Monday, September 24, 2012
Why does HR fail to be an effective business partner?
It has been close to 20 years now when the notion of HR as a business partner was floated by consultants and practitioners alike. It was supposed to be the natural evolution of the role of HR from being personnel managers to a functional group that is value adding. Yet, time and again I have had conversations with both HR people and line managers about how HR is unable to be an effective business partner. Why is this still the case?
I will tell you why - Simply, because HR folks lack the capability and the desire to build the capability to be effective business partners. The y are still spending time on maintenance activities, don’t make enough of an effort to understand the language of the businesses they are serving and don’t know how to ask tough questions of the business they are serving. The HR generalists responsible for partnering end up being order takers at worst and compliance officers at best!
For example I was talking to the business partnering folks at a global energy company. The HR generalist didn’t know how to respond to changes in the operational plan for a site that was producing gas. Neither did they know how to support the site or the region in capability development in an effective way. They focused purely on recruitment and compensation. None of the HR partners had actually spent meaningful time offshore to understand how work gets done or the conditions in which the workers were working!
If HR has to build a reputation for business partnering, a few things need to happen:
a) Increase the competence of those being hired into the HR function – hiring standards need to be raised – or else HR will always be maligned
b) HR professionals need to understand the economics of the businesses they serve and the entire company
c) HR partners need to be able to ask tough questions of the clients they serve
d) HR managers need to develop a general manager’s sense of how different elements of the organizations work together
e) Line managers need to coached as to the role of HR
f) The CHRO must be a strong person with credibility at the CEO and board level
Monday, September 10, 2012
The Facebook IPO - a tale of Greed
The Facebook IPO has been a classic case of greed - the underwiters, the management, the ordinary investors (though they were misled some might argue). The night before the IPO I had an argument with a few friends as to why I thought the IPO was overvalued - $100 billion didnt make sense on a profit of about $1 billion or so! Particularly when its usage was declining slowly both in terms of membership growth and in terms of time spent by members. More fundamentally it doesnt have a revenue model that was driven by users - it was driven by ads (unlike google which makes money everytime someone clicks on a paid word). Also - Facebook's management team had made some questionable choices about user privacy, about their own stock holdings and about their ambitions - all of which made me feel - this is no managemenmt team with a Higher Ambition - this is a team that wants to make money and lots of fundamentally.
And now its VCs are selling their stock - they and the founders are the only ones that made money on this. The investment bankers also did a major disservice to the entire public by pricing the stock so high and by having such a large volume of shares available as part of the IPO. They were downright greedy and stupid.
Lesson - Greed is never good.
Friday, January 13, 2012
Some more on Why HR Heads dont become CEOs
Core CEO / General Manager Skills
The doom cycle won’t be broken entirely unless top HR professionals develop the skill sets required to become CEOs. While the dimensions and flavor may vary by industry, there some core skills any CEO must have:
a) Strategic acumen – the ability to make strategic choices about issues such as the direction of the company, which businesses to be in, which markets to pursue, which products to have in the portfolio, where to locate production facilities, and options for reducing costs while growing a business. Implicit in this is the ability to connect dots, i.e. to be able to look at the interconnections and broader implications of a decision on multiple dimensions of the business. Implied in this is a keen understanding of the drivers of their organization’s business model.
The challenge here for HR professionals is to get out of the narrow functional mindset that most of them tend to have, and be able to look at the non-HR implications of business decisions. For example, most HR people won’t look beyond staffing needs or compensation needs when a new growth strategy is being developed. Going beyond the narrow functional mindset would be to engage in a discussion on the growth drivers, or on operational choices such that they reflect the HR executive’s holistic business perspective.
b) Analytical ability (including financial literacy) - Most HR executives find detailed discussions on financial statements and data as painful as running up a steep hill. However, unless HR executives become financially literate and are able to quickly grasp the implications of financial and operational metrics, their chances of getting the corner office is lower than zero.
c) Communicating effectively with a wide range of constituents – employees, shareholders, directors, members of the board, analysts, customers, government bodies, media, community leaders, suppliers, etc. This would be an area where most top HR people would be effective with most groups – except perhaps in dealing with analysts – but this is a coachable skill.
d) Managing change and embracing conflict – Willing to adapt to rapidly changing circumstances and being able to make hard decisions while embracing conflict if necessary.
This is another area of challenge for top HR people –they tend to be resistant to change and unwilling to embrace conflict; often successful HR people tend to be conflict averse because they think that is the right way to operate in an organization. HR people rightly or wrongly have a reputation for being “politicians” or focused on compliance i.e. “policing”. This mindset among HR folks has to change.
e) Managing and motivating people – immediate subordinates as well as those around them. I won’t go into details here as the point is self explanatory.
Clearly, all of the above skills are acquired skills. Nobody is born with these skills. At the same time, HR professionals struggle with some if not all the skills mentioned above. Particular areas of difficulty are related to strategic acumen, financial literacy and numerical facility. I have seen senior HR professionals struggle with financial statements or with detailed data analysis – and not in terms of being able to read them – but in terms of being able to understand their implications and being able to make choices.
For example, in a discussion with a senior HR manager, I came to the realization that the person had never developed a business case that involved NPV analysis; nor had they ever looked at the breakdown between fixed and variable compensation costs one level below to understand the relationship between cost and performance. In another discussion during an M&A situation, the HR manager dealing with the organization integration had little appreciation for dimensions of strategy and was looking at structure as creating boxes on an organization chart and putting names against them. They failed to take a strategic view of the acquisition and ended up doing a disservice to themselves and their organization.
