The ONE Change You Can Make to Better Leverage Your Human Capital & Business Decisions

Happy Memorial Day!  The holiday weekend has allowed me some time to think about HR.  I’ll think about and talk about HR as long as anybody lets me and a topic I’ve been thinking about recently is the difference between an organization that has a partnership with its HR function, and organizations that have a strategic partnership with their HR functions.  What’s the difference?  Do the benefits of one outweigh the benefits of another?  Is one always better than the other?  I recently witnessed the startling difference between the two and it’s been weighing on my mind how such a change can be a pivotal transition for an organization. 

Let’s start by understanding the difference between a partnership and a strategic partnership.  A partnership exists when the business looks to HR for advice to handle its people matters.  Sometimes this is referred to as a business partnership.  The business relies on their legal knowledge and expertise with people issues to manage decisions that have been made and to keep business running smoothly.  A strategic partnership exists when HR is directly involved in the major business decisions of the organization, including the formation of strategy, the design of the organization and the implementation of the business model.

Let’s take an example to understand the difference.  Your organization decides to open a new facility in another state.  Is HR and human capital considered after the decision to open the plant is made or before the decision is made?  A strategic partner is part of the decision making process and has input into the decision rather than helping the business deal with the effects of the decision after it is made.

I’ve had the experience of being part of organizations with both types of relationships with their HR function.  Now, please keep in mind that if anything less than a partnership exists, it’s probable that some facets of the business are being overlooked.  I want to be clear.  I am an advocate of the strategic partnership, although understand and support cases where a business partnership works. 

A business partnership is necessary in most organizations today that want competitive edge.  The vast number of successful organizations have built decent business partnerships with their HR function, and see its value as an internal support system.  This is progress from what this relationship looked like 20+ years ago.  There has been a push, particularly in the last 15+ years for the business to form a strategic partnership with its HR function.  I believe it has become increasingly important as the reality sets in that human capital and how it is organized are increasingly pivotal to organizational effectiveness.  Businesses that have strategic partnerships with their human capital functions are shown to more quickly add and keep shareholder value.  The unfortunate part of this story is that a statistical analysis performed on HR from 1998 to 2007 showed no statistically significant change in HR performing business strategy activities such as identifying/designing strategy options, choosing the best strategy option, planning strategy implementation, identifying new opportunities, or assessing possible merger, acquisition or divestiture strategies.

So how do you utilize your HR function strategically?  There are several ways an HR function can become more strategic.  First, the problem may be in the organizational design of your HR/human capital department.  Organizations whose departments utilize a shared service model, information technology or cross functional training for HR staff are shown to be statistically more strategic than HR departments that are decentralized or organized for resource efficiency.

It’s also important to have strong HR information systems.  Technology can make or break your business, and it can also make or break your people processes.  HR systems are a scaled item, so if you’re smaller, a less robust system may be necessary, but make sure it still gives you the information and competitive advantage your business needs.

We live in the world of analytics today, and HR is no exception to this business trend.  For HR to be strategic, having a fundamental understanding of the metrics that make your “business” successful is crucial.  Three overarching metrics I’ll recommend you have a grasp of are the efficiency, effectiveness and impact of your HR work and initiatives.  There are certain measurements for each of these factors that are important to most businesses.

HR can also improve the decision making process around human capital to be more strategic.  There are several ways HR can do this, but I’ll give you the three shown to statistically contribute the most strategically.

• HR leaders identify unique strategy insights by connecting human capital issues to business strategy.
• HR leaders have a good understanding about where and why human capital makes the biggest difference in their business.
• HR adds value by improving talent decisions inside and outside the HR function.

It would be silly to tell you steps you can take to make HR have a strategic partnership with the business without mentioning that your HR team must have the right skills.  What the right skills are is the million dollar question.  I’m going to give you 5 HR skills shown to have the most impact on creating a strategic partnership.

• HR Technical Skills

• Interpersonal Dynamics

• Business Partner Skills

• Metrics Skills

• Managing Outsourcing

Do you or your HR team have a high level of proficiency in these skills?

Overall, the road map for HR becoming more of a strategic partner seems clear both with respect to what it needs to do to be involved in a variety of strategic activities and to become a full strategic partner.  The benefits of a strategic partnership support the argument for such a relationship with business decisions.  However, I realize that there’s a difference between knowing what needs to happen and doing it.  It’s far easier to point to what HR needs to do than to make it happen.  I sometimes see a “stubborn traditionalism” that characterizes the HR profession, which can be a hindrance.  If HR fails to advance, it seems a strategic partnership will remain a goal on most human capital professional’s career checklist.  I encourage you and your business to implement some of the tactics here to start making the transition to a strategic partnership today.

Information and statistics from the Center for Effective Organizations.