Should your HR Department Function like a Business?

Fast_Company_Cover.jpg

"The best and the brightest don't go into HR,” Fast Company quoted a management professor from a leading business school in its controversial cover story, “Why We Hate HR.”  It has been almost seven years since the Gary Baseman cover hit my desk and that quote near the beginning of the article still stings.

It was the summer of 2005. I was working at ING in Atlanta when the magazine was delivered to my office.  I still recall stopping everything to devour Keith Hammond’s article.  My team was just about to launch our first workforce measurement dashboard and the critique’s timing seemed fortuitous.  While the comment about the “best and brightest” bothered me at the time, there was much in the article I agreed with and incorporated in the successful rollout of our new tool.

To recap the article’s highlights, Hammond, the author, outlines why the HR function is increasingly more important to organization success and four reasons HR professionals fall short of meeting the demands of the function:

  1. We have the wrong people on the bus (to borrow from Jim Collins)
  2. The HR function measures/pursues the wrong things (a perennial topic at HR Metrics Coach)
  3. The lawyers have usurped the HR mantle (relegating HR to a risk mitigation function)
  4. The C-suite does not understand HR and vice verse (which brings us back to No. 1

From my own personal experience working in large organizations, speaking with hundreds of organizations as a research director at the Institute for Corporate Productivity and now in my consulting practice, I have come to realize that a root cause underlying all of Hammond’s criticism is that HR does not operate like a business, which reinforces the author’s first and painful point: the best business people do not go into the HR profession.

Why does the CFO say “no” to HR?

 Jeff Higgins

Jeff Higgins

When you meet or hear Jeff Higgins, the founder and CEO of the Human Capital Management Institute (HCMI), he will immediately confess that he “used to be the guy to say ‘no’ to HR.”  Jeff started his career in the financial space and was a CFO when he got bit by the HR bug.  His firm has some of the best HR tools and software to demonstrate the impact of the workforce. (end of commercial)

I have heard Jeff say in countless forums that when he was a CFO, he did not say “no” to HR because he did not trust HR, believe it was the right thing to do, or even that the request would have a positive impact on the business.  The reason the CFO says “no” is he/she is a fiduciary of the company.  As a fiduciary, the CFO has a legal obligation to act in the best interest of “shareholders.”  When HR is unable to provide a compelling business case for our programs and processes, what option do we give a fiduciary?

And we don’t help ourselves …

Doh!.jpg

Once Jeff explains the primary reasons the HR function fails to receive adequate funding, you have a forehead slapping, “I could have had a V-8” moment.  But it is more than just a failure to articulate a business case; there are a number of typical HR practices undermining the HR function in the eyes of our business partners and organization leadership.

1) Not actively competing in the budgetary process

I do not know if the core issue is the HR function does not recognize we are competing with the profit/loss functions (our business partners) for organization resources, if we believe it is not our place to compete, or something else.  Regardless of the reason, the result is the same.  Most HR organizations are not funded appropriately to meet the expected performance demands of the organization.

2) Over-relying on benchmarks in making a business case

For many HR functions, benchmarking has become the business case.  We show how efficient we are compared to our competitors to both justify and protect our HR budgets.  My friend and former colleague, Jay Jamrog, VP of Research at i4cp, labels this the “Inside-Out approach to HR.” 

Our business partners may use benchmarking to build their business case, but it is a component in the argument – not the argument itself.

While I think benchmarking can be useful for specific purposes, in my opinion, it is dangerous to use benchmarks outside the HR “family.”  I have heard on more than one occasion how the Saratoga “HR spend per Employee” benchmark has “backfired,” resulting in a justification by management to decrease the HR budget rather than protect or increase the budget.

3) Failing to articulate consequences or recognize trade-offs

Think back to a time when you were asked to add a new process, project, or other activity – typically within days – after you finalized your operating plan or objectives for the period. 

In my experience, we in HR will grouse about the new requirement, negotiate internally about how to fulfill the new obligation, ultimately add it to our collective plates and “find a way” to do it all.  We believe it makes us a good business partner, demonstrates that we understand the business needs and gives us added valued by doing more without additional “costs.”

A business unit handles this scenario very differently.  First, they examine the feasibility of adding the requirement – it is not a given that they will take on the additional work – they will examine the impact to their primary objectives.  Second, they will articulate back to the requestor the consequences or trade-offs of this additional requirement. 

The trade-offs may be increased risk, sub-optimization or what other requirements will have to be dropped in favor of the new requirement.  The business will not frame the issue as “we can’t,” rather, they will position the new request as “we can, but here is the cost.”  It then becomes the requestor’s decision; is this new requirement worth the “cost?”  Typically, this becomes the basis for negotiation.

HR departments running like a business frame all their business partner/leadership requests in this fashion.  They do not say “no;” rather they ask “what is most important” to achieving your business objectives given the relative “costs?”  By articulating the trade-offs, these HR departments ensure the organization values the work and appreciates the effort.

What to do?

I learned early in my career, spotting issues alone does not earn an “A”.  We must come to the table with ideas on how to address the challenges we see.  In that spirit, I want to outline the elements of our product, The Business of HR

We offer two primary delivery mechanisms: HR Boot Camp, a one-day event with multiple companies, and HR Workouts, 8-12 week engagements working with an HR team within a single organization.

Our product designed around The Business of HR was created for the HR leadership team to help prepare them (you) for the annual budget and strategic planning process.  We have learned from experience it is critical to the success of the HR function that the HR leader actively participates in this preparation process.

We have identified 5 key elements HR must master to operate like a business. 

  1. Get their “arms around the money.”  There are several advantages of going through a detailed process to fully understand the organizational spending on people initiatives.  Some organizations have “found money,” others have recognized potential saving opportunities – with the savings going to HR – and others have been able to dispel myths about the cost of HR.
  2. Understand the organization’s true priorities.  We have found that how an organization spends its resources is a “truer” indication of an organization’s priorities.  Using our “money bags” chart can vividly illustrate the gaps between what the organization says is important and where it puts its money.
  3. Assess your pivot points.  Not every dollar you spend has the same impact to the business.  We help organizations be more strategic about where to make cuts rather than just across the board – which, while simpler, is not optimal.
  4. Build a business case. Like much of HR, building a business case is as much art as science.  A solid business case needs to be grounded in the business strategy, be factually sound and, most importantly, be persuasive. We need to help the CFO say “Yes.”
  5. Identify relevant metrics to prove success. Most organizations do not proactively develop a measurement strategy and try to show organization success “after the fact.”  The problem is without a baseline and a specific plan to measure success, we often use proxy measurements, which are less compelling. 

Should HR Function Like a Business?

So I posed the question, should HR function like a business?  Since I am a licensed attorney, I will give you the legal answer, “it depends.”  We should always know the answer to the question, Is our cost structure competitive with the open market?  As a support function, we probably should not be pursuing a profit at the expense of our business partners but that does not mean we should not speak in business terms.  To refuse to speak in business terms is like refusing to speak the native language. 

If we want to be more proactive, add value to the business, and ultimately be more successful, I believe we need to be more business-like.  I welcome your feedback on this blog and whether you are interested in learning more about our programs around The Business of HR.