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Why do CEOs feels HR plays a small role in organization's success?
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19 Answers
I'll start with a hard, direct answer in three parts: (1) HR is a cost center, (2) HR is infrequently well-connected to corporate strategy and fails to report on objectives linked to the organization's, and (3) HR is seen as a tactical, rather than strategic, partner within the organization.
Let's face it; HR is not a revenue center, nor are many HR departments good at showing where they contribute to the effectiveness of departments that are. Of the items for which HR is generally responsible, wages, benefits, and recruitment, costs are typically increasing at a time when other departments are being asked to reduce expenses. Other departments are resisting financial cuts and pointing to rising compensation costs as one of the reasons they aren't making numbers. Too often, when asked what is being done to control costs, an HR director will come back with an external study showing how the company compares to others. From a C-suite perspective, that's nice but it wasn't an answer to the question. Where HR is achieving reductions in cost-per-hire, for example, those are either seen as insignificant or are not shared with other departments, so HR is not seen as an effective partner. There are some things that can be done to address these situations.
HR is generally not effectively aligned with corporate objectives, and its metrics lag actual performance. This is a death blow to a department that wants to be viewed as a high level, strategic partner. I dream of being in the meeting where a C-suite exec looks at the HR director and says, "Company A is failing/succeeding/changing. We need to look at getting some of its A players over here to replace our B and C players," and the HR person says, "We've already begun evaluating who the best people are and are contacting them." Instead, HR waits to see what positions are vacant and watches to see who applies for the openings. The sales staff aren't waiting to visit Company A's clients, and the difference in performance is glaring.
In changing employment markets, HR is often hoist on its own petard. In one quarter, the report relates to employee retention, but when employees find a better market for changing jobs, the focus goes from retention to how many jobs have to be filled. The real issue for the organization is that full, effective employment is a basic expectation. The reports are tactical and miss the strategic mark entirely. R&D, whose ROI is linked to projections, does a better job in this respect. Who is HR is looking at what the company's needs are going to be three quarters from now? This, too, can be changed and improved.
While it's a matter of preference, I disagree with Bruce regarding outsourcing HR. It's properly an internal function, but it does need to be focused and positioned more effectively.
Most CEOs, and their executive teams, encounter HR through the large hard dollar HR costs: wages and salaries, benefits, some recruiting and separation costs. Executives scrutinize these costs carefully, which they should.
They tend not to be exposed to the soft dollar HR costs. I'm generalizing here, but many costs associated with training, recruiting, succession planning, job evaluation, organizational development, etc. are soft dollar costs that the finance people don't capture on the books of the business. These costs can be significant.
As a result of this focus on the hard dollar people costs, some CEOs come to equate HR with these areas, and have the function report in to the CFO, who doubles as head of HR.
And it's not just CEOs. When employees encounter HR, it's almost always through a transaction or a company program that HR administers. Most HR employees, let's admit it, are administrators and transaction partners. These are not strategic activities.
There are, however, some HR activities that are, or have the potential to be, atrategic. Here are some suggestion:
Organizational development.
The "development " part of training and development.
Recruiting (hiring for a new position, not replacing someone who's leaving).
Performance management, to the extent that performance objectives are linked to company strategy.
I omit compensaton because it's more tactical than strategic.
For HR to assume a strategic role, the traditional HR functions that are not, and never will be, strategic, need to be separated from those people functions that can make strategic contributions, and given separate leadership.
I don't claim to have hit every nail in this issue on the head, but I offer this as food for thought.
I have a simpler answer.
CEO's (business owners) tend to view non-income producing aspects of their businesses with a "cost view". That is, they don't make me money and [why do] I have to have them.
What these myopic individuals don't realize is that many times these non-income producing departments can be cost saving or neutral and in fact add to the bottom line.
HR's work product, employee selection, leaves a lot to be desired. Some managers believe that hiring good employees is a chance event so hire and fire until we find a good one. If almost all new hires exceeded their managers expectations, HR would be seen in a most favorable light.
Through time, we in the HR world, have not really stepped up our game and started looking at the value prop we bring and understand and align our goals with those of the company. We need to look at everything we do and ask ourselves, "how does this run with the goals of the organization?"
Yes, it is critical that HR value employees, listen to each individual with interest and care. We also need to be more than that. We need to the people the company (especially the CEO), can't do without.
Iris, great comment "We need to (be) the people the company (especially the CEO), can't do without." I agree but how does HR become "the people the company (especially the CEO), can't do without?"
