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Part One
Transforming HR
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Chapter One
Being Leadership-Driven
In today's highly competitive marketplace, many businesses are searching for new directions and are transforming their way of working. HR is on the same journey and is changing dramatically, too. HR professionals must find innovative ways to transform and deliver value for their businesses.
The challenge to HR is for it to unleash its own potential to gain insight and to discover new ways of delivering value. HR must go beyond simply breaking the past mold, which is useful but also a reaction to the former ways of doing things. Rather, enlightened HR leaders need to investigate the current situation in their business without constraints or assumptions and seek wise ways to transform in order to deliver value. With this kind of transformation, the business will view HR as a key asset in its formula for success.
Currently, not all businesses view HR as able to help them transform. These businesses relegate HR functions to transactional internal services with a primary focus on compliance and control. This is not entirely surprising. In the post-Enron and Sarbanes-Oxley era, HR has been inundated with new regulations and legislationsâwith a renewed focus on risk management. In the post-9/11 world, HR professionals are expected to have expertise in workforce management, screening and orientation of new hires, and physical and other security issuesânot to mention new laws regarding violence in the workplace, bullying, and safety.
The new emphasis on compliance has affected more than just HR. Many industries have established new benchmarks for privacy, information and knowledge management, process documentation and controls, contract management, strategic alliances, and mergers and acquisition management. In addition, two other functions within businessâfinance and legal departmentsâhave benefited from the new regulatory and governance controls that have increased the profile of the chief financial officer and the chief legal officer to mitigate financial and legal risks for their businesses and ensure compliance. Consistent with the finance and legal developments, HR is expected to emphasize its control and compliance accountabilities to ensure that the business is compliant with legislated, regulatory, and policy-related human resources issues.
At the same time, HR has grown substantially as a profession and as a strategic asset for many businesses. Many HR professionals are able to contribute strategically and operationally to many people and organizational capabilities including business strategy, culture, change, ROI, resource allocation, talent management, and leadership capacity development.
One might think that the two perspectivesâHR as a key strategic asset and HR with a focus on complianceâwould function as a continuum and that many HR organizations would fall somewhere in the middle. However, it appears that business executives tend to lean either toward one perspective or the other, and that HR (as a function) tends to be perceived as either more strategic or more compliance-oriented.
It is not a sustainable solution for businesses to limit HR's contribution to compliance and security. HR needs to deliver value in both areas: strategic growth and compliance. Rather than seeing compliance and growth as conflicting priorities, HR needs to embrace both. HR should demonstrate that it can manage the risk associated with potential loss and at the same time mitigate risk associated with not fulfilling the potential of its talent and organization. A business needs continuous change and consolidation to happen simultaneously in order to survive and thrive. Becoming stuck in the compliance perspective without positive change can be a source of long-term problems that will eventually result in loss of market share, shareholder value, and key talent. The HR role includes both protecting the business and fostering continuous and managed change to help the business and its leaders succeed.
Leadership-Driven HR focuses on how HR contributes to transforming the business and its leaders, as well as how HR needs to transforms itself in the context of an environment that has grown in its emphasis on compliance and control. When HR focuses on being leadership-driven, it makes a major contribution to the business.
Areas of Transformation for Leadership-Driven HR
- HR as a driver of business leadership.
- HR drives value through leaders.
- HR is driven to lead.
HR as a Driver of Business Leadership
HR's role is to champion the people and organizational capabilities that are necessary to help the business succeed in today's rapidly changing market. HR has always been expected to excel at people capabilities, which refers to the flow of people through their employment life cycle. However, the expectation to excel at organizational capabilities, which refers to the flow of work through the business, is more recent. Leadership-driven HR professionals take accountability for both people and organizational capabilities as drivers of business leadership.
For HR to be a driver of strategic business leadership, it must take an âoutside-inâ perspective rather than an âinside-outâ perspective. An outside-in perspective means that HR focuses on the business and the value that the business creates for its external customers, and then uses those insights to determine what HR should do to deliver business value. With an inside-out perspective, HR looks at itself and decides what the business needs based upon its view of the right things to do. Leadership-driven HR emphasizes the outside-in perspective. This means that HR is driven by the external context within which the business operates and that outside perspectives determine HR's internal priorities and accountabilities.
