Good Times or Bad, HR Still Gets Little Respect in the C-Suite

By Staff Report

Dec. 16, 2008

Even though the economic downturn has made the potential value added to companies by strategically oriented human resources departments all the more important, two out of five corporate management teams still don’t view HR as a strategic asset, according to a new study.

But the survey of 250 global human resources decision makers by Workforce Management and EquaTerra, a Houston-based information technology and business process transformation consulting firm, also had some good news for HR professionals. Among companies with 50,000 or more employees, 71 percent of management teams now see HR as a strategic player. Many HR leaders report recent progress in increasing HR’s strategic role, often as the result of new management refocusing HR operations on more business and mission-critical activities.

Additionally, the study found companies that recognize HR’s strategic importance also tend to report higher levels of satisfaction with the entire HR function, including non-strategic transactional activities.

EquaTerra Global Research managing director Stan Lepeak, who co-authored the study with executive director Lowell Williams and managing director Brad Everett, said that the sizable minority of companies that don’t recognize HR’s strategic potential are putting themselves at an increasingly serious disadvantage.

“I would think the need [for strategic HR] is exacerbated by the economy,” Lepeak said. “Organizations are in turmoil, some of them are on the edge of bankruptcy, executives are being pushed out. How do you recruit new talent when you’ve got a tarnished image, or keep from losing all your best people? How do you keep productivity up? You should be looking to HR to help address these problems, and to put in changes that can keep them from happening again in the future.”

Though HR leaders have made progress in becoming strategic players, most still see executives’ lack of understanding of HR as an impediment to progress. Seventy-eight percent either somewhat or totally agreed that making HR more strategic would require “a significant change in the mind-set of executives and business unit leaders.”

Lepeak said that although shortsighted executives are part of the problem, much of the responsibility lies with HR departments themselves.

“The HR people may feel that executives see them just as a back office group that runs the payroll, and they may complain that they’re not being offered a seat at the table,” Lepeak said. “But sitting back and waiting for the opportunity isn’t a good idea. In most cases, if you step up and show value, you’re going to be invited in, not pushed back. If you’ve never taken the initiative, it’s kind of your own fault.”

Most HR leaders in the survey seem to have a clear idea of what sort of activities were strategic and added value to the organization, but a minority may be hindering themselves through misplaced priorities. When asked what HR activities would contribute the most value to the business, 70 percent of respondents cited human capital management, and 63 percent picked “perform as a strong partner in corporate and strategic planning efforts.”

Competence at traditional HR functions generally ranked further down the scale—except, notably, among HR leaders at companies who primarily see HR as a cost center. They were 11 percent more likely than the rest to select “achieve operational excellence” as the best way to generate value and make HR more strategically important.

Lepeak said that while achieving adequate performance at functions such as payroll and benefits administration is crucial to keep organizations running smoothly, there’s relatively little value to be generated in improving beyond that. “Executives are looking for HR to be good enough at the operational work—the basic blocking and tackling—but to perform a lot of other activities as well,” he said.

Indeed, the study found that in companies where HR is viewed more strategically, there tends to be a higher opinion of HR’s overall capabilities, even in parts of the function that aren’t strategic.

Lepeak said that although it may be that companies with strategically minded HR departments also happen to be better at performing payroll or benefits administration, “it’s more likely that if you act more strategic and are seen as adding value, you get the benefit of the doubt from management in other areas. If you’re succeeding, people are happy, and they’ll assume the processes are working great. On the other hand, if you’re not seen as adding value, maybe your transactional work is going to get more scrutiny.”

In other findings, 88 percent of respondents said that making HR more strategic has more to do with innovative thinking and executive support than having a bigger HR budget. Fifty percent said that finding enough time to devote to strategic activities was the biggest obstacle to being a strategic player. Slightly more than half favored the use of automation and outsourcing to enable HR staff to concentrate upon value-creating activities.

—Patrick J. Kiger

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