The CEO Needs You. Are You Delivering

June 1, 1997
Jack Stack, president and CEO of Springfield Remanufacturing Corp. in Springfield, Missouri, remembers the days when human resources—or rather, personnel—constituted a very small line on the general ledger. "It was an unnoticed expense," he says, something not worthy of a great deal of attention. But with the rapid escalation of costs associated with workers' compensation, health care, employment litigation, benefits and training, HR has burst onto the frontal lobes of executive consciousness. "Upper management now is beginning to see the need for HR to be more progressive," Stack says, not only in preventing costs, but in making better use of the increasingly costly human asset.

Stack isn't alone in this belief. Suddenly, it seems, CEOs in all industries are noticing that corporate performance isn't just about savvy marketing, sound financial planning, up-to-date technology and efficient operations. Increasingly, executives are realizing success also is based on a solid understanding of the value that warm-blooded humans bring to the bottom line.

Even Chief Executive Magazine suggests that CEOs are starting to view their human resources as an investment. As stated in an article in the July/August 1996 issue: "Some executives are starting to look for ways to tap into that human potential, exploring new methods of managing, motivating and redefining the relationship between employees and the company. They're working to treat employees not as costs, but as assets that increase in value over time."

In sum, they're listening to what visionary HR folks have been preaching for years now. Thanks to an unprecedented convergence of marketplace forces, CEOs now are more ready than ever to hear about the value HR can add to the bottom line.

Sounds like a time for celebration, right? Not so fast. Although CEOs are ready to buy what HR is selling, it's up to you as HR professionals to close the deal by articulating a vision, speaking in executive bottom-line terms and making the CEO your No. 1 customer.

The time is right.
So what are the competitive pressures that are causing sleepy executives to wake up to HR? Record-low levels of unemployment, for one. The competition for skilled employees has become so fierce that companies are desperately trying to create work environments that can attract top talent and keep it there. "Today's knowledge workers are highly mobile and they can and will sell their skills to the highest bidder," explains James Houghton, former chairman and CEO of Corning Inc., in Corning, New York. "Talented people who are highly mobile will choose the friendliest environment possible," he says. And who's in charge of the corporate environment? None other than HR.

Global competition also is putting the squeeze on companies and sharpening their HR focus. "With so much competition, the market has become much more value-oriented," says Bob Collins, CEO of GE Fanuc Automation North America Inc. in Charlottesville, Virginia. "The only way to increase value without increasing price is to find ways to improve employee productivity." This realization—that productivity is the key to value—comes after years of painful downsizing and cost-cutting in which senior executives simply have run out of things to leverage. The only thing left is people.

Another force executives are starting to contend with is the increasingly demanding consumer population. With very little differentiation in price and quality, consumers are starting to make product choices based on the attributes of the company itself. "Companies have got to realize there's more to success that just the product they're making," says Stan Sorrell, departing president of Calvert Group, a Bethesda, Maryland-based mutual-fund investment company. He believes companies must be socially responsible in all business practices, including how they treat employees. Think about it—all else being equal, who would you rather do business with? A company that values its workers or a company that underpays employees and discriminates against minorities?

Last, but certainly not least, on this list of business pressures is the one Stack mentioned: cost. Yes, HR has become one of the biggest expense items for companies, especially in service industries, and chief executives are frantically searching for ways to get a better return on their investment. This, perhaps more than anything else, is what is putting HR on the radar screen of more CEOs. "On a scale of one to 10, I'd put CEOs' awareness of HR issues at a solid eight," explains Mike Deblieux, president of Mike Deblieux Human Resources in Tustin, California. "Five years ago, it would've been a four." Why the sudden increase? "Rising costs," he says, "especially in the area of lawsuits."

Roll all these marketplace factors together and you have a business climate that's ready, indeed desperate, for HR to step to the forefront with solutions.

