McKinsey management consultant. Instead of constantly yelling at managers and telling them "you might be sued", instead provide advice, data and information that support your case. Just like an external consultants must do, learn how to influence, cajole and persuade managers that you are an expert and that following your advice is the only way to get great business results.
Change the reward structure — Nothing will get line manager's attention faster than changing their compensation and bonus formula to include employee engagement and employee productivity measures. By making them share some accountability, while simultaneously rewarding them for results you will increase their interest and involvement in people management issues. Changing their reward structure makes them more of a partner" than an adversary. In the same light, the entire HR staff must have their pay at risk based on continually improving people management results.
Act like a P&L manager — Demonstrate that you have "skin in the game" by demanding that the bonuses of senior HR executives be directly tied to the firm's people results. By putting your pay and the HR budget at risk (based on performance), you demonstrate that you are like other managers and are willing to "put your money where your mouth is".
Make a public declaration — And last but not least, standing up and declaring you are responsible and accountable for producing great people results is essential to building your credibility. This has the effect of demonstrating that you are not a sideline "overhead" player but instead, it demonstrates you are willing to except responsibility for success and blame for failure. This assertion makes HR equivalent to P&L managers and other highly respected strategic individuals who also accept accountability without total control.
Strategic individuals "find a way" to influence others. No single approach will work for every manager and situation, so HR must have a variety of approaches and influence tools. Remember, the ultimate goal is to influence people that "don't have to cooperate” to instead work together as a team in order to produce the desired strategic result.
Taking responsibility and being strategic go hand in hand.
Argument #2 – We are just administrators not decision makers or a profit center
The second argument that HR professionals frequently make in order to avoid accountability for producing people results is that the HR function is an administrative or overhead function and as a result, it does not make decisions. In the first place, declaring yourself as an administrative or overhead function, almost guarantees you can't be considered strategic. By definition, overhead functions are important but they are tangential to business success, so it is a strategic mistake to ever declare that you are primarily an administrative function. Such a declaration not only lowers your status but it might inevitably lead to the outsourcing of your function because it is becoming common practice to outsource all administrative or non-core functions.
Other "Overhead" Functions Have Successfully Made The Shift To Profit Center Status
Other formally "overhead" functions have recently shaken that degrading label and have emerged as primary contributors to corporate profit. For example, supply chain used to be known as purchasing, warehousing and delivery, all secondary overhead functions. However, unlike in HR, the leaders in these areas realized that even though they were all too often classified as overhead, that they were in fact a critical contributor to business success and profits! You need to look no further than Wal-Mart and Dell which openly declare that an effective supply chain is “the” critical business function in organizations. Incidentally, the total budget expenditure on supply-chain is relatively minuscule compared to the amount spent on people, so our potential business impact is much higher. Other "formally" overhead functions that have successfully made the transition to key business contributor include six sigma, customer relationship management, product branding, lean manufacturing and even PR.
Demonstrate Your Impact In Dollars
The key lesson to be learned here is that there are many formally overhead functions that have shaken the "administrative label" and have found a way to become recognized by everyone as profit centers. But it takes more than talk to make the transition. Other critical success factors include the extensive use of objective metrics, technology and the ability to convert the results into dollars. To HR that means that it must demonstrate to senior management the dollar differential in output, revenue and profits between divisions that utilize excellent people management tools and strategies compared to those business units that take another approach. By demonstrating how great hiring, the retention of key individuals, increased motivation, continuous development and the internal movement of individuals can impact the bottom line; HR can also become recognized as the latest and the most important profit center.
Measure And Improve Workforce Productivity
Productivity is a measure that can be used in all functions. It is relatively easy to calculate and it is also easy to compare productivity between diverse business units. The key productivity metric that top management should learn to expect from HR is a continual increase in workforce productivity.
Workforce productivity is merely the ratio of dollars spent on “people” (all employee salaries and benefits as well as all HR department expenditures) versus the output produced by these employees. Some use a simpler revenue per employee measure, but in any case, it's easy to demonstrate any improvement or decrease in workforce productivity. Workforce productivity has an added value in that it can be used to compare organizations in the same industry. In fact, it's not unusual for top performing organizations in an industry to produce two to five times more "people productivity" than average firms in the same industry (Dell for example produces nearly $1 million in revenue per employee). We all know intuitively that great people management makes a difference in business results, but if you want to be a strategic player, you must go beyond "thinking and believing" and instead, you must demonstrate in dollars the impact of great people management practices on an organization's bottom line.
