The business capabilities of HR

The successful contribution to the business from the HR function requires both business and human capital capabilities for balance and perspective, writes Dianne Jacobs

Is there still a gap between what the CEO/COO/division head need and what HR is delivering? Is HR moving from a cost orientation to a value-contribution orientation? Is outsourcing of HR administration tasks really giving the HR function more time to focus on adding value to business strategies and the P&L bottom line? Is this all happening at all? What capabilities do HR people need to be effective at a business level?

The corporate agenda and the HR agenda share some critical drivers:

1. Salary costs and related expenses are often a company’s major controllable P&L item with fixed and variable components.

2. Leadership skills are what sets the tone, pace and style for an organisation’s culture, strategy, change, innovation and continuous improvement actions.

3. Talent is needed for a business to grow, originate new business and achieve success – both now and in the future.

4. Performance drivers need clarity and fit with the organisation’s strategic intent to meet shareholder and other key stakeholder expectations, particularly customers.

5. Demographic changes (local and global) are impacting customer, social and workplace trends.

6. Increasing compliance and governance requirements are shaping processes.

Business-effective HR can and should make a difference to bottom line profits and performance. When HR successfully contributes to the execution of business strategy it can impact the organisation’s capability and therefore influence shareholder value or market value.

When financial analysts make an investment recommendation on a company, they take into account factors such as the quality of management, credibility of corporate strategy, innovation capability, the ability to attract and retain talented people, management expertise and the alignment of compensation. Now this sounds very similar to the factors that belong in a good HR strategy.

For an organisation to remain competitive it needs to be relevant – both in terms of what it does and how it services its customers and other key stakeholders. The same applies to HR. HR relevance requires a balanced set of capabilities that include not only the traditional HR competencies, but also business-orientated capabilities.

So what does all this mean for HR professionals? The challenge is for HR to integrate itself both managerially and strategically within an organisation so that its advice meets the needs of the business and that the ‘language’ it uses is what the business understands.

HR professionals should ensure they have the following capabilities:

1. Business and financial acumen. This is knowing the firm’s business drivers, markets, sources of revenue and cash flows, competitive threats, what builds the lines on the P&L and the associated triggers behind the performance ratios. It is not just controlling salary costs. It also means helping operating managers either prepare valid budgets or understand expenditure for HR-related activities, including talent acquisition and learning programs. Often cross-functional experience is difficult for HR executives to add to their resumes, but demonstrating business acumen may help provide a bridge.

2. Insightful solutions to line management problems come about by being visible and close to the business units so as a HR professional you can either anticipate changes or at least act quickly and with flexibility when they occur. Credibility of HR solutions comes from collaborative relationships with executives and where outcomes can include a balance of good business and good people management approaches.

3. Leadership skills relating to the HR function are important, but so is being part of the organisation’s management team. HR executives are often good facilitators – but the danger is that this may be seen as being reactive rather than proactive. So take the lead by helping the senior executive team build and develop the leadership pipeline, by working together on continuous and proactive talent management actions including leadership development programs, talent mapping and succession planning.

4. Project management is about the ability to execute and follow through on key projects or becoming the ‘broker’ on such things as sourcing talent, learning or professional development.

5. Consulting to the business includes giving sound and commercial advice with respect to functional and business performance issues, strength of the culture, emerging trends, gaps in the quality of the team or fault lines in key issues such as service delivery or team retention. It’s also having the skills to originate an idea or proactively pitch on new concepts that will truly add value rather than running with the current ‘fad’.

6. Measurement skills are critical. Numbers are the vocabulary of businesses. All companies track revenue, profit, return on investment (ROI), return on equity (ROE), expenses relative to revenue and other ratios. Employee attitude surveys are used to monitor employee satisfaction. The HR scorecard – its measures and its management – is a key business contributor.

The successful contribution to the business from the HR function requires both business and human capital capabilities for balance and perspective. HR functions are a key driver of an organisation’s employer of choice position and the associated strategies to attract, develop, reward and retain talent. In reality, this is HR’s most critical competency and business capability.

Dianne Jacobs is principal – Human Resources for Goldman Sachs JBWere. Email: [email protected]