C-suite understands importance of HR: study

But they’re not convinced HR professionals have the skills to deliver
By David Brown
|Canadian HR Reporter|Last Updated: 06/14/2007

For years vocal HR professionals told any CEO who would listen that HR should be at the strategic table because workforce issues would be the defining factor in organizational success or failure in the 21st century. More often than not, the CEO either didn’t hear or didn’t believe HR.

But now things have changed — at least partly. According to a recent global survey of business leaders by Deloitte Touche Tohmatsu and the Economist Intelligence Unit, workforce challenges are top of mind for many business leaders. However, those executives still aren’t sure HR can be of any immediate assistance to help solve those problems.

The study,

Aligned at the Top

, looked for insights in two key areas: the importance of people issues in running a business and the role of the HR function.

“In the case of the former, the good news is that the CEOs and executives do understand and are very supportive of the need to focus on, and care about, the people dimension of the business,” said Ian Cullwick, Ottawa-based human capital national practice leader at Deloitte Canada. “On the other hand, there is still the view that the HR function has not become strategic and doesn’t quite get it.”

According to the survey of 259 executives — of whom 104 were responsible for HR and 155 were C-suite executives from outside HR — more than 85 per cent said “people are vital to all aspects of their company’s performance.”

There are a few reasons for the significant interest in people issues, said Cullwick. Executives and CEOs are waking up to people issues because they are facing imminent shortages in critical workforce segments. And although there have been good HR and industrial relations programs for at least 15 years, he said it’s only in the last five years or so that people management issues have been appropriately covered in the leading global business schools.

HR professionals bear some of the responsibility for the lack of action before now, said Cullwick. “HR has been citing those (impending shortages) for many years. But arguably, it is only of late that HR managers are putting those issues into business speak.”

Whatever the reason, progressive people management practices appear to be reaching a tipping point, moving from an abstract topic for discussion to a very real topic for immediate action.

But when the researchers dug deeper into the responses they also found business leaders don’t believe HR is immediately ready to shape those actions — just 23 per cent said HR plays a crucial role in strategy formulation and operational success. Only four per cent said their business is world-class in people management and HR, and 31 per cent said their HR function needs significant improvement.

“At most companies, HR is still primarily viewed as a cost centre or administrative function,” the report stated. “Most HR functions seem to have their role as administrator or steward pretty well covered. But the survey shows that HR’s strategist role, which is growing in importance, remains unfulfilled.”

The silver lining in the research is non-HR execs expect HR to play a bigger, more strategic role in the next three to five years. Compared to the meagre 23 per cent who say HR is playing a strategic role now, 82 per cent “expect HR to be perceived as a strategic, value adding function” in the next three to five years. And while just 52 per cent of respondents said their organization has a C-level executive dedicated to people issues, more than 66 per cent said they expect to have a chief HR officer within five years.

Some HR operations are ready for that role, said Cullwick. Others need to make significant improvements to basic but important HR activities that are the building blocks of strategic HR. Things such as business-oriented workforce planning and the development of an employment brand and using that in recruitment, he said.

“You’ve got to do the basics extremely well before you are going to have any credibility at the executive table as a strategist,” said Cullwick.

Monica Belcourt, professor of HR at York University in Toronto, past president of the Human Resources Professionals Association of Ontario and long-time advocate for a more strategic role for HR, echoed Cullwick’s suggestion that HR has to prove its abilities.

“You can’t ask to be on the executive team. It is like being in high school and asking to be on the basketball team,” said Belcourt. “You have to prove yourself.”

To be taken seriously, HR professionals need to show how their proposals can lead to an increase in profits: an X-per-cent increase in employee engagement scores is going to mean a Y-per-cent increase in customer scores which, six months later, show up in revenues and six months after that show up on the bottom line.

Graduates from better HR programs are able to do those things, getting jobs because of it and changing attitudes about HR, says Belcourt.

“You have a whole cadre of people coming up who have chosen HR as a career and those people are going to be impacting (perceptions of HR), too,” she said.

But she stressed it’s also important to be realistic about what HR can do.

“You have to put the strategic stuff into perspective,” she said. “Most of the (HR) work is not strategic. Eighty per cent is service work.”

Another 15 per cent is “minor strategic,” said Belcourt, such as helping a manager deal effectively with a problem employee.

“Only five per cent is what I call strategic,” she said, listing activities such as long-range planning, overseeing succession management and contributing on decisions to go international or to outsource.

“When we say strategic, that represents a relatively small percentage of what goes on,” said Belcourt. “Though obviously it is the most important percentage.”

David Brown is a Toronto, Ont.-based freelance writer.

Aligned at the top

What HR can learn from the survey

• More than 60 per cent of senior business executives considered people issues to be “very” or “highly significant” to strategic decision-making. That figure is expected to reach 90 per cent within five years.

• One-half of HR leaders said their company considers people issues to be “very” or “highly significant” to strategic decision-making.

• The majority of HR leaders (52 per cent) believed they are a major contributor in shaping a company’s culture. However, only 32 per cent of other business leaders viewed the chief HR officer (CHRO) or HR director as a major contributor to culture while 24 per cent said the CHRO or HR director did not significantly contribute to company culture and values.

• The most valuable sources of talent are: development/training of existing talent (88.5 per cent); recruitment from competitors (66.4 per cent); recruitment from other industries (61.2 per cent); and recruitment from top schools (55.3 per cent).

• Fewer than 16 per cent of HR leaders said HR is highly valued by senior business execs. At large companies it’s even worse — just 10 per cent of HR leaders said HR is highly valued.

• 63 per cent of business executives rarely or never consult HR on mergers and acquisitions

Source: Aligned at the Top: How Business and HR Executives View Today’s Most Significant People Challenges — And What They’re Doing About It, by Deloitte Touche Tohmatsu and the Economist Intelligence Unit

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