Strategic HR professionals accept this responsibility even though it is clear that they don't have total control or direct ownership over all people decisions. 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. HR’s situation is really no different than the supply chain environment where managers must educate, influence and cajole suppliers and vendors, over which they have little direct power or authority.
Tactical people take responsibility for operating systems. Strategic individuals take responsibility for producing results!
Becoming The "Chief People" Advisor" To The CEO
Before leaving the topic of accepting responsibility for all people management, it's important to determine if there should be any limits on that "responsibility and ownership". I add this important note because many individuals in HR assume that their people results responsibility goes only in a downward direction (toward line managers and employees). This means that while some vice presidents’ of human resources have learn to accept their responsibility for the people and systems "below them" few even consider the responsibility "above them".
The key issue here is should the Vice President Human Resources seek out and assume the responsibility for managing their peer vice presidents and the senior executives of the corporation? Obviously these high-ranking individuals are also employees so should a VP of HR be so bold as to accept responsibility for improving their productivity. It is certainly true that the CFO doesn't limit their advice to "underlings", so should the VP of HR accept the responsibility for advising the CEO on the management of their executive team, 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 in many cases that CEO's are not great people managers. Most CEO’s don’t get promoted to that level based on their strong people skills (or more VP's of HR would become CEO's within their own organization). There are numerous accounts of CEO 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. Yes, the VP of HR is but one senior executive on the team but they are also likely to be the person with the most skill in managing people and team performance. I only know of a handful of VP's of HR that accept this ultimate responsibility for managing up but those handful of individuals that have accepted that role are, without a doubt, the most strategic and impactful of the VP's of HR that I've ever encountered.
Did HR Sink The Titanic?
Let’s look at an admittedly outrageous example to further demonstrate the need for HR accountability. If you were examining the sinking of the Titanic would you say that the captain, the navigator or the lookout was at fault for the sinking? Before you make a quick judgment, take a step back. Remember on the Titanic there were no equipment failures or unusual acts of nature. The sinking was series of failures caused by human error. Who should be held responsible for failures by humans and the management systems that direct them? If you guess, as most strategic individuals do that HR is responsible for the performance of the crew, it's not a far stretch to assume that HR was responsible for the sinking of the Titanic. After all, who was responsible for hiring, training, setting performance standards, determining staffing levels and developing performance management systems? And yes, of course management shares some joint responsibility but when you think strategically you invariably come to the conclusion that when the "people management aspects" of the organization fail to perform, that a major part of the failure needs to be "owned" by the only individuals with the in-depth knowledge in the management of people resources… HR.
I hope that if you have learned only one thing from this article, it is that it is an oxymoron to have a "seat at the executive table" and at the same time to expect to be exempt from the rules of accountability that all others at the table must share. Yes, it's true that HR must produce its results by working through a wide variety of individuals and organizations, over which it can exercise very little control. I am the first to acknowledge that producing great people results requires working with great numbers of "difficult" people including managers, employees, union reps, lawyers and senior executives. But the fact that the job is complicated doesn't make it any less important.
Intuitively, each of us in HR already knows the importance of great HR but that view is unfortunately, not always shared by senior management. HR has a long and messy history of suffering through crushing staff and budget cuts which can be attributed, at least in part, to our lack of willingness to stand up and be accountable. With the growth of outsourcing, there is no better time to assume the role of the manager and owner of the most important assets in the corporation. It’s also the most expensive asset but at the same time, it is the one with the highest potential return on investment.
Now is the time to stop arguing over the difficulty of assuming accountability for people results. The time has come when we must cast off the administrative and overhead labels that we have carried so long and the tired "lack of control" excuses that go with it. We are now faced with the opportunity to become the most powerful profit center in the organization. Unfortunately, it may be a short-term opportunity because the other option looming on the horizon is being outsourced because we were deemed a non-core function with no direct impact on the bottom line.