“Our #1 opportunity is to build a competitive advantage, not to build benefit plans for our organization”
–VP of HR Cisco
I’ve met/ worked for over 100 VP’s of HR and dozens of CEO’s over the last few years and although there are clearly exceptions, I’ve found that CEO’s and HR executives are like oil and water. And I see little shrinkage in the immediate future in the chasm between CEO's and HR executives. One can argue that CEO's should become more like “us”. However, it's more realistic to assume that if HR professionals are truly to become “business leaders” that they must learn to think, talk and act more like senior management, rather than vice versa.
This article is designed to make you think. It is by design critical of many in the HR profession (even though generally HR people don’t take kindly to criticism). I realize you can’t easily generalize about all HR professionals but my research and observations have shown that we are in fact different. I don’t believe it’s in our DNA but rather it’s a result of a history of promoting people with a lack of line management experience and business degrees. I've been in HR for over 30 years.
I've served as a Chief Talent Officer for a Fortune 500 company, a professor in a business school and a CEO. During that time, I’ve found that when you interview or observe CEO’s you find that they are dramatically different then “we” are. They are generally aggressive types that try to make a big splash and enjoy the direct line of fire while too many HR executives are happy as staff officers. Unfortunately, if we choose to remain comfortable as part of overhead” we may also be simultaneously degrading the importance of the “people function” to the level of purchasing, accounting and shipping.
If VP’s of HR are to become future CEO's and business leaders we need to look at our perspective, our thinking and our language and then dramatically shift it so it comes more into alignment with the approach taken by senior business executives!
HR PEOPLE ARE FROM MARS, CEO’S ARE FROM VENUS
The differences between the "focus" of CEO's and HR professionals is dramatic. This differentiation can be characterized into 12 different “degrees of separation”. They include:
I. COMPETITIVE ADVANTAGE
CEO's are highly competitive. They continually focus on the opposition and look for ways to gain the upper hand. They want to win, and win big. For example, Jack Welch the CEO of GE expects each and every business to be #1 or #2… or he will sell it off! This means CEO’s constantly do side-by-side comparisons both in business practices and results between their firm and the top ones in their industry.
CEO's continually strive to improve their own firm, while simultaneously “hurting” the competitor. HR executives couldn't be more different. For example, the VP of sales constantly tries to steal away customers from the competitor. In contrast, HR is reluctant to steal away the competitors top talent because of "ethical concerns" or for fear of retaliation. Few HR managers have done a side-by-side competitive analysis comparing “us to them”. And almost no one in HR does a monthly comparison of their results (for each HR function) with the results of each of the direct competitors as well as the top firm in the field.
HR executives also tend to have a preference toward “cooperation” and they often look at things only from the positive side. They need instead to learn how to identify the competitor's weaknesses and yes, even take actions that directly harm the competitors. This is especially true in the talent area, where there is a “war” for talent going on.
HR action steps
· Do a function by function comparison of “our” and “their” HR. Compare our people results, not just our practices
· Identify and design a plan to exploit your competitors weaknesses
· Target the competitors top talent for poaching
· Develop plans to continually improve our people practices faster than our competitors can “copy” them
· Include in the design of all new programs a continuous improvement component to ensure that the program provides us with a continuing (measurable) competitive advantage
· Hire HR people who are highly competitive and that have both business degrees and line experience (i.e., production, sales, product development or marketing)
II. REVENUE NOT COSTS
CEO's are laser focused on increasing revenues (top line growth), profit and the stock price. The measure everything in either dollars or numbers. HR executives seldom see the relationship between HR and profits, revenue and the stock price. When they do focus on money it's almost always on cost savings. For example saving HR costs (when they make a less than 1 percent of the total company’s revenues) are unlikely to have any strategic impact on the business. For example, HR often measures the cost of the hire (COH) when the COH is generally less than 5% of the revenue generated by each employee during a year.
Beware, it’s not acceptable to focus on only half of the business equation (expenditures). HR needs to focus on the “other” more important half… generating revenue, profit and increasing the stock price! For some reason HR never takes the time to measure the revenue generated by hiring and retaining top performers compared to the revenue generated by a newly hired average performer.
In contrast to the relatively minuscule HR budget over 60 percent of the total variable costs of most corporations go to people costs (salaries and benefits). However, HR routinely fails to measure or demonstrate the return on investment (ROI) that great people practices can yield. Everyone knows in their mind that recruiting, incenting and hiring top talent can dramatically increase revenues but HR has failed to quantify that impact.
