Accountability in Human Resource Management

Connecting HR to Business Results

Jack J. Phillips, Patricia Pulliam Phillips, Kirk Smith

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138909953
• eBook ISBN: 9781317437192
• Topic: Business
• Subtopic: Human Resource Management
• Index: Business

From selection and assessment, to training and development, and reward management, all HR functions have an impact on an organization. Ever-present budgetary pressures mean that there is perpetual competition for resources, so HR departments must be able to account for and justify their contribution to the bottom line.

This practical text presents a results-based approach to HR accountability, which explains how to:

• Uncover and monitor the costs of HR programs
• Develop programs emphasizing accountability
• Collect data for evaluation
• Measure the contribution of human resources
• Calculate HR's return on investment

This new edition is fully revised and updated to reflect developments in the field, such as the rise of talent management and the increased role of technology in HR measurement, and is supported with international examples throughout. New chapters have been added to address business alignment, HR scorecards, analytics maturity, and international applications of the methodology. Case studies, tool templates and lecture slides are provided as online supplements for HR practitioners and students.

Accountability in Human Resource Management 2nd Edition is a complete and detailed guide suitable for HR professionals and students on advanced human resource management courses.

Part I
Setting the stage for accountability

1
The need for results from HR

This book focuses on the process of, and the techniques for, making Human Resources (HR) accountable and measuring the contribution of the HR function. It demonstrates methods to determine whether the investment in human resources produces a return. It explores the issues that affect results. This initial chapter provides the foundation by reviewing the basic need for the HR contribution to be expressed in terms that executives can understand.

The pressure is on!

During the last decade, the HR function experienced drastic change in its role, status, and influence. Some HR executives recognized the change and stepped up to the challenge. Many have not. A recent article from The Straits Times (Singapore) had an interesting title, “HR Must Do More Than Hire and Fire.”¹ Most agree that HR is moving (or has moved) away from the transactional, administrative, hiring/firing support function and is becoming a bottom line business decision maker. Indeed, HR is becoming a strategic business partner. But how does HR become more involved in business decisions? How does this affect the day-to-day role of HR?

A strategic role

Being a strategic partner means understanding the business direction of the company and how the company is positioned competitively in the marketplace. HR must become bottom line focused. It must demonstrate its value to the business, its ability to accomplish business objectives, and its ability to speak of accomplishments in business language. The HR function must perform in a measurable and accountable way for the organization to reach its objectives.

The ways in which HR becomes “bottom line” vary depending on a company’s strategic objectives. Generally speaking, traditional HR responsibilities, such as recruiting, learning, compensation, and performance management, are linking to tangible business goals and are measuring the contribution to those goals. Many organizations have developed an HR strategic plan that details the HR implications of each of the company’s overall business goals. What makes this strategic HR role possible in many companies is the HR department’s shift from being a doer to an enabler, from being a staff function that delivers pre-packaged HR services to the rest of the company to being a service that helps managers create and manage their own customized HR policies.

Previously, the HR manager’s job was to make people happy… to worry about training, pay and benefits, communication, and employee satisfaction. When HR’s role is viewed in this manner, the HR team is on a separate track from operating and sales managers who are concerned with productivity, sales growth, profitability, cycle times, quality products and services, and other hard business issues. These managers did not spend any time on HR, because it detracted from their “real” jobs. Today, one of the most dramatic changes in organizations is that HR teams are in partnership with the operating managers.

Money talks

Because human capital represents a significant cost to the organization, the extent to which the HR function manages the human capital can influence the overall success or failure of the organization. Indeed, some organizations have failed because of ineffective HR policies. For example, many experts agree that much of the reason that General Motors went into bankruptcy can be pinned on ineffective employee relations practices. The decline of the U.S. steel industry is blamed, in part, to costly employee and labor relations policies. The problems at Sears and IBM are their HR policies that left these organizations saddled with tremendous human resources costs.

Because they expect an adequate return on their investment in human resources, as well as other resources, some executives question whether the HR department should continue to expand if there is not a clear connection between its activities and the overall results of the organization. Chief financial officers (CFOs) are now more involved in HR and are now requiring more results from human capital investments.

There is no doubt that the HR field is in the midst of this change, yet few HR managers are equipped to deal with it. Perhaps the situation is best described in the following sidebar from a recent article on accountability.²

Money talks: Talent managers’ ability to maximize HR’s value is now married to their ability to talk in understandable terms

By Jac Fitz-enz, CEO of HR Source

The perennial issue of human resources not being accepted as a part of the business is solvable – but not in the way you think. Typically, HR attempts to obtain resources it feels are necessary to fulfill its mission. And in more cases than not, HR fails because its argument to line management isn’t convincing. Talent managers expect management will accept the goodness of people. Line managers aren’t philistines who dislike people. Most of them are open to seeing how HR can add value. But they demand a convincing business-based argument. When HR doesn’t obtain what it wants, it goes back to doing what it has always done – and no one outside of the department feels any loss. This confirms management’s view that HR isn’t vital to the organization’s success. There is the core of the problem.

