In light of today's economic volatility and uncertainty every aspect of business is being re-examined for its value in creating and sustaining profitable growth. I've worked in human resources for over 25 years, the past six with Newell Rubbermaid, and this is not a new endeavor for me. Throughout my career, I have consistently faced the question, "How does HR add value in a business?" In many cases, this question is not asked politely.
Adding legitimacy to this skepticism are new technologies that enable automation of routine transactions, offshoring and shared service organizations that specialize in managing many tactical elements of HR. Outside vendors are handling classic HR functions like payroll, staffing and recruiting, and even equal employment opportunities investigations, often at a lower price and higher quality than companies can manage for themselves. Even sacred and often arcane areas of HR such as executive compensation are now largely guided by outsourced providers who are experts in current tax and SEC regulations.
In this world flush with cheaper ways to fulfill traditional HR tasks, is HR becoming obsolete?
Early in my career I was fortunate to help a large manufacturer and distributor of construction and agricultural equipment change the way it went to market in North America. In the mid-1990s the small businesses that dominated both construction and agriculture were being replaced by much larger corporate competitors. As a result, procurement specialists who were much more sophisticated than the small farmers and family construction owners became my firm's target, which required a change in the way we sold. The company's relationship-based salespeople needed to become business people who understood the applications of the machinery in their areas, the competitor's equipment, the company's strengths and weaknesses, and the economics of our distributors and customers in order to put together multi-million dollar deals that delivered financial benefits to all parties.
By utilizing basic HR tools like business process redesign, organizational redesign, job redesign and competency model development, we were able to more effectively align our selling and support processes to the changing business realities of large-scale farming and construction. Within the first year of our effort net sales increased 27 percent while fixed costs were reduced by 40 percent. Not all fixed cost reductions were people. We eliminated a number of decades-old field offices built to accommodate railroads (which were no longer the dominant distribution method,) and we redeployed 33% of our sales personnel who were not able to execute the new selling process. As would be expected, many of our sales people were very good at support, but not as good as we needed them to be at business.
This success is an example of how, when properly applied and executed, HR can have a significant and measurable impact on a company. It's important to note that the value added by HR in this instance had little to do with what is classically considered core HR work such as payroll, benefits administration, staffing, and recruiting. Instead, the work was strategic in nature and created a structure that allowed the business to succeed.
In order to add significant value to a business, HR must be able to support and enable the execution of strategy through building organizational capability. This is a role that cannot be automated, shared as a service, offshored or outsourced. It comes from an intimate knowledge of a business's strategy and the existing capabilities of the organization. The great advantage that HR has in this area is that, ultimately, all strategy is executed by people - people who need to be supported, trained and equipped to fulfill the strategic vision. This is the real role of HR, and even though some people remain skeptical of its bottom-line importance, in fact its relevance cannot be underestimated.
In my current position at Newell Rubbermaid, we have gained consensus among our senior leaders that the primary role of HR is to build organizational capability to support the execution of business strategy. Our leaders are so excited by this shift that they want us to be able to execute against the new model of HR as soon as possible.
From my experience, however, I've learned that this is not a simple shift that happens overnight--it takes some time. To get there, our HR department is applying the same principles of business process redesign, organizational redesign, job redesign and competency model development to our own function. We have mapped competencies to each job and started to understand the gaps between where we are today and where we want to be in the future. We have also started to lay out a long-term development process for our HR associates to teach them everything from financial basics to strategic workforce planning. We're also using technology to relieve our staff from doing more routine HR work so they can focus on building capabilities.
Our approach is to not replace our current HR team with new people or technologies, but to teach them the new skills required for HR's new role in today's business environment. We understand that this is a multi-year journey, but feel it is the right approach for our business.
This blog first appeared on Harvard Business Review on 12/21/2011.