In the dynamic, highly competitive marketplace, which many call as a “VUCA” world- Volatile, Uncertain, Complex and Ambiguous, HR function has been struggling to prove its existence and demonstrate its value add to the business. Traditional strategies no longer hold much relevance, organizations around the world face multi-dimensional challenge of optimizing shareholders’ wealth and integrating them with the interest and expectations of other stakeholders’ viz. customers, suppliers, employees and society in general. The information, products, technology and expectations are being constantly renewed or discarded. In order to sustain themselves, organizations have been trying to adopt new business models, technology, markets and ideas to continuously innovate and retain a competitive edge by creating value, for “value is the language of business and it is all about wealth”. And who do we think creates wealth? Of course, it’s the people.
In order to stay ahead in the competition, each and every single unit of an enterprise has to add value to the business outcomes. The bar is getting raised for all functions within an Organization, including HR, to co-create value for the business. The HR functions of the past, which have been focusing only on hygiene factors and adopting transactional approach without any strategic link to business results, are slowly going into oblivion. Such functions are commonly perceived as ‘cost’ to the business, rather than enablers of value. In the new millennium, HR function has the onerous task of preparing the organization for the future by continuously enhancing the individual and organizational capabilities to become perennial value creators.
Before we delve more on the topic, let us first try to understand what we mean by the terms “value” and “adding value“.
“Value added” is generally defined as “the contribution of the factors of production such as labor, capital, and land to raising the value of a product and corresponds to the incomes received by the owners of these factors. The factors of production provide ‘services’ which raise the unit price of a product relative to the cost per unit of intermediate goods used up in the production of it.”
As per Dave Ulrich, “Value is defined by the receivers of HR work – the investors, customers, line managers and employees –more than by the givers. HR is successful if and when its stakeholders perceive there is value from it. Delivering what matters most to stakeholders focuses on the deliverables (outcomes of HR) rather than on the doable (activities of HR). The deliverables of HR involve investor intangibles, customer share, organization capabilities, or individual abilities”.
If this is how “value added” is defined and interpreted, what should HR do in order to transform itself into an able and strategic partner in the business of value creation?
Following are the 6 critical steps to be followed by HR to create and demonstrate value:
- Alignment: Realizing that human assets are the primary key driver of sustainable competitive advantage, HR has to make a shift from “Bottom-up” perspective (emphasizing compliance and traditional HR) to a “Top-down” perspective (emphasizing the implementation of strategy). An effective HR aligns the human capital and the HR vision, mission and strategies to the achievement of business strategy. Key point to note is that HR strategy development need not be simply reactive to business strategy but can contribute to it through the development of culture, as well as the frames of reference of the leaders who make the strategy. If HR has to succeed, then it has to enable transformation of every line manager into ‘frontline HR Manager’ who can manage operations as well as their people with equal ease.
- Responsive HR systems aligned to the environment: HR has to remember that the ultimate receivers of business reside in the marketplaces that the company serves. Since HR professionals desire to be business partners and the business begins by meeting market demands, so HR should also commence its journey with line of sight to the marketplace. Developing a clear understanding of the business realities, global business context and requirements of the external environment, is critical to design well integrated and value added HR systems that cater to the expectations of its diverse stakeholders.
- Develop Talent relentlessly: Engaging today’s millennials and channelizing their efforts to achieve a sustainable completive advantage is a business imperative, What matters most to the millennials are challenging work, career growth, flexibility, continuous learning, pride and recognition, apart from the traditional “Compensation”. In this context, the “War for Talent” has been ever intensifying, whereby talent management is getting more and more a business-centric. HR should be able to develop an appropriate manpower planning system and design a well-integrated talent management approach together with development tools, potential career paths and rotation plans etc. to systematically lead development of people in defined directions and develop leaders for the future. Eventually, HR passes the “wallet test” when it creates human abilities and organizational capabilities that are substantially better than its competitors- and thus moves the customers and the shareholders to reach for their wallets.
- Measure the impact of HR: “What gets measured get managed- and what gets managed gets accomplished.” However, HR’s problem typically is that its impact on the firm’s strategy is difficult to see. But so is true for other important intangible assets like brand recognition, innovation, learning and knowledge management, all of which are becoming increasingly relevant in the new economic paradigm, characterized by speed, short cycle times, quality excellence and customer delight. The secret of making the ‘value of HR’ visible to all is to skillfully align HR’s role with another intangible asset viz. the organization’s strategy implementation system. HR has to demonstrate the impact of human capital management to the overall business success by designing metrics and innovative assessment systems that let them show case their influence on measures that matter to the CEOs. Robert Kaplan and David Norton’s Balanced Scorecard approach pioneered the concept of moving beyond mere financial measurement by getting the focus more on the forces that drive those results, through active engagement of the employees in the strategy implementation process
- Leverage Technology to make a strategic impact: Rapid and intense adoption of technology is required to enable a tectonic shift from ‘transactional’ HR to ‘strategic’ HR. Adopting technology in HR like an HRIS (HR Information Systems) to manage repetitive processes, transactions and analytics helps the organization immensely in several areas, including improving employee experience, democratization of the workplace, making things transparent and “real-time”, integrating data from disparate systems, reducing HR administrative time, and most importantly, reduce cost. As such, adopting technology is no longer ‘desirable’ for HR, but rather a ‘must have’.
- Introspect and develop self: In order to transform the organization and its people, HR must first look within. What are the abilities, competencies do the HR professionals possess? Are these competencies aligned with overall business necessities? On which competencies should HR invest in order to add value to business goals? Also, HR professionals need to develop a unique and powerful perspective that is compatible with as well as distinct from other business perspectives. A “yes man” HR professional demeans the whole profession, while a “Value-driven” HR draws attention, commands respect and earns a seat on the table.
The need of the hour is to ensure a strategic shift of HR: from ‘what is done’ to ‘what is delivered’; from ‘building HR function for efficiency’ to ‘building them for enhancing stakeholder value’; and from ‘implementing best HR practices’ to ‘delivering value-added HR practices’. HR professionals anywhere in the organization should have a clear line of sight from ‘HR agendas, practices and skills’ to the ‘ultimate receivers of these agendas, practices and skills’; from ‘HR function and organization’ to the results of investment in HR’, and from ‘HR practices’ to ‘decisions and outcomes’ that create value for stakeholder.