"This would include… running (HR) operations based on return on investment"
–CEO of Cisco Systems
HR action steps
· Quantify the revenue generation differential between top and average performers
· Calculate your "people profit ratio" (which is the number of cents of profit generated for each dollar spent on people costs)
· Identify and target the jobs and employees that generate the most revenue and profit
· Calculate the ROI on each HR function and focus on those with a high return (and drop those with a low return)
· Shift HR resources and emphasis to programs that have a positive business impact rather than putting resources into administration, processes and other low value areas
III. METRICS, RESULTS AND SPEED
CEO's “think big and act fast”. Senior managers are driven by the need to continually produce results. They live in a world driven by quarterly results. Failure to meet the quantifiable quarterly expectations of the industry analysts and investors will have an immediate negative impact on the stock price. HR must also realize that great hiring and retention among top executives is closely watched by analysts and thus impacts the firm’s stock price.
In contrast HR people often think tactically and move at deliberate speed. HR professionals frequently acknowledge the need for speed and metrics but in reality they seldom count more than program costs. HR professionals often even consider "having a program" as an indication of success rather than focusing on actual results. Most of the HR metrics that do exist are done at year-end rather than monthly. They also almost always leave out the most important components… quality and the impact on productivity and profit.
If HR professionals are to be recognized as business leaders, they must continually measure and distribute their monthly results (as they relate to attraction, retention and people productivity) among all managers. Feelings and intuition must be replaced by data driven decisions.
"Senior management will create the opportunity for HR to take on this new role as strategic business partner but HR must step up the challenge-and do so in Internet time".
–CEO Cisco Systems
HR action steps
· Stop measuring and rewarding "process efficiency" and effort. Instead measure and reward only results and business impacts
· Compare our results to the best in our industry/ class, not to the average
· Require every major HR program to have monthly continuous improvement goals and metrics
· Always include quality and manager (employee or applicant) satisfaction in any priority thing you do
· Develop an HR “dashboard” as well as a single over-all HR index which measures the overall effectiveness of our people effort
· Monitor people productivity (dollars spent on people compared to the dollar value of their output)
· Eliminate barriers, silos, excessive meetings and the need to “build relationships”. Replace them with incentives for working together and project completion
IV. FOCUS ON TOP PERFORMERS
Top executives commit their time and resources to the products, services and customers that have the highest return on investment (ROI). They focus on developing new products with a high return and they drop the low return products. In addition, when it comes to employees, they prioritize their time and focus on top performers.
HR, in direct contrast, spends most it's time on bottom performers. It develops rules, policies and training for the average employee, rather than focusing on the needs of higher return top performers. HR, instead of firing poor performers, tries to "fix" them or give them "another chance".
HR action steps
· Develop policies and rules that are designed for "mature adults" and fire those that can not meet that standard
· Learn to segregated the wants and expectations of top performers from those of the average
· Terminate low performing employees (the bottom five percent) and all bad managers
· Drop programs that treat "everyone the same" and instead require that managers and programs differentiate, based on performance.
· Replace equity with unequal treatment, based on performance
· Become a productivity advocate (internal productivity consultant) not an employee advocate
· Assess situations where teams are effective and encourage individual decision-making in situations when it is most effective
· Shift away from the over-emphasis on inclusion and empowerment for all toward frequently including only top performers and those that need to know, in key decisions
Top executives frequently use the language of sports, competition and yes, even warfare. HR people, in contrast talk of cooperation, communities, healing, inclusion, feeling and sharing.
HR action steps
· Learn to use the language of business and competition and drop any “social work” mentality and “psycho-babble”
· Try to use business words (and numbers) like those used by the CFO and in the annual report (profit, ROI, margins, productivity, revenue growth, market share, customer satisfaction and competitive advantage)
VI. TECHNOLOGY EVERYWHERE
Although top executives can be slow in learning how to use a PC they frequently demand that technology must permeate the organization. Technology can enhance a firm’s reaction time, allow for globalization and also provide a competitive advantage. HR, in contrast, tends to focus on building face-to-face relationships and it is known for its " we like to work with people" mentality.
HR action steps
· Use technology to “force” managers and employees to become self-sufficient and to reduce paper
· Develop laptop (and kiosk) information sources to give managers constant access to all of the HR information that they need to manage
· Develop an effective Internet in order to provide 24/7 answers to questions as well as e-training
· Develop a world-class recruiting Web page in order to have a competitive advantage in attracting top talent
Top executives have learned to flourish in a world full of ambiguity and to make rapid decisions with “imperfect” information. While HR people generally prefer predictability, stability and they often delay decisions until they can get a consensus.
