Business Leaders Don’t See HR as Key to People Strategies

May 29, 2007

While 60 percent of senior business executives consider people issues to be a significant factor in corporate strategy, relatively few of them look to their human resources teams for help on those issues, according to a study released Tuesday, May 29, by consulting firm Deloitte Touche Tohmatsu and The Economist Intelligence Unit.

The study found that 52 percent of companies don’t have a chief human resources officer or equivalent executive assigned to such people issues as developing a high-performance culture or meeting talent needs.

Deloitte and The Economist surveyed executives from 468 companies on several continents, including 104 HR leaders and 155 senior business executives.

Only 23 percent of corporate leaders see their HR departments as currently playing a crucial role in coming up with corporate strategy and having a significant impact on operating results. And although business experts increasingly recognize people as a key intangible portion of a company’s market value, 63 percent of executives rarely or never consult their HR team on mergers and acquisitions. Even when it comes to regulatory compliance, a traditional HR domain, 26 percent rarely or never check in with HR.

“There’s really a question of whether HR is playing the strategic role that they would like to play,” says study co-director Jeff Schwartz, the global leader for people and change in Deloitte’s human capital practice. “The perception of business leaders is that HR and its leaders are not in the forefront of driving the people agenda in business today.”

The study found that many business executives have a negative view of their HR departments. Only 4 percent felt their companies had “world class” HR and people management, while 31 percent said that significant improvement was needed. And while 52 percent of HR leaders believe they are major contributors in shaping a company’s culture, only 32 percent of business executives saw their HR leaders that way.

But HR leaders clearly are sensitive to that slight. Just 16 percent believe that their function is highly valued by business executives.

Schwartz says the news isn’t all bad for HR. The survey found that business executives and HR leaders both see people issues as critical to an organization’s performance. They also are pretty much in agreement about which particular issues are important.

Better yet, many in the survey see HR as playing a more important strategic role in the near future. About 65 percent of the survey group expect that their companies will have a chief human resources officer in place in the next three to five years, and 82 percent expect that HR will become more important in terms of strategy and value in that time period.

“There’s a tremendous opportunity for HR to step into the breach and lead,” Schwartz says. “The expectation is that HR will evolve from being a cost center to a value-adding part of the business.”

Seventy-six percent of the survey group identified leadership development as a crucial issue, while about 72 percent cited talent management and creating a high-performance culture. Sixty-five percent viewed training and development as a top priority. In contrast, traditional HR functions ranked comparatively low in perceived value to the business. Only 42 percent of the group saw compensation and benefits issues as having a critical business impact, while just 29 percent felt that improving the efficiency of HR activities through process and technology improvements was important.

“HR is being pulled in two different directions,” Schwartz says. “One part of the future is a function that’s focused on administrative and operational efficiency, and the other is an emerging people management function that may reside in the HR department or in business operations.”

—Patrick J. Kiger

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