The Harvard Business Review published three articles this summer which attracted general interest. Many HR professionals consider them controversial because HBR certainly did not mince words. In the summer we mentioned those articles in this article.
The series closed with an article in which authors claim that we need to completely change our approach to HR. The article is called People Before Strategy: A New Role for the CHRO. The article is about what every good CEO knows: the company doesn’t create value, people do. The article was written by Ram Charan, who is an advisor to CEOs and executive teams, Dominic Barton, director of consulting firm McKinsey and Company, and Dennis Carey, a manager of the firm Korn Ferry, who specializes in the recruitment of CEOs.
People should come before strategy: A new role for CHROs
Research done by the McKinsey company shows that although CEOs perceive human resources as their priority, the HR director is only about the eighth or ninth most important person in their company. That must change. HR must make the same leap that finance has in recent decades. Thanks to this leap, finance has become a true and respected partner for CEOs.
CEOs will argue that people from HR do not know the business and that their administrative tasks keep them too busy, but that's a part of a CEO’s responsibility. CEOs should elevate HR and bridge the gaps that today prevent HR from becoming a really strategic partner. After all, it was the CEO who raised finance from ordinary accounting. CEOs also turned marketing into much more when they allowed it to do what was once regarded an exclusive function of sales.
Each company's core team should consist of Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Human Resources Officer (CHRO). These three functions can work together well only if HR is dramatically transformed. The HR director must create value like the CFO does. He must be the one who plays a big role in decision-making – and he must be prepared for this role. He must move from being the one who only implements decisions and start co-creating these decisions. Then the entire company will finally benefit from the fact that human resources are managed better.
A new relationship between the CEO and the CHRO
The role of the CFO is partly determined by investors, the top management team, external auditors and regulators. The role of HR is defined only by the CEO. The CEO should have a clear idea of how much value the CHRO can bring – and should demand it. The redefinition of the CHRO’s role should be in writing so that it is clarified. The following three activities are absolutely crucial for new HR – and unfortunately, they are often missing in today's HR.
1) Making predictions
The CEO and CFO usually create a three-year and an annual plan together. The CHRO should be able to use his or her knowledge to evaluate the chances these plans have of being fulfilled. The CHRO should be able to raise and answer questions about how long it will take certain groups of employees to adapt to external changes and whether teams will be able to harmonize their efforts and achieve better results together.
One of the key capabilities of every head of HR is to be able to describe accurately what is key for every single position in the company – and to decide whether the person currently in the position does his or her job well. Experience suggests that only two percent of employees are responsible for driving 98% of the overall results. People who have such a big impact on your business should be pampered. Coaching is effective, but it has its limits. When there is a large disproportion between the manager's work and what the position he is in requires, nothing will help. It will be difficult for the manager, for his people and for his colleagues. The HR manager shouldn’t be too slow in identifying who is not a good fit for his or her position – especially if his position is in that two percent of positions with the greatest influence.
The CHRO should cooperate with the CFO in choosing key performance indicators and the appropriate allocation of talent. If necessary, those these two chiefs need to try to find new metrics. Financial information is most often used to set incentives and also to evaluate performance, since it is measured easily. However, the CHRO should be able to suggest alternatives. People should be rewarded depending on how important their role is and how well they handle it.
For example, the director of marketing may need to learn how to use predictive data for effective advertising. The CFO and CHRO must realize in time that if a certain manager is unable to learn the basics of data analysis, then he or she is not going to be able to hire people who know it either and the company will be surpassed by competition, at least in this area. Here is a case when a metric that describes how good the head of marketing is at keeping pace with the new requirements. First, such a metric should check whether the person is taking right steps and also give you an idea about when it is absolutely necessary to take these steps. Next, you need to make sure that the person is steering his or her resources where they should go. Is the money being spent to help increase revenues, market share and brand awareness? All these values are measurable, albeit with a time delay.
The CHRO must also be able to make predictions about the competition. The CHRO must know what impact things like changes in the incentive system, hiring more or reducing staff turnover have on the company’s position. For example, in 2014 Apple began hiring a lot of experts in medicine. This might indicate that the company is going to design their watches and other products also for medical purposes. This fact will have a direct impact on the situation of many clinics, manufacturers of medical equipment and a lot of others. Similarly, the situation in competitive research and product departments of the competition can tell you something about the financial results in the near future.
2) Diagnosing problems
The Director of HR is exactly in the position where he or she can best identify why a company fails to achieve the goals it has set. The CEO must demand that HR directors provide him or her with such an analysis. Don’t leave it to the consultants. The key is to work with the CEO and CFO to search for the actual causes. Do not focus on the obvious external factors such as falling rates or currency appreciation. Try to find the causes that are related to how people do or don’t cooperate. If results are poor, ask what the response of the responsible manager was. Was his reaction quick when compared to the changes or actions taking place in competition? The CHRO must be able to distinguish when it is merely a mistake a manager had made and when the manager assigned to the task is the mistake. That will enable the CHRO to plan the next career steps for the person concerned.
On the other hand, the CHRO should not only be concerned about individual employees. He must seek the pain points and roots of problems in the company. Where is there constant friction, where are the places where people constantly cannot come to an agreement? There can be a need to intervene calmly through personal meetings. The CHRO must be able to deal with people withholding information, with passive aggression and also with people who are not cooperative and defensive. When the CHRO is able to reveal unseen and hidden causes of bad relationships, he is able to bring them to light and begin looking for a solution. That is exactly where the person in this position adds a tremendous value.
3) Promoting steps that bring value
It turns out that firms that aggressively and dynamically change the allocation of resources are more successful than those that don’t change anything and always allocate their resources the same way as they did last year, as the consulting firm McKinsey found . A company should be as flexible how it assigns its human capital, not only the financial. This means that when there is a person that has a hidden potential, he or she should make it onto a list of talents and then someone should work with him or her. The company should hire new people who understand new technologies. People inside the company should move and change their positions in order to spur growth in other business areas.
Too often people who have good potential to cope with rapid changes in digital technology sit too far down on the hierarchy. The company cannot afford the luxury of leaving them to slowly struggle upward on the career ladder. The CHRO must actively investigate and creatively think how promote the talent of such people. Just as the CFO can make the right conclusions from the numbers, the CHRO should be able to recognize the potential in people. Sometimes it can help when these people are moved to another position, or when they are assigned to someone who can teach them the necessary knowledge or skills. The CHRO must be able to connect these perspective talents with those who can help them develop their potential.
The CHRO should also improve relationships, promote trust, and then speed up the pace of decision-making. He or she should also get team leaders to conduct performance evaluations more frequently than once a year, because faster feedback increases motivation.