How to become a true business partner

HR is often criticised for a lack of business effectiveness. Craig Donaldson speaks with Peter Capelli about how HR can best plot a path to business success

What is the most important thing HR can do to become a business enabler?
Show the impact of what you are doing. It doesn’t have to be perfect, but it has to be spoken in the language of business, which is finance. So you need to be able to communicate what a program is saving the business; show the cost and demonstrate the benefit. If you can’t do any of this, you’re going to have a battle with the CFO over cost-cutting – a battle you’re going to lose.

What are the hallmarks of successful HR leader-CEO relationships?
A hallmark is if you can get the CEO to endorse a new project. More generally, it would also be when the CEO asks for your input on something other than a HR issue. As a HR leader, you should look for points of pain in the business – something that is bothering the CEO. It might be related to business performance, turnover rates or something that it costing the business money. Think about innovative ways to help the business – if the business is losing money in a particular area, for example, don’t just look at solutions such as laying off people or outsourcing. Be more creative, but think about hard business benefits.

How can HR leaders plot an effective path to the role of CEO?
Establish and communicate a link from HR to what you are doing for the business, and particularly business strategy. HR executives in the US believe this is important at the operating committee level, as HR needs to be able to add value from both a HR and business perspective and think and contribute just like any other business person. It would help significantly if you can demonstrate that you have been able to handle a big problem for your company.

If there is a big issue facing your firm and you’re an ambitious HR person, don’t run away from that issue. It might be something to do with government regulation, or it could be unions or potentially a merger or acquisition. Take the issue on. If you can demonstrate that you can handle the big problems that really matter to the firm, that’s one of the best things you can do.

How can HR leaders go about developing a good working relationship with their CFO?
It’s all about being able to speak the CFO’s language. So you need to be able to clearly articulate and show what you’re doing from a financial perspective – what it costs the business and what financial value it adds. If you are unable to quantify your contribution, you will lose out to those who have numbers.

What is the most cost-effective way HR can contribute to a business?
Your best bet is to focus on internal hires. Research has shown that internal promotions perform at a higher level more quickly than outside hires. In addition, outside hires cost more – they get paid more money, there are search fees and then placement fees if you’re using a recruiter. One of the problems behind this is I think HR people are too modest. They say they don’t really know how to quantify all these things perfectly. So what’s the value of a really good performer versus an average performer?

If you don’t really know, guess. Everybody else in business is giving it their best guess, and HR probably has a better idea than other business units so just say “this is our best guess and here’s why we think it looks like this”. Just do it.

Where do companies go wrong when it comes to talent management?
Many companies struggle to develop and manage their talent effectively, and this often happens at the supervisor level. In the past, supervisors were assessed on the assignments they gave to subordinates to stretch them and help them learn. Now companies have expanded the span of control greatly for line managers and are assessing them mainly on contributions other than developing talent – so it falls by the wayside unfortunately.

I think we’ve seen this a lot in the US, but at the top of organisations executives are beginning to recognise that talent management is something they’ve neglected and that they have to do something about it. The problem is that in cutting corporate staff and central budgets, they are pushing more stuff down to line managers.

Developing talent doesn’t necessarily take a lot of time. I think it comes down to more development, and the development ought to be more stretch assignments. Line managers need to be able to delegate and take things off their plate, so these become stretch assignments for their staff, for example.

What are the three best steps to developing a  talent management strategy?
First, you need to understand what measures you will use. Percentage of jobs filled from within has to be one of them, but we need cost and benefit measures as well. Turnover rates should be in there – job-by-job and unit-by-unit – this can help you in understanding where problems lie in the business. You need data around these measures at least before you can start to make progress.

Second, supervisors need to provide more stretch assignments. This means holding them accountable for results – but also showing them why it’s not that hard to do. The right idea is to delegate select tasks that will take some of the load off the line manager but which will stretch and develop their staff. This approach can also be cost effective for the business.

Third, you need a system for moving good people internally so that the best performers receive opportunities for advancement faster than they could get them elsewhere. I believe most organisations need a greater willingness to promote talented people more quickly. They might worry that they haven’t put in the time or that this might annoy longer serving staff. But when companies say to high performers “we can’t move you up that fast”, they run the risk of losing that talent and they will go elsewhere. If you really want to keep your high performers then it’s not that hard to do.

How can HR effectively reduce risks to a business?
In the current climate, many companies are quite concerned about risk management, and there are many risk issues associated with human resources that are worth considering, including people-related ones such as turnover and loss of key talent. HR is also in a good position to assess more business-centric risks such as reliability risks and responsiveness risks.

If a company is looking at a joint venture, for example, or maybe to redesign their supply chain or outsource some processes, these all involve potential reliability risks. So HR can assess potential partners and say: “I’ve been looking at the turnover numbers in this Indian call centre, and I don’t think they will be able to deliver reliable service to
customers because their turnover is too high.”

Responsiveness risks relate to market and other changes and how well a business is able to adapt and respond. HR professionals are also well placed to weigh in on these risks, and I think CEOs would be interested in their perspective.

What will HR look like five years from now?
Well, at the moment, HR is looking very much like it will be handling outsourcers, at least in the US. HR departments have lost so many staff that they have to outsource to get anything done in a lot of companies. Behind this is a failure of HR in the past to be able to demonstrate their value, and companies which focus on cost containment will outsource areas of the business which cannot prove that they add value.

In the US during the great recession, for example, a majority of HR groups were not even consulted about the extent of layoffs to be rolled out, which is a terrible sign of lack of HR effectiveness. The US may be unique in this regard, because it has a glut of talent and weak unions compared to the rest of the world at present.

But there are different stories country-by-country. In India, HR has long been one of the most powerful functions because the labour issues there are huge. In China, my bet is that HR will become a powerful function as soon as businesses figure out practices for managing talent and the value of this.

Peter Cappelli is a professor of Management at the University of Pennsylvania’s Wharton School and director of Wharton’s Center for Human Resources. His areas of expertise include HR, talent and performance management, and he was recently named by HR Magazine as one of the top 5 most influential thinkers in management.