Author: Kevin Herring

What is the value of a human resource department? What led Bank of America, BPAmoco, and others to transfer all HR activities to an outside vendor? What isthe future of HR and what role should it play in business? These are questionson the minds of human resource professionals and executives alike, and the answersare not to be found in traditional models of human resource staffs. In fact, thevery survival of human resources hinges on the ability to shift to a new model.

The traditional view
    The role of HR has been described as personnel administrator, corporate conscience,trainer, legal guardian, corporate communicator, employee ombudsman, and laborplacater. Recently, the designation strategic partner has come into vogue toimply greater alignment of HR activities with business requirements, althoughHR activities still center mostly on the traditional roles of hiring, firing,and administering rewards.

    Consequently, most methods of quantifying the value of HR are directed at thesetransactional activities. For example, common approaches to measuring HR valueinclude activity tracking, costing, benchmarking, surveying client satisfaction,and measuring HR as a “profit center.”

A new approach
    Although the various methods for valuing HR departments are useful, they failto account for the business of the business. In other words, the company’s purposeis to successfully produce, deliver, and/or sell a particular product or service,not to engage in efficient HR practices. Human resource departments exist tosupport the organization in achieving its objectives and can do so by findingways to create improved business results.

    This is the new model of HR value. It identifies the HR department as potentiallya market-valued resource to the organization. In the market-valued role, HRprofessionals recognize that their value is based on marketplace perception,which is, in most cases, based on the experience of those in the core business.

    Human resource departments must embrace the concept of being subject to marketpressures.

    They must be prepared to demonstrate high market value. To do so, they needto actively seek opportunities to help the core business resolve problems, improveresults, and reach objectives.

    An HR focus on the core business acts as a kind of low center of gravity, keepingHR close to the real issues of the day-to-day business and creating greaterquantifiable results. For example, instead of seeking methods to administerand track performance management activities efficiently, a market-valued HRprofessional might help core workers obtain customer feedback in order to respondmore effectively to customer needs.

    Or, rather than creating another leadership development program, market-valuedHR staff will work on creating knowledgeable employees who act to eliminateproduction bottlenecks.

    In other words, in place of activities with weak relationships to the bottomline, HR can serve the core business by using its expertise to directly addressbusiness needs.

    To become a market-valued resource, HR professionals must do three things:

    First, they must strategically partner with internal business people, aligningthemselves with operations and its purposes. Knowing the business is a precursorto becoming a partner, and becoming a partner is vital to having an impact onthe business.

    Partnership in the true sense of the word implies ownership and risk. A businessarrangement with no risk to one party and considerable risk to the other isnot a partnership at all. Partners share in the decisions and the risk. Thismeans that human resource personnel must be willing to put themselves at risk,just as their clients do in the marketplace. For example, HR can pay, out ofits own budget, the cost of a consultant if objectives are not met.

    Second, as described above, HR needs to focus on business problems rather thanHR activities. Demonstrating the value of HR by rolling out elaborate trainingprograms or hiring policies may do little to address the business needs of theproduction group.

    The business problems faced daily in production are things like machine availability,customer response time, retooling time, marketplace demands, production bottlenecks,quality issues, production costs, shareholder value, and production efficiency.In a market-valued approach, the business gains value when these issues areaddressed.

    Third, HR must assess its impact on the business in terms of measurable resultsrather than in activity efficiencies and costs. It is useful to show the dollarsavings in advertising as a result of innovative recruitment methods, but thetrue value of HR is measured in bottom-line business results, such as a 20 percentdecrease in retooling time, a new and innovative response to the marketplace,a 15 percent improvement in quality, or a 25percent increase in company stockprice. These are the outcomes that demonstrate the value of HR.

Becoming a market-valued HR practitioner
    Human resources, training, and other support departments can gain market valuein a company by adhering to some simple guidelines for working with “clients”from the core business.

1. Determine the key issues. Find out what the needs of the business are. One way is through HR metrics thatmay point to high turnover, low retention for first-year employees, or moraleissues in a particular department. Further analysis should reveal root causesthat HR can address.

