Aligning Human Capital & Business Strategy – A CMD’s perspective


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Aligning Human Capital & Business Strategy – A CMD’s perspective
Ms. Pallavi Jha,
Chairperson and Managing Director
Walchand PeopleFirst Ltd

Published in: Business, Technology
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Aligning Human Capital & Business Strategy – A CMD’s perspective

  1. 1. 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
  2. 2. 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 performance. 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 competitor? 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
  3. 3. 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 bottomline. 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. Outsourcing: 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 and futures. Diversity: 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
  4. 4. 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: 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. Conclusion 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 the CEO. 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