It’s not that a company will be competitive with or without an HR function. It’s a question of how well it will prosper with a typical vs. highly engaged HR function. The function isn’t seen as contributing measurable financial value. The self-imposed barrier seems to be that many in HR don’t understand and communicate how it can make money for the company. Most businesses have limited resources to invest. One of those is money, and all functions are competing for a piece. When functions like sales make a case for additional budgets, quite often their arguments rest on unprovable but long-accepted beliefs – add a salesman and increase sales. But how does a staff function such as marketing get a larger piece of the budget? It, too, makes broad and seldom provable claims. The difference between marketing’s and HR’s pitches is that marketing talks in terms of short-term sales increases or customer retention. HR talks in terms of indirect, often long-term quality of the workforce. A grasp of business acumen should help HR couch an argument in financial terms. Just what is business acumen? Synonyms for acumen are insight, judgment, wisdom, expertise and intelligence. When HR doesn’t obtain what it wants, it goes back to doing what it has always done – and no one outside of the department feels any loss, confirming management’s view that HR isn’t vital. Where HR leaders fall down is thinking business leaders will someday fully understand HR’s perspective. If HR were a language, business leaders would not bother to learn it. Management is not going to come to HR. HR must take the initiative to learn management’s language. In other words, business acumen demands that HR talk money.

Many HR people have no interest in learning that language or in thinking of their work in terms of financial return. Yet, isn’t it logical that when a person is employed, the quid pro quo for a salary is, directly or indirectly, income generation? When I started at The Saratoga Institute in 1980, I didn’t hire people because I wanted to spend money. Acknowledging that administrative tasks are necessary at some level, management still looks for ways to monetize their value, either through process cost reduction, productivity improvement or customer retention and spending. In the opening line, I indicated a solution to the perennial HR image problem. It’s that HR must gain business acumen – the ability to use the language of business and to make its case for resource investment. Requiring management to support HR’s proposal on its inherent “goodness” will never work.

Consider an example. Predictive analytics is the new tool that management is applying to make resource decisions. I had a hand in introducing analytics to HR by leading a 2008 modeling experiment. Since then, most of the early predictive analytics projects I’ve seen have been applied to recruiting and retention. It’s rather easy to study your company’s record in recruitment methods and match them to subsequent employee performance profiles, thus finding ways to hire people who perform well and stay with the organization. This is business acumen, linking HR services, processes and systems to employee performance, hence revenue generation or cost reduction. It’s more than just running your service. It’s making a financial contribution to your organization. If HR doesn’t add financial value, it has a limited future.

On the positive side, the success of many outstanding companies today such as Google, 3M, Procter & Gamble, FedEx, Merck, and Amazon can be traced to effective HR policies. Chief executives, striving to improve productivity and achieve performance goals, are demanding – and getting – cost-effective and productive approaches from their HR function. At top organizations in the United States, chief executives are recognizing the link between the people and the bottom line. Faced with issues as diverse as talent shortages, global competition, and government regulations, they see how important HR can be to competitiveness. The literature is laced with hundreds of examples of organizations making a tremendous contribution with the human resource function. HR departments are taking significant strides in reducing costs, enhancing customer service, improving profits, and boosting productivity. They accomplish this through a rigorous program of accountability for the function, and at the heart of accountability is measurement and evaluation. An important tenet of continuous process improvement (CPI) is nothing improves until it is measured. The CPI corollary is that when something is measured, it automatically begins to improve. This phenomenon is put into practice and is paying off in handsome dividends.³

The investment is high

The human resources function is charged with advising and directing management on the investment in human capital. Though traditionally it has been viewed as an expense center, its efforts can have significant impact on productivity and profits. The magnitude of employee costs alone should command the attention of top executives. For example, a typical tech company calculates its employee costs at 60–80 percent of operating costs. Even in capital-intensive organizations where employee costs are relatively low, the long-term investment in employees is significant. For example, consider the investment in an employee for the total length of employment based on reasonable assumptions about expected duration of employment, anticipated salary increases, and expected increases in benefit costs. When the initial salary is adjusted upward to reflect predicted salary and benefit increases, the investment in an employee quickly becomes staggering. With this perspective, it seems logical that an organization should maximize the effectiveness of human resources and ensure that employees are properl...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of tables
• Preface
• Acknowledgements
• PART I Setting the stage for accountability
• PART II Measuring the impact and ROI of specific HR programs
• PART III Measuring and reporting the total HR function
• Appendix A How results-based are your human resources programs? Scoring and interpretation
• Appendix B CEO: Check your commitment to the human resources function
• Index