In most cases HR is still viewed as a cost to be minimized
Brian Becker has spent years studying thousands of HR departments.
More specifically, he’s been looking at what HR has to do to be viewed as a value generator rather than a cost to be minimized.
It isn’t easy. The problem, simply stated is this: bottom-line results improve either by driving down costs or by driving up revenue. HR for the most part is viewed as cost to be driven down, rather than a contributor to revenue growth. It doesn’t have to be that way, says Becker, a professor of HR at the University at Buffalo and co-author of a new book with Mark Huselid and David Ulrich, The HR Scorecard: Linking People, Strategy and Performance, which outlines a seven-step scorecard for HR to show the value of its contributions.
The biggest measurement challenge facing HR is to move away from focusing on transactional measures, says Becker. Standards of performance, like cost-per-hire, while important, won’t help the department add to revenue growth. At that point the department is still being viewed as a cost to be minimized. Instead HR needs to think of ways to support the corporate strategy and create value and come up with performance measures for the department that reflect that value creation, explains Becker.
In fact, that is what the HR department at CIBC has been trying to do for the past couple of years.
Two years ago, CIBC underwent a significant organizational overhaul, says Phil Wilson, a senior vice-president with the CIBC HR group.
Budgets were cut at the same time performance was expected to improve. At that time the senior executive team also adopted a new approach to managing people. With that came higher expectations about how the HR department should be contributing.
“Now there is a tremendous amount of measuring and assessing going on,” says Wilson.
They still strive to minimize costs and are doing well by most standards. Total operating costs for the department represent about 0.75 per cent of total organizational expenses where the typical standard is about one to 1.5 per cent, says Wilson.
That is just one part of their measuring. As much as they keep their eye on those numbers they are also looking at bottom-line big picture numbers for the bank itself and being called upon to prove how they can bring money in and not just run a tight ship.
HR is being held accountable for financial performance like never before, and is expected to be able to explain why, for example, if customer service suddenly takes a dip, it happened and what HR is going to do to fix it.
HR is being run like a business, says Wilson. A new approach that eventually led CIBC to outsource most of its HR services earlier this year so that it could focus on more on consulting and helping the internal partners manage people. (See “CIBC HR department halved as non-strategic roles outsourced,” CHRR, June 4, 2001.)
The bank is also getting ready to launch a major re-branding and HR’s role is to deliver the right change management strategies so that employees can cope well and thereby keep customer satisfaction up. Audits and employee surveys will tell if HR has done its job or not.
“HR has traditionally been pretty good at getting the good people in,” says Becker. “That is a professional competency that HR has been doing for a long time: good selection, good recruiting, quick fill rates, low cost-per-hire. That is traditionally good HR and that is useful. I don’t want to minimize the value of it but that is not enough.”
For that matter, Becker isn’t even sure we should be talking about HR anymore. “It (HR) has a certain connotation that isn’t all that helpful,” he says.
To Becker, “human capital” is something different. “It is designed to connote more the value-creating aspect of labour, the idea that labour can be more an asset than an expense.”
Terminology aside, organizations need to think about managing people differently. Becker says companies need to recognize that people create value only by their potential to implement strategy. If they can’t implement strategy, it doesn’t matter how talented they are.
Companies don’t do a very good job when it comes to executing strategy.
“It isn’t the content of the strategy that differentiates the winners and the losers, it is the ability to execute, and the way you manage your human capital is a good part of your ability to execute. Part of that is retaining people and selecting the right people but that isn’t what differentiates the winners and the losers, because HR is pretty good at that across a lot of firms.”
Just as it is at CIBC, Becker says customer satisfaction can be used to gauge HR performance.
HR departments need to talk about the training they offer that leads to improved customer satisfaction and therefore better corporate performance. HR should be able to present customer satisfaction increases and claim responsibility for half of the improvement. Those are the kinds of conversations that should be happening between the CEO and HR, Becker says.
Scorecards broadly speaking provide a blueprint for HR to prove it adds value, but it isn’t simply a matter of finding out which current practices and policies need to be measured, says Becker. Ultimately, it takes a change in philosophy and different approach to the value of people in the organization, says Becker. That is why the scorecard is designed not just for the HR function, it is for an entire organization that wants to do a better job of managing human capital to execute corporate strategy.
Strategic human capital management starts at the top and works back. It looks at the kinds of performance needed to drive strategy and then looks at the HR system needed to create that performance. Finally it looks at the HR function itself to make sure it is doing what it should to drive that HR system.
Human capital management and the “HR architecture” are an organizational asset and not something that is just the responsibility of the HR function, says Becker.
