How can HR directors best grab the
limelight as CEOs look for short-term profits?
Keith Rodgers reports that often it is a matter of taking something to
the table that will grab the attention of the board
If you’re struggling
to understand why human capital management tends to slip off your board meeting
agenda with such depressing regularity, consider this simple equation put
forward by the HR director of a large multinational. A serious attempt to raise
the value of human capital takes three to five years. The average incumbency of
a chief executive is between three to four years, and falling. What kind of
newly appointed leader is going to commit to a project that in all likelihood
will exceed their own tenure?
The question, while
somewhat cynical, is asked from the perspective of years of senior-level
experience in the HR field. This is not someone who believes HR has an
unwritten right to be represented on the board, nor one who argues that HR
issues should be the top priority for every CEO. Rather, it’s raised in the
context of boardroom reality.
While every company
talks a good story about the value of their employees, the harsh truth for many
companies is that their actions don’t back up their best intentions. In a
pecking order where the likes of finance, operations, sales, marketing and IT
are all vying for position, getting HR issues onto the table can be a tough
task.
HR is fighting back
hard, however, and some of the largest companies can demonstrate in practical
terms that their boards, from the CEO down, have committed to
people-development principles. Organisations like BT, DHL, Boots, TRW and
others are undergoing major change – from distributing the HR function across
the enterprise to measuring leadership skills and shop-floor satisfaction –
which reflect a fundamental acceptance of the importance of strong human
capital management throughout their organisation. The big question for their
peers is how these groundbreaking initiatives can be driven through and
supported in their own boardrooms.
Mark Geary, managing
director of AsiaNet Consultants in Hong Kong, believes that the issues facing
HR directors are both structural and philosophical. With over 20 years
experience on three continents, including senior executive positions at ICI,
Ladbroke, Inchcape and InterContinental Hotels, Geary has witnessed the
challenges HR faces in a variety of organisations.
He believes that while
human capital management is an increasingly high-profile issue, there are few
concrete examples of companies practising it. Part of the problem is the
endemic obsession with short-term strategy. Twenty years ago, companies
reported their results on an annual basis, today the emphasis is on hitting
quarterly numbers. "It’s focused on the share price, they look at the
costs they can influence in the short term. For many companies, labour costs
are a significant item," says
Geary.
Many of HR’s problems
lie with the accounting profession. "Machinery can be depreciated over
seven to 10 years, computer software over five years. But human capital – it’s
not on the balance sheet. There is no proper consideration given to the value
of a company’s human resources, no depreciation, no annual maintenance budget.
If the same detailed financial management was given to people as it is to
machines I believe companies would be a lot healthier."
That obsession with
numbers is exaggerated in instances where the CEO and other senior managers are
driven by large share option packages. But there are also subtler factors at
play, linking back to the argument about a CEO’s tenure. The issue here,
according to the HR director of the multinational mentioned above, is not just
the timescale – it’s also the conflict between corporate and personal needs.
The first part of a
new leader’s reign, he argues, is often occupied in clearing out part or even
all of the old guard, and bringing in trusted lieutenants – trust-ed, that is,
in terms of their loyalty to the CEO.
Non-executive
directors, the people who backed the leader’s appointment, inevitably fall into
line and support the new team. Together, this band of senior executives spends time
assessing corporate strategy, refines the vision, sets out plans to execute on
the new direction and finally gets the operational machine moving.
Through all of this
time, often a period of painful change, the CEO is looking to secure the
support of his or her appointees, and ensure that power brokers emerging from
within the corporate ranks can also be brought onside. "Where does
measuring human capital come in with this sort of scenario?" he asks.
"Not that high."
Faced with these kinds
of political problems, senior HR executives argue HR has to take a pragmatic
stance to get itself heard. If the driving force in the boardroom is numbers,
then HR has to be armed with its own statistics to reinforce its business case.
