Courtenay HR

ROI for the People

Over the past decade or so, research has emerged which provides solid empirical data and evidence to indicate clear links between successful HR and business improvement. Why does it feel then, that the jury is still out on this issue?

Seven years ago a paper was published by Becker, Huselid, Pickus and Spratt called ‘HR as a source of Shareholder Value: Research and Recommendations’. The paper makes a valuable contribution to the debate and is a recommended read. The authors make a number of interesting points, but I’d like to highlight two: Firstly, it's not about a formula - one size does not fit all. The paper notes that an improvement in sophistication of the HR function and performance systems does not correlate directly with an increase in business performance. They suggest that HR strategies or 'systems' are 'highly idiosyncratic' and need to be fashioned uniquely to the individual business. It is the HR approach that is 'aligned with business priorities and operating initiatives that is most likely to create economic value'.

This may seem a no-brainer, and so long after the publishing date you would expect this to sound naive but in our experience bad practice still exists. HR tries to improve its processes without regard for the context in which it works. HR professionals simply 'lift' what went before and implement it into a new environment, without any real review of whether the system is appropriate or not.

The second point I’d like to pick up on is: ‘The 'how' remains a mystery’. In other words, determining what specifically causes the success of an HR initiative is never obvious. But we should recognise that if an organisation is to leverage its approach to HR as a source of 'sustained competitive advantage' the way they do that would have to be, by implication, 'difficult to imitate'.

It is this lack of ability to explain the 'how' that seems to be emerging as the stumbling block to ROI from HR gaining wider acknowledgement. A recent article by Stephen Overell (Time to reflect on HR's Influence - Personnel Today, 2 September 2003) suggested that the academics are now 'back-pedalling' over previous research which made the link between HR and the bottom line. The article even goes so far as to suggest that Huselid and others are now sounding 'slightly zealous' and perhaps a little over egged. Perhaps, but I would suggest that if you delve deeper into what the academics and the research is actually saying, you will find that the articles analysis maybe misses the key points somewhat.

Indeed, some of the latest thinking around the HR ROI link espoused in the article is at the very core of what some of these academics have been saying all along - that it must be unique to each business and as a result it is hard to determine the 'how'. More importantly the article touches on, but misses the relevance of, a point that the Huselid and Becker paper also makes early on in its analysis and one which I think is at the root of this debate - the need for the CEO and HR leader to be in synchronisation. This implies that the CEO and other board colleagues must recognise the value and importance of HR if it is to succeed and if it is to truly be a source of competitive advantage.

With so much evidence, and the apparent advantage, human capital is still rarely part of the balance sheet or included as part of the value of a company. It seems that even when we get it right, we just can't bring ourselves to see the obvious - embracing a business led approach to HR on a much larger scale would surely reap massive benefits. How the HR strategy recognises and supports the uniqueness and nuances of the business is critical and this is only possible if the HR function and the professionals that staff and lead it have the hearts and minds of the board. And therein lies the problem.

I recently met with the divisional HRD for one of the biggest PLC's in the country. She managed the largest division and was a member of the divisional board. She had been there for four years and the company was now restructuring. She was effectively 're-organising her way out of a job'. It was illuminating. A true blueprint for all those academics' words. Taking the bull by the horns and exploiting some situations to her advantage along the way, she had restructured and delivered an HR service that was clearly aligned with its own strategic objectives (sounds obvious - but many are not) and those of the business. Pioneering stuff, which delivered real and tangible six figure improvements straight to the bottom line.

Is this organisation revered for its HR strategy? No. Is it pioneering the recognition of human capital on the balance sheet? No. Do we see reference to its HR leadership in the trade press? No.

Why? Because there's an apparent 'lack of interest' at group board level. Yes, she herself has been recognised and well rewarded. Yes, there is recognition that the HR initiatives delivered the benefits and returns. But it seems that the board cannot recognise or acknowledge the benefits of aligning business and HR strategy across the whole business or subsequently roll this approach out to the other group divisions, which are crying out for it and which could reap the same rewards again.

The savings are attractive, and no doubt contributed significantly to the overall business objectives in the last few years. Indeed, the group enthusiasm for HR seems to be linked only with visible cost based business benefits; where these are not so clear or where the value is more hidden or intangible the enthusiasm wanes.

"But what about the Group HRD that sits on the board?" I hear you cry. Well... There isn't one. There is a group HRD, but she doesn't sit on the (all male) board. I cant help thinking that unless there is a credible presence in the 'inner circle' that, lets face it, arbitrates over the key strategic and operational direction of the company, the inherent value of HR will never be realised.

So, is there any hope that the value of HR will be recognised on a wider scale and leveraged accordingly? I think there is. But we must not get hung up with the ‘how’, we must stop challenging the notion simply because we don't really understand the intricacies of each individual success story. If it were that simple, we'd all be able to replicate it and as a result there would be no principle differentiator and no competitive advantage.

Research proves HR can make a difference and most chief executives state in their annual report that their 'people' are the only true differentiators in the commercial environment today. Words of course in many cases, but ones that could translate into something really powerful if we just got on with making it happen.