This headline is taken from the 2007 report on the results of a global survey by Deloitte Touche Tohmatsu and the Economist Intelligence Unit on people and business, which found that, “Although senior business executives viewed people issues as strategically important, they are not confident that HR is ready for the challenge. In fact, only 23% felt that HR ‘plays a crucial role in strategy formation and operational success.’ ”
As the same survey indicates that 60% of senior business executives already consider people issues ‘very significant’ or ‘highly significant’ to strategic decision making, a number that increases to 90% when looking three-five years ahead, this is clearly cause for concern. For how can any organisation expect to successfully execute its strategy if those responsible for the resources critical to its execution are uninvolved in either its formulation or delivery?
This appears to be something that the respondents themselves have identified, for while less than 50% have a Chief HR Officer (CHRO) or other C-level executive dedicated to people issues, 66% expect to have one within the next 3-5 years, while 82% expect HR to be perceived as a strategic, value-adding function. That’s the good news! The bad news, with 90% acknowledging the strategic importance of people but only 23% having an HR function playing a role there, is that there would seem to be a major disconnect.
Hence the headline, for the report identifies this, stating "the results suggest that ‘HR’ and ‘people issues’ are often two entirely different conversations." The core of the problem is the low esteem in which HR is held, for fewer than 16% of those surveyed believe that HR is highly valued by senior executives and in large companies that percentage drops to 10%. This is because, “when business executives talk about HR they focus on things like rewards and benefits, performance evaluations and HR operating efficiency. But when those same executives talk about people issues, they focus on talent management, workforce productivity and leadership development.”
This executive shift is driven by need. Changing workforce demographics and increased global competition, with its resultant pressure on innovation, productivity, growth and customer service, have combined to bring people issues to the top of the strategic agenda, because executives recognise that an organisation’s people are critical to the introduction of the changes required to deliver on new strategic initiatives. However, while necessity is the mother of invention, understanding needs does not automatically or immediately generate answers. Thus at this stage, although executives recognise that organisational alignment – or what I call organisational teamwork – where everyone is conscientiously striving to the same ends, is essential for success, they have no better idea of the solution than anyone else, and are looking for new ideas that will deliver.
Unfortunately, HR in its traditional guise has been, and is seen as, a bureaucratic, operational function. Consequently, it has to completely reinvent itself, if it is to instil the necessary confidence and step up to the plate, provide the answers and play the role that executives need it to. Of course this is something that all progressive, forward-thinking executives and HR managers are well aware of. The real challenge is not so much what is needed, but how to move forward.
The answer is implicit in the distinction made between people and HR, with the key being the word people. Traditionally, HR has dealt with roles, job descriptions, competencies, and the like, all things that have been centred around the position. Dealing with people requires a completely different mindset, where the person comes before the job. This requires not only a 180 degree shift in thinking, but also new attitudes to both the way people are treated and the way that managing them is measured.
The concept of treating people as assets makes an ideal springboard for this. Apart from cutting through the historical mindset of people as simply an expense, with the behaviours that induces, it also forms a framework for creating a sense of belonging that is essential for developing that organisational teamwork I spoke of earlier. It will alter the attitude towards recruitment because, just as with any other asset being acquired, the ‘purchase’ will be analysed more thoroughly, with more attention focused on the long-term “fit” and thus entail a more in-depth look at the person and their potential, rather than their immediate competencies to fill a specific position.
Treating people as assets also provides the platform for new Key Performance Indicators (KPI) for Balanced Scorecards. For starters it enables consistent measurement of:
• The return on investment (ROI). (Profit/Asset Value)
• The return on training. (Training Costs/Change in Profit and/or Change in ROI)
• Average Assets (Total Asset Value/Number of People)
• Asset Growth ((Value Year 2 – Value Year 1)/Value Year 1)
These are basic measures that should be monitored by all business, but other additional measures could also be introduced, such as:
• Effectiveness of incentive remuneration (Incentive Remuneration/Asset Value)
• Human Asset Ratio (Asset Value/Total Base Remuneration)
• Etc.
Of course measures like these could and should already be widely used, but the fact is few are. This is an indictment of both HR’s lack of strategic thinking and the traditional view of people as an expense rather than an asset. This new approach will encourage more strategic thinking whilst creating a greater partnership between the individual and the organisation to the benefit of both. It will provide a catalyst for cultural change that – as long as the measures don’t themselves become the primary focus – will better equip organisations to address the people issues and pursue strategies that will ensure success. But most importantly of all, it will provide the basis for HR and Executive Management to evolve a worthwhile relationship for working together on matters of strategic importance.