Business fail if HR is neglected!

Don't neglect HR

The world has been changing around us, much more rapidly than ever before. The ways in which majority companies operating now, were originally envisioned and designed, has fundamentally changed in the last several years. Business models have been evolving. Small is bigger, and bigger is not necessarily bigger in the corporate conundrum. The 21st century is seeing a dramatic convergence of demographic, technological, competitive and global forces, which is shifting power from employers to employees, from boardroom to the workplace, where value is being added and wealth getting created.

We are on the brink of a technological revolution, which as per Klaus Schwab(World Economic Forum), is touted as the “4th Industrial Revolution”. It is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance. The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.

At the end of the article, the writer shares, it all comes down to people and values. It’s an opportunity to recreate a new future  by putting people first and empowering them to create a culture that complements to the best parts of human nature—creativity, empathy, stewardship, rather than allowing our workplace and humanity to get “robotized” and thereby deprive it of it’s heart and soul.

Often the value of HR function and people to the business is put under a question mark…

I am reminded of a popular conversation between a CFO and CHRO….

CFO asks CHRO- “What if you train people and they leave?”.

A very apt response from CHRO was- “What if we don’t train and they stay?”

This is so true and many companies find themselves in the same dilemma frequently.

Many organizations are waking up to the fact that having the latest technology, the most efficient information systems, the “leanest and meanest” organizational structure, is only as good as the people who make up the fabric of the company. In order for an organization to be truly successful, it must align its most valuable asset– ‘human capital’– to the company goals. In other words, employees must clearly understand the organizational vision and goals, understand how they play a role in both, and be motivated to achieve and exceed every goal.

There have been countless companies which fail every year, including Fortune 500 companies that go into oblivion. Is it because of lack of technology, or latest tools, or the prime location, or the investments, or the competition?OBVIOUSLY NOT! They are defeated by their own people, leadership team, systems, people practices and processes which failed to gauge their business environment and take the right steps at the right time.

In most of the situations where corporate catastrophe happens or employees fail to perform as expected, people need to lift the veil and see if it could have been the result of faulty HR processes, most notably those related to acquiring, developing, motivating, and managing people. Also it needs to be diagnosed if the human error could have been caused by factors beyond the employee’s control. Such external factors could include actions by senior management, lack of adequate information or job training, faulty inputs to the process, or rewards that incentivised actions not in line with stated goals.

Using the sinking of the ‘Titanic’ as an example, the damage caused by the hull colliding with the iceberg ultimately sank the ship, but the collision was the result of a series of poor decisions to travel too fast given weather conditions. While hull design flaw contributed to catastrophe, the root cause of the problem was human error. If the owners of the Titanic had implemented rewards for safety as well as speed or hired a captain more detail-oriented, there would have been no crash that dreaded night.

Weak people-management practices have been attributed as the primary causes of failure in a number of notable cases. At Enron and Bear Stearns for example, reward systems that incentivized dangerous behaviors easily overpowered the effect of control systems designed to prevent fraud and ethical breaches. Detailed study into the problems that led to Enron’s collapse pinpointed several “communication-based leader responsibilities” that senior managers failed to meet — responsibilities such as “communicating appropriate values” and “maintaining openness to signs of problems.”

The blowout of the Deepwater Horizon offshore oil rig, in April 2010, resulted in a massive crisis for British Petroleum and its partners. Among the key factors that contributed to the disaster were “poor communications” and a failure “to share important information,” according to a report on the White House commission that studied the incident.

The managements of Lehman Brothers and Firestone were simply reckless. Leading up to the housing collapse, Lehman executives over-leveraged the investment bank, far more than any other large financial institution. Firestone hastily tried to expand into production of a new kind of tire. Both companies ignored internal warnings that their decisions were highly risky.

In the case of Kodak and Motorola, management missed tectonic shifts in their industries until it was too late. Motorola held on to its old cellphone business too long, failing to leverage its Razr brand or couple it with a smartphone until the brand had lost its relevance. Kodak, which actually held a patent for digital cameras well before they were mass produced, eventually was left behind by other digital camera manufacturers like Fuji and Sony Corp. that moved quickly to establish market dominance.

Nokia became the world’s largest cellphone maker in 1998 when it overtook Motorola – at a time when Samsung had just entered the industry – and it controlled around 40 per cent of the market for years before Apple Inc’s iPhone was unveiled in 2007. Success of iPhone didn’t have any significant impact on Nokia, unlike Samsung, which experimented with off-the-shelf technologies and managed a transition to smartphones much faster than expected. Nokia failed to anticipate, understand or organize itself to deal with the changing times. While Samsung came up with new phones almost every year with a slight modification from the previous launch, Nokia’s Windows phone continued to lack some basic technology essential to drive its sales. Also, Nokia for long remained solely dependent on Symbian operating system till it entered into a partnership with Microsoft. But its shift to Windows was considered a bit too late as by then Apple and Samsung had already established their dominance, with Android and iOS leaving not much role for Windows.

