Aligning Human Capital & Business Strategy – A CMD’s perspective
TRANSCRIPT OF SPEECH BY PALLAVI JHA ON “ALIGNING
HUMAN CAPITAL & BUSINESS STRATEGY” AT NHRD,PUNE ON
APRIL 11, 2008.
We all know that India is on a high growth trajectory, one of the biggest emerging countries.
The world of business too is changing with at bullet-train speed with four major trends defining
our workplace, namely, globalization, technology, outsourcing and the talent crunch. In this
scenario maintaining high growth rates is a priority for companies.
But sustaining high growth may be difficult, largely due to lack of qualified people. For many
companies, a lack of talented workforce constitutes a make or break HR issue which has
made the value of good HR management really apparent to top execution. The profession as
a result is gaining both respect and attention.
CEO’s have now realized that the human side of the business is what you compete with -
“your people will save you, not your factories”.
What do CEO’sbelieve of HR?
Many of you may have read the 2007 Accenture Work Force Study conducted amongst India
CEO’s and HR heads. It cites that CEO’s believe HR is the MOST CRITICAL workforce –
globally HR is ranked 7th.
However, there was deep dissatisfaction with HR’s performance. An adequacy v/s
expectations analysis showed that HR performed the worst, against different workforces like
sales, manufacturing, R & D, etc.
Bob Lipp of Citigroup has a very interesting designation – “COST CUTTER”. And this is what
he had to say, “We must to have more people selling instead of watching people selling and
fewer human resources people watching – God only knows what they watch”. He clearly
views HR as an overhead function, which needs to be re-assessed.
As the head of my organization, I believe – as would other CEO’s – that getting more from HR
or any other overhead function really matters. HR, above all others, has the highest potential
to impact corporate results and bottomline. In most organizations, people costs are the largest
variable cost (40 – 60% of budgeted variable expenses). That is too large an investment to
not monitor or maximize return from. Imagine if you could get 10% more productivity out of
half of your total budgetary expenses - that would amount to millions of dollars in any medium
or large organization.
For this, HR needs to be more strategic, more aligned to business strategy. It can structure
itself such that there’s a distinction between strategic and transactional roles. Yet this is easy
to say and hard to execute.
The problem is when HR managers see themselves as a support or departmental function
rather than a strategic one. At a time when CEO’s are demanding more business acumen,
HR practitioners are challenged to redefine their roles and contribution to organizations. While
there is a growing trend of HR sitting at the Board-level or the Executive Management Team,
often HR is represented by the CEO, CFO or a business head rather than the HR practitioner.
This is because HR is still struggling for credibility at the top. In my experience, often HR
managers are afraid to rock the boat because they lack a firm grasp of the business and
overall market place.
If HR believes that they are carrying out a narrow function like recruiting or involvement in
annual salaries, then HR itself begins by not understanding the value that they bring.
Copyright NHRD Pune Chapter, Apr 2008
Quantifying HR Perfomance Metrics
HR really needs to be able to know and communicate issues such as how well it recruits, the
impact this has on business, the impact of retaining people and so on. That’s what HR can do
well. Where it struggles is when it does not make that case. Often CEO’s shoot down the
ideas of HR, not, because they are not good or even necessary, but because there is no clear
linkage to ROI of such activities. So HR’s role in delivering results is left in question. While all
other departments – from management to finance to marketing - can defend their budgets for
their programs, HR heads in most companies find it difficult to justify the returns on their
investments. HR has to become more quantitative like others. And it is possible to establish a
clear numerical relationship between good human capital and enhanced financial
A Hewitt study has shown that:
Stock of best employer companies have outperformed benchmark indices by 15%.
Annual profit growth of best employers is 15 – 200% higher than industry average.
Employee turnovers of best employers is 45%less than others. Monetary implication of
this is huge as replacement costs can be as much as 40% of salary at junior levels or
upto 200% of salary at the top.
There are numerous areas where HR must learn to use fact-based decision-making rather
than an intuitive approach, taking umbrage under the “intangibility” argument.
10 Questions HR Must Answer
As a business head, there are 10 question I would like to demand of my HR team:
1) Does having great employees and a great HR department really make an economic
difference in our industry?
2) Are the employees we have the most productive in the industry?
3) Do we have the right number of people in our organization?
4) Are we overpaying our employees for the output they produce?
5) Do we significantly improve the people we have – make then more skilled and
productive? Does it translate into higher performance?
6) Do we attract and hire the very best we can afford?
7) Do we retain our key or more productive people at a higher rate than our best
8) Is there evidence that HR provides guidance and help to strengthen our managers
and teams? Is it a major contributor (among overhead function) to our corporate
success and profitability?
9) Do we forecast and prevent people problems better than the best in the industry?
10) Is there evidence that HR has significantly added to our shareholders value?
These are difficult questions to answer but you cannot improve what you do not measure, so
it’s important that HR address each of these with data.
Its also important to realize that the answers to each of these questions could save the
company millions of rupees if HR responded to the problems and opportunities that the data
revealed. This is where I would like to instill more accountability for HR.
