Article

Paula Sáenz López 20 July 2020

Why Companies Must Emphasize HR to Win Consistently

The ability of Human Resources to add business value is not adequately recognized

Business leaders frequently proclaim that employees are their companies’ “most valuable” or “greatest” assets. It is therefore ironic that despite such lofty declarations, Human Resources as a corporate function has not got the attention it ought to the CEO. This situation has been largely true across size of companies, geographies and most industries. Studies by McKinsey and the Conference Board have found that although CEOs list human capital as a top priority for them, the human resources function ranked only 8th. (Source)

A major reason for this mismatch is that in most organizations, HR is seen as a “support” function. In contrast, Finance has evolved in the past 20 or so years into a more “strategic” function. This despite the fact that it can be quite persuasively argued that HR is closer to business growth because it is more directly responsible (than, say, Finance) for identifying and attracting the best people, retaining top performers and constantly upskilling people in the organization so that they are empowered and enabled to excel in their respective areas.

 

Here’s why and how the Human Resources function must change

To be sure, HR teams must continue to deliver on administrative tasks. They must announce and implement painful decisions such as layoffs, hiring freezes or changes to compensation and manage consequences such as involuntary attrition, the decline in employee satisfaction and so on. But increasingly, HR leaders must play a more proactive role in ensuring that the best possible talent is in place to lead the company in the days ahead. This may mean having to assess current leaders and managers for the relevant competencies, behaviors and skills-and find ways to plug gaps. They must monitor talent movement within the industry and more importantly, between industries. This will be especially critical for people in “horizontal” roles or those who have proven track records in delivering innovation and growth (E-Commerce Directors, for example).

“Collaboration” and “innovation” are the lifeblood of modern business organizations. HR organizations must regularly monitor how various teams are doing in these critical areas. Instead of waiting for annual or semi-annual performance appraisals (which are anyway after-the-fact), forums and mechanisms must be established to enable the CEO and other business leaders to identify bottlenecks or unhealthy and counter-productive competition and non-collaboration. Irrespective of whether these are caused by individuals, outdated policies and practices or the sheer diversity of the workforce (a growing share of GenZers and millennials), HR must proactively find solutions.

All this calls for transforming the HR function, so that the CHRO becomes a “business partner” to the CEO. Admittedly, this cannot happen overnight. The change must begin with CEOs (and the Board) shifting their mindsets about the role of HR and how, where and when it can add value to the business.

The discontinuity caused by the ongoing Covid19 pandemic represents a terrific opportunity for CHROs to reimagine the role of the HR function in the business and elevate it to something more tangibly strategic. In the joint context of “Digital” and the “post-Covid19 normal” HR leaders must work with their CEOs and CFOs to identify new measures of “performance” that span not just what business/functional leaders/ managers do but also when they do it and what outcomes they deliver vis-à-vis agreed goals.

For the HR function to truly add business value, it must be staffed by people who understand prevailing market dynamics and trends. HR teams must be well-connected both internally and externally and be able to use these relationships to identify the right talent for specific roles. They must be effective conduits for competitive intelligence not just about existing competitors but also potentially-disruptive new entrants, and use this information to proactively suggest tweaks to policies. All this means that HR managers and leaders can no longer just be generalists whose knowledge is limited to core people processes; they must understand the business and operating environment of their organizations. Indeed, they must know the strengths and weaknesses not just of their own company but also those of competitors. They must be able to anticipate possible opportunities and threats that could impact their company’s access to talent (e.g. tighter visa regimes or social distancing norms) and hence, operations, market share and financial performance.

 

FMCG companies need to catch up in transforming their HR functions

Companies from the consulting and technology sectors have displayed commendable agility in evolving their HR functions over the past two decades. Not surprisingly, such organizations regularly make it to the top of lists such as “Best Places to Work” or get super positive reviews in Glassdoor. I am not suggesting that these are goals by themselves, but as an HR leader, you will appreciate their value in attracting and retaining talent.

In comparison, companies in the FMCG industry have generally been less proactive in terms of evolving their HR functions as strategic weapons capable of creating a tangible competitive advantage for their business units. However, the winds of change have started blowing across this sector as well. Facilitating deliveries with lower levels of direct customer contact and tightening regulations are driving changes to product design, packaging and even distribution. Environmental concerns are forcing changes to raw materials and manufacturing processes. The pandemic as well as geopolitical considerations are triggering rejigs in global supply chains. As companies embrace Manufacturing 4.0 thinking, they will need experts in AI, ML, IoT, Analytics etc. All such changes aimed at improving internal efficiencies, enhancing customer delight and boosting customer experience can be successfully implemented only if HR teams at consumer products companies start operating a higher level than before so as to identify and deploy a new breed of leaders capable of managing complex change.

Google is a great example of a company where a proactive HR function consistently boosts performance by creating a virtuous cycle. “Google attracts and retains the top talent in all areas from IT to marketing, sales, sustainable development, engineering and more. It is this ability to hire and retain the best talent that accounts for Google’s continued success and dominance on the world stage.” (source) Google works with both in-house and external recruiters and uses selection processes that are designed to identify top talent based on their creative potential and technical competence. Once employees come on board, performance and retention are driven by a combination of strategies that range from above-market salaries to top-notch in-office amenities (gourmet food, gyms etc.) to paid time for employees to pursue projects they are passionate about. Employees identified as having leadership potential are proactively coached and mentored. The collective impact of all these strategies is to create a pool of happy employees who are motivated to innovate and deliver by going beyond their ordinary calls of duty.

Undoubtedly, the economics and market dynamics of the tech industry are very different from those of the FMCG sector. Even so, there are low-hanging fruits that HR teams of consumer companies can go after. For example, instead of engaging head hunters only for specific retained or contingency searches, HR teams can explore how to partner with executive search firms to gather information about people’s movements or create lists of “must-have” people. Search firms can start interacting with executives and assess specific competencies as part of the initial screening process. Not only does this provide hiring managers with more information about candidates to make better-informed decisions, but it also allows candidates to hit the ground running when they do change jobs. This is different from the way recruitments are triggered in FMCG companies: HR teams waiting to start the search process after the CEO, Business Head or Sales VP makes a decision to hire new talent.

In the CPG space too, there are HR leaders who have started to make a difference to their divisions and companies. But these are driven by their individual vision and proactive actions; going forward, this must become the norm across the industry. If you are unsure about how you as an HR leader can deliver even more strategic impact and business value, drop me an email on Paula@ls-international.com.