Innovative HR strategies become key drivers of profits
South Africa human resources departments need to move from a people management and administrative function to playing an active role in meeting the needs of customers and investors. This is the view of international HR author and speaker, Professor Dave Ulrich.
Addressing a capacity crowd at the Business Results Group’s Progress Conference, Ulrich stressed the importance of business leaders and HR managers working closely together to find innovative ways of delivering greater customer satisfaction and value to investors. He estimates that ten percent of companies globally are already giving their HR departments a broader mandate of implementing organisational structures and systems, as well as developing talent and leadership.
Ulrich advocates an ‘outside-in’ approach to internal company policies and strategies. It is an approach that turns around the traditional duties of HR practitioners. Working from the outside-in means first understanding the needs of customers and investors, as well as the company’s unique business challenges, and then employing the right people and building the right systems to serve those needs and overcome those challenges. Ulrich claims that if businesses do not match their hiring choices with the attributes most desired by customers, nor have the right organisational systems and leadership to guide their staff, they will not have the capacity to deliver consistently good products or services and will be at risk of losing market share to their competitors.
Essentially the HR team should have three strategic goals: first, attract and develop excellent employees; second, develop good leaders for the workforce; third, and of particular importance, establish methods and systems that make it easy for employees to consistently deliver high-quality products and services.
Ulrich believes that cultivating built-in organisational capabilities to serve the needs of one’s clients is becoming more important than individual talent. While finding qualified people should always be a priority, he emphasises that talent management alone is not enough. South African businesses often neglect the development of effective leadership and critical business processes, which may leave a business with extremely talented employees being underutilised. Even the brightest staff may be of little use if they are hindered from serving their customers well by poor leaders and inappropriate systems. For companies such as IBM which have to deliver the skills of thousands of employees across the globe quickly and efficiently, it is more important to source good programmers who are well managed than to actually have the best programmers.
In addition, Ulrich believes that Martin Seligman’s premise that people find happiness in their lives through positive emotion, engagement, relationships, meaning and accomplishment should also be translated across into the work environment.
Important changes are taking place in the way employees are being compensated. For instance, while effective payroll administration can contribute to employee satisfaction, appropriate motivation to serve customers better will contribute further to a company’s success. A local company that understands this very well is MTN. Through its Y’ello Stars programme, MTN employees are collaborating to reward top performers whose actions best serve the needs of customers. This is a good example of team leadership strategies developed and implemented by an HR department.
Ulrich cites another example; that of US department store giant Sears Roebuck, which achieved a successful turnaround via action taken by its HR department to change the company culture to an employee-customer-profit model. Improvements in employee attitude resulted in better customer service and greater customer retention, and in turn greater returns for investors. One Sears study showed that for every 5% of improvement in employee attitude, customer retention improved by 1.3% and profits by 0.4%. This approach moves HR away from back-office administration to actively finding ways to serve customers, investors, and the needs of the business.
An outside-in approach also firmly establishes the role of the HR executive in the boardroom as a member of the planning and strategy team. Investors will soon be looking at HR practitioners to tell them why they should invest in a particular company, says Ulrich. In a few years, the HR director may be explaining at the annual shareholders’ meeting how a company’s people and systems translate to profit and dividend growth. Already approximately 29 percent of an investor’s decision to invest may be determined by the quality of the company’s leadership; it is no longer just the earnings per share that count. This ties HR, in a very tangible way, to a company’s investment value. Research into this area is growing, so it follows that HR practitioners will play a vital role in demonstrating the case for investing in their companies.
While the idea of HR professionals in a shareholders’ meeting discussing their contribution to the company’s PE ratios may seem strange to some, Ulrich says that this trend should be taken seriously. The HR professional is a valuable resource for building an exceptional business. Companies that are not yet partnering with their HR team may well see themselves being overtaken by their competitors.
Nicola Tyler is the CEO of the Business Results Group, www.brg.co.za.
Robert Kaplan of Harvard Business School will be in South Africa to share insights into business performance measurement and strategy execution towards the end of this year.