Updated May 1 2008 - Recently, Maxxim Consulting interviewed 20 CEOs of FTSE350 companies
in the UK and found that only four knew exactly how many people worked in their respective head offices. Also, just four
CEOs knew how much their head offices cost to run each year.
According to Claire Arnold, a Partner at Maxxim Consulting:
"Our study shows that at most UK corporate headquarters, unnecessary
layers of complexity and bureaucracy often accumulate over time. This is an area that many of the FTSE350 are set
to review in 2008 with a view to finding cost-savings. The fact that so few of the Chief Execs we interviewed for our
study were sure exactly how many people worked at head office is a clear indication that there's some serious
housekeeping to be done."
Granted this was an extremely small study and must be regarded as illustrative rather than definitive. But, nevertheless,
what part should HR managers play in such 'housekeeping' exercises?
It seems that finally senior managers - some of them, at least - are willing to give HR managers a
significant role in strategic decisions. But how many human resource managers know how to fulfill that role? Paul Kearns (2003: 4) tells the tale of a workshop exercise for senior human resource managers when participants were given a military scenario. Briefly, they were asked to envisage that they, and a thousand soldiers under their command, had been dropped behind enemy lines - with no information about their opposition. What would they do? The first response he received was 'I'd retreat'. Kearns comments: 'Why does this response from an HR person not surprise me?' It doesn't surprise me either because so many HR managers are used to operating someone else's strategy, rather than participating vigorously in their organizations' strategic decisions.
Noting that 'business partner' and 'strategic thinker' have featured as the most important roles in some recent surveys of human resource management, Jamroq and Overhot (2004) observe that 'there's something elusive and ambiguous about this widely touted goal of becoming a strategic business partner'. They cite a recent conference on the future of HR where a panel of human resource experts came out with the statement that 'I can't define it, but I know it when I see it' when asked to define the term 'strategic business partner.'
Measuring the effectiveness of HRM
Is measurement at the root of the problem? Are HR managers measuring the wrong things? One common approach is to use a 'Balanced Scorecard' which includes a range of HR measures as well as the more traditional financial and other metrics. Gubman (2004) feels that 'Too many HR scorecards focused on operational metrics: Time to hire, cost per hire, percentage of appraisals completed, etc. While important to track, these kinds of measures will not get HR to the strategic partner role. They only reinforce the view of HR as an administrative function. Key HR measures needed to be central to business success.'
More beneficially, according to Gubman, HR managers should focus instead on the same two major issues as their financial colleagues: return and growth. 'HR-things' can only create economic value from three sources:
- Employee turnover and retention
- Productivity - revenue against employee costs
- Expenditure on the HR function and related activities
Providing measures for these three elements does not require any 'rocket science' because they relate to three familiar HR goals:
- Attracting, developing and retaining staff
- Aligning, engaging, measuring and rewarding performance
- Controlling or reducing HR costs
HR-relevant measures for growth are trickier and need to be tailored to the organizations' individual situation. Grubman believes that HR measures can be devised that, like market share, can indicate trends and forecasts for improved revenue in the future. He argues that the following are the most significant growth-related human resource measures at present:
- Leadership development, to be measured in terms of unique candidates ready to assume executive and other major roles.
- Engagement - levels of employees' intellectual and emotional commitment to their work.
- Diversity, particularly the number of women and ethnic minority employees coming through the system or 'talent pipeline'.
Tamkin et al (2008) used a set of criteria described as the '4A model' (Access, Ability,
Attitudes, Application) in their study of almost 3000 British organizations and found that the use of 'bundles' of HR practices
produced improved performance and profitability. They suggest a number of issues that HR managers should focus on:
- Access The quality of the recruitment process: putting serious effort into attracting high
quality applicants; using policies and practices that 'ensure the ongoing movement of the best people through the
- Ability Effective, long-term development plans focused on the needs of employees
and the business. These plans should be constantly monitored to ensure their effectiveness. The researchers also highlight
the need for a high workforce quality, e.g. possession of degrees.
- Attitudes Aligning employees to the objectives of the organization -
'vital in terms of capturing discretionary effort'. They emphasize one-to-ones, appraisals and reward strategies related
to organizational performance.
- Application Encouraging autonomy, empowerment and generation of ideas.
Weiss (2000) argues that HR managers must demonstrate the ability to provide stimulating ideas and challenge decisions that do not have business value. To do this, they need to perform at the same intellectual level as their colleagues in an executive meeting. Most importantly, they need to wear a 'business hat' rather than a 'HR hat' otherwise they will be relegated to the traditional administrative or tactical (second-level) role that has bedevilled the human resource function for decades. Weiss considers that HR managers need to demonstrate the following to show their ability to add value:
- Broad understanding of the business, thus helping the human resource function to contribute to the overall direction of the company.
- Knowledge of how all activities need to align, enabling the company to maximize the success of its strategic initiatives.
- Professionalism in investing in human capital and HR processes, allowing HR to help guide employees and the organization's decision making.
- A unique perspective, allowing the HR function to become an 'ideas merchant' so that people and the outcomes of organizational processes can be made into strategic advantages.
Finally, we can consider Gubman's belief that:
"HR needs to keep moving itself forward, toward the strategic partner role, by becoming better profit-and-loss business leaders. Be the ones to lead companies back into thinking externally, about customers and markets, and how to create unique value for them. What a surprising and powerful role that would be for HR leaders! Start measuring HR impacts on real business results, not HR activities. Instead of measuring time to hire, measure the people aspects of opening up a new market and the returns they generate."
Alan Price is the author of Human Resource Management in a Business Context, CENGAGE/South Western.
Gubman, E. (2004) 'HR Strategy and Planning: From Birth to Business Results', HR. Human Resource Planning, Vol. 27, Iss.1, pp 13-24.
Jamroq, J.J. and Overhot, M.H. (2004) 'Building a Strategic HR Function: Continuing the Evolution'. HR. Human Resource Planning, Vol.7, Iss 1. pp51-63.
Kearns, P. (2003) HR Strategy: Business Focused Individually Centred, Butterworth-Heinemann.
Tamkin, P., Cowling, M. and Hunt, W. (2008) 'People and the Bottom Line', Institute of Employment Studies.
Weiss, D. S. (2000) High Performance HR: Leveraging Human Resources for Competitive Advantage, John Wiley & Sons.