Monday, 9 July 2007

HR's role in strategic people management

Many of the recent blogs I have been reading refer to Deloitte's latest study, Aligned at the Top. The study concludes that ten years after 'HR Champions', HR is still more focused on transactional activities and HR operating efficiencies than on high level strategic people issues.

First the good news: 85% of executives responding to the survey consider people to be vital to every aspect of their company's performance. Executives' top concerns are creating a high performance culture (76%), talent management (76%) and training (63%).

However, the executives' concern about people is not translated into increasing importance for HR. In fact, the HR function, which executives believe is concerned with activities such as reward and benefits, performance evaluations and HR operating efficiencies is often seen as being unconnected with how a business will deal with key strategic HCM challenges such as talent management, workforce productivity and leadership development.

No surprise then that only 16% of HR executives believe they are highly valued by their business colleagues. The researchers note that "It's a stunning paradox that HR is not being looked to for leadership on the people agenda".

Business executives seem to understand that HR should have a more strategic role: only 4% of executive describe their company as world-class in people management and HR. 46% state that their capabilities are adequate but need improvement and 31% say that significant improvement is needed in HR. European HR functions score lower than US and Asian functions.

But the executives seem confident that HR can rise to the challenge. 82% expect HR to be perceived as a strategic, value-adding function within the next three to five years.

Will it? I suspect that if we had asked the same executives the same question ten years ago, we would have received the same response. So what's going on, why is it taking HR so long to occupy the sort of position that the strategic importance of people management suggests it should?

As the pie chart from the report shows, HR rarely gets involved in the formulation of strategy. Most HR functions don't even
try. Take this quote from one of the Chief Human Resource Officers (CHROs) quoted in the report: "We're not driving the strategy or the business, but it's our job to clear the path to make the strategy easy to implement." Well if that's the scale of our ambitions then we should not wonder about the other findings in the report.

If people really are a company's most important asset... if, as I argued in my
last blog, people really are the key source of competitive advantage, then surely people management, and HR, need to be involved in developing business and HCM strategy.

I think that HR's mindset about its role is often its greatest constraint. If HR sees itself as a support function, then of course that is what it is going to be.

Most HR functions simply don't have the ambition to take advantage of the strategic opportunity that HCM provides them. They aim to be more like other business functions (particularly Finance), to talk the language of business (finance), to be comfortable with metrics and analysis etc. One of the CHROs quoted in the report (very probably the same one quoted above) explains that "To be a CHRO, you have to be a business person first, and then an HR executive second. You absolutely have to know how HR fits into the business, and you can't know that unless you know the business."
The Evil HR Lady makes a similar case in one of her posts.

I'm not arguing that HR shouldn't be up to speed with the business; of course, it needs to be. But it also needs to do much more than this if it's to play a fully strategic role. Take this quote from Jeffrey Pfeffer in Human Resources Management
in 1997:

‘Equipping human resource managers with additional analytic tools and language is all to the good, as far as it goes. In the end, however, all one accomplishes is being a more skilled player at someone else’s game. By so doing, one buys into the ultimate sensibility and reasonableness of the basic measures and ideas in the first place; this is often a mistake. Being skilled at the wrong game is not a very promising strategy for either the company or the human resources function. It is unlikely that human resources will ever be able to win playing the number games against those with much more experience who also get to set the rules. Even if they do win, the victory may have extracted a large cost in terms of losing the distinct perspective and competence of human resources in the process of becoming like other staff functions… If all human
resources becomes is finance with a different set of measures and topic domains,
then its future indeed is likely to be grim.’