Why top HR professionals struggle with the skill sets
Why do top HR people struggle with these skill sets? They are not any less smart than say top finance or top marketing people. Yet they struggle. The reasons for this poor skill development in many HR people lies in the following:
a) HR function recruitment standards – HR function recruiting standards are weaker than other functions – they don’t typically test analytical skills – one reason why a number of HR professionals entering the profession come in with weak numerical skills.
b) The HR career development process is focused on deep functional specialization – if you are a compensation person, you remain in compensation and become an expert in compensation without developing a wider perspective on business and human resources issues
c) Getting involved actively in understanding the business – Most HR folks don’t spend enough time understanding the key business drivers themselves – they either learn it from what others tell them –but never actually fully understand them – or just don’t bother to learn about the business drivers, period. I once met the head of HR for a telecoms company who knew ARPU was an important measure of business performance for the company at that time – but never really understood why – or what the changing trend in ARPU meant for the business. He wasn’t able to see that as call costs and data costs went down, ARPU would inevitably go down – and that the company would need to think about additional sources of revenue or growth opportunities. And even more seriously, he was unable to link changes in market trends to the organization’s human capital needs.
d) The “can’t do it mindset” – A number of top HR professionals never really believe or even think for a moment that they can become CEOs. They rule themselves out of the running for the top job right from the beginning. This is compounded by an unwillingness or reluctance to take on risky and challenging assignments
The doom cycle won’t be broken entirely unless top HR professionals develop the skill sets required to become CEOs. While the dimensions and flavor may vary by industry, there some core skills any CEO must have:
a) Strategic acumen – the ability to make strategic choices about issues such as the direction of the company, which businesses to be in, which markets to pursue, which products to have in the portfolio, where to locate production facilities, and options for reducing costs while growing a business. Implicit in this is the ability to connect dots, i.e. to be able to look at the interconnections and broader implications of a decision on multiple dimensions of the business. Implied in this is a keen understanding of the drivers of their organization’s business model.
The challenge here for HR professionals is to get out of the narrow functional mindset that most of them tend to have, and be able to look at the non-HR implications of business decisions. For example, most HR people won’t look beyond staffing needs or compensation needs when a new growth strategy is being developed. Going beyond the narrow functional mindset would be to engage in a discussion on the growth drivers, or on operational choices such that they reflect the HR executive’s holistic business perspective.
b) Analytical ability (including financial literacy) - Most HR executives find detailed discussions on financial statements and data as painful as running up a steep hill. However, unless HR executives become financially literate and are able to quickly grasp the implications of financial and operational metrics, their chances of getting the corner office is lower than zero.
c) Communicating effectively with a wide range of constituents – employees, shareholders, directors, members of the board, analysts, customers, government bodies, media, community leaders, suppliers, etc. This would be an area where most top HR people would be effective with most groups – except perhaps in dealing with analysts – but this is a coachable skill.
d) Managing change and embracing conflict – Willing to adapt to rapidly changing circumstances and being able to make hard decisions while embracing conflict if necessary.
This is another area of challenge for top HR people –they tend to be resistant to change and unwilling to embrace conflict; often successful HR people tend to be conflict averse because they think that is the right way to operate in an organization. HR people rightly or wrongly have a reputation for being “politicians” or focused on compliance i.e. “policing”. This mindset among HR folks has to change.
e) Managing and motivating people – immediate subordinates as well as those around them. I won’t go into details here as the point is self explanatory.
Clearly, all of the above skills are acquired skills. Nobody is born with these skills. At the same time, HR professionals struggle with some if not all the skills mentioned above. Particular areas of difficulty are related to strategic acumen, financial literacy and numerical facility. I have seen senior HR professionals struggle with financial statements or with detailed data analysis – and not in terms of being able to read them – but in terms of being able to understand their implications and being able to make choices.
For example, in a discussion with a senior HR manager, I came to the realization that the person had never developed a business case that involved NPV analysis; nor had they ever looked at the breakdown between fixed and variable compensation costs one level below to understand the relationship between cost and performance. In another discussion during an M&A situation, the HR manager dealing with the organization integration had little appreciation for dimensions of strategy and was looking at structure as creating boxes on an organization chart and putting names against them. They failed to take a strategic view of the acquisition and ended up doing a disservice to themselves and their organization.
Why top HR professionals struggle with the skill sets
Why do top HR people struggle with these skill sets? They are not any less smart than say top finance or top marketing people. Yet they struggle. The reasons for this poor skill development in many HR people lies in the following:
a) HR function recruitment standards – HR function recruiting standards are weaker than other functions – they don’t typically test analytical skills – one reason why a number of HR professionals entering the profession come in with weak numerical skills.
b) The HR career development process is focused on deep functional specialization – if you are a compensation person, you remain in compensation and become an expert in compensation without developing a wider perspective on business and human resources issues
c) Getting involved actively in understanding the business – Most HR folks don’t spend enough time understanding the key business drivers themselves – they either learn it from what others tell them –but never actually fully understand them – or just don’t bother to learn about the business drivers, period. I once met the head of HR for a telecoms company who knew ARPU was an important measure of business performance for the company at that time – but never really understood why – or what the changing trend in ARPU meant for the business. He wasn’t able to see that as call costs and data costs went down, ARPU would inevitably go down – and that the company would need to think about additional sources of revenue or growth opportunities. And even more seriously, he was unable to link changes in market trends to the organization’s human capital needs.
d) The “can’t do it mindset” – A number of top HR professionals never really believe or even think for a moment that they can become CEOs. They rule themselves out of the running for the top job right from the beginning. This is compounded by an unwillingness or reluctance to take on risky and challenging assignments
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