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Published by: Surya Djunaidi on Feb 16, 2011
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How HR Adds Value Dave Ulrich and Wayne Brockbank

As the pressure to do more with less increases and as the human or organization factors become ever more important, human resources (HR) must be transformed. The transformation of HR matters to CEOs who want to turn strategy into sustained results. The transformation of HR matters to employees who realize that their competence or ability to do their job and their commitment or ability to focus their attention derives in part from how the HR practices affect them. While these two internal groups (line managers and employees) recognize that HR must be transformed, the realization now goes outside the firm as well. Customers who desire to maintain long term and increasingly complex relationships with a supplier recognize that a supplier’s HR practices help assure them a steady flow of products and services they desire. And, investors who realize that intangibles determine a large source of a company’s wealth, increasingly look to HR as a source of a firm’s market value. For each of these stakeholders --- line managers, employees, customers, and investors – the transformation of HR revolves around a simple idea: value. All HR investments in a firm (practices, departments, and professionals) must deliver value. As the administrative and transaction work of HR is being automated and/or outsourced, the remaining work must create value. To create value, we propose an architecture for the HR Value Proposition (see Figure 1). Using the logic in this figure, we have may specify 14 criteria for HR transformation. In doing HR transformation, the ideal logic is to move through these five elements sequentially, following the solid lines in the figure, but sometimes it is useful to follow the dotted lines instead. For example, you might start your transformation of HR with a competency assessment of your staff (box 5 of Figure 1), but to ensure that this competency assessment leads to an integrated transformation, it must be connected to the other elements of the overall blueprint. Or, you might start by investing in e-HR (box 4 of Figure 1), then move to the other four boxes to complete the transformation. Each of the five basic elements defines criteria for what makes an effective HR function. In presentations and team meetings to initiate your HR transformation, these criteria should be discussed as a way to envision the future. (Note that this logic can be applied to other staff groups by changing “HR” to IT, Marketing, Finance, Legal, and so forth. Each of the five elements could be used to create a template for transformation any staff function.) External Business Realities HR actions inside a firm must reflect and influence business realities outside that firm. HR professionals should be able to cogently discuss these external realities—the technology, regulatory and economic factors, and demographics of the global business environment—and connect them to their day-to-day work. Knowing business realities makes it possible to put HR practices in context, tie them to competitive challenges, and relate them to concerns facing line managers. These contextual factors offer the rationale for why a transformation should occur. Everyone in your HR function should be

• Criterion 7: An effective HR function manages performance management processes and practices in ways that add value. HR Resources Your HR function needs a strategy and structure that will deliver value. HR Practices HR practices institutionalize beliefs and values and make them real to all stakeholders. or individual abilities.conversant with both the realities of the external world and how HR actions will help your firm compete in this changing context. Delivering what matters most to stakeholders focuses on the deliverables (outcomes of HR) rather than on the doables (activities of HR). the structure will organize HR resources in ways that govern how HR work is done. By creating practices around people. the way you hire. organization capabilities. and work flows. information. • Criterion 4: An effective HR function helps line managers deliver strategy by building organization capabilities. • Criterion 1: An effective HR function has HR professionals who recognize external business realities and adapt HR practices and allocate HR resources accordingly. For example. you shape an organization’s identity and personality. They become cultural pillars for your organization. The . They also ensure that the organization outlives any individual leader. HR is successful if and when its stakeholders perceive value from it. Stakeholders Value is defined by the receivers of HR work—the investors. performance management. • Criterion 9: An effective HR function manages work flow design and processes in ways that add value. customers. The strategy will help you focus attention on key factors and respond appropriately to business realities. line managers. customer share. and employees—more than by the givers. These HR practices deliver value to internal and external stakeholders when they are appropriately aligned with your organization goals. The deliverables of HR involve investor intangibles. • Criterion 8: An effective HR function manages information processes and practices in ways that add value. • Criterion 6: An effective HR function manages people processes and practices in ways that add value. • Criterion 3: An effective HR function increases customer share by connecting with target customers. train. or pay people or the way you organize work sends messages to employees about what matters most. • Criterion 2: An effective HR function creates market value for investors by increasing intangibles. • Criterion 5: An effective HR function clarifies and establishes an employee value proposition and enhances individual abilities.

leaders can rest assured that HR professionals. General managers should continually follow up on standards to ensure that HR measures up. but it is. • Criterion 11: An effective HR function has a clear strategic planning process for aligning HR investments with business goals. • Criterion 13: An effective HR function builds HR professionals who demonstrate HR competencies. Implications for General Managers General managers set expectations for HR departments. and professionals working in HR. and professionals. These standards communicate aspirations and shape how HR professionals act. • Criterion 12: An effective HR function has HR professionals who play clear and appropriate roles. When general managers are aware of the value that HR produces for them and for their organization. and investors. They can do so by assessing their HR departments on the 14 criteria and by then investing in ways to assure that HR professionals add value. so having clear roles and distinct competencies ensures that they will deliver they value they intend. It means that HR issues should be part of every manager’s performance scorecard. they set high standards. practices. Roles represent what people do. competencies define how they do it. When such a process is followed. With these criteria in place. and departments will be designed and delivered in such as way as to create value. for employees. customers. we believe.strategy and structure of your HR department will ensure that HR resources are deployed where they add the most value. business. leaders and HR professionals may now turn the desire for transformation into action. what is needed to meet the demands of the current and foreseeable business environment. When general managers demand value from HR investments. It means that general managers need to accept ownership for HR’s efforts by . they encourage and advocate HR actions. your general manager should recognize HR’s impact on investor. HR functions are only as good as the people who inhabit them. It has implications across the board. To have value-driven HR in your organization. for general managers. and employee results. HR Professionalism Each HR professional in your organization must learn to play a role and master competencies to deliver value. line managers. • Criterion 10: An effective HR function aligns its organization to the strategy of the business. This awareness should show up in talks and presentations both inside and outside the company. This follow-up engages general managers in HR issues and holds HR professionals accountable for them. The picture of HR we present here may seem unfamiliar to many organizations. customer. practices. and for the profession of HR itself. • Criterion 14: An effective HR function invests in training and development of HR professionals. HR executives.