Successful executives vary their approach as the business environment changes. When the economy is growing rapidly, CEO’s shift their management approach to emphasize speed and time to market. In direct contrast, HR has a single approach and strategy (business partner) regardless of the state of the economy. HR needs to realize that in times of low unemployment for example (when the power shifts to the employees) they must modify their approach and treat employees differently (with more flexibility) if they expect to attract and retain the best.
HR action steps
· Include a range of solutions (rather than a single one) to fit each likely occurrence
· Learn to make 80% decisions with imperfect information and with less than total buy-in
· Hire and retain people that can work under pressure
· Modify your recruiting approach to treat applicants like customers
· In high employment times shift your retention strategy from one that expects “loyalty” to one that expects “free agents” to be constantly demanding more
CEO’s are some of the most critical people on earth. They hire MBA’s and analysts by the dozens to challenge ideas and programs. In stark contrast, HR is often “hyper-sensitive” to criticism. Internally HR often follows a “can’t we all get along” approach to foster harmony and consensus. HR professionals need to learn how to criticize ideas with data and to look at all new “fads” with a skeptical “eye”.
HR action steps
· Always include a “performance feedback loop” to check to see if what made sense during the design phase actually works
· Encourage “contras” and celebrate criticism. Treat criticism as the “engine of change”
· Approve no program without soliciting criticism
· Use “zero based” thinking to eliminate programs that can’t quantify their results
IX. CULTURE AND VALUES
CEO's look at business as a rapidly changing "game" which requires constant innovation and a focus on the future. Top executives drive change through an organization by changing what they measure, praise and reward. However, HR often views itself as a defender of the culture, ethics and the firm's values and vision. A strong culture has value but in a rapidly changing world, HR must learn to drive change by changing what they measure, praise and reward.
HR action steps
· Distribute each managers people performance metrics to all other managers within the firm (both for embarrassment purposes and to enhance learning from other managers)
· Develop HR programs that are "agile" and that can rapidly adjust to changing situations
· Use metrics, praise and rewards rather than "culture and values" to drive change
X. FUTURE FOCUSED
CEO's are constantly looking ahead. They realize that they are aiming at a moving target. They value accurate forecasts and information about "where they need to be" in six months to two years. CEO's expect all programs to anticipate the future and to have plans in place to insure that we are prepared. This means that HR needs to anticipate what our competitors HR " results will be” in six to twelve months. This includes forecasting the supply of quality talent that will be available to meet our future needs.
HR action steps
· Develop a “running” forecast of where we need to be in order to maintain our lead in people practices (results) over our competitors
· Develop "smoke detectors" to help warn managers before problems become serious
· Develop “SWAT” and HR R&D teams to respond to problems
· Develop "sprinklers" that allow us to mitigate or minimize any damage resulting from people problems
· Encourage individual decision-making and drop consensus decision-making
· Reward intelligent risk-taking where rapid learning occurs after a failure
XI. FOCUS ON QUALITY
Top executives, like Jack Welch of GE are champions of six Sigma quality improvement programs. We in HR seldom measure quality.
HR action steps
· Develop six Sigma quality assessments for HR programs
· Measure your managers satisfaction with HR's contribution toward enhancing (product) time to market and profitability
· Assess and rank “recruiting sources” that produce hires with high performance and retention levels
· Look at the quality (performance level) of those that leave our firm
XII. LEGAL ISSUES
Top executives often “hate” lawyers. They also know not to let lawyers “run the ship”. In direct contrast, HR people
>continually use the threat that "we might get sued" as a weapon against managers, even when there is little evidence of any actual probability of a lawsuit
HR action steps
· Act like a financial adviser. Give managers quantified information on legal probabilities and the related financial risks
· Develop “predictor” and prevention programs to solve employee relations problems before they get out of hand
“CEO's are comfortable managing people remotely, based on results. While HR people bemoan the loss of the “human touch”
AN EXAMPLE – HOW HR CAN ACT MORE LIKE CEO’S BY CREATING BUSINESS IMPACTS & INCREASING PROFITS
How a HR generalist can act like a CEO
One of our HR generalists has been continually working (average 23.7 contact hours a week) with the production department in order to give us a competitive advantage over XYZ industries. HR has already reached its goal of building up trust and credibility in the production department.
(Production rated us the #1 most trusted and #1 most competent of all staff functions in our annual “all staff function” contribution to productivity survey).
