By Tom McGuire | August 09, 2021
It's time that CHROs take steps to build a business-based talent strategy to increase their effectiveness and better support their CEO and business strategy. This article focuses on:
- Why this needs to happen
- Three tips for making it happen
- Three benefits to doing it
For too long, HR has tried to prove its value – and garner support for people-related investments – largely on their own. While other business leaders may assist in the effort, it’s often in a passive capacity and not as an advocate for such investments. CEOs and Finance leaders, on the other hand, often see people costs as, more than anything, their organization’s single biggest expense – a paradigm most have had since the industrial era when employees’ costs were, in fact, an expense.
But with the dawn of the knowledge economy, the tables turned. Intellectual capital (in the form of brands, patents, data, customer relationships, etc.) is now the most valuable asset in the world. And only one source creates, maintains and builds such assets – people. Not all people – not all roles – but, nevertheless, high-performing talent in critical roles. The cost of this talent is unquestionably an investment rather than expense, economically speaking, despite persistent accounting conventions. Finance leaders intuitively understand this. Now we can say with credibility that (some) “people” (in some roles) really are our most important assets.
HR and their CEOs need to collaborate more closely than ever for these reasons:
- To find commonalities between the business strategy, finance and HR as the impact of talent on market value continues to grow.
- To share data and analytics that indicate how critical roles are impacting the organization’s intellectual capital and, in turn, business value.
- To better plan and track the return on talent-related investments.
The cost of talent in critical roles is unquestionably an investment rather than expense, economically speaking, despite persistent accounting conventions.
Historically, interactions between HR leaders and their CEOs are limited to people-related crises, compliance issues and budget season, which rarely bodes well for the former. So how can a CHRO pivot from this typically defensive position to an influential relationship with their CEO? Here are three suggestions:
- First, make the mental leap from the old way of HR which focuses on doing essentially the same thing for each level of employee – to truly internalizing the fact that some roles are designed to create market value while other roles support it being built. This is a reality not bound by horizontal levels – but in fact defined by verticals. Therefore, spreading talent-related resources thinly by level – e.g., executive, professionals, hourly – doesn’t address the reality that some “lower” level roles may in fact be designed to drive disproportionately more value within your organization (e.g., software developers or brand managers.)
- Address the pressure your CEO feels to be able to quickly pivot when business challenges arise by thinking creatively about ‘talent’ in your organization. How are different types of workers leveraged within your organization design (e.g., FTE, part-time, contingent, etc.) – and does this make sense in light of business realities and financial concerns? For example, how does the contingent workforce strategy support both value creation and financial flexibility? Is there a well thought out strategy or do contingent workers indiscriminately fill ad-hoc vacancies? How does the strategy hold up under various business scenarios, both positive and negative?
- Invite your Finance partner “under the tent” as you determine how best to measure the value of investments being made in HR people, process and technology. It no longer passes muster to say it can’t be done and, in fact, it can be done. So, to what extent are critical roles in your organization (those contributing to the creation of your most valuable intellectual capital) identified? To what extent is TA and TM ensuring that top talent for these roles is attracted, selected and retained? For example, reducing turnover for all employees – or all hourly employees – is likely less important than reducing turnover for a much smaller group of industry-critical talent, say, experienced IT or RN hires. That’s a concept that Finance and the CEO can support, advocate, and assist with: resources are limited, investment decisions must be made, and the most critical outcomes must be prioritized, measured and improved over time.
What are the benefits for HR leaders who take the time and energy to build a more collaborative, mutually-beneficial relationship with their CEO? Here are three:
- Leveraging analytical and financial horsepower when it comes to truly tough challenges such as linking ROI to talent investments.
- A better and more collaborative relationship built on an understanding of one another’s priorities and challenges. This will certainly come in handy for both HR (particularly during budget time) and for the CEO (understanding the talent implications of the business strategy).
- Strategic agility when considering talent (people, process or technology) investments, business and market realities, and budget constraints.
As loathe as I am to mention it, the last benefit will be the resolution of an age-old frustration related to that seat at the proverbial table. Working in this way will enable HR leaders to be considered a critical and legitimate member of the senior decision-making team. And it’s perfect timing since talent is now the only source of your organization’s most valuable asset.
Want more information about how to link business value, intellectual capital and critical roles in your organization? We blend finance and talent expertise to do this every day for our clients. Send us a note. And buy our latest book, "Building Business Value Through Talent: The CEO and CHRO Partnership Guide", on Amazon.
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