Tough Times Call for Serious HR at Reader’s Digest

The human resources function at The Reader’s Digest Association, based in Pleasantville, New York, used to operate like a typical administrative HR department. According to Gary Rich, senior vice president of HR, the department’s 140 employees used to spend 20 percent of their time on legal compliance and governmental reporting, and 80 percent on what Rich calls smoothing the road.

“This is the long list of things such as counseling employees, advising managers, and conducting exit interviews that make life nice for people but don’t deliver financial results,” he says. Any time that might have been left over — which wasn’t much — was devoted to “making the numbers.” In other words, doing things that deliver tangible financial results to the company.

The smoothing-the-road-at-the-expense-of-all-other-activities strategy may have worked when the company was growing. But when Rich was hired three years ago, Reader’s Digest was in a free fall. The publishing and direct-marketing company’s stock had dropped from $55 per share with $550 million in operating income to $18 per share and $100 million in operating income.

In order to help the company’s turnaround, the HR department had to abandon the status quo. It was time to play hardball. Rich reorganized the function, shed 40 employees, and brought the total HR staff down to 100 people. He then set about changing HR’s priorities. Today, the Reader’s Digest HR department never does anything to smooth the road at the expense of making the numbers.

What this means is that the majority of HR professionals are now focused on generating tangible business results. Recent projects, for example, have included redesigning incentive compensation in order to boost sales in a new subsidiary; training executives to understand information technology so that large-scale IT projects have a better chance of succeeding; rigorously reviewing international compensation and benefits expenses; and realigning sales territories to accommodate employees who are hungry for more responsibility.

The shift hasn’t been easy. Rich confesses that many HR employees miss their road-smoothing duties. Employees and line managers also miss having an HR shoulder to cry on. How did Rich address the frustration and disappointment?

“By establishing a reasonable position as to what we were doing and why,” he says, “and by realizing that when it came to the general employee population, there was no way we could satisfy them with an answer. We knew they weren’t going to like the change.”

Although the HR department and the company it serves are still getting used to this new HR approach — and many people still don’t like it — they are starting to see solid business results. The company’s stock price has moved up from $18 per share to more than $27, and operating income has almost tripled, from $100 million three years ago to $280 million today. And the HR staffers who have been called on to be more strategic and financially focused are actually enjoying their jobs more.

“The generalists who are responsible for making the numbers are now feeling energized,” Rich says. “They’re starting to see how their work impacts the bottom line.”

Workforce, September 2001, p. 34 — Subscribe Now!