   
   

   A second, more powerful approach is to directly find out from operations orthe core business which issues concern them most, without regard to whetheror not the issues fit into the realm of HR. This is where HR can truly havean impact. Core-business employees constantly wrestle with issues that frustratethem in their efforts to reach production or financial targets. Since revenueis generated at this level, anything that addresses improvement to the productor service, cost, or response to the customer is an opportunity to add value.

2. Determine the impact on the business. To understand the difficult issues facing a department or work group, try tosee how the problem, unresolved, affects the business. Is it creating qualityproblems? Are people working inefficiently? Are decisions avoided, and if so,with what result? Are products being rejected or reworked? In other words, whatprice is the organization paying for these problems? This becomes the basisfor HR’s work, and the way HR shows its value.

3. Develop collaborative solutions. Once HR has defined the problem, and can see its business impact, it can thenturn to its own storehouses of knowledge, skills, and abilities to determinehow it might be able to help. This is in contrast to its traditional role, inwhich HR personnel, who unilaterally identify the problem, define the solution,and mandate actions for the target group without regard to whether or not theyare addressing the needs of the business.

   
   

   Using HR skills to develop solutions with the client, while resisting the temptationto mandate, will increase the client’s ownership of and commitment to a solution.That increases the likelihood of success.

4. Establish measurable outcomes. If Step 2 is done well, the outcomes to measure should become apparent. If thebusiness problem necessitates the reworking of products, then measuring thatrework (before and after the changes are instituted) is the way to see if theintervention is having an effect. Likewise, if people are working inefficiently,then a measure of efficiency is in order.

   
   

   Demonstrating hard-number results in these areas allows HR to set itself apartfrom those following benchmarking or profit-center models, and it establishessolid value for HR in the minds of those in the core business.

5. Assess effectiveness. This is not a one-time, post-implementation step, but rather an ongoing processof meeting with the core-business “client” to discuss progress, problems,and needs. It is where the adjusting, fine-tuning, and regrouping occurs. Itensures that the focus remains on identified business outcomes and the resultsthat can be achieved.

    The new market-valued model presents HR as a supplier of necessary expertisethat helps the core business to be successful. As such HR continuously providesanswers to real business problems to maintain a reason to exist inside the organization.HR and other staff support departments that are committed to having an impacton the core business can establish themselves as market-valued departments thatare indispensable to the success of any organization.

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For more information:

“TheFuture of Staff Groups: Daring to Distribute Power and Capacity,” byJoel P. Henning. Berrett-Koehler Publishers, Inc., 1997.

“DeliveringResults: A New Mandate for Human Resource Professionals,” edited byDave Ulrich. Harvard Business School Press, 1998.

“Results-BasedLeadership,” by Dave Ulrich, Jack Zenger, and Norm Smallwood, HarvardBusiness School Press, 1999.

Three case studies of market-valued HR in action:

BGA International
A large international pump manufacturer, BGA International, was preparing to builda newly designed pump that was much larger and more efficient than any it hadbuilt up to that time. BGA’s sales force had sold the product while it was stillin the design stage: the significantly larger machining equipment required forfabrication had yet to be purchased, and the unionized machinists were preparingfor battle with management to determine who would operate the new equipment, andat what pay. A lot was at stake; unless this product was successfully built anddelivered as promised, the business’s ability to sustain profitability was inquestion.

    In response to the challenge, BGA’s HR manager tried to convince managementthat the workforce could come through — if the problems were approached witha fresh outlook. HR and operations leaders contacted union leaders to discussthe issues and possibilities for addressing business needs, as well as the union’sconcerns. Soon the company reached an agreement: the top machinists would organizethemselves in a unique work system to install and learn to use the new equipment.They would develop the most effective methods of working together to producethe never-before-built product according to design specifications.

    HR arranged for a trained in-house facilitator to teach the new machinist teambasic analysis and problem-solving methods, as well as how to organize and functionas a team. Using the newly acquired knowledge, the team soon realized that previouswork practices, which rewarded individual productivity at the expense of overallshop performance, would be detrimental to its objectives. The machinists foundthat bottlenecks were created by workers who began cleaning up early to avoidsetting up jobs for the next shift, leaving the incoming machinists to beginthe job from scratch. The team also found that simply grouping productivitymeasures by machine, rather than by individual, eliminated many such problemsand other bottlenecks common in the shop. Productivity increased substantially.