Transforming Into a Business Impact Function
There is no magic formula to transforming HR into a business impact function. But a good
place to start could be for HR to study supply chain, CRM, 6 Sigma and other business
overhead activities to learn how they made a successful transition from overhead to business
impact in the eyes of the CEO.
Copyright NHRD Pune Chapter, Apr 2008
Some Important Trends
HR needs to be more pro-active by pre-empting trends at work, adapting roles, skills and
knowledge levels to add effective strategic value.
We have already talked about the growing level of HR professionals inside companies and
the commencement expectations that they need to bring in measurable contributions to the
I would like to discuss some of ends that would transform / challenge HR as it is today.
War for Talent:
The most important corporate resource over the next 20 years will be talent - smart,
sophisticated, technologically literate, globally astute and operationally agile. Today’s HR
departments will have to become talent departments. Traditional workforce planning is being
replaced by talent strategies and skills gap analysis. The key to attracting and retaining
scarce skills is for companies to be, and be seen to be, a first-tier employer that can meet the
needs of high potential / performance employees. Traditional marketing practices will need to
be applied to recruitment. Employer branding with a strong differentiator are imperative.
Rather than positioning as “we are a big successful company”, positioning as delivering on
the promise of continuous learning, work – life balance, fulfilling roles and innovative rewards
and recognition is important.
HR outsourcing is a growing trend. Today HR professionals are hardly hired for their ability to
process employee information, sort resumes or process payroll on time. Instead, HR is
expected to deliver value in areas like organizational effectiveness, talent management,
change management, leadership development, succession planning, merger integration,
strategic compensation, etc. The primary benefit of HR outsourcing is that it will allow the
leaders to tackle these more strategic issues. HR needs to embrace outsourcing to reduce
costs and get access to higher levels of service.
Providing a Healthy Workplace and Workforce:
There is a definite link between work environment and the well being of its employees and
between employee health and the bottom line.
Long working hours, travel, competition, deadlines are the key causes of stress and burnout.
Environment and lifestyle are creating a new health crisis amongst urban professionals,
increasing the risk of infections, heart and back problems or mental stress. “Presenteeism”
where employees come into work but cannot work at optimal levels is a growing concern.
Companies must consider the full humanity of their people, looking at them not just as people
with jobs and career, but as people with families, friends, beliefs, interests, passions, worries
For the Indian private sector, diversity is now an important people strategy as it is a strong
business imperative. Diversity goes beyond nationalities, gender, colour, race or religion. It is
also about managing the demographic and psychographic characteristics of an evolving
workforce. It will take a whole new level of education of tolerance. HR will need to provide
cross-cultural support and training to virtual global teams.
Impact of Technology:
Copyright NHRD Pune Chapter, Apr 2008
Eventually technology is going to eliminate most HR jobs as they exist today. Technology with
24 X 7 communication capabilities, coupled with outsourcing, guarantees there will be smaller
HR departments in companies.
Today CRM has given way to ERM – Employee Relationship Management. Employees can
self manage activities previously handled by HR departments. Technology will also help
people connect within the work environment regardless of time and place as organizations
are becoming physically local, yet virtually global.
Talent management with a focus on soft skills, leadership development and succession
planning is the defining trend in HR.
In India technically qualified people are easier to find. But what companies require is a
domain expert with managerial skills to leverage that expertise in the interest of the company.
Selections are increasingly based on soft skills such as attitude, ethics, or people skills.
Today one’s educational qualification is just not enough to get a job. This becomes even more
important as we go up the pyramid to middle, senior and top level managers.
One of the scarcest capabilities, is leadership. As organizations, their customers, employees
and their environment become more global and competitive, the competency requirements for
successful leadership are increasing exponentially. Leadership comes with empowerment
and changing work-cultures across the levels through continuous learning, skill development
and change management.
We now live in a world where the job and job requirements are constantly changing. Many of
us are in jobs that didn’t exist 3 years back and 3 years from now many of us will be in jobs
that don’t exist today. In this context, succession planning needs to be re-engineered, to focus
on competencies rather than positions. Thus succession planning will evolve into something
broader – talent management, regardless of organization structure.
Regulatory Compliance & Ethics
Pursuant to the dot-com bust and financial scandals involving companies like Enron,
companies have realized that they need to move beyond just well-managed PR. They are
now engaging in values-driven management. CEO’s have understood that effective corporate
culture is essential to long-term success.
Also there are more regulations governing HR than ever before in the interests of all
stakeholders, particularly the retail investors and employees. Various corporate governance
disclosure requirements, the Sarbanse-Oxley Act, rules about security and privacy exist
globally and in India. This necessarily brings out the need for stronger compliance orientation
by HR like the kind associated with Accounting so far. In turn HR policies need alignment as
well. Understanding implications and being able to make the right strategic HR decisions is a
key HR responsibility.
HR professionals need to step up to these challenges or else other functional areas will take
over this responsibility. Apart from domain re-skilling, the emerging HR professional has to be
skilled cross-functionally. The HR professional must think like marketing, the CFO as well as
So far we have always heard from HR managers that without top management commitment
to HR nothing is possible in organizations. The tables have now turned. CEO’s have placed
the people agenda right on top – and are waiting for HR to be committed and capable to
make it work.
Copyright NHRD Pune Chapter, Apr 2008