What if HR has no effect?

That’s one result HR professionals will have to prepare for when human resources is measured ‘the CEO way’

The arguments HR people put forward to illustrate their impact on the bottom line usually suffer from two fatal flaws. First, they base them on anecdotal evidence: “A front-line worker told me how valuable the Dealing with Conflict course was.” Testimonials may add flavour to the sauce but they are not, for most executives, the meal itself.

To have credibility, HR has to present its arguments in ways that executives are familiar with and find credible. An executive who wants to pitch for further funding of his products would never say, “It’s really great and I’m sure we need more. Why, just the other day a customer told me how much she liked it.” Instead, he would present data on past impact on the bottom line, its projected impact and performance measurements that will be taken to assess the quantifiable effects on other strategic goals. And yes, perhaps then he would add some anecdotes to provide context.

When HR professionals attempt to supply data, they sometimes stumble into the second fatal error. Often the data used to support HR arguments are things like the number of training days or the number of people recruited. Useful, but their impact on the bottom line or strategic goals is unclear. The organization knows it had 45 bums in chairs for training in September. So what?

The argument can be made that learning is essential to a knowledge economy, knowledge is a competitive advantage, and at some point it can’t help but make a difference to the bottom line. To executives this is the equivalent of white noise.

HR functions, by their nature, lend themselves to measurements that show how much effort was put into the activity rather than what the results were. They are often longer-term, health-of-the-organization issues. But being heard means talking execu-speak and providing relevant data.

One of the most important issues HR departments want to make relevant to the CEO is the value of high employee morale. Even a seemingly soft result like “improved morale” can be linked to the bottom line, using data and terms that make an employee satisfaction program a credible option for the company’s executives.

A Gallup study determined that there is a strong link between company profits and employees’ beliefs. The Gallup study found that profits go up when workers hold four basic attitudes: they feel they are given the opportunity to do what they do best every day; they truly believe their opinions count; they sense their fellow workers are committed to quality; and they’ve made a direct connection between their work and the company’s mission.

An extensive study by Sears showed a link between profits and employee satisfaction.

The Sears study showed that employee attitudes about the job and company can predict their behaviour in front of the customer. When employees felt good about their jobs and the company, their behaviour with customers was more positive. This behaviour increases the likelihood of customer retention and customers recommending the company to others — two factors that, in turn, improve financial performance. Sears found that if a store increased its employee-satisfaction score by five measuring units in a quarter, the following quarter its customer-satisfaction score would go up by two per cent.

This in turn would lead to a revenue growth of half a per cent above the national average.

So, satisfied employees produce more revenue. Now that’s something that will get executives’ attention; it’s a line of reasoning that culminates in a concrete number that executives care about.

In none of this is there the suggestion that executives are a hard-hearted bunch of Industrial Revolution throwbacks who care nothing about the welfare of their workers as long as the profits keep rolling in. Not at all. But in the competition for attention and funding, initiatives that can demonstrate the potential to meet strategic objectives will get a higher priority.

With an opportunity like this, why aren’t HR professionals jumping on this bandwagon to get the respect and attention they have always deserved?

First, HR types will argue that the effect they have is too long-term and too strategic to be easily measured. That is a credible argument. Recruitment isn’t about the next quarter and corporate culture can’t be changed in time for the annual report. On the other hand, look at the Gallup results. They essentially measure corporate culture — employees’ beliefs about the company. And the Sears results concerning employee satisfaction also reflect culture. Even with long-term, somewhat amorphous effects, it is possible to identify indicators that command attention.

But there may be another reason why HR is reluctant to go down this path and it can be summed up in the nerve-wracking question: “What if we can’t prove HR has an effect on the bottom line?”

People may be afraid to ask the question for fear of the answer. However, operational executives put themselves under this kind of scrutiny all the time. They have to ask themselves hard questions about effectiveness and efficiency. HR can gain credibility with a willingness to undergo the same type of scrutiny. But still, the fear doesn’t go away. It seems almost suicidal to provide the company’s executive naysayers with potential ammunition to shoot the function down.

There are three possible outcomes to linking HR to results with data. First, there will be a positive result. That is, like Sears, it will be shown that good HR practices drive goals executives care about. Then, you’re in business.

Another possible outcome is that HR practices have a negative effect. That recruiting practices, benefits or culture make it less likely the company can meet its strategic objectives. Interestingly, this can be a good outcome. It will provide data to support what HR has probably been advocating for a long time. It may shake up the powers that be. In this case, negative can be positive.

However, it’s almost surely the last possible outcome that makes HR reluctant to undertake a rigorous assessment of its own practices. What if HR practices have no effect at all? This is the outcome most feared — that HR is irrelevant.

Because this is a possible outcome, it is important to ensure data collection is done correctly, possibly by bringing in a professional survey company. Several samples over time may be needed to ensure a true picture of HR’s effect.

But let’s assume a responsible job was done in putting together the study of HR’s effects, and the results are still neutral. This would, of course, precipitate some soul-searching. Has HR been putting its energies in areas that, while fun and satisfying, don’t really make a difference? For example, research shows that 70 per cent of learning in a workplace is done informally. If most of the learning that HR supports is in the classroom, has it been applying its expertise in ways that are most effective for the organization?

If the outcome is disappointing, how the results are presented to the executive committee will be critical. Unless it is a truly awful group (and if so, why are you working there?) it is likely to respect an honest presentation that outlines where HR has fallen short and what it will do to become more relevant. It might even convert some executives who have previously been seen as “anti-HR.”

But even with that risk, the risk of not doing proper research on its own practices is even greater. If HR can’t find proof of its effectiveness, it must always content itself with the funding and attention of a nice-to-do. Moreover, it will always be at the whim of the prevailing feeling at the table. If the executive team is a hard-nosed, take-no-prisoners group, HR will just have to wait for better times. But if HR can make the links to the strategic goals of the organization in concrete, unarguable terms, it has firmer ground from which to advocate, in bad times or in good.

Frances Horibe is the author of Managing Knowledge Workers and Creating the Innovation Culture: Leveraging Visionaries, Dissenters and Other Useful Troublemakers. She can be reached at www.franceshoribe.com.

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