If you're still not convinced the balance is tipping in favor of HR, then ask CEOs: What are your most pressing overall business problems today? Chances are, you'll find even those are HR-related. "Health-care costs and succession planning [are major issues]," says Stack. "Performance and accountability," says Bob O'Neill, city manager of Hampton, Virginia. In a nutshell, corporate leaders are coming to understand at a very deep level that it's people, not technology or processes, who create profitable products and services.

But just because CEOs are beginning to understand the importance of HR doesn't mean they're taking an active role in pushing HR's agenda. Nor should they. "They're looking to HR for clues about how to leverage people better," says Greg Hackett, president of The Hackett Group, a Hudson, Ohio-based management consulting firm. Why? Because most people who fill the top jobs in companies grew up in the old school of thought about HR. Conditioned to think about personnel as an administrative function, they're not used to thinking about HR strategically. Even though the market is ready for CEOs to listen, it's up to HR professionals to grab executives by the collar and make them hear the message of what HR can do.

Sell your financial value.
To capture the CEO's attention, Donald Van Eynde, professor of management at Trinity University in San Antonio, Texas, says HR leaders have to muster up managerial courage and not be afraid to get in the face of senior executives. "HR is often seen as the entity that stops companies from doing things," he says. The only way to change that is by understanding and addressing the strategic needs of the organization.

O'Neill agrees. "In some cases, HR folks haven't done a good job building the relevance of HR programs to the organization, of explaining why they're important," he says. "If they don't do a good job articulating why their programs can help, the fact that they have a good idea is of little significance."

Ken Carrig, vice president of HR for Houston-based Continental Airlines, adds that HR needs to know the three factors most critical to the success of the business so that it can build programs around them. "High-level managers won't waste their time with you if you can't talk about the same goals," he says.

Perhaps the best way for HR professionals to take advantage of market conditions and push their rising star even higher is to listen to their top customer-the CEOs themselves. What advice do today's chief executives have for HR managers who are eager to reshape their organizations? Workforce talked to CEOs in companies that have transformed themselves through innovative HR practices to learn what suggestions they have for HR professionals in other companies. Their comments resonated on a single theme: The bottom line.

"It's a question of return," says Calvert's Sorrell. "Go to the CEO and discuss, from a financial perspective, the impact of your programs, be it cutting turnover, reducing training costs or increasing productivity."

Sorrell has firsthand experience with cost-saving HR programs because Calvert is widely known for its employee-friendly programs, including flextime, parental leave, free 15-minute massages, a meditation room and a program that reimburses employees for the cost of roller blades, bicycles or running shoes used to get to and from work. Since the company implemented these and other similar programs, turnover has been slashed from the industry average of 25 percent a year to less than 12 percent, saving greatly on the costs of recruitment, training and low productivity.

Evelyne Steward, senior vice president of HR at the Calvert Group, who helped initiate—and sell—many of those programs, adds this advice: "Make the CEO your most important client. Learn what issues top managers are struggling with and develop creative programs to help them." Then, demonstrate how those programs aren't costs, but investments that will have a measurable return.

Mike Servais, president of Acute Care Division of King of Prussia, Pennsylvania-based Universal Health Services Inc., also suggests HR executives learn and demonstrate an understanding of the business, especially the goals and needs of senior managers. "In many companies, HR people see the function as a separate entity—and not part of finding business solutions," he says. "The only way to change that is if people in the field become more bottom-line oriented."

At his company, which is the third-largest investor-owned health-care company in the United States, HR recently led a cultural change effort that has successfully focused the attention of its 14,000 employees on customer service. How? With a thorough understanding of the corporate goal of service excellence, HR was able to align the recruitment, hiring, compensation, discipline, training, reward and recognition processes so all employees were focused on this goal. The result has been an across-the-board improvement in customer satisfaction, lower turnover, higher employee satisfaction, increased business volume and excellent profits, he adds.