    Working together, this team of core workers went on to overcome many equipmentfailures and design challenges. The team set up the equipment and work systemsto successfully produce the new product line on schedule, below budgeted cost,and with such precision that it surpassed product specifications for the operatingefficiency of the pump. Their work ensured another prosperous year for the organization.

Tucson Electric Power
    Tucson Electric Power faced a double challenge:deregulation and competition. In this business climate, a marketing departmentmanager at the utility company contacted the in-house organizational development(OD) group to request some training in interpersonal and communication skills.The manager’s concern was that the marketing group was unable to work togethereffectively. If the group failed to turn things around, it was in danger ofbeing replaced or outsourced. In fact, the group had been given 18 months tosuccessfully market a new guaranteed energy-cost program that had been flounderingfor as long. But most employees knew only that they were under pressure to showan improvement in sales.

    After contracting with the marketing manager, the OD group proceeded to developits own point of view about the manager’s concerns by collecting data througha series of personal interviews. After analyzing the data, the organizationaldevelopment team concluded that the marketing group indeed had a problem, butit wasn’t poor communication or a lack of interpersonal skills. Instead, itsmembers lacked a sense of personal accountability for the success of the wholegroup. It had no clearly articulated vision or strategic direction, and it hadpoor meeting-management skills at all levels. These and other findings werereported by the OD staff to the entire marketing group, along with actions thatcould turn the group around.

    In general, the marketing group agreed with the findings and supported theinterventions recommended by the OD staff. At Tucson Electric Power, the staffsupport groups were set up to charge back the cost of services to their in-house”clients.” In this case, the OD department agreed not to charge themarketing department for its time if there were no measurable results from theinterventions. This allowed the relationship to gel into a true partnership,with a strong commitment to success from the OD staff.

    After considering the recommendations, the manager readily agreed to some coachingand group training. The marketing group learned more clearly what managementexpected of it. Then facilitated learning and planning sessions began. Thoughskeptical that it could meet management’s goals, it the group pushed ahead withan analysis of the situation. The group first clarified management expectationsand the details of what success would look like.

    Next, the group analyzed its current resources and work processes in relationto what was required for success. The OD staff helped the marketing group todiscover what was possible, and to overcome barriers to successfully achievingthe vision. In the sessions, the marketing staffers organized themselves totackle specific problems and decided that, in fact, they could meet or evensurpass sales expectations.

    With the help of the organizational development department, the marketing groupwas able to achieve more in the next fiscal quarter than in the previous sixquarters combined. As the year progressed, the group faced many unforeseen challenges,but was able to overcome them, meeting the sales expectations that senior managementhad set for it.

Magma Copper Company
    Although Magma Copper Company set new productionrecords and produced copper at an incredibly low cost of 62 cents per pound,it was facing depleted reserves at the world’s largest underground copper mineunless it could exploit a richer orebody, located deep in the earth. The companyhad an engineering group working for years to design and develop a unique cost-effectivesystem for extracting the ore, and it believed it could be a success. However,in order to maintain the viability of the mine, the new orebody, called theLower-K, would have to begin successfully producing soon.

    When the HR department learned the details of the project, it determined thatthe organization was missing key workforce-coordination components. The projectwould be delayed significantly unless the problems were addressed immediately.A manager from HR began meeting regularly with the project team to tackle theissues.

    After several meetings, the HR manager recommended a process to address someof the project team’s needs. The group then began, for the first time, to clarifythe overall objectives, values, and strategies of the project organization.The group developed teams that included core employees from mine-developmentprocesses and other operations to chart the engineered work flows and identifypotential bottlenecks. These teams were then able to design appropriate worksystems that included new work teams with multi-skilled members and new classificationsdemanding new pay rates. Since several unions represented the affected workers,HR was able to facilitate agreements that supported the needs of this new operation.

    The human resources department also was invaluable in the development of employee-selectionprocesses and integrated technical, safety, and team-competency training necessaryfor the effectiveness of each work team. HR was eventually able to facilitatethe development of a management structure to support the organization as itwas designed.

    With the help of the human resource department, the company (which was acquiredby BPH Copper) developed Lower-K and placed it in production slightly aheadof schedule, supported by people systems and processes that ensured its success.Instead of producing at 62 cents per pound, the new mine was able to produceat an even more impressive, lower cost-54 cents per pound.