As Richard Townsend, a
divisional HR director at DHL, argues, "In terms of what gets you listened
to in the boardroom, you need convincing data that says this will be the impact
on productivity and profit. When a company leader is driven by doing deals, no
matter what metrics the HR director has, it doesn’t get listened to. But if
you’re trying to talk in a boardroom and you don’t have metrics, you’re not
going to get listened to anyway."
Townsend is keen to
differentiate between "rear-view mirror" metrics – particularly
external benchmarking data that tends to be historically focused – and data
that "drives the future". He says, "In my experience, if you
have internal comparative benchmarks, you are more likely to excite the
managers into action. If their colleagues can produce excellence, they can do
so too."
A team of business
managers and HR professionals at DHL is currently working on an initiative to
develop what it calls "HR productivity metrics with a purpose", in
the course of which it’s asking hard questions about the practical value of
different types of measurement. They range from "Is it real?" and
"Is it a priority?" to pragmatic questions such as "What are we
really going to do about it?" and "What are the specific action
plans?"
"There’s no point
in having 101 metrics if you’re only looking at two or three of them,"
says Townsend.
Most HR professionals
agree that effective metrics are critical in allowing HR’s voice to be heard.
Geary, for example, argues that the HR profession has not been as numerate as
it should be, but believes that the core metrics, including links between staff
attitude and customer satisfaction, are not too hard to produce.
More importantly, they
need to be fed back into operations for continual improvement. At Inchcape’s
Toyota business in Hong Kong, for example, Geary’s team carried out research to
measure what customers saw as important when purchasing a car, and what
employees believed the motivators were. The cross-match threw forward differing
perspectives that helped define the forward-looking business plan. "It
wasn’t difficult to convince the CEO," he says. "If you give him a
simple survey about employees, he’s listening. It’s all about the
approach."
Ultimately, however,
HR’s ability to influence board-level opinion can only be demonstrated by concrete
results, and it’s abundantly clear that those companies embarking on
leading-edge human capital projects tend also to be the companies that enjoy
support from the top down. As such, the critical issue is not how HR persuades
the board to support certain programmes as much as how closely HR’s vision
matches the overall business goals.
This difference is
evident at Boots in the UK, which is currently rolling out a leadership
development programme for its 200 top managers – one which, according to group
personnel director Andy Smith, was driven by the HR department and the CEO in
concert. Under the programme, conducted in association with Hay Group, Boots
interviewed a range of employees with different performance records from the
top three tiers of management. That helped it define a leadership model,
incorporating Hay Group’s competency assessments, which provides the framework
to build individual development programmes. Additionally, it’s been able to
aggregate all the competency data
around three leadership elements – thinking,
pace and team – and assess the group’s overall skill levels.
As a result, it has
identified a need to boost its team leadership skills, and is incorporating the
leadership model into its recruitment processes. Significantly, board members
have both driven the process and been interviewed as part of the leadership
skills research.
John Steele, group
personnel director at BT, argues that rolling out any kind of advanced HR
programme requires this kind of board level involvement. The heavily unionised
company has been through intense restructuring during Steele’s 11-year tenure,
with staff numbers being halved from 250,000 to 125,000 over that period – and
HR has been at the centre throughout.
"There’s a
realisation at chairman and CEO level that without people you’re not going to
change your strategy," says Steele. He argues, however, that HR also has
its own responsibilities in driving its agenda. ‘You have to have an HR
function that is appropriately skilled and has some strong players on it. You
need a group of people who are business people first, HR professionals second,
and who have the ability to work with and influence their colleagues."
Four years ago, Steele
separated out BT’s transactional HR work into a shared services centre, which
is now run as a 50/50 joint venture with Accenture. At the same time, the
value-added HR consulting services were
moved into the line of business, with each divisional CEO now working with its
own HR director. Now, compared with a 10,000-strong HR function when Steele
joined, the total numbers across the group have dropped to 600.
