HRfocus, September 2004

Copyright 2004 IOMA
HRfocus

September 2004

SECTION: Pg. 5

HEADLINE: Conquering the Strategy vs. Financial Business Challenge

BODY:
The push/pull between strategic
and financial goals is intensifying for all organizations. HR's role in balancing these interests and adding value was the theme of this year's SOTA/P (State of the Art and Practices) report by the Human Resource Planning Society (HRPS; www.hrps. org).
Preliminary results from the report were presented at the HRPS annual meeting in Phoenix by Patrick Wright (pmw6@cornell.edu) and Scott Snell (scott.snell@cornell.edu), both professors at Cornell University and leaders of its Center for Advanced Human Resource Studies (CAHRS) at the School of Industrial and Labor Relations.

CHANGING BUSINESS ENVIRONMENT
As HR responds to the demand that it become a business force, HR professionals must ensure that their organizations' values and ethics remain strong, Wright said.
"Being business driven doesn't make HR order-takers. We need to be leaders and guardians of the organization's values, people, and institutions," he noted. HR professionals can add value by helping their organizations to "live" the values they espouse.
To assess the changes in the strategic versus financial struggles that organizations are undergoing, the preparation for this year's SOTA/P report involved gathering information from global working groups of line and HR executives. The researchers looked beyond HR to the businesses themselves to learn about trends that are affecting both businesses and HR practices.
Although each business had a unique story, Wright noted certain thematic similarities in the quest to create value. The areas include globalization, technology, transparency, legislation, transactions, consumers-and commoditization. This last factor, which was mentioned by many types of businesses, is driving strategic decisions. Organizations are taking various and sometimes multiple approaches in response to commoditization, such as:
* Differentiating themselves in the marketplace. Take IBM:To differentiate itself, it now offers integrated solutions.
* Remaining in the market and driving down costs. IBM is also an example here: It still sells PCs. Outsourcing is another response to the commoditization of goods and services.
* Moving to higher-value industries. Again, IBM has taken this path. It has acquired PricewaterhouseCoopers, an accounting and consulting firm that offers higher value to the corporate lineup.
* Opting for sustainable development-or establishing a position in a market that will evolve over time.
The research discovered differ-
ences between the approaches taken by U.S. organizations and those of other nations when it comes to managing the tensions between shareholders and stakeholders. In the U.S., shareholders' goals drive value, but European countries also look to communities, employees, and organizations as society members, considering their interests in addition to those of shareholders.
In a changing environment where mere survival is the goal of so many organizations, the research sought to answer the question, how can HR deliver value now?

HR VALUE DELIVERY
Snell explained that after a first round of meetings with participants in the SOTA/P groups to identify which strategies and capabilities are important in business now, the researchers sought to identify HR's role in developing those that surfaced. Among the participants, 20 organizations agreed to identify best practices in some detail. Most of these organizations are Fortune 200 companies.
The organizations were asked about their HR strategies, including the companies' capabilities and strategic drivers, how they develop the strategic process, and what metrics they use to tell if the strategies are working. The researchers discovered "a bit of a disconnect" about metrics.
Snell noted that many of the metrics being used relate to people issues, some to HR functions. Other business issues-e.g., customer centricity and product development-were missing.
There also seemed to be some crossover between business and people issues. For example: Asked to identify business issues, some organizations included "people" issues, such as retention, demographics, and employee value, on their lists.
The companies described two approaches to developing HR strategies:
1. The "inside-out" approach. This is the typical approach, where HR identifies what it does and adds value to the business by doing it.
2. The "outside-in" approach. Snell considers this the better way. It involves HR starting from the business, rather than from HR. A good example at one participating company: HR people are considered business leaders first, in HR second.
This approach also identifies business skills first and then turns to skills needed in the workforce and how to build HR to drive this.
Line executives' involvement in HR is key to whether organizations took the inside-out or outside-in approach to HR strategy. In a quarter of the companies studied, line executives are a part of the HR strategy team.
Implications of the findings include:
* Outcomes in HR strategy are better when line managers are involved in the strategic process.
* HR metrics that align with the business rather than with HR alone bring better outcomes.
* HR strategy-driving performance metrics should take an outside-in approach and look at the business first.
* The process should be flexible. Snell warned that some issues thought to be business issues are really about people. And "If you think all business issues are people issues, you may be missing something."

LIVING VALUES
Keeping sight of an organization's values, and not just its ethics, has never been more important. Wright noted that the companies with the highest income growth over a 10-year period are run by their founders rather than by family or professional managers. One reason may be that the founders have the long-term vision for which they set criteria and make decisions.
A good example of this is Johnson & Johnson, whose credo lists four bases of responsibility:
1. The medical community and patients/users.
2. Employees.
3. Communities.
4. The stockholders, who should get a fair return on their investment.
He emphasized that stockholders come last in this list. The company clearly lives its values set forth in the credo, illustrated most dramatically by its recall of Tylenol from store shelves in the wake of the poisoning scare of some years ago. In that situation, Wright noted, the company knew exactly what to do by following its credo, which instructed it to protect consumers first.
Promoting such strong values is a role that HR can play, although it may have a hard time influencing corporate decisionmaking in a commoditized world.
HR can take a balanced approach to decisionmaking in considering and incorporating these four interrelated perspectives:
1. Strategic. This perspective builds the company and delivers value, but may fail to consider financial discipline.
2. Ethical. This perspective embraces doing the right thing; its weakness involves the short-term costs.
3. Legal. This perspective keeps the organization from violating the law. Risk avoidance, which can hurt value creation, is the potential weakness here.
4. Financial. This perspective maximizes shareholder wealth at the cost of being short-sighted and formulaic.
Obviously, at times one perspective will have to take precedence over another, and this may bring tension and conflict to the organization.
HR can balance and consider the tradeoffs involved in the various approaches. A good place to start: Ask how various values affect decisionmaking at your company. Where should HR be in the process?
The answers will differ by organization, but a thoughtful presentation and participation in your organization's business strategy will help to enhance and expand HR's business value.