ORGANIZATIONS OFTEN CLAIM THAT: “People are our most important asset”

HUMAN RESOURCES: STRATEGIC PARTNER OR PAPER-PUSHER?

Juan I. Sanchez, Ph.D.Department of Management & Int’l Business

Florida International University

ORGANIZATIONS OFTEN CLAIM THAT:

“People are our most important asset”

But do people understand how the HR function influences firm performance?

Do HR people feel like they play an important role in implementing the organization’s strategy?

Does HR really matter?

What’s the perception of the HR function?List the events that most often trigger the words “let’s ask human resources”:

Event Perceived HR Role

Discipline problems “The police”

Personal problems “The counselor”

Company’s party “The entertainer”

Red tape “The bureaucrat”

HR as a strategic partner capable of enhancing the organization’s performance

WHAT DOES HR STRATEGIC ALIGNMENT MEAN?

HR as an administrative

function

Measuring HR’s influence on the organization

Traditional HR Focus: the individual employee•Select the best employee

•Find benefits that satisfy the employee

•Identify incentives that do motivate the employee

•Solve individual skill deficiencies through training

Improving individual employee performance

Does it automatically enhance organizational performance?

HR as a strategic asset

New HR Focus: multiple levels of analysis:

individual, team, organization…•Alignment of HR systems with the company’s strategy•How can HR play a central role in implementing the organization’s vision & strategy?•How do people create value for the organization?•Ho do we measure such value-creation process?

HR as an investment, not an expense

•Conventional accounting was created at a time when tangible capital (financial & physical) was the primary source of revenue.

•Today: Intangibles such as human capital are the primary source of revenue.

HR as an investment, not an expense

•Conventional accounting generates short-term thinking regarding intangibles:

intangible-related expenditures = expenses.

tangible-related expenditures = asset investments (which are depreciated over their useful lives).

•Managers whose salaries are tied to earnings obviously prefer expenditures that can be depreciated over time rather than people-related expenditures than are expensed in their entirety during the current year.

HR as a source of competitive advantage

•Widening in the ratio of market value to book value (based on intangible assets)

•HR is key to flexibility, innovation, and speed to market

•HR as competitive advantage: barriers of entry, difficult to imitate.

•HR managers can become NUMERATOR managers (contributing to revenue & growth) rather than just DENOMINATOR managers (cutting costs & reducing overhead).

•Link performance measurement with strategy implementation: facilitates communication with stakeholders.

HR architecture as a strategic asset

•Goal of corporate strategy: create sustained competitive advantage.

•Goal of HR strategy: maximize the contribution of HR towards that same goal.

HR FUNCTION

HR professionals with strategic competencies

(delivery of HR services in a way that supports the implementation of the firm’s strategy

HR SYSTEM

High-performance, strategically aligned HR policies & practices

EMPLOYEE BEHAVIORS

Strategically focused competencies, motivations, and associated behaviors

HR ARCHITECTURE

Strategic HRM requires systems thinking…

•Systems thinking emphasizes the interrelationships of the HR system components AND the link between HR and the larger strategy implementation system.

•Interactions among components make a system more than just the sum of its parts.

The laws of systems thinking•Today’s problems come from yesterday’s solutions (e.g., downsizing)

•The easy way out usually leads back in (example: _________)

•Cause and effect are not closely related in time & space (HR effects are indirect) (example of indirect HR effect: __________)

•Cutting an elephant in half doesn’t get you two smaller elephants. (e.g., reorganizations due to mergers acquisitions).

Best HR Practices help almost every business…

HR Practice Bottom 10%

Top 10%

No. of training hrs. for new employees

35 117

Percentage of employees receiving a performance appraisal

41% 95%

No. of employees per HR professional

254 140

Percentage hired based on a validated selection test

4% 30%

From Huselid et al., 2000, AMJ

But strategic HR goes beyond “best practices”…

Behaviors

Str

ateg

ic g

oals

_

+

+_

HR alignment

What does HR alignment take?

•It requires a clear understanding of the value chain: What kind of value the organization generates and exactly how that value is created.

•Be able to describe how ultimate financial goals are linked to key success factors at the levels of customers, operations, people, and IT systems.

•With this shared understanding of the value-creation process, the organization can design a strategy implementation model that specifies needed competencies and employee behaviors.

•The HR system can be geared toward the generation of these competencies and behaviors.

