At the end of December 2007, a multinational company in Jakarta invited me to be a resource person in a discussion on senior managers’ roles in managing people — particularly regarding their role in achieving the best results in managing human resources for their companies.
The flow of discussion was rather stagnant because all participants had a similar opinion about the function of HR, that is, that the function should be managed only by an HR department.
In their opinion, if a non-HR unit also had the responsibility of executing the HR process, what exactly would be the HR department’s function within the company and would the company need an HR department in the future?
Most people in the industry knew what HR (human resources) stands for. Anybody, or anyone, who joins a company will start learning about the company from its HR people, as on the first day he/she will meet HR people prior to being told to work at a specific department of the company. At the end of his/her services, whether he resigns, retires or is let go by the company, he/she will again meet the HR people to finalize his documents.
As significant as it sounds, the HR department is often overlooked as an important part of a company and people tend to not consider it a critical component of the institution. It is often disregarded and yet, compared to the distribution network division or sales and marketing unit, it is largely a busy and high-profile part of the company.
This situation reflects the company-wide organizational structure, whereas the highest job title for the HR department is usually still below the highest job title of other non-HR departments. I have seen the relocation of a “problematic” employee for poor performance or unruly working attitude to the HR department for an uncertain period of time in several Indonesian companies.
Why is there a general perception that the HR department is not an important part of an organization? If we asked HR people, HR experts or HR practitioners, they will answer that this opinion is generated due to the ignorance of the CEO or senior managers in analyzing the roles and functions of the HR department.
On the other hand, if we asked a CEO or senior manager, they in most probability would answer that in practice, the HR department has not been able to show or prove the importance of its contributions to the success of the company.
At the World HR Congress in Mumbai, India, in March 2006, I had the privilege of attending a presentation by Prof. Wayne Brockbank, co-author of The HR Value Proposition. Beginning the presentation, he asked the audience who were the customers being served by the HR department.
Almost 90 percent of the audience answered that it was the employees. Then he asked who were the customers of the CEO, the marketing department and the operations department. The audience answered that it was the buyers of a company’s goods and services.
HR Value Proposition
Prof. Brockbank continued, how can HR staff expect to be treated equal to other units when their “customers” were, in fact, different? Why does the HR department have different customers to other departments that generate revenue such as the marketing and production departments in a consumer goods distribution company?
The HR department was previously considered a supporting component, an administrative part of the company, executing traditional and transactional work pertaining to HR, such as the payroll, benefits administration, staffing policies and training details.
However, at several companies this traditional work of the HR department has been automated, centralized and outsourced; leaving the remaining HR functions to be coordinated by the HR department, the function of which, sometimes, is not particularly appreciated by the rest of the company.
However, nowadays the perspective has changed. The roles of HR people are much more important, as: (1) employee champion, delivering and creating competent and committed employees, (2) administrative expert, executing efficient HR practices throughout the company, (3) change agent, delivering capacity for changes in individual behavior and organizational culture, (4) strategic partner, delivering business results.
The HR department is considered part of the business execution in an institution, which delivers greater value to revenue and is not merely a supporting component. In practice, these role changes have no impact or meaning whatsoever for the CEO or other senior managers, unless they really gain and feel the added value of the HR department thereof.
I agreed with Prof. Brockbank that if HR practitioners and the HR department do not like their existence in a company questioned, they should ascertain that they add value to the company and create business results.
The HR department should create value for the key stakeholders, namely investors, managers, employees and customers. HR practices by HR people must create value in the eyes of these stakeholders. The HR Value Proposition offers an integrated approach to what HR people can and should do to create sustained value.
Since value is defined by the receiver, i.e. the stakeholders (investors, customers), not the giver (i.e. HR people), so any value proposition should begin with a focus on the receiver. Rather than imposing what should be done, HR people, most importantly, need to be open to what particular stakeholders want.
What are the goals and values of the stakeholders? What is important to them? What do they want?
- To an employee worried about being replaced, HR people should demonstrate that being more productive would help the employee remain in the company’s service.
- To a manager worried about reaching strategic goals, HR people need to show how investment in HR work will help deliver business results.
- Although this practice is uncommon in Indonesia, it is encouraged that HR people should, at one time or another, hold meetings with customers and discuss their expectations regarding company personnel, such as expectations from a teller, customer service officer or private investment manager at a particular bank. Or a patient’s and his family’s expectations of a nurse, pharmacist and doctor at a particular hospital.
Five elements of HR Value Proposition
To ascertain that the services rendered by the HR department produces the value proposition, an HR manager and the CEO of the company should ensure five elements of HR value proposition to be determined:
(1) External Business Realities. HR people should be familiar with the external business realities, such as technology, economics, globalization, demographics.
Knowing business realities makes it possible to put HR practices in context, tie them to the competitive challenges, and relate them to concerns facing managers. An effective HR team has HR people who recognize external business realities and adapt HR practices and allocate HR resources accordingly.
(2) Stakeholders. HR people should serve and pay attention to external and internal stakeholders, who are the receivers of HR work and are the ones who determine whether the work of the HR department creates value for them. An HR department is successful if and when the stakeholders perceive that it produces value. What matters most to stakeholders focuses on the deliverables (outcomes of HR) rather than on the doables (activities of HR).
(3) HR Practices. HR practices must be defined and must evolve to deliver what stakeholders expect. These HR practices include HR work and activities, such as staffing, training, appraisals and rewards.
These activities can be designed and delivered to add value for each of the key stakeholders. It includes the management of internal and external communication and design, determining who does the work, how work is done, and where work is done. There are choices for these practices and HR people will be able to know how each practice can add value for investors, customers, managers and employees.
(4) HR Resources. HR resources include HR strategy and organization. The HR function must create strategies and organize resources so that individual efforts of HR people combine to create value.
(5) HR Professionalism. HR people must ensure the existence of HR professionalism, which includes HR roles, competencies and development. HR people deliver value through the roles they play and the competencies they demonstrate. Nowadays, the proposition of HR’s roles are being the employee advocate, human capital developer, functional expert, strategic partner and leader.
In implementing this HR transformation, the ideal logic is to move through these five elements sequentially, but sometimes it can also be useful if HR people can move and start according to the particular issue, such as starting from HR professionalism because of different needs and climates within the company. The most important is ensuring that this element must be connected with other elements that have been designed previously.
The universal value premise is that value is defined by the receiver more than the giver. It requires that HR people should focus less on what they do and more on what they deliver. The HR’s deliverables can build organization capabilities, which generate market value for the company.
In other words, refocusing of HR is the changing activities: from what is done to what is delivered; from building HR function for efficiency to building them for stakeholder value; and from implementing best HR practices to delivering value-added HR practices.
*This article published on The Jakarta Post. March, 5th 2008.