Most Chief HR Officers (CHRO) spend a lot of time trying to determine exactly how to align the function to the company’s business in an effort to demonstrate HR’s value to it. This is especially true when preparing HR’s annual budget when it is under pressure to do more with less by operating under a minimal budget for both capital expenditures and budgetary expense items.
Unfortunately, most are not that fortunate and are faced with the dilemma of choosing between HR software improvements or being a business partner.
In addition to funding its traditional administrative services, if the HR organization is fortunate, it will be able to support both a robust HR technology improvement effort while simultaneously acting as a legitimate business partner to the CEO and line management executives. Unfortunately, most are not that fortunate and are faced with the dilemma of choosing between HR software improvements or being a business partner. Making such a determination is critical because selecting one or the other will have a significant effect the HR’s annual budget regarding the allocation of resources amongst its various departments for capital needs, staffing, systems, training and so on.
Funding HR Administrative Services – First Things First
The first priority in any HR budget should be the proper funding of its traditional administrative services.
- If these administrative duties, especially the important ones such as pension/401(k), medical insurance, payroll, and compensation, are: a) not competitive within the appropriate nationwide and/or local marketplace, b) not being administered effectively and/or efficiently as determined by employees, line management or HR management, c) not perceived by these groups as being such, or d) not being fairly and equitably administered; HR management should allocate whatever funding is necessary to resolve the associated reasons or problems before concentrating its funding on either HR technology needs or becoming a business partner.
- HR management can mitigate this concern if it has identified the underlying reasons or problems, and has a plan of corrective action in place that has been approved by the CEO and line executives, and is highly visible to all employees in the relevant organizations.
For purposes of this article, we are defining HR technology as making significant upgrades and investments in the current large systems, including the HR information system, payroll and benefits, along with ancillary systems for HR analytics, talent management, applicant tracking, onboarding, training and development, performance management, employee engagement, time and attendance, succession planning, among others. This recognizes that in some companies, some of these ancillary systems will be included in the large system.
- As Josh Bersin, founder of Bersin by Deloitte, and others have indicated, ERP/large and ancillary system vendors are “struggling to keep up with the evolution and changes in the business ecosystem” and are “feeling the pressure to keep up with the technology advancements and trends.” Therefore, vendors are trying to offer a fully comprehensive product that incorporates all the latest technologies. Whether the market need for such products will exist, and at what price, is still not certain.
- Like all other functions of business, HR will always have the availability of improved system software that can increase its effectiveness. However, HR management must ascertain the increase in cost and whether the improvements are really needed to improve its overall service results?
- The use of HR analytics requires special attention because of its high visibility and potential importance to the HR function itself.
- Its use is still in its infancy, even though many advances have occurred.
- It has a high price tag for which its return on investment must be quantified.
- It has been used primarily to improve the effectiveness and/or efficiency of HR’s administrative duties, such as recruitment, hiring costs, turnover reduction, etc.
- To be successful in the eyes of the CEO and line executives, it requires the selection of the right metrics which are accurately measured that lead to actionable corrective action.
- Even when successful, they typically have only an indirect impact on achieving specific business results, the responsibility for which still rests with line management.
- This tool still has the distinct disadvantage of keeping HR staff off in their administrative offices, away from the operational offices and aspects of the company’s line functions.
- HR can provide analytics that has a direct impact on achieving profitability by predicting several key HR-related business measures. See: Are You Using Your HR Analytics To Demonstrate HR’s BUSINESS VALUE?
Almost every Chief HR Officer or leader desires the same goal – membership at the C-Suite table as an equal business partner to the finance and line executives – which clearly demonstrates HR’s importance and influence within top management. Unfortunately, few achieve it.
- While most CHROs fervently hope for a CEO and a group of line executives who understand and appreciate the value of the function, it is wishful thinking.
- Most CEOs and line executives do not have a clear-cut vision for HR because it is the least known of all the functions that report to them and they have had little meaningful strategic or operating HR experience in their own business careers.
- To become an equal business partner, the CHRO must take the initiative and actively seek out ways to demonstrate HR’s business value in addition to its traditional administrative value.
- To do so, the CHRO should uncover some innovative value-added services that directly impact the CEO and line executive’s ability to achieve the company’s financial, operating and strategic business objectives, for which they are accountable to the Board of Directors and shareholders. To guide you in this regard, here are some relevant examples.
- To improve earnings per share from “X” to “Y” dollars/share.
o With Finance, implement a Cost Control/Profit Improvement workshop to identify and quantify potential cost savings and profit improvement opportunities.
o With Engineering and Marketing, implement a Product Improvement workshop to identify product/service innovations that can gain market share +/or reduce product cost.
- To increase cash flow by “Z” dollars.
o Train sales personnel how to resolve and collect outstanding receivables to bring in more cash.
o With Inventory and Manufacturing, implement an Inventory Reduction workshop to identify items that can be eliminated, reduced or replaced by less expensive ones.
