Wednesday, December 20, 2006

Developing the HR Balance Sheet - A review of article by Jeffrey K. Cordes

‘HR as strategic partner’ has been a buzz word now for quite some time. Dave Ulrich identified four primary roles for HR in any organization namely strategic partner, administrative expert, change agent and employee champion. With emergence of knowledge sector where focus is on development of human capital and introduction of powerful IT tools to assist HR in administration, it was expected that HR would gradually move from role of administrative expert to strategic partner but various cross sectional studies done across different times have shown that still HR has not been able to take over the role of strategic partner in organizations. The article “Developing Human Capital Balance Sheet” by Jeffery K Cordes, human capital officer at Navigant Consulting explores some reasons about why it has happened and provides a roadmap to making HR a value adding strategic partner of business

Cordes begins his argument by stating the perception about HR being organizational overheads among peer professionals as it used to involve mainly administrative work. He further asks critical questions about mistakes HR has been repeating for last many years and diagnoses HR’s inability to understand business as root cause of its image. He stresses that it is imperative to know how to measure the ROI for HR function before one can expect executives to value HR. Every small move like reduction in attrition etc should be seen from ROI or balance sheet point of view.

In any value chain, there are critical points which add value to the chain. Similarly, Cordes suggests asking top management what is the value driver for the organization and trying to see what HR as a function is doing to contribute to that value driver. This is where Cordes argues that a new Human Capital Balance sheet should be developed for every organization which should focus on cost avoidance instead of cost (against the traditional balance sheet). Therefore, instead of cost of training, the balance sheet would reflect cost avoided as a result of training. The advantage of such balance sheet would be realized only if the internal clients support it.

This is followed by another suggestion that HR should be run as a business unit in an organization. Here Cordes puts forward various steps which would help in streamlining the processes and stresses putting in effort for only strategic activities. These include every member of the team proving his value add, building of a cross functional team (IT, HR and business) to focus on only value adding activities and outsourcing rest of the activities. Such steps are bound to face some resistance from those who still believe in traditional HR as high touch job. Cordes very forcefully states that one should learn to distinguish between high touch and high value job. There is no problem retaining high touch and high value job but low value job should not be retained even if it is high touch. Such activities should be delegated to an ‘e HR’ system

Explaining the philosophy of HR Team at Navigation consulting, Cordes mentions that they believe that recruitment is a high value activity which can even help them in tackling the retention problem so they have a dedicated internal recruitment organization for it. Other activities that they focus on are learning and professional development all of which focus on high value activities. In order to tackle the resistance and increase the acceptability of new model of HR as a Business unit, Cordes also stresses on having a communication strategy to communicate the vision and implementation strategy of the new avatar of HR. When all functions in organization are focused on clients, why shouldn’t HR also focus on its internal clients?

To conclude his argument about need for treating HR as a business unit, Cordes mentions three points to be taken care of namely:

Setting measurable goals and objectives

Developing, executing and measuring a business plan for HR and communicating it to internal clients for their acceptability

Building credibility

The idea can be summed up quoting verbatim from his article, “Think strategically, become a business driver, eliminate administrivia, measure tangible, quantifiable results and then communicate your success effectively and often.”

The article gives good insights into the principles of strategic HRM and actually substantiates everything with live examples of implementation in Navigant consultants. The positioning of HR in an organization is one thing which needs to be looked at to make it a strategic function while another is the competency of people who join this function. If the B Schools fail to develop good business and financial perspective in HR professionals and they do not understand how the business earns money, how can we expect future HR managers to take central role in planning and other strategic initiatives? The steps mentioned by Cordes are more relevant to positioning of HR in organization. However we should also focus on developing the required competencies and attitudes in HR professionals so that they can run HR organization like a business unit. With both right positioning as well as right people, HR would be able to make desired impact on the business.

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