How to... speak the language of business

You don't have to flick through many HR journals before coming across some individual exhorting the profession to talk the language of business. Leaving behind the penchant for fads and meaningless jargon and instead aligning it with the business side, it is a prerequisite for HR professionals wishing to take up their rightful place on the board. So whether you are pitching to the finance director about the latest HR initiative or briefing a group of City analysts about your organisation's superior human capital practices prior to posting of year-end results, you'll need to master the language to gain credibility.

It seems a fairly nebulous concept, is there a pure definition?

Business language is unequivocally concerned with finance, rather than HR policies or procedures - and the financial imperative for any business is return on investment (ROI).

As one consultant from Mercer Human Resource Consulting puts it: "Business people make decisions on the basis of ROI. HR absolutely has to do this as well. It's possible to put a number on anything. HR has to learn to quantify everything so it can make informed, strategic decisions."

What can I do to leverage my position?

Mastering the language relies on HR forging alliances with other departments such as sales, finance and marketing, and through them ensuring you are aware of the company's business and strategic goals. Policies and procedures should be in place which enable HR to quantify its people management activities - business decisions are made on an ROI basis so everything must be quantifiable.

On a personal level, learn how to read corporate reports and accounts and the financial pages, and develop your analytical thinking. Learn about the market your organisation operates in, gen up on the financial performance of rivals as well as that of your own organisation.

Study for an MBA

There's no short-cut to developing your analytical thinking or business acumen, but one sure-fire way of progressing this is to study for an MBA. HR is roundly lambasted for its poor uptake of the MBA qualification, but those professionals who do are unequivocal about the benefits it affords them in teaching them about the business.

How do I quantify HR?

By establishing some form of HR metrics and/or benchmarking. It is frequently said that human capital is the biggest asset not to appear on the balance sheet but it can now be measured using one or more methodologies from benchmarking and metrics to the HR Balanced Scorecard developed by Brian Huselid and Dave Ulrich. These generate statistical data on the effectiveness of an organisation's investment in people and will allow you to talk confidently to the board about human capital in meaningful terms.

Learn accountancy-speak

No-one is more proficient in the language of business than the accountancy profession, but even this group has failed to produce a universal solution to measuring a company's financial performance and value. So from the hundreds of methods possible here is a quick guide to some of the key ones you should acquaint yourself with:

- Dividend yield is the cash income paid to shareholders, normally twice a year. A good dividend indicates a good company performance the previous financial year. But, because it is a retrospective figure, it won't necessarily be reflected in the share price

- Price/earnings ratio Provides a snapshot of a company's value. It is calculated by dividing its share price by its earnings per share - earnings being profits after tax and other charges. A high p/e ratio, which is around the 20-22 mark in the UK, shows strong performance. A low p/e may be indicative of poor performance, but it may simply be because the market has overlooked and undervalued a company

- Tobin's Q, (the Q ratio), compares a company's market value to the replacement cost of its assets and is typically aggregated across the market as a whole (it was invented by the US economist and 1981 Nobel laureate James Tobin). A low Q ratio indicates a company may be going cheap, a high one that its share price could be over-valued

- The Balanced Scorecard Not be confused with the HR Scorecard (see above), this aims to present a picture of corporate health by monitoring performance across all areas of the company via a series of Key Performance Indicators (KPIs)

- Economic Value Added (EVA) This approach measures overall corporate performance based on the total cost of capital employed in the business. It identifies where organisations create the most value.

- Human Capital Index (HCI) Developed by consultants Watson Wyatt, identifies correlations between effective people management, profitability and market value

Where can I get more info?

Websites

The Global Investors Glossary has an A-Z index explaining financial and investment terms in plain language and allows key word searches.
www.finance-glossary.com

Books

- Understanding UK Annual Reports and Accounts by John Laidler and Peter Donaghy, International Thomson Business Press, £24.99, ISBN 186152109X

- Understanding Corporate Annual Reports by Brian Stanko, John Wiley & Sons, £17.50, ISBN 0471270199

- How to Read the Financial Pages by Michael Brett, Random House Business Books, £15.99, ISBN0-7126-6259-6

Reports

Measuring Human Capital Value by Personnel Today in conjunction with Deloitte & Touche Human Capital Advisory Services

If you only do five things...

1 Investigate putting some form of HR metrics and benchmarking in place - read the PT/Deloitte Touche report listed above

2 Find out how your financial performance compares to rivals

3 Get to grips with your company's annual reports and those of your main rivals

4 Study for an MBA

5 Make sure the FT is delivered and is labelled as HR property

Expert's view
Sue Cheshire on learning the language of business

Sue Cheshire is managing director of the Academy for Chief Executives. The academy provides personal and professional support for leaders in today's fast-changing business environment. People issues and the brand of a company as a good employer are high on its members' agenda, highlighting the increasingly important strategic role of the HR function

What should HR's priority be in learning the language of business?

One approach to learning the language of business is to ask for a secondment in an operational role elsewhere in the business. This can help provide the additional credibility and communication skills to communicate effectively at all levels.

Can you give specific examples of where HR has benefited from being able to speak the language of business?

HR directors who are able to speak the language of business have the ear of the board. Ultimately, these individuals can end up working with the top team in a board role. Recent examples include the appointment of David Longbottom to the board of Europe's leading retailer the Dixons Group.

Once HR has made in-roads or mastered the art, what can be done to keep up the momentum?

To a large degree, it's up to HR professionals to maintain the momentum themselves. Learning the language of business and speaking it with confidence can only have a positive impact on an HR professional's own career development and their strategic input at board level.