- To reduce time-to-market for product “A” by 30% to exceed industry standards.
o With Engineering and Marketing, implement several team efforts to re-engineer and streamline the entire design and launch cycle. Retrain management on key changes.
o Conduct a Project Management workshop to ensure that this project, and all subsequent product development projects, are achieved on time.
- To improve customer care to exceed industry standards.
o With Customer Care, survey outside and company experts to catalog new key service principles, standards, measures, and reporting requirements.
o Review findings with top management and acquire implementation approval.
o Recruit, hire and train all critical CC management and technical personnel.
- To develop 20 general managers who can operate a $50M/year business.
o With outside experts, develop a seminar that covers strategic planning, financial management, product development, market planning, customer care, and leadership.
o Establish an annual Personalized Development Plan for each general manager.
o Review the compensation package for each general manager annually.
- To increase sales 20% by acquiring a related business that uses a key new technology.
o Update the Sales Incentive plan to recognize the new technology and improved profit.
o With Sales, evaluate the competency level of Sales staff in the new technology.
o Evaluate the current recruiting sources in the new technology and identify new ones.
- To become a true business partner, HR will have to change the major emphasis of its Training and Development staff and programs away from simplistic leadership styles, interpersonal and basic management skills, and towards being a pragmatic business change agent/facilitator for meeting some of the company’s major business objectives and strategy.
- Here’s how to acquire additional information on this subject: Aligning HR To A Company’s Business Objectives And Strategy
CEO and Line Executive’s Traditional View of HR Leaders
Most importantly, Chief HR Officers and leaders must understand and accept the following “hard truth” about CEOs and line executives – investors, shareholders and the market hold the Board of Directors, CEO, and top management of any private or public company accountable for achieving certain financial, operating and strategic business objectives over the short and long term. That is their ultimate objective at all times. Everything else is a means to that end. Typically, with the exception of the CHRO, all other company executives play an important and direct role in helping the CEO to achieve these business objectives.
Before deciding whether HR technology or being an equal business partner should be given higher priority by the CHRO, it is critical to understand the practical context within which CEOs and line executives typically view their HR leader. In survey after survey, decade after decade, most of these executives have indicated that they do not consider their HR leader as an equal business partner for many of the reasons listed below. CHROs must understand and accept this viewpoint because, in the end, these executives are the ultimate customer of all HR programs and services.
- HR leaders have little understanding of the financial, operating or strategic aspects of the business.
- They have little understanding of the CEO and line executive’s annual business objectives and strategy.
- HR leaders are considered theoretical thinkers, rather than practical business thinkers.
- They are viewed as an HR person FIRST and a business person a distant SECOND; while the opposite is true of all other executives.
- They are overly concerned with their administrative duties, almost to the exclusion of any concern for the company’s business objectives and strategy.
- Line executives have only a modicum of respect for HR, while HR leaders do not try to earn that respect by actively seeking out ways to help them to achieve their business objectives.
- HR’s leadership development programs deal almost exclusively with simplistic leadership styles, interpersonal and basic management skills, rather than covering the myriad of required hard skills and the complex practical realities of the executive’s business objectives, risks, challenges, operating plans and so on.
- HR staff seems overly comfortable in their administrative roles, are adverse to risk and avoid any project that could negatively affect their cash compensation.
Lastly, it is noteworthy to mention that none of these reasons relate to any deficiency in HR’s technological capabilities.
When preparing HR’s annual budget, the CHRO normally compares the business resources that are needed to fund its HR technology improvements and those needed to support the company’s business endeavors for the upcoming fiscal year. In fact, the CHRO requires both … but they are needed in sequential order.
It is understood that the business relationship between any CHRO and the company’s CEO and line executives is uniquely based on a wide array of business and personal factors. However, it is this author’s opinion that at the heart of any such relationship is the respect the CEO and line executives have for the CHRO as a practical and effective business executive; not simply as the leader of the HR function. If the CHRO has earned that respect, only good things can happen for HR.
The clear path forward to achieving that respect, and thereby becoming an equal business partner, is when the CHRO takes the initiative and seeks out several innovative HR services that are directly linked to some of the company’s annual financial, operating and strategic business objectives. To do so, however, the CHRO must retool the capabilities of the Training and Development staff and overhaul some of its training programs so that they will play a more direct role as a business change agent as illustrated by many of the above examples.
In any fiscal year, acting as an equal business partner should be the top priority for the CHRO and the HR budget should reflect that fact. After the CHRO has determined how HR can provide several innovative services to help the company to achieve some of its business objectives, the CHRO’s first HR technology priority should be to select and provide the particular HR technology alternative that will facilitate the successful completion of them. The CHRO’s second HR technology priority should be to select and provide the particular HR technology alternatives that will facilitate the effective and efficient performance is its various administrative duties, until the budgetary funding is evaporated.