I suggest that HR should first learn about the concept of job matching and then present it to the CEO as a solution to; unwanted employee turnover, lackluster new hire job performance, and training failures. A method that does all three tasks well will be seen by the CEO and other executives as a great service to the company, no more bad hires or surprises after the hire.
HR encompasses much more than what is discussed above. HR should be seen as a strategic partner to Operations. When used as a partner, HR's costs savings to an organization are substantial. Good Labor and Employee relations are essential to an organization's long term success and longevity. In most cases, these relationships are driven by HR.
Bob, you are correct, it can't just be a philosophy -- it has to be action.
The CEO's prime role is leadership of the company, crafting the vision and having the team (including HR) to be aligned to that vision and make every component of their respective roles part of that vision. It's not about a mission statement on a wall.. it's about a philosophy that must be embodied in the culture. The reason why there is often a disjoint between the CEO and HR, it that HR, has been trained to focus on process, compliance and governance.. unfortunately they forget about the two words in their titles.. Human.. and the need to engrain human elements and the second is Resources . to be custodians of those resources and make sure the CEO has access to the best in class human beings, so that he or she can engage those resources to deliver the vision...
Wayne S., that is an excellent observation. I find it curious that so many managers seem to think of employees as a cost. Without employees the work of the business doesn't get done and sales/revenue drops to zero. Employees are revenue and profit generators. HR needs to be held accountable if new hires fail to generate enough revenue or cost savings or quality or other benefits to offset their salary plus benefits.
Wayne W., excellent observation as well. I guess today should be Waynesday or is it Waynes' World?
HR until today is hardly recognized as strategic partner or asset. CEOs see HR as cost factor with very if any return. Partly, HR has not mastered position itself and presenting its value to the Management/CEO. HR has to become more strategic, solution oriented, supporting the Business Strategy, reflecting business data through metrics and bringing vision and solutions. HR has also to stop feeling 'sorry' for itself. It is a new, modern way HR has to start walking on, engaging in partnerships, bringing workable solutions and being an asset and gain to the business/organziation.
Anke, I agree, and they also need to be a little more 'on the ball' when dealing with C-Level individuals.
You don't ask a potential C-Level individual to fill out a shop-floor employment application (and for that matter any application, with the exception of Federal mandated questions). This type of behavior turns the C-Level individuals off and fosters in some respects the feeling by the C-Level of un-professionalism in the ranks of HR.
There is a difference between viewing an internal organization as zero costing or adding to the bottom line and being professional.
A well-oiled warehouse adds to the bottom line...and the employees can be highly professional, but I think we agree we're talking about a different level of professionalism.
Thanks Wayne, I know that international organizations are a bit different from the corporate world. Yet, when it comes to the CEO level, we are all faced with pretty much the same misconception and not being recognized. As said before, we = HR, must work on this and preferably educate the Top Line in order to walk hand-in-hand.
HR does not have a "seat at the table" when CEOs perceive the department to be reactive as opposed to proactive.
HR Professionals must demonstrate their value to the enterprise by aligning strategy with the company's goals and objective while proactively solving business problems.
Strategic HR is not viewed as a cost center by insightful CEOs; however, the HR function is often seen as a "paper pushing" entity when operated in a manner that does not make a great business case to justify its elevation to "trusted partner and adviser" status.
David, hard as it was to read your input, you are right on the mark. It is HR's job to change your perception by doing the right things at the right time. Thank you.
Interesting question Rahul. Perhaps there has been limited communication in the past and HR is seen as a necessity rather than a vital part of the organization. Savvy leaders understand that HR helps link together various parts of the operation and can be a valuable tool to build a strong, positive culture. HR can also be more proactive by actively looking for opportunities to partner with the CEO to help move the organization forward.
elaborate why CEO feels HR plays small role in organization’s success
I agree most narrow minded CEOs do not value the HR function. However, if anyone doubts HR's contribution to the success of the organization, simply remove the HR function and you will see the organization come to a very quick halt. It never ceases to amaze me that the top two largest spend items for any given organization are Payroll and Benefits, in other words the "people" that run the company (including the CEO him/herself) and we're debating the value of the HR function?
Largely because their work is 90% administration which anyone can do. Few of them have ever stopped to think about the value they contribute to their organizations, something which CEOs think about all the time.
Personally, I think that most HR departments could be (should be) outsourced because those same companies are not in the business of HR. In other words, businesses should focus on their core business, and if that's not HR, then it should be contracted out to someone for whom it is.
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