HR departments and the bottom line

Jun 01 2007 by Brian Amble Print This Article

HR departments seems to spend a lot of time looking for top performers and grooming top talent. But are they missing the mark? Because there are no guarantees that a top-performing individual in one environment will operate just as effectively in another. In other words, individual performance depends hugely on interaction with the rest of the team.

And exactly the same is true of HR departments. While it is true that having better HR professionals has a measurable effect on business performance, the effectiveness of a company's human resource department as a whole has a 25 percent greater impact on the performance of a business than the skills of its individual members.

That's according to a global study of HR professionals and the departments they work in carried out by The RBL Group and the Ross School of Business at the University of Michigan.

"Managers may like their organizations' human resource professionals, but not feel the same about their HR departments. However, it's the HR department that adds more value to business performance," said Dave Ulrich, co-founder of The RBL Group and a professor of business at the Ross School of Business.

Indeed, the skills of a company's human resource professionals account for around 20 percent of its business results, making HR an increasing part of an organization's competitive advantage, the research suggests.

The Human Resource Competency Study also found that, for the best operating results, HR departments should pay equal attention to all stakeholders, including customers, communities, and investors outside their organizations.

"Traditionally, HR departments have focused inside their organizations, and haven't involved line managers or external customers in the process," said RBL Group's Wayne Brockbank.

"When HR involves external customers and line managers in creating HR policies, more value is created."

But as research published earlier this week by Deloitte Touche Tohmatsu and the Economist Intelligence Unit has found, few business leaders think that their human resources teams are up to the task of delivering on key strategic challenges Ėeven when these involve so-called "people issues".

Instead, HR departments are seen as primarily administrative and operational, dealing with policies and procedures rather than strategic thinking.

Dave Ulrich said that for HR departments to build their credibility, they need to begin to think of themselves as a business within a business, and build a strategy around adding value to the business..

"When the human resource department is aligned with external customers and investors, HR helps both shape and execute the business strategy, and therefore, deliver better business results," he insisted.

Businesses also need to involve line managers and external customers more in the design of their human resource policies and practices.

"Being more focused on external stakeholders positively impacts business results," Ulrich said. "Companies can benefit substantially by involving their line managers in their human resource policies and practices.

"Some human resource professionals get too focused on what they do, and not as much on what they deliver, and don't see how their HR work will affect customers and investors outside their organizations," he continued.

At the same time, HR departments should focus both on sourcing and developing talent as well as building stronger capabilities.

"If the focus is only on talent, the organization may be a disconnected group of all-stars who don't play well together and don't win over time.

"Line managers need to find great people, but then create great organizations for the people to work in. The strongest HR departments help secure talent and shape organizations," Ulrich concluded.