BUSINESS STANDARD - Thursday,Aug 09,2007.
Shyamal Majumdar: Quantitative HR
HUMAN FACTORShyamal Majumdar / Mumbai August 09, 2007It's possible to establish a numerical relationship between good human capital management and enhanced financial performance. Is HR a key strategic function or just a back-office administrative job? The question may seem odd at a time when talent management can make or break a company, but it also reflects the confusion in Indian companies over the role of the HR function. An Accenture survey released last week showed that Indian CEOs gave the HR function the highest percentage of votes as a top-three function. This is great news for the HR fraternity. But look at the facts. Only one in 10 top Indian companies has an HR director on their boards.
The record isn’t better abroad. Of the FTSE 100 companies, only seven have HR directors. Also, according to a senior HR professional, a majority of CEOs considers people issues to be a significant factor in corporate strategy, but a relatively few of them look to their HR teams for help on those issues. Part of the blame for this confusion lies with the HR department itself. Ask any CEO and the common refrain is that there is a big discrepancy between the potential and actual achievement by their HR function — a situation that should be troubling not only for HR leaders but also the entire executive suite. Too many HR departments have defined their jobs as merely ensuring that the forms are filled out in triplicate and to pull up people who forget to fill out some insignificant details for the rubber stamp. In short, the credibility of HR’s role in delivering results — real results — is left in question. While all other departments — from manufacturing to finance to marketing — can defend their budgets for new and existing programmes, the HR head in most companies is usually clueless when it comes to justifying the return on investment. HR departments of leading companies worldwide are therefore working daily to become more quantitative like other departments and this is set to change HR forever. This means moving away from much of the day-to-day activities, which it seems no one else wants, but for which no one gives credit either. Though HR heads say it would be wrong to quantify each and every function of their department’s performance as HR also deals with intangibles, recent studies have shown that it is possible to establish a clear numerical relationship between good human capital management and enhanced financial performance. Consider, for example, a Hewitt research, which shows that stocks of the best employers outperform comparable indices and industry performance metrics by over 15 per cent. The annual profit growth of the best employers is also 15 to 200 per cent higher than the industry average. Also, employee retention. Employee turnover in the best employers in India is 45 per cent less than that of others. The monetary implication of this is huge as a frontline employee in a top company costs 40 per cent of salary to replace and top management costs 150 to 200 per cent of salary to replace.
Accenture says often CEOs shoot down the ideas of HR, not because they were not good or necessary, but because they did not have a proper business case. Too often the business case is how HR or the functional managers’ job will become easier instead of how HR and a technology purchase will impact the business’s top and bottom line. For instance, when asked which metric is considered most important in gauging the business impact of HR initiatives, executives predictably chose measures that are traditionally associated with HR — attracting/retainin g talent. However, they also selected key business performance indicators such as customer satisfaction and retention as important ways to judge the performance of the HR organisation. This indicates that executives are increasingly expecting the HR to take a more business-oriented approach to its work, and that intermediate outcomes such as staff retention — while important — are no longer enough to justify the investment in HR.
That is possibly why leading professionally managed companies are putting HR’s reputation as a back office administrator to rest by either outsourcing or automating most administrative tasks. The HR heads in these companies focus on managing the changing organisational culture and ensuring effective implementation of corporate strategy — that part of the HR function that cannot be outsourced.
Shyamal Majumdar: Quantitative HR
HUMAN FACTORShyamal Majumdar / Mumbai August 09, 2007It's possible to establish a numerical relationship between good human capital management and enhanced financial performance. Is HR a key strategic function or just a back-office administrative job? The question may seem odd at a time when talent management can make or break a company, but it also reflects the confusion in Indian companies over the role of the HR function. An Accenture survey released last week showed that Indian CEOs gave the HR function the highest percentage of votes as a top-three function. This is great news for the HR fraternity. But look at the facts. Only one in 10 top Indian companies has an HR director on their boards.
The record isn’t better abroad. Of the FTSE 100 companies, only seven have HR directors. Also, according to a senior HR professional, a majority of CEOs considers people issues to be a significant factor in corporate strategy, but a relatively few of them look to their HR teams for help on those issues. Part of the blame for this confusion lies with the HR department itself. Ask any CEO and the common refrain is that there is a big discrepancy between the potential and actual achievement by their HR function — a situation that should be troubling not only for HR leaders but also the entire executive suite. Too many HR departments have defined their jobs as merely ensuring that the forms are filled out in triplicate and to pull up people who forget to fill out some insignificant details for the rubber stamp. In short, the credibility of HR’s role in delivering results — real results — is left in question. While all other departments — from manufacturing to finance to marketing — can defend their budgets for new and existing programmes, the HR head in most companies is usually clueless when it comes to justifying the return on investment. HR departments of leading companies worldwide are therefore working daily to become more quantitative like other departments and this is set to change HR forever. This means moving away from much of the day-to-day activities, which it seems no one else wants, but for which no one gives credit either. Though HR heads say it would be wrong to quantify each and every function of their department’s performance as HR also deals with intangibles, recent studies have shown that it is possible to establish a clear numerical relationship between good human capital management and enhanced financial performance. Consider, for example, a Hewitt research, which shows that stocks of the best employers outperform comparable indices and industry performance metrics by over 15 per cent. The annual profit growth of the best employers is also 15 to 200 per cent higher than the industry average. Also, employee retention. Employee turnover in the best employers in India is 45 per cent less than that of others. The monetary implication of this is huge as a frontline employee in a top company costs 40 per cent of salary to replace and top management costs 150 to 200 per cent of salary to replace.
Accenture says often CEOs shoot down the ideas of HR, not because they were not good or necessary, but because they did not have a proper business case. Too often the business case is how HR or the functional managers’ job will become easier instead of how HR and a technology purchase will impact the business’s top and bottom line. For instance, when asked which metric is considered most important in gauging the business impact of HR initiatives, executives predictably chose measures that are traditionally associated with HR — attracting/retainin g talent. However, they also selected key business performance indicators such as customer satisfaction and retention as important ways to judge the performance of the HR organisation. This indicates that executives are increasingly expecting the HR to take a more business-oriented approach to its work, and that intermediate outcomes such as staff retention — while important — are no longer enough to justify the investment in HR.
That is possibly why leading professionally managed companies are putting HR’s reputation as a back office administrator to rest by either outsourcing or automating most administrative tasks. The HR heads in these companies focus on managing the changing organisational culture and ensuring effective implementation of corporate strategy — that part of the HR function that cannot be outsourced.