VALUE CREATION EXAMPLENordstrom

CUSTOMER RETENTION

ROI

SUPERIOR CUSTOMER SERVICE

UNIQUE INVENTORY

KNOWLEDGEABLE ANDCUSTOMER-ORIENTED EMPLOYEES

Financial

Customer

Internal/business process

Learning and growth

VALUE CREATION EXAMPLEWal-Mart

CUSTOMER SATISFACTION

ROI

SUPPLY-CHAIN MGMT.

RELIABLE EMPLOYEES

Financial

Customer

Internal/business process

Learning and growth

PRICING

TRUSTWORTHY SUPPLIERS

CONVENIENCE

Inadequacy of Traditional Measurement Systems

1. Financial measures as lagging indicators, not leading indicators of value creation (Kaplan & Norton’s Balanced Scorecard).

2. Too much attention to financial dimensions of performance, and not enough attention to the performance drivers that determine those results.

3. Uncover the firm’s value-creation chain (story): “business model.”

4. By specifying and assessing the vital process measures of the value chain, and regularly communicating the firm’s performance on these measures, the balanced scorecard makes strategy everyone’s business.

BALANCING COST CONTROL AND VALUE CREATION:THE HR SCORECARD

1. Do you want HR to be perceived as a “cost control” or as a “value creation unit?

2. What gets measured gets managed.

3. If you measure only HR costs, your unit will be treated as a commodity without strategic value.

4. HR must control costs, but also create value.

5. Examples of instances where value was lost due to cost-control efforts? (“throw the baby with the bath water”)

INTEGRATING HR INTO THE VALUE CREATION STORY

Is the HR function providing the company with the employee competencies and behaviors necessary to achieve the organization’s strategic objectives?

1.HR deliverables: Outcomes of the HR architecture that serve to execute the firm’s strategy.

2.HR doables: HR efficiency & activity counts.

3.HR performance drivers: core people-related capabilities or assets.

4.HR enablers reinforce performance drivers (moderators whose presence activates the HR performance drivers).

MAPPING THE HR VALUE CREATION STORY

Strategy implementation

HR Deliverables

HR enablers

HR performance drivers

HR Doables Impact

DISTINGUSHING AMONG HR PERFORMANCE DRIVERS (PD), DELIVERABLES (DE), DOABLES (DO), ENABLERS (EN)SURVEY SAYS…

Measure PD DE DO ENAverage time for dispute resolution

Cost per trainee hour

Cost per hire

Time spent on new employee orientation

Troubleshooting skills

Ability to think out-of-the-box

Knowledge of sexual harassment legislation

Number of sexual harassment complaints

Sexual harassment awareness training

Risk-taking culture

Number of customer complaints

High evaluations on teamwork

An example of HR Value Creation Story…

Inventory

shrinkageEmployee theft

Random drug testing

Honest workforce Pricing

Honesty testing

Cost per hire (efficiency)

What percent of your coworkers are honest?

Cost per quarter (efficiency)

Cost of missing items

What percent of the items missing in the inventory are stolen by employees?

Competency Models by Strategy Exercise

Cost-driven organization

•Vigorous pursuit of production/delivery efficiencies.

•Tight control over cost of materials, resources, & overhead.

•Minimal expenditure in R&D, marketing, sales, & service.

•Emphasis on large accounts & economies of scale.

•Low-cost distribution system

WRITE HR PERFORMANCE DRIVERS (PD), DELIVERABLES (DE), DOABLES (DO), AND

ENABLERS (EN) FOR THIS STRATEGY

EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure


Value-driven organization

•Focus on developing best-in-class capabilities in selected activities.

•Promote reputation for technological leadership & brand image.

•Emphasize product engineering or service integration.

•Maintain an active basic research contingent.

•Partner with industry, universities, & research organizations for mutual benefit.



EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure


Service-driven organization

•Value investments in people.

•Close monitoring of metrics tracking service responsiveness.

•Cultivate good working relationships among associates, subcontractors, and suppliers.

•Creative involvement of R&D and manufacturing groups in after-sales support.

•Emphasis on customer service and sales ranks’ contact with customers.



EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure


Speed-driven organization

•Willingness to accept risks associated with delivering product/service to market ahead of competitors.

•Analysis of market trends.

•Aggressive management of new product development cycles.

•Engage in joint ventures to speed entry in emerging markets.

•Create geographical & technological partnerships to augment organizational capabilities.



EN

DO

DE

PD

Type

11

10

8

7

5

4

2

1

No. Measure

IN CONCLUSION…

“People can be our most important asset if we make the HR function our strategic partner”

ORGANIZATIONS OFTEN CLAIM THAT: “People are our most important asset”

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