More specifically, he’s been looking at what HR has to do to be viewed as a value generator rather than a cost to be minimized.
It isn’t easy. The problem, simply stated is this: bottom-line results improve either by driving down costs or by driving up revenue. HR for the most part is viewed as cost to be driven down, rather than a contributor to revenue growth. It doesn’t have to be that way, says Becker, a professor of HR at the University at Buffalo and co-author of a new book with Mark Huselid and David Ulrich, The HR Scorecard: Linking People, Strategy and Performance, which outlines a seven-step scorecard for HR to show the value of its contributions.
The biggest measurement challenge facing HR is to move away from focusing on transactional measures, says Becker. Standards of performance, like cost-per-hire, while important, won’t help the department add to revenue growth. At that point the department is still being viewed as a cost to be minimized. Instead HR needs to think of ways to support the corporate strategy and create value and come up with performance measures for the department that reflect that value creation, explains Becker.
In fact, that is what the HR department at CIBC has been trying to do for the past couple of years.
Two years ago, CIBC underwent a significant organizational overhaul, says Phil Wilson, a senior vice-president with the CIBC HR group.
Budgets were cut at the same time performance was expected to improve. At that time the senior executive team also adopted a new approach to managing people. With that came higher expectations about how the HR department should be contributing.
“Now there is a tremendous amount of measuring and assessing going on,” says Wilson.
They still strive to minimize costs and are doing well by most standards. Total operating costs for the department represent about 0.75 per cent of total organizational expenses where the typical standard is about one to 1.5 per cent, says Wilson.
That is just one part of their measuring. As much as they keep their eye on those numbers they are also looking at bottom-line big picture numbers for the bank itself and being called upon to prove how they can bring money in and not just run a tight ship.
HR is being held accountable for financial performance like never before, and is expected to be able to explain why, for example, if customer service suddenly takes a dip, it happened and what HR is going to do to fix it.
HR is being run like a business, says Wilson. A new approach that eventually led CIBC to outsource most of its HR services earlier this year so that it could focus on more on consulting and helping the internal partners manage people. (See “CIBC HR department halved as non-strategic roles outsourced,” CHRR, June 4, 2001.)
The bank is also getting ready to launch a major re-branding and HR’s role is to deliver the right change management strategies so that employees can cope well and thereby keep customer satisfaction up. Audits and employee surveys will tell if HR has done its job or not.
“HR has traditionally been pretty good at getting the good people in,” says Becker. “That is a professional competency that HR has been doing for a long time: good selection, good recruiting, quick fill rates, low cost-per-hire. That is traditionally good HR and that is useful. I don’t want to minimize the value of it but that is not enough.”
For that matter, Becker isn’t even sure we should be talking about HR anymore. “It (HR) has a certain connotation that isn’t all that helpful,” he says.
To Becker, “human capital” is something different. “It is designed to connote more the value-creating aspect of labour, the idea that labour can be more an asset than an expense.”
Terminology aside, organizations need to think about managing people differently. Becker says companies need to recognize that people create value only by their potential to implement strategy. If they can’t implement strategy, it doesn’t matter how talented they are.
Companies don’t do a very good job when it comes to executing strategy.
“It isn’t the content of the strategy that differentiates the winners and the losers, it is the ability to execute, and the way you manage your human capital is a good part of your ability to execute. Part of that is retaining people and selecting the right people but that isn’t what differentiates the winners and the losers, because HR is pretty good at that across a lot of firms.”
Just as it is at CIBC, Becker says customer satisfaction can be used to gauge HR performance.
HR departments need to talk about the training they offer that leads to improved customer satisfaction and therefore better corporate performance. HR should be able to present customer satisfaction increases and claim responsibility for half of the improvement. Those are the kinds of conversations that should be happening between the CEO and HR, Becker says.
Scorecards broadly speaking provide a blueprint for HR to prove it adds value, but it isn’t simply a matter of finding out which current practices and policies need to be measured, says Becker. Ultimately, it takes a change in philosophy and different approach to the value of people in the organization, says Becker. That is why the scorecard is designed not just for the HR function, it is for an entire organization that wants to do a better job of managing human capital to execute corporate strategy.
Strategic human capital management starts at the top and works back. It looks at the kinds of performance needed to drive strategy and then looks at the HR system needed to create that performance. Finally it looks at the HR function itself to make sure it is doing what it should to drive that HR system.
Human capital management and the “HR architecture” are an organizational asset and not something that is just the responsibility of the HR function, says Becker.
