After all these years of advancing the role of the HR function within business, why are most CEOs and business leaders still dissatisfied? After the proliferation of work by scholars such as Dave Ulrich, Wayne Brockbank, and John Boudreau, one would think we would stop critiquing HR for not meeting the needs of the business. Most of us winced while reading the July edition of 2015 Harvard Business Review in which Ram Charan declared "it is time to blow up HR." Isn’t HR a strategic business partner now?
Consider these 2015 research findings: According to a study by The Hackett Group, most HR organizations are underprepared to address their enterprise’s most critical strategies and goals. Deloitte’s 2015 Human Capital Trends report reveals that 61 percent of HR leaders believe their HR programs and solutions are lagging behind the needs of the organization. APQC’s Talent Trends reports that there will be a leadership and talent shortage in 2020 due to lack of human capital and HR strategy in most companies. Additionally, McKinsey and the Conference Board recently reported that CEOs worldwide see human capital as a top challenge yet rank HR as the 8th most important function in the company.
In today’s dynamic, global business environment, CHROs must transform their HR organizations to better meet tomorrow’s business needs. HR capabilities must evolve faster than any function or the company’s organization capabilities and business could be at risk in the future. Human capital is often listed as the No. 1 constraint to business growth by CEOs today. Businesses are demanding more from the HR function. Most CHROs know that critical HR outcomes must evolve from tactical processes and program management to strategic talent management, workforce planning, innovation, and leadership.
So what’s the problem? Why are many HR functions not evolving quickly enough to make a real impact on the business? Why are business leaders losing sleep over leadership and organization capability gaps to implement their most critical strategic priorities? After 25 years in the corporate world, serving as the top HR leader for several businesses and now a consultant to CHROs across the globe, I finally get it!
HR is too focused on its programs, processes and activities. Most companies have talent reviews, performance management programs, succession planning, early career development programs, leadership development courses, and the list goes on and on. After some of the HR icons such as GE, P&G, Honeywell, and IBM figured it out and developed some great tools to elevate the conversations around talent and leadership, the entire world played "follow the leader" without really ensuring the processes and activities were right for the unique strategic context in each business. Businesses have different strategies, needs and organization capability requirements, so why do 99 percent of companies today spend so much time on a talent review 9 block that has "potential" on the Y axis and "performance" on the X axis. We should ask ourselves, is this really working? Have we truly moved the needle on talent? Further, we should ask that about all our beloved HR programs and processes.
The next culprit in HR’s slow evolution is over-reliance on external benchmarks. HR functions love to benchmark other companies on HR efficiency metrics such as cost per hire, HR-to-employee ratio, cost-to-serve, retention, and talent movement. While this may help HR functions evaluate effectiveness of various HR machinery, it is not helpful in determining if they are focused and resourced on the right things. As mentioned above, every strategic context is different. Therefore, organization needs are different and benchmarks become less relevant for guiding the HR function’s priorities. Benchmarks have a place but should only be informative and not dictate decisions on HR investments, structure, capabilities, and priorities. Too often HR gets caught up on where we stack up compared to others. This might be heresy but I would also throw "Best Place to Work" (BPTW) benchmarks in this (eliminate) bucket as well. HR functions work so hard completing surveys, developing action plans and adding initiatives to improve their rating, yet still have significant gaps in talent, leadership or organization capabilities. While engagement and retention of employees are worthwhile outcomes, rising from No. 78 to No. 57 in the next BPTW survey is not going to grow the business, beat your competition or gain market share.
CHROs have a great opportunity to strategically realign the HR function right now. The global recession is slowly creeping up, businesses are resetting their strategic plans, CEOs (boomers) are retiring, new (first-time) CEOs are taking the reins, and the war for talent is about to get worse due to the changing dynamics of the global workforce over the next five to 10 years. The world is ready for (and needs) a different HR. Maybe most importantly, CHROs carry more weight than ever and command the attention of CEOs, CFOs and boards of directors in most companies.
CHROs should consider the following steps to reposition HR’s strategic impact:
- Assess current state. Analyze business strategy. Determine strategic capabilities. Obtain stakeholder input. Assess internal HR impact
- Analyze HR capabilities. Review functional alignment. Compare HR capabilities to strategic business needs. Compare to relevant markets. Analyze strengths and opportunities
- Address opportunities. Identify HR strategic priorities. Realign structure and capabilities. Develop three-year roadmap
CHROs should take a deep look and assess HR capabilities and outcomes in the context of business strategy. Examine the business needs, determine organization capabilities and identify future talent requirements. Contrast those needs with HR programs, processes and activities. Evaluate whether these HR investments really deliver against what the business strategically needs most.
This is also a good time to reassess the HR structure and your function’s capabilities to deliver on business needs and capabilities. Disregard the typical HR structure and competency model you have in place. Determine what the future HR should be to generate new organization outcomes. This involves matching future HR competencies and resources with your business needs over anything else.
Despite the earlier rant, benchmarks can play a valuable role in calibrating overall trends, provide some new perspective or even validate financial investments. When using benchmarks, one must keep in mind that direction is more important that precision and benchmarks never tell the entire story. No two companies are the same. Your strategic context and business needs are more important than internal benchmarks. Benchmarks should help validate hypotheses not make decisions. Compare to industries and markets that you aspire to rather than where you are today.
Following a careful assessment of HR’s organization, capabilities, programs, and processes against the business strategy and relevant benchmarks, CHROs can identify strengths and gaps to address immediately. Sacred HR programs and processes should be evaluated by contrasting business impact versus level of importance to HR. You should recalibrate what HR is focused on. This a great opportunity to begin integrating analytics into the function. Abandon retrospective HR efficiency metrics such as retention, engagement and time to fill and begin introducing ways to leverage data for predicting where your HR programs and investments will have the greatest impact.
From this comprehensive strategic assessment of HR, a CHRO and his/her leadership team can build their transformation plan. This should involve a two- to three- year plan that outlines changes to HR strategy, priorities, structure, capabilities, processes, and specific investments which better align with business needs. This roadmap should include a thoughtful change management plan which considers the implications for key stakeholders, such as senior executives, line managers, employees, and the HR organization. The HR function must change if it is to truly impact the business and get ahead of strategic needs which may mean some favored programs and processes such career centers, performance management, corporate universities, talent reviews, and wellness may have to evolve or be eliminated. Trade-offs are difficult but critical.
To ensure a successful strategic realignment of HR, there should be a disciplined process and unbiased team to assess the current state and create a better understanding of business needs and expectations. The assessment should be conducted in partnership with HR leadership and key executives to ensure full transparency and shared ownership. Most HR organizations have come a long way over the past decade by reducing the transactional and operational focus to more strategic areas. The demand and expectations for HR are higher than ever. CHROs now have an obligation to ensure HR priorities, capabilities and the organization are truly aligned with what matters most to the future success of business. CEOs are asking for it!