There’s been a great deal of press recently about the role of HR within organizations. In fact, two recent Harvard Business Review articles have caused quite a firestorm and re-opened the debate over what HR must do to remain relevant in a fast-changing business environment.
In “It’s Time to Split HR,” author Ram Charan proposes that HR should be divided into two parts – one reporting to the CFO to focus on administrative functions and one reporting to the CEO to focus on more strategic leadership and organizational aspects. Peter Cappelli’s more recent article, “Why We Love to Hate HR…And What HR Can Do About It,” explores the history of HR, its current function and steps HR can take to get back on track.
In our opinion, both schools of thought are off the mark, and here’s why: Neither “solution” – nor any others that we have seen – addresses the fact that HR strategies fail because they are not linked to the business strategy and the creation of value for a company in any meaningful, measurable way. Even in HR environments that purport to be “transformed” (often simply because they have streamlined administrative work and reduced costs), HR professionals are not held accountable for business results or success of the organization.
Regardless of how much knowledge and data HR may have about a company’s people, or how honorable their intentions may be, as long as HR is disconnected from – and experiences no consequences for – a company’s business value, no amount of cajoling or cheerleading will lead business leaders to view them as value-added.
Without a doubt, talent rules in our new knowledge economy. Companies are deriving more value from the intellectual capabilities of their teams than ever before, and companies with the greater share of smart, high-performing employees are coming out on top. “Knowledge workers” are to 2015 what manufacturing assets were to the 1970s, except the new talent resource is in much shorter supply and is much more portable.
With such a high dependency on talent, the financial implications of effective talent management – literally, a company’s market value – are enormous. Yet there seems to be scant attention being paid to connecting value creation and talent strategy as it relates to hiring, talent development and employee retention. Despite the huge investments made in human capital technology and consulting, companies fail to quantify the true value, worth or results of those investments.
In the absence of a new orientation toward value creation, HR finds itself continuing to focus on the value drivers of a different age – manufacturing assets – instead of adjusting to the new context of intellectual capital (IC) as the value driver of today’s economy.
HR’s Limiting Factors
Everything we see today tells us that HR needs to evolve. Despite the changing role that people and intellectual capital now play in driving organizational value, HR has not experienced a correspondingly dramatic shift in its understanding of and approach to these new relationships.
Based on our experience and research, we believe talent management efforts, outcomes and predictability have been limited by three primary factors:
Lack of HR capability: Overwhelmed with personnel-related administrative responsibilities, HR professionals often struggle with establishing credibility, assessing strategic opportunities and driving results-based change.
A support function mindset: Historically, companies have positioned the HR function as an administrative one, which attracts individuals who like more tactical work, resulting in a team of task-driven workers.
The inability to link business value to HR work: Without a burning desire to perform strategic, data-driven work, HR leaders are unable – and in some cases, unwilling – to gather and use data to create a business case for change in a company’s talent strategy.
As outlined here, it becomes clear that HR talent itself is the biggest barrier to its ultimate transformation. No longer are the administrative skills and attributes that were valued in an industrial age still appreciated or needed. Now, in order to define and lead organizational change, HR must focus on developing a measurable talent strategy that reflects a clear understanding of how to link talent with value creation for a business.
The Way Forward
The road of the future is paved with intellectual capital. To increase its value, a company must maximize its relevant IC. In order to do so, a new model for talent management must be established that incorporates traditional HR and Finance capabilities with expertise in analytics and measurement, as well as a deep understanding of how critical assets are allocated to power the business and how the attraction, selection and retention of the right talent can deliver a high-performing, diverse workforce.
We refer to this new model as the “IC Strategy Team,” and it can help a company refine its human capital focus by initiating five critical steps:
The IC Strategy Team and its human capital approach is not a mere tweak of the current HR or Finance model, but rather a complete overhaul of the processes and strategies necessary to achieve success in a knowledge driven economy. The question now becomes, who will take the lead in this effort? If HR can’t find a way to innovate and produce real, measurable business value, then it risks being forced to change or be overtaken by other, more strategic functions. Will HR ultimately be able to heal itself?
Want to learn more about how business value, intellectual capital and talent are connected? Order our new book: Talent Valuation: Accelerate Market Capitalization through Your Most Important Asset.