How HR can create the most value for competing stakeholders

There are 3 important ways HR can create sustainable value for competing stakeholders

HR professionals experience conflicting pressures from a range of stakeholders, and Wayne Brockbank says there are three important ways HR can balance competing expectations and create sustainable value for these stakeholders

As an HR professional, you will experience conflicting pressures from competing and occasionally antithetical stakeholders. Competing expectations come from line management, employees, owners, and external customers.

In addition to responding to these stakeholders, you will also be experiencing pressures to contribute to short-term financial results. How do you determine which set of HR practices create greatest value for each of these sources of competing expectations? How do you effectively balance their differing requirements? Based on recent research from the University of Michigan and the RBL Group from over 31,000 global HR professionals and non-HR associates, we are able to empirically explore the above questions.

Four factors of HR departments
All HR department activities may be statistically categorised into four factors. The empirical relationship among the HR department activities within each factor suggest that they be treated as an integrated unit. The four factors are as follows:

  • Employee performance HR that includes goal setting, performance measurement, financial and non-financial rewards and training.
  • Integrated HR practices that consist of the integration of business strategy, culture and other organisational capabilities, technical competencies, and coordinated HR practices to create and sustain the requisite organisational capabilities and technical competencies.
  • HR’s role in information management that includes identifying, accessing and importing information about customers, competitors, and investors, analysing and finding insightful patterns in external and internal information, sharing facts and findings across the organisation, and ensuring the full utilisation of information in decision-making and action.
  • HR analytics which includes measuring and tracking HR performance, using HR analytics to improve decision making, and measuring HR’s impact on business outcomes to drive business performance.

“44 per cent of HR department influence on short-term financial performance is accounted for by employee performance HR”

As it turns out each of these sets of HR department practices has substantially different levels of influence on different stakeholders.

Employee performance HR has greatest influence on short-term financial performance. To be exact, 44 per cent of HR department influence on short-term financial performance is accounted for by employee performance HR. It is interesting that this aspect of HR activities has a relatively low influence on all other stakeholders.

Where to create the most value?
To create value for employees and line managers, HR departments should focus on integrated HR practices which emphasise the alignment of strategy, culture, technical skills and the collective HR practices. Some 57 per cent of HR’s influence on line managers and 56 per cent of HR’s influence on employees come from this factor.  If your primary goal is to focus on the expectations of these internal stakeholders, HR’s focus is clear.

On the other hand, to create sustainable value for external customers and investors, HR departments should focus their agendas on playing an important role in orchestrating the company’s flow of information. As HR departments successfully create the institution’s ability to access, analyse and utilise information, they enhance their organisation’s ability to leverage highly relevant information as a competitive advantage. A full 45 per cent of HR’s influence on external customers and 36 per cent of its influence on investors is related to HR’s role in systemic information management.

Interestingly enough, HR analytics has at best a very modest statistical impact on all stakeholders. HR measurement is currently resurfacing in many companies as a department agenda. Our data suggest that HR measurement should be kept in the context of other HR department practices which have greater influence on all stakeholders.

“HR departments should focus on integrated HR practices which emphasise the alignment of strategy, culture, technical skills and the collective HR practices”

How to strike a balance
Given the above, there are three ways to balance the above paradoxical findings. First, as shown above, different HR practices have different levels of impact on different stakeholders. However, when considered in the context, integrated HR practices has the greatest influence on the collective stakeholders.

Second, different companies at different times may emphasise different stakeholders. The challenge, therefore, is to understand which stakeholder is most important and ensure that the HR department practices that are most relevant for that stakeholder are emphasised.

Third, it is clear that HR departments must concurrently meet the requirements for multiple and sometimes conflicting stakeholders and subsequent competing expectations. We hope that above analysis will provide insights into how to achieve balance in emphasising the optimal set of HR practices for each of your stakeholders.

Finding the right combination
Combinations of HR department practices have substantially different levels of influence on different stakeholders, and

  1. Be clear about your company’s stakeholders that are most critical to sustainable success.
  2. Be clear about which combination of HR department practices have the greatest impact on which stakeholders.
  3. Place emphasis on those HR practices that have the greatest impact on your most important stakeholders.

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