Contributors

The Real Transformational Value of HR

HR effectiveness should be about improving people in the workplace and not just the administrivia.

by Scott Golas

Glancing through the HR and business press, you’ll find a proliferation of articles extolling the value of human capital and human capital management. In the past several years, both the frequency and adamancy of these messages have grown, with good reason. The intuitive sense executives at some of the world’s most successful organizations have had for years—the same sense that has driven them to create the “good-place-to-work” status widely coveted by organizations and widely covered in the business press—is supported by overwhelming quantitative evidence that the right alignment of human resource practices to business strategy can add value. There are numerous studies such as those by NelsonHall, Watson Wyatt, and Huselid and Becker (1998) on human capital effectiveness that effectively argue:

  • Business-congruent human-capital practices are leading—and not lagging—indicators of financial performance. Data indicates that effective human-capital practices drive positive business outcomes more than positive business outcomes lead to good HR practices.
  • Shareholder returns at companies with business-congruent human-capital practices are at least three times those at companies with disconnected practices. During the economic expansion of the 1990s, that performance (stock appreciation and dividends) was significant but not nearly as large.
  • Human-capital practices are not created equally. There are those that create substantial value, and others that diminish it. Companies must examine HR initiatives to ensure they are adding shareholder value.

Still, very few individuals outside HR seem to be buying this message, leaving HR in the awkward position of justifying its position on the leadership team. This is in part because an artificial wall has been erected between HR and “operations,” a wall that continues because of the attitudes and practices of HR professionals. In their headlong dash from the administrivia comprising their current responsibility, these professionals have rushed past their most powerful trump card: the people. Everything that any company produces, all of the value created, is achieved through the actions of those people.

Of course all companies have physical and financial assets—the infamous “goodwill,” contractual agreements, and intellectual property—but all are inanimate elements. Its value comes from what its workforce does with those assets. The cycle of identifying opportunities, developing plans, building relationships with external resources (outsourcers, vendors, etc.), building internal capability, and executing activities is based on the effectiveness of the people.

Effectiveness at each step is governed by factors such as market knowledge, interpersonal relationships, and quality. These, in turn, are determined principally by the attributes and resources of the workforce, and by the organizations and networks they create and belong to. The capabilities, abilities, relationships, tools, and organizational structure of a company’s workforce are what determine results.

As data supporting the link between human capital and shareholder value has mounted, HR professionals have sought to use this as a wedge into their organizations’ senior leadership teams. That doesn’t mean HR deserves a seat at the leadership table. In spite of data, HR professionals have a poor track record in meeting stakeholders’ expectations. No matter how illustrious the strategic thinking, unless the basic needs of their organizations are satisfied, HR professionals will not be viewed as competent members of the organization.

The end game has been to improve HR’s recognition as strategically important at the C-level and to become “business partners.” HR’s strategy has been to minimize the traditional role of administrative, transactional, and resource-intensive processor in favor of increased attention to a business advisor role. To date, the HR community has only been able to talk about what must be done.

The results a company achieves are directly proportional to the effectiveness of its people in developing and executing the company’s core business. Worker effectiveness is determined by their organization, knowledge, and tools. HR is well qualified to improve worker effectiveness. A company will do best if HR focuses on improving the effectiveness of real work, not just improvements in administrative processes.

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