organizations. With strategies. conversations turn into commitments and rhetoric into results. conversations provide insight into an employee value proposition that assures that if and when employees deliver value. Besides adjusting practices. and practices in place. Actions may then be specified to ensure that employees have both the ability and the attitude to do what is expected of them. time. action may involve ways to engage customers in designing and delivering HR practices. and practices that endure. This helps HR professionals realize their roles and demonstrate their competencies. the company’s leadership brand will include people and organization issues. and work flow processes deliver sustained value as guided by the strategy. The general manager is a cheerleader for people and organizations. organizations.personally referring to them as “my” work not “HR” work. conversations focus on customer needs and how HR practices can be aligned with customer expectations. Implications for Senior HR Executives Senior HR executives have many conversations that lead to action. Actions follow as the concept of capabilities translates into investments of budget. with a view to increasing customer share. In private conversations with other business leaders. Senior HR executives also need to develop more powerful HR agendas as laid out in the HR value proposition and then develop HR professionals able to deliver on the agendas. conversations focus on how intangibles become a determining factor in the creation of sustained market value. Each of these conversations is then sustained by creating HR strategies. • With HR professionals. information. It means that organization capabilities and individual abilities are not just rhetoric but action. • With line managers. For HR to have maximal effectiveness. • With employees. conversations center on delivering business strategies through prioritizing and creating organization capabilities. and also a coach who helps design the HR processes and a player who helps implement them. conversations capture both the roles and competencies they require to deliver value. general managers must base their reputation and identity on their ability to deliver value through people. and it is supported by an HR organization that delivers HR transactions with efficiency and HR transformation with effectiveness. performance management. Actions focus on intangibles audits and how these audits can provide specific insights on how to improve shareholder value. Investments in people. • With investors. • With customers. With the HR value proposition as a foundation. Individual HR professionals should avail themselves of job assignments and career moves as well as high-impact training experiences that cover the full range of the HR value proposition. As a result. they will get value. these conversations focus on results relevant to each stakeholder. general managers need to discuss and hold them accountable for their HR actions. HR strategy that offers a clear line of sight from business realities to HR practices is designed by HR and owned by line managers to complement an existing business strategy. and energy. .

HR professionals can describe what they do in ways that set expectations of themselves and others. and leaders in management’s hall of fame all exist because of the people and organization practices that are put in place. They may concentrate in one domain (people. information. To be competent in your role. and a template for ensuring that each HR professional contributes. Now more than ever. HR professionals can ensure that they know how to deliver value. we envision top HR professionals moving into and out of formal HR assignments. Connect choices and consequences. Leading thinkers. and practices should be made. When roles are clear. firms with reputations as best places to work. Some companies—Unilever. With this value proposition. Or. We would not define the success or “arrival” of HR by the number of HR professionals who move into senior line management jobs (that actually belittles the importance of HR). they will move across domain and organizational boundaries. business success comes from HR. economic and regulatory. Simply engage in daily and weekly personal reflections about what worked and what did not. Increasingly. Procter & Gamble. admired firms. . but nonetheless HR professionals who fully deliver value will be able to work outside HR as well. Good to great companies.Implications for HR Professionals Most HR professionals want to do good work. and respected executives converge on issues central to HR. HR insights have been pushed to the forefront of business success. performance management. a set of standards about how HR investments in strategy. you need a mental model of the value you create. more likely. or organization flow practices) or in one organization structure (a center of expertise or a line of business). you become an HR professional who is respected not only for what you know and do but for the value you deliver. Implications for the HR Profession Given the technological. The HR value proposition is the blueprint for the future of HR. With this kind of learning and accountability. structure. then take corrective action and make yourself responsible for improvement. leaders who execute. and demographic realities of our global world. the HR profession has a point of view about what can be and should be for all stakeholders. When competencies are defined and demonstrated. And the DNA for HR success is the value proposition. Baxter Healthcare—already regularly move HR professionals into and out of line management roles. Careers for HR professionals who fully grasp and deliver value may vary widely. and you should constantly be assessing yourself against that model both formally and informally.

investors. economics. performance. demographics) 5 Assuring HR professionalism (HR roles and competencies) HR Value Proposition 2 Serving external and internal stakeholders (customers. and work) . globalization.Figure 1: Stages in HR Transformation 1 Knowing external business realities (technology. information. managers. and employees) 4 Building HR resources (HR organization and strategy) 3 Crafting HR practices (people.

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