The first question to answer is: How does HR create business value?
Several years ago, while involved in a project with a large retail company’s HR department, I noticed that the labor law team was the largest corporate HR department. The company employed eight to ten times the number of labor lawyers per employee as its competitors, and four of its six corporate HR executives had been promoted from the legal department. Attorney telephone numbers were on the speed dial of every HR generalist, and daily decisions were routinely screened for legal exposure. HR generalists complained incessantly about the legal team obstructing their work, but the checking and approval process remained intact. What would you say was HR’s theory on how it added value to the business?
A second company I supported had been a lead company in a regulated industry for many years. In this company, the focus of HR staff meetings was policy and policy enforcement. Before meetings and on breaks, HR generalists playfully sparred with one another on policy details. “. . . That’s right, but she only gets 30 days if she has more than two years of tenure at a company merged before 2001.” Peers looked on and cheered as one bested the other. How might you describe the human capital theory at this company?
In the first company, the human capital theory was that lawsuits hurt the bottom line and brand equity. HR added business value by reducing the number of lawsuits. Actual data showed that the total spent in all employee-related legal costs was 1/10,000 of the company’s total revenue, a ratio consistent with competitors. Not only did the heavy legal staff not create best-in-class results, it blocked many efforts to improve productivity.
In the second company, the human capital theory was a legacy from a time when the company did not need productivity improvements. Such improvements were seen as creating excessive profits and spurring government-mandated price reductions. The human capital theory was that trouble-free operations were a result of stable processes and relationships. HR added business value in this closed system by improving employee perception of internal fairness and equity. HR executives at both companies talked about business value and strategic HR and truly believed it, but their activities, proj- ects, and decisions were rationally aligned to a deeper, unstated human capital theory. Outside hires who were brought in to add the missing strategic component were quickly rejected as their activities and decisions aligned to a different theory and were viewed as irrational.
What is your organization’s human capital theory? Here are a few ways to find out:
• Ask HR executives why they chose a certain decision. Continue asking why over and over until you hit the root.
• Look at the performance objectives of your boss and peers. If you distilled them down to a “main thing,” what would it be?
• Look at who gets promoted. What makes them stand out?
• Which are the most powerful HR departments?
• How does the Chief Human Resources Officer spend his/her time? What are the topics of the last ten to twenty all-points CHRO e-mails?
• Ask an HR professional, “What is the most important thing HR needs to get right?”
• Run an activity analysis on HR generalists.
The human capital theory you choose for your company will vary depending on your business circumstance. It is important that you surface and debate the theory as it is and will continue to drive the activities of every HR professional.
Source : Bradley W Hall, PhD. The new human capital strategy : improving the value of your most important investment—year after year.AMACOM. 2008
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