TRW, the international
automotive, aerospace and IT company, is going through a similar process to
align HR with the individual business functions. Previously, the UK division
operated nine facilities, each with their own management team and HR
department, and with a range of different HR procedures covering areas such as
sickness, absence and overtime. Now, the company is reorganising in preparation
for opening a shared services centre next year, either internal or outsourced,
to handle transactional operations.
Meanwhile, like BT,
other key HR personnel have joined the management teams of the business units
themselves.
According to
vice-president of HR, Doug McIldowie, the whole restructuring programme – which
includes the cost of installing a backbone HR IT system from Peoplesoft and a
shop floor self-service HR system for its 3,500 UK staff – is expected to get
payback within less than a year.
Board-level backing
has also allowed TRW to embark on more advanced retention and measurement
programmes, based around an internal "assignment" culture. Here, the
concept of "jobs" is replaced by serial projects, offering employees
the chance to continually develop new skills and, if they wish, to switch
locations both nationally and internationally.
The company is
building individual assessments that log employee’s competencies and skills,
developing an ongoing profile based on individual performance measurement of
each assignment.
However much these
kinds of initiatives reflect HR’s strategic importance. McIldowie believes that
HR directors will always have a specific position within the boardroom
hierarchy. Even if human capital is a CEO imperative, HR’s own role is primarily
as an influencer.
"We’re a support
service – we’re not going to be like the operations vice-president or the
engineering vice-president or the customer vice-president. Our role is to make
them successful in getting equipment out of the door or developing new
business. We never have power, but we have more influence."
Capturing the board’s
attention
As they battle to
pursue their agendas, HR directors across industry tend to come across a
broadly similar range of issues – getting boardroom backing at a strategic
level, getting the necessary funds for specific investments and then executing
human capital management projects.
According to Richard
Townsend, a divisional HR director at DHL, the first, basic priority is for HR
to express itself in terms that line of business managers understand, rather
than being seen to drive its own agenda. Grabbing airtime, he adds, ultimately
comes down to respect.
"It does depend
on the dynamics of the team. Sometimes the HR director will have already proved
to be adding value, by finding great people, or giving the CEO insight into how
to build the business," he says. "Sometimes there’s almost a ‘prove
yourself first’ feeling. I can think of two individuals in Top Twenty Corporations
who have gained credibility by helping recruit and then develop the top team.
Other HR directors will have been thrown into the team and will have to prove
themselves."
In terms of
investment, Andy Smith, group personnel director at Boots, says that proving
the business case is essential – but it doesn’t always require a financial
return on investment. When pushing through Boots’ leadership development
programme at board level, he says the process was eased by the fact there was
an underlying assumption it needed to be done.
While the HR
department was required to put forward a business case for the total spend, the
decision to hire Hay Group and the investment in management time, there was no insistence on proving
that a particular pound spend would deliver a specific increase in sales.
That wasn’t the case
in his previous position at Boots the Chemist, where the company underwent a
behavioural change project within the stores for customer-facing staff. The
project, designed to raise awareness of customer issues and get employees to
take ownership of their business units, included the use of Balanced
Scorecard methodologies measuring finance, operations, people and
customers. In this case, the project team had to commit to increasing sales at
20-odd pilot stores by some 2 per cent in comparison to similar outlets.
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John Steele, group
personnel director at BT, agrees that the board’s financial perspective of HR is as important as the
CEO’s strategic commitment to human capital. "Some of these programmes do
need investment, so you have to start looking at people programmes as an
investment, not a cost – although you have to keep challenging yourself about
whether you’re using the budget effectively."
Once human capital has
been placed on the agenda, most HR directors believe the functions’ priorities
boil down to similar core issues. Alongside compensation, training and
development activities and headcount overhead issues, Smith argues that the top
issues at board level essentially boil down to two factors – "Have we got
the right people in place and have the individuals got what it takes to take us
where we need to be?"