As a result of this high level of confidence in HR, we have been able to talk openly and work with the production team to determine their “real” problems. The production team sees (and HR’s analysis of the production data support the finding) that the surface “symptom” is the high reject rate of our products on the assembly line. However, the root cause of the reject rate is actually low skill levels in the engineer level 1 & 2 positions in machine maintenance (Employees Sullivan, Au, Wooley, Cannon, Griffin and Lau account for 99.4% of the error rates). Each error is costing us $3,457 in labor cost and wasted materials.
HR has also done an analysis in order to identify other possible “unintended consequences” of the high failure rate. HR found that the total losses are actually triple the production departments estimate. This is because the production delays are tripling shipping expenses (Because me must now use air freight more often to still get the product to the customer on time (34% increase) due to the production delay. It was also causing us to lose customers to the competitors as a result of the delays (3% loss rate).
We have an on-line e-training machine maintenance course with a 94.5% productivity improvement rate and a 18% maintenance down time reduction rate over the last 18 months. We used it on production engineer’s (level 1 & 2 positions) last year and it worked even better than the average expected productivity improvement for all positions. Our generalist noted that the production manager (Short) was on leave during the last training and that he was unaware of this training program. In order to demonstrate the effectiveness of the course we, with his approval, ran a single engineer 1 (Au) through the training last week. As a result her error rate has already improved 38% to back above the bonus standard. As a result, we recommended that the manager should enroll all of the “offending ”level 1’s and 2’s in the training (@ $2,876 each including overtime) and he has agreed. We estimate a 6 day payback period, a 98% likelihood of success and a 3,897 to 1 ROI (yes, that’s correct).
HR further recommends that we monitor the problem for 2 additional months until we can design a training program targeted to the entire production function. Manager Short has also put his learning’s about the value of the training in our company wide electronic newsletter “Things that work”, so that others can share.
The total estimated increase in profit by Short and the shipping department is $23 million over the next 6 months. We anticipate other managers will also take advantage of Mr. Shorts learning by also reviewing their training needs. This additional training should result in additional savings of $10 million. Mr. Short has also set up a joint production/ shipping/ supply team to identify other possible “connect the dots” problems. The CEO sent an e-mail to our HR VP thanking them for once again being… a business leader!
OTHER SIMILAR EXAMPLES OF HR BUSINESS IMPACT
· HR provided proven sales competency training. It had a positive ROI impact with an increase in Sales by 11%, compared to last year.
· Our “instant” job analysis system found 67 work redundancies that were eliminated through job re-design. Now it costs 27 cents less to produce each product at the same level of quality.
· Our “It’s OK to be a Follower in certain situations” training program increased team decision making quality by 15% and the speed of decision making by 26%. Product time to market has been reduced by 5% in those teams that went through the training program resulting in a 7% increase in our gross margin rate (every 1 % change equals a 7 million dollar increase in profit).
· Our new job simulation selection device is resulting in a 57% increase in the “day of hire” competency and a 38% increase in productivity for this years new C++ programmer hires compared to last years new hires (where productivity is measured by the total dollar value increase in outputs divided by the dollars spent on people costs).
· HR analyzed overtime usage patterns and recommended a solution that allowed us to hire temps for peak periods. Total compensation costs were reduced by 4% with a surprise 6% increase in customer satisfaction as a result of having less fatigued agents.
STEPS IN THE HR COMPETITIVE ADVANTAGE APPROACH
HR needs to adopt a “competitive advantage” approach if it is to move beyond being a business partner. This means taking these 10 steps:
1. Doing a competitive analysis
2. Measuring results
3. Demanding #1 or #2 ranking in key HR areas
4. Expecting at least a 10% continuous improvement rate in all key HR programs
5. Rewarding results
6. Shifting priorities and resources from low ROI programs to high ROI ones
7. Dropping HR programs that can’t prove their ROI
8. Focusing on top performers
9. Hiring HR professionals with a warrior business mentality (and skills)
10. Firing bottom performers
If HR professionals are to become business leaders and eventually CEO's, they need a radical change in focus, thinking, language and in the way that they act. HR needs to study the success patterns within organizations to see what it takes (critical success factors) to develop power, influence and to get resources. In most organizations, you'll find a significant dichotomy where CEO's act, think and talk dramatically different than HR professionals. If we are to lead the organization, we must begin acting like CEO's. That means " doing the hard things first" and doing whatever it takes to give us a competitive advantage in people practices over our competitors. HR people have moved a long way toward becoming business partners. They must continue up the ladder to the next rung, and become business leaders. The key to reaching that goal is for every HR professional to "think and act like a CEO". HR needs to stop thinking like an overhead function. It needs to adopt a “HR competitive advantage” strategy and to drive corporate change, productivity and profitability… and do it at Internet speed!