During 2009-10, Toyota automobiles suffered several mechanical failures that led the auto maker famous for quality to recall nearly nine million cars worldwide. In addition, poor handling of the issue in the public eye damaged the automaker’s brand reputation and caused sales to decline to their lowest point in more than a decade. The mechanical failures were known to Toyota leaders long before corrective action was taken, and many close to the issue had alleged that the company took decisive action to hide the facts and distort the scope of the problem. The underlying problem of failing to act on this critical information in a manner consistent with Toyota’s brand could have been a rewards issue similar to that at Enron. When the organization disproportionately rewarded managers for cost-containment versus sustaining product quality, it created the incentive for everyone involved to ignore the facts and to deny that a problem existed. As the famous Japanese saying is true. “The nail that stands out” was not encouraged to be different, but instead it was “pounded down” to conform

Similarly, mergers and acquisitions are more common than ever in today’s business climate. Yet studies show that most of the mergers are doomed to fail. The failures result in poor shareholder results, layoffs and in some cases a complete dissolution of the merger. According to SHRM, majority mergers fail because of simple culture incompatibility. For example, when German Daimler(the makers of Mercedes-Benz) merged with American company Chrysler in the late 1990s, it was called a “merger of equals.” A few years later it was being called a “fiasco.” Discordant company cultures had the two divisions “at war” as soon as they merged. Differences between the companies included their level of formality, philosophy on issues such as pay and expenses, and operating styles. The German culture became dominant and employee satisfaction levels at Chrysler dropped off the map”. By 2000, major losses were projected and, a year later, layoffs began. In 2007, Daimler sold Chrysler to Cerberus Capital Management for $6 billion.

Again, lack of proper corporate governance is another big area leading to downfall of many companies. For example, Satyam Computer Services Ltd,which once used to be the fourth largest IT firm in India suffered failures of corporate governance at different layers which led to a collapse of this magnitude. Not only were there failures at the regulatory level, but also at the executive level. Satyam’s troubles started when the World Bank, one of the biggest clients for Satyam, announced that two of Satyam’s employees had hacked into their systems and managed to access sensitive information. As a result, the World Bank did not renew the five year contract with Satyam and severed all ties with the company. Satyam however denied all allegations and denied any wrongdoing. To follow this up, the company was jolted again by Ramalinga Raju’s (the then Chairman, Satyam) announcement to influx $ 1.6 billion dollars into the acquisition of Maytas Infrastructure and Maytas Properties. Efforts in this direction were immediately withdrawn under pressure from shareholders. Satyam’s ADRs (American Depository Receipt) fell by 50% overnight following this incident. If this was not enough, the result of a pending litigation by a former-client Upaid Systems was out. Upaid Systems alleged Satyam of intellectual fraud and forgery and made a claim of $1 billion, adding to the company’s woes. After all this drama, hell broke loose when Raju wrote a letter to the board and the SEBI (Securities and Exchange Board of India) explaining the accounting fraud and the over inflated balance sheets.

There would be endless more such examples of corporate failures due to the sole reason that people function, corporate practices, HR systems and its leadership failed the business. As Mike Myatt on Forbes very aptly said- “Businesses Don’t Fail – Leaders Do”. Among the 15 reasons, he gave for business failures due to leadership issues included lack of Character, lack of vision, execution failures, flawed strategies, poor management, toxic culture, no innovation, inability to Attract and Retain Talent, lack of competitive awareness and adaption to market changes, etc.

At the end, I just want to say that HR and the people in the organization, drive the real competitive advantage. All tangible resources that an organization needs for running a business can be replicated easily, which also exhaust with their use, sooner than later. The real differentiators and “competitive advantage” for any business are its ‘people’. They have unlimited potential which keeps multiplying as one invests in it. HR function offers a vantage position and a unique opportunity to work closely with wide cross-section of ‘people’ and influence the productivity, potential, motivation and retention of those who matter the most to the business. How many professions can you count where an individual has the opportunity to work from new hires to front-line managers, subject matter experts, to middle managers, leadership team and Board members?

Bottom line… don’t weaken HR function & systems, strengthen leadership, devise a strong corporate governance framework, don’t fix people but fix issues, don’t stifle people voice, always think of person behind the machine, partner with HR to evolve people strategy and philosophy continuously, try to create a culture that rejuvenates people at work and reinforces strategy to link the human capital with the achievement of the business agenda.

HR department, along with the leadership team, is supposed to be the catalyst to drive people agenda,  towards achievement of business goals. Acknowledge that role and empower it to play an even larger role in shaping the future of business. Give them a seat on the table, an independent voice, and make them accountable for achievement of business enabling goals as partners. Count on HR to stand up for the right cause, be the conscience keepers, and not only help grow the organization’s business, but also prevent reckless leadership decisions that could potentially lead to corporate demise.

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