Charles Kovaleski, president and CEO of Attorneys' Title Insurance Fund Inc. in Orlando, Florida, recently underwent a similar cultural change effort. His employee-services department-as HR is known—thoroughly revamped the application, interviewing, orientation and training process so that the company's 800 employees understand the corporate goal of customer service from their first days on the job. The employee-services department was so successful in re-focusing employee efforts that the manager of the division recently was promoted to senior vice president and now is reporting directly to Kovaleski.

What advice does Kovaleski have for other HR managers based on his new-found appreciation for HR? "HR managers need to understand they have a lot of internal customers to satisfy," he says. "They have to orient toward becoming strategic contributors, not inhibitors, to each of those customers." They can do that by getting out of the office and learning about those needs, he says.

When asked what kind of advice he would share with today's HR managers, Springfield Remanufacturing's Stack continued to beat the financial drum. "Too many HR managers can't read their own financial statements," says Stack. "I recently spoke to 1,100 training professionals and asked how many of them could read a balance sheet. Not six hands went up. You can't help provide financial security for the organization unless you know how to read the report card."

Stack should know. His management team espouses open-book management, and the HR department provides ongoing financial education for all employees. What has the business impact been? The company's stock value has leapfrogged from 10 cents a share 15 years ago to $33 today. Not only that, but in 15 years of business, the company has never had to borrow beyond its original credit line.

What to expect from the CEO.
In companies at which HR professionals have been successful in selling their services to the CEO, HR is finding its bosses are more than willing to support HR's new role as strategic partner. But the way CEOs demonstrate that support varies a great deal depending on the size of the company, the industry it's in, the competitive pressures it faces and the personal management style of the chief executive.

Tharon Greene, director of HR for the city of Hampton, Virginia, says her boss shows "incredible support for the workforce and HR." But ask City Manager O'Neill what his support looks like on a daily basis and he'll tell you: "I'm not sure I do support HR daily. My role is more to create an imperative for change."

Indeed, being the visionary and champion for change is the most typical role for chief executives in this new HR-driven culture. Carrig says Continental's CEO Gordon Bethune's role in the company's recent workforce turnaround was to set the goals and regularly communicate with employees.

"He understands that people issues are as important as any other business issue, including operations and finance," Carrig says. Bethune has reinforced this several ways: by placing HR on the management team alongside the CFO, by devoting just as much time to HR issues as he does capital issues and by helping other senior managers realize how important HR is to the company's new way of doing business.

This last activity—keeping other senior managers focused on people issues—may be one of the most vital ways CEOs can support HR. Shoshona Zuboff, a professor at the Harvard Business School, says that if corporations have any hope of developing the skills and behaviors needed to manage the new workplace, the focus has to shift from changing employees to changing managers. In other words, CEOs can and should be instrumental in redefining the purposes and priorities of the managerial hierarchy and get rid of managers who don't support the need for new people—driven practices.

When Attorneys' Title Insurance was ready to embark on its cultural change effort in the late 1980s, there was some reluctance and cynicism on the part of senior managers, Kovaleski says, because they didn't want to hand over more decision-making authority to employees. "They told me, as the new CEO, 'This isn't how you do things.' Those managers aren't here anymore."

At the very least, HR executives should expect their CEOs to provide the tools and resources to initiate cultural change efforts, especially if HR demonstrates how those efforts will release the energy, creativity and enthusiasm that now lie dormant in many organizations.

But HR has to sell itself before it can expect the CEO to come through with any form of support, be it verbal, financial or managerial. Although some CEOs inherently understand the value people bring to the bottom line—and how to harness that value—these executives are the exception rather than the rule. If HR professionals have any hope of comfortably assuming their role as strategic partners, they must take advantage of the forces that have raised CEOs' awareness of HR issues and then sell their bottom-line solutions.

The time is right. CEOs are ready for a change. Employees are most certainly ready for a change. And HR, as the function that touches every single employee, is ideally suited to take on the challenge of reshaping America's organizations to release the productivity of those employees. Armed with managerial courage and a boatload of bