Chapter 2. A Path to Alignment
Human Resources, as a function, got its start in the personnel departments of corporate organizations in the 1930s and 1940s. The critical functions performed by the personnel department were highly process oriented and involved, for the most part, management of employee paperwork. This responsibility included oversight of a range of processes that span the entire lifecycle of an individual’s employment with the company, such as the creation of job requisitions, recruitment of new hires, tracking of job applicants, orientation of new hires, management of the benefits program, performance tracking, tracking of compensation, dealing with grievances, and employee exit processing. This is just a partial list of the processes historically managed through the personnel department. The emphasis was generally on the creation and management of documentation. Every step along the path from hiring to termination needed to be carefully documented, and this huge mountain of documentation needed to be organized, filed, and tracked. In the age before modern information technology, this cataloging and tracking by itself was a daunting task. As corporations grew more complex, jobs more complicated and specialized, the personnel department continued to fill many roles and those working within the function often wore many hats.
Other functional groups such as Finance and Accounting became more and more focused within their specialty, while at the same time the personnel department, having adopted the moniker of Human Resources, took on ever more diverse tasks. A telling example is the role of the Information Technology (IT) department. One of the most significant shifts in technology measured by its impact and ubiquity has been the introduction of computers to the business organization. One of the most important early uses for computers was in the Accounting and Finance functions, and because of this, most companies put their fledgling IT departments under Finance and Accounting. Over time these departments took on ownership of other functions and assets with the organization such as communications systems and so forth. Back in the 1980s it became obvious to most that the IT group should be independent of Accounting and Finance and that managing this function from within Finance and Accounting was preventing those groups from focusing on their prime tasks. Meanwhile, the Human Resources function took on more and more responsibility in a range of areas related to employees. As a result of this, Human Resources today covers a huge range of functions from those related to talent management such as recruiting, staffing, training, leadership development, and retention as well as managing benefits, employee engagement, wellness benefits, employee legal issue management, and many others. Human Resources professionals are expected to wear a range of hats including, but not limited to:
Performance consultant.
Employment law expert.
Compensation consultant.
Change consultant.
Designer/developer of Performance Management Systems (PMS).
Leadership developer within an organization.
Staffing expert.
Human Resources reengineer.
Trainer.
Human Resources Information Systems administrator.
In the past, the role of the Human Resources department and the professionals within it has been limited to fulfillment and implementation. Those working within these groups were seen as “personnel specialists.” That role is slowly evolving to one of human capital advisor, working as a strategic partner with senior executives on a wide variety of human capital related issues with the goal of creating and maintaining an environment for the optimal use of human capital. However, as of today, few CEOs would say that their Human Resources departments were truly strategic. Given the somewhat schizophrenic set of functions that the department is tasked with, this conclusion is not surprising.
Dr. John W. Boudreau, a professor at USC’s Marshall School of Business and Research Director at the Center for Effective Organizations, and Peter M. Ramstad, Executive Vice President for Strategy and Finance at Personal Decisions International, have investigated the alignment or perceived lack thereof between Human Resources and the core business of the firm (Boudreau & Ramstad, 2001). In their research they found the frustration of executive level managers reflected in questions such as these:
Why is there so little logical connection between our core business management processes and talent? We have well-developed strategic planning, marketing, operations, and budgeting processes that connect deeply and logically with our understanding of how to create competitive success and shareholder value. Yet, at best these core processes reflect only general talent goals like headcount, labor costs, or generic Human Resources programs. At worst, people issues don’t even appear except as a headcount budget at the end of the plan.
We invest heavily in the latest Human Resources measurement techniques—Human Resources scorecards, Human Resources financial reports, return on investment of Human Resources programs, and studies in how Human Resources programs enhance attitudes, skills, and abilities. Yet, these Human Resources measurements seldom drive key business decisions such as acquisitions and entry into new markets. Moreover, our investors can’t rely on these measures to show them the competitive value of our talent. Can talent measures truly drive business decisions and investments?
When Boudreau and Ramstad discussed these issues with the Human Resources professionals at these firms they heard a matching set of frustrations, as reflected in the following questions and statements:
The strategic mandates for the organization are clear, and we use the best processes we know to connect to them. Yet, our Human Resources strategy discussions typically focus on: (1) What Human Resources programs will we offer; (2) Should Human Resources be centralized or decentralized; (3) What IT and other infrastructure is needed to make it all work; and (4) Why it is so hard to justify the investment? (5) What is missing in our connection to the big-picture issues?
Human Resources professionals are personally well-respected, yet as a whole our Human Resources profession lacks the respect, credibility, and impact of other core professions like Finance, Marketing, and Operations. Why is respect for Human Resources as a whole less than the respect for Human Resources individual contributors?
We always have a few Human Resources professionals that are trusted business contributors, respected and effective in their perspective on how talent connects to strategic success. Yet, Finance, Marketing, and Engineering routinely produce this kind of leader. In Human Resources, they are a precious few, and each has their own unique approach. Why can’t we more reliably create this kind of leadership excellence across our entire group of Human Resources professionals?
Studying these perspectives, it is apparent that there is a significant mismatch between where Human Resources is today and where senior executives expect it to be. One significant item that comes up again and again is that of justification. Human Resources spends a significant portion of its time in justifying why the company should be making the investments in Human Resources related programs that are being touted. Constantly being in the position of justifying their very existence, Human Resources executives find themselves in a defensive posture. While most firms find their Finance function strategic and never consider outsourcing it, many firms are looking at the idea of significantly, or even completely, outsourcing the Human Resource function. In a recent survey by the Human Resources Metrics Consortium, the inability to document Human Resources and Human Capital performance was the primary reason for terminating Human Resources professionals.
Given the microscope that the Human Resources department often finds itself under from a cost perspective, it is instructive to keep in mind that, for most organizations, the entire cost of Human Resources that is not related to employee benefits is typically around 2 percent of revenues. This is a very small chunk of the bottom line. Reducing costs in the Human Resources department by 10 percent (a significant change in costs) would bring this to 1.8 percent; a small change in the bottom line. The point here is that there is not a great deal of leverage to be had in looking at cost reduction in the Human Resources department. A far better approach would involve looking at how Human Resources as a function can have a greater impact on the organization. For example, the ability to track and understand the issues related to employee retention in a large, low technology services firm can have a huge effect on the bottom line.
How can we determine if an organization’s Human Resources department is aligned with the strategic goals and mission of the organization? This seems like a fairly straightforward question, one that must have undoubtedly been answered or at least asked repeatedly. As it turns out, this is an area of significant frustration! As a function within an organization, getting to the core involves: (1) a statement of what we are, (2) a definition of alignment, and (3) a system for determining the current level of alignment. Unfortunately, this is an area where concrete measures and models are not readily available, yet many organizations seem to be very successful at determining if particular functions within the organization are well aligned with the company’s overall strategy or not. When questioned on measuring strategic alignment, many top executives will state that they can see when something is aligned and when it is not. In a very simplified view of strategic development, there are two stages: planning and implementation. No strategy is complete without these two elements.
So if the Finance department spends most of its efforts on tasks that are generally considered well aligned with the organization’s strategic mission and Human Resources does not (at least in the opinion of most C-level executives in Fortune 100 companies), how can Human Resources look more like Finance, at least from the perspective of demonstrating strategic alignment? Let’s start by examining how the Finance department demonstrates alignment. Even before we get started on that, there needs to be an agreement on what strategic alignment means.