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.
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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.
