HRHeadStart #60: HR's Value Add; Broadening Knowledge
The Talent Agenda
In one of my recent mentoring conversations, I was asked the question “Our HR department is efficient in running people operations. We do well on various metrics like time to hire, employee satisfaction, training effectiveness etc., but I am not sure how we add overall value to the business. How does HR really drive business success and growth?”
Economic growth is the output of three key factors: Labour Inputs, Productivity and Capital Inputs. Let’s explore how HR contributes to these.
Labour Inputs: The quality of labour inputs is dependent on employees’ knowledge, skills and abilities. These can be acquired and deployed through external recruitment of talent or internal development/reallocation of talent. Both of these are areas where HR plays a significant role through processes like hiring, L&D, talent management, succession planning etc.
Productivity: Productivity improves when we increase outputs without increasing inputs or, at the very least, increase outputs disproportionately higher than the increase in inputs. For instance, increasing revenues without increasing headcount would be the result of increased productivity. A sizeable portion of productivity improvements is likely to come from technology, but productivity is also affected by job design, organization design, culture and incentive mechanisms - all areas where HR can create positive impacts.
Capital Inputs: HR does not own capital decisions, but it can still measure its results in the context of financial results and speak the language of business. Apart from HR process metrics, there should be a focus on understanding how HR is creating value for the business by using metrics like HR Value Add, HR ROI or other such metrics. Leaders often say that people are their biggest assets. To increase the credibility of that claim, good people accounting is necessary.
In conclusion, when we view HR through the economic growth equation (labour inputs x capital inputs x productivity), we can make a compelling and logic-driven argument about how HR adds value and is essential for business success.
A quick video where the CHRO of Netflix shares that HR folks not only need to understand HR, but also macroeconomics and geopolitics. Our world is ever-changing and fluid and to be a good systems thinker, we need to understand how the parts of the system are shifting continuously. Businesses today don’t just need HR professionals, they need business professionals with HR expertise. We don’t solve HR problems, but business problems which have a people angle to them.
“Knowledge has to be improved, challenged, and increased constantly, or it vanishes.” ~ Peter Drucker