“SHAREHOLDER ALIGNED” PERFORMANCE CULTURE PRINCIPLES GUIDING THE FUTURE OF HR
Having looked at the purpose and the service delivery model for the HR function of the future, the next phase in redesigning HR from the shareholders perspective is to establish a set of characteristics or principles that programs leveraged to fulfill the purpose will be governed by. While it has become quite common for shareholders to invest in organizations that deliver value on a social or political agenda, it is universally understood that in return for their investment, shareholders expect that their resources will be used in the most beneficial way and that they will benefit from a positive financial return.
As cold and crass as this “show me the money” mantra might sound, it is a universal characteristic of boards from both public, private, and yes even not-for-profit organizations. For public and private corporations, that means that HR programs must help the organization improve net performance enabling greater dividends or increase the market value of the organization. For not-for-profit corporations (not the primary subject of this series), it means improving the capability and capacity to achieve the organization’s mission for every dollar spent.
The overall goal of the shareholder aligned HR function of the future will be to drive maximum performance through development of a performance culture. While all corporate functions must play a role in maximizing organizational performance, the HR function must play a primary role because all innovations that dramatically improve organizational capability and capacity are the result of human derived, championed, tested, and developed solutions. While managers will continue to own day-to-day management of talent within the organization, the HR function must assume responsibility for identifying, investigating, and removing all barriers to progressive performance.
Too many functional leaders today focus narrowly on delivering process efficiency and lowering costs, both of which are of interest to shareholders. However, any investor with significant experience will attest that a broader array of more strategic outcomes including establishing market share dominance, leadership in product innovation, continual increases in revenue and market value are of greater interest.
Using this List of Performance Culture Principles
The following principles or characteristics should be used as a checklist to assess current programs, goals and processes, as well as programs being considered to replace or augment current practices.
“Shareholder Aligned” Performance Culture Principles
- Performance-based processes – in a performance culture, all critical processes within every function must emphasize, measure, report and reward performance that clearly impacts business results. Example: Within the HR function, mobility processes would need to be reengineered to ensure that individuals most likely to improve organizational performance (capability/capacity) are tapped for lateral redeployment or promotion, and that all emphasis on tenure, effort or social relationships is eliminated.
- Increase market value – the most significant, not to mention the most often tracked, component of shareholder value is market value i.e. stock price x number of outstanding shares. All programs (HR or not) that impact the acquisition, development, motivation or deployment of labor must be evaluated to determine their impact on organizational capability or capacity, both of which contribute to gains or losses in market value. Example: An employment branding campaign that results in the successful hiring of industry icons that previously would not consider the organization would be labeled as shareholder aligned if open joining the organization the icons introduced new tools or approaches that significantly improved organization performance.
- Demonstrating impact on corporate operations – while market value is the most tracked component of shareholder value, shareholders also earn direct returns via dividend payouts. Improved profit margins and revenue growth increase the pool of funds organizations can draw from to pay out dividends and demonstrate the organization is leveraging shareholder resources effectively. The HR function must demonstrate strategic impact by developing processes and using its influence to continually improve the firm’s labor ROI or workforce productivity. Here the term labor is used in its broadest connotation, incorporating all employees, contingent labor resources and outsourced service providers. Productivity should be measured by comparing the dollars spent on labor costs to the dollar value of that labor’s outputs. Example: If HR developed a process to successfully help managers to identify barriers to productivity, HR leaders could show the difference in productivity improvement between business units that utilized the process and those that did not.
- Dollarize impacts – shareholders (and most executives for that matter) have no special affection for soft impacts. As a result, HR must translate functional performance into business impact expressed in dollars. Example: Instead of reporting top-performing employee turnover of 12%, HR would report that the 12% loss of top performers resulted in increased downtime and rework required valued at $11.2 Million.
- Business problem perspective – overhead functions are typically internally focused with meeting agendas emphasizing tactical and operational issues. This inward facing perspective silo’s functional professionals and prevents cross functional challenges i.e. business problems, from being adequately addressed. In the HR function of the future, all HR activities and functional goals must be relative to business problems and opportunities that the executive committee defines as critical. These business problems might include demands for improved product innovation, revenue optimization, staving off market share challenges and improving customer service ratings. Example: Rather than adopting a recruiting goal of filling all vacant positions within 90 days, a shareholder aligned function would adopt a recruiting goal relative to a broader business goal, such as improving sales in the Midwest region by 14% in the next quarter. Within the function the goal would be expressed as decreasing time to hire for all customer facing and support positions within the region to 30 days or less, improving quality of hire by 30% (measured via monthly sales quota performance), and establishing a continuous sourcing system to ID top talent capable of replacing average or underperforming talent currently holding seats within the organization.
- Risk management – the number of corporate scandals that have rocked the financial markets is recent years is a clear indicator that it is easy to overemphasize performance and neglect control systems in place to mitigate risk. In the shareholder aligned function of the future, workforce risk management will become a much more developed practice. Long gone will be the days of haphazard verbal warnings based on non-corporate specific indicators. Instead, experienced enterprise risk managers will formally focus on workforce risks, statistically calculating the risk of occurrence and probable impact of issues such as talent shortages, key employee turnover, protocol avoidance, and excessive labor utilization.. Example: In a chemical processing plant the HR function would be held accountable for determining the risk of critical incident attributed to such factors as absenteeism in safety related roles, lack of adequate training in safety roles, protocol avoidance motivated by lopsided performance objectives/rewards.
- Prioritization – like it or not, not all roles, processes, functions and business units have the same impact on results. In the shareholder aligned function of the future HR must prioritize jobs, key roles and business units, allocating the greatest portion of its resources to tackling business problems in those areas. Example: Business Unit A, responsible for 60% of new market revenue growth may receive 40% of the total recruiting budget allocation allowing for many advanced recruiting programs designed to attract top talent while Business Unit C, a unit with counter cyclical products focusing on product line maintenance may receive only 5% of the recruiting budget allowing primarily for job board advertising and reduced employee referral payouts.
Up Next …
In this next installment of this series, I’ll share the remaining performance culture principles that will govern shareholder aligned HR programs of the future .