To Be or Not To Be Strategic

Is H.R. evolving as it needs to, or is it time for a new model?

For at least 15 years, it has been considered axiomatic that the management of human resources must be integrated into an organization’s overall strategy in order to meet the demands of a rapidly changing business environment. In their 2001 book, “The H.R. Scorecard: Linking People, Strategy, and Performance,” Brian Becker, Mark Huselid and David Ulrich encapsulated the rationale: “The evidence is unmistakable: H.R.’s emerging strategic potential hinges on the increasingly central role of intangible assets and intellectual capital in today’s economy.” Since then, changes in technology, demographics and globalization have only intensified the need for the human resources profession to raise its game.

“The expectations of the H.R. role have grown tremendously,” said Kim Shanahan, North American human resources practice leader for Korn/Ferry International. “CEOs are putting more pressure on the function. Boards are spending a lot more time embedded in H.R. They are more heavily involved in talent, going one, two and sometimes three levels down in the organization.”

While the demand for a more mission-oriented approach to staffing and recruiting has grown, the supply seems to have lagged. In a recently published survey conducted by the University of Southern California’s Center for Effective Organizations, today’s human resources professionals reported spending no more time being a strategic partner than did the respondents to the initial survey in 1995. Edward Lawler, a USC professor and founder and director of the center, said the survey results “clearly show [that] being a strategic contributor demands high levels of business knowledge, information systems that have the right metrics and analytics, [and] organization designs and practices that link H.R. managers to business units. The results also show that H.R. is not doing what needs to be done.”

The generally accepted model for how personnel departments could help shape corporate strategy was proposed by David Ulrich, a professor at the University of Michigan, in 1997. In the Ulrich model, human resources would operate on three levels: as a corporate-level partner that helps define strategy, as a consultant that helps line managers implement strategy, and as a skilled administrator that stewards company-wide services to support strategy. In theory, this would allow personnel departments to spend less time on administrative duties — perhaps outsourcing them entirely — and more time helping to steer the organization.

In practice, many organizations are falling short of that ideal, in large part because human resources professionals historically have not been required to possess the competencies and background necessary to have a say in corporate strategy. “It is still difficult to find the right kind of H.R. leadership — people who think about organizational capability in the aggregate,” said Emilie Petrone, senior client partner in human resources practice for Korn/Ferry International. “The challenge for H.R. is to develop a critical mass of people who are up to the task.”

Ulrich thinks that personnel directors haven’t been quick enough to grasp the essentials of business management and that they compound that error by focusing on activity rather than outcomes. “You’re not measured by what you do but by what you deliver,” Ulrich has said.

Despite extensive efforts to measure what it delivers, the human resources profession has had some difficulty doing so. To be sure, it has no shortage of yardsticks — cost per hire, revenue per employee, turnover rates, compensation value added, among others. However, implicit in the tracking of these metrics is an assumption that they indicate a personnel-related contribution to bottom-line outcomes like growth, competitiveness and profitability. While that assumption is intuitively reasonable, it is not dispositive, and it is met with skepticism by some non- H.R. executives. Many studies have examined this issue, but the results have been inconclusive.

“The bottom-line effects of strategic H.R. issues — such as CEO readiness, depth of bench and diversity of workforce — are real, but difficult to quantify,” said Petrone. “For instance, you can definitely correlate employee satisfaction to customer satisfaction, but how do you parse what part of that is due directly to H.R.?”

Some obstacles to strategic involvement lie outside a personnel department’s purview. Peter Cappelli, a professor at Wharton and the director of its Center for Human Resources, pointed to the changing focus of corporate strategy: “At least [among] U.S. publicly held companies, most now have a financial strategy that drives the business. There is nothing like an overall business strategy, [so] the idea that the function of H.R. should be to help execute strategy has little meaning.”

Akiko Takahashi, executive vice president and chief personnel officer of Melco Crown Entertainment in Hong Kong, suggested that human resources departments can only be as important as the CEO allows: “For H.R. to be a strategic partner, it needs to report to a CEO who innately believes in human capital. [Human resources’] ability to influence has to come from the CEO’s authority.”

Perhaps the biggest obstacle to achieving “strategic H.R.,” however, is that no one inside or outside of human resources seems to agree on exactly what it means. Although no one disputes that talent management, workforce productivity, leadership development and a high-performance culture are crucial to corporate performance, few agree about how, or even whether, personnel departments influence those factors. As a practical matter, some are suggesting that it’s time to back off the demand for strategy with a capital “S” and seek a more straightforward, results-oriented model.

“The way to become a business partner is to quit agonizing over being a business partner and trying to force unnecessary activity on the rest of the enterprise,” said Dan Bowling, former global head of human resources at Coca-Cola Enterprises. “Focus instead on what is important.”

One alternative model that has gained some traction envisions human resources not as a single department trying to morph itself in multiple directions, but rather as competencies embedded company-wide, sometimes as discrete job functions, but more often as distributed responsibilities in which every employee has a human resources component to their job. This model, in short, casts human resources as an almost intrinsic binding force in an increasingly specialized, far-flung and self-managed world.

Paul Buller, professor of management at Gonzaga University in Spokane, Wash., sees it this way: “H.R. needs to become an internal consultant and change agent to facilitate vertical and horizontal integration, so that everyone in the organization sees how what they are doing is connected to the big picture — a ‘line of sight’ that allows for continual adaptation. This would provide a unique source of competitive advantage that would be hard to imitate.”

Some predict that were human resources to become a more widely integrated competency, it would engender an osmotic permeability between H.R. and line management. Eventually, the distinction between the two would vanish. Laurie Ruet-timann, a recruiter, trainer and founder of HRM Today, a social network for human resources professionals, put it succinctly: “H.R. [will be] fixed when it ceases to be H.R. and starts to be a core and critical management responsibility. [H.R.] shouldn’t serve the business. We should be the business.”