An essential way for HR to identify the outside-in priorities of the business is to understand the business risks and then to consider their implications for the HR focus areas. Risk refers to both the business scenarios where something damaging could occur as well as areas where there is a high likelihood that the business will not fulfill its potential. HR's strategic role is to understand these areas of business risk, identify the people and organizational aspects of those risks, and take accountability for implementing solutions that mitigate those risks. The term âmitigate risksâ is carefully used to mean that HR should take accountability for reducing the business-scenario risks from a damaging level to an acceptable level. In most cases HR does not need to take accountability for removing the people and organizational risks entirely; it just needs to reduce the risks to an acceptable level.
Here is an example of how HR can deliver strategic value for a business so that it is able to lead in its new direction in a public sector context:
There have been many changes in the global marketplace, within industry, and within governments that have had significant impacts on the role that HR can play in driving business leadership. These changes have also had implications for the meaning of what is âstrategicâ for businesses and government agencies.
In the current business climate, most executives are unwilling to take a long-term strategic investment perspective. They do not believe the world is stable enough to ensure that a long-term investment will pay off. Longer-term strategies assume a stable or predictable business and global environment. In a radically transforming public and private sector environment, the future is unknown and almost unpredictable. Therefore, executives demand a much shorter-term focus and more immediate return on their strategic investments from both a business and a people perspective.
In today's market, businesses strive for a strategy to rapidly increase revenue while decreasing expenses simultaneously. The new operative definition of strategy focuses on the following:
- Gaining sustainable competitive advantage: These are initiatives that differentiate a business from its competitors and that are sustainable for a meaningful time period. The length of time to sustain the advantage varies from industry to industry. For example, in the high-tech industry a two-month sustainable advantage makes an initiative strategic, while in the pharmaceutical industry the length of sustainable advantage would be much longer.
- Achieving competitive parity: For each business that is ahead of the competition, there are multiple businesses trying to âcatch upâ to the leader to neutralize their advantage. Initiatives that are based on catch-up strategies focus on achieving competitive parity, or being âon parâ with the leader.
A similar definition of strategy is used in the public and not-for-profit sectors. However, instead of a focus on the competition, the focus is instead on the appropriate comparators. Comparators include best practices, standards, and organizational goals. Strategy in the public and not-for-profit sectors is defined as:
- Gaining sustainable comparative advantage: Initiatives that gain a comparative advantage against the defined appropriate comparators are considered strategic.
- Achieving comparative parity: For every leader in the public or not-for-profit sectors, there are many that need to catch up. Initiatives that focus on achieving comparative parity focus on neutralizing the comparative advantage of another jurisdiction over the performance of the local public-sector or not-for-profit-sector organization.
Traditional HR activities such as recruiting, employee relations, compensation, and training are necessary but not sufficient to help businesses thrive in the new competitive marketplace. If this is HR's only focus, executives will miss out on the greater contribution that HR can provide. HR as a driver of business leadership concentrates on providing strategic value that contributes to the business by gaining sustainable competitive/comparative advantage or parity.
HR Drives Value Through Leaders
Historically, HR has looked at its ratios of how many HR professionals it has in relation to the number of employees within the business. A typical ratio of 1:100 was the benchmark for many years. However, with the advent of centralizing HR transactional services, shared services, outsourcing, and technological deployment of various HR administrative services, HR is now able to deliver similar, and sometimes better, service with far fewer HR professionals. Some organizations report ratios of 1:500 which means that HR has had to transform radically to deliver value with so few staff.
Organizations have to transform how HR delivers value in this new reality. One major feature of the transformation is that HR's focus is no longer on direct service delivery to employees. Rather, HR drives value through leaders who take accountability for people leadership. In this way, although HR may have a 1:500 ratio of HR professionals to employees, they actually have less than a 1:100 ratio of HR to people leaders. This is similar to the former ratio of 1:100 that HR had to employees. In order for HR to deliver value with fewer staff, people leaders must be effective enough to manage the other four hundred people. At the same time, employees must maximize their self-reliance so that the people leaders' responsibility is reduced. HR then must become a center of excellence that guides the leaders to function as people leaders and maximizes employees' self-reliance. The three core elements of how HR drives value through leaders are explored in this section.
Three Core Elements of How HR Drives Value through Leaders
1. All leaders are people leaders.
2. All employees are self-reliant.
3. HR is the center of excellence in people and organizational capabilities.
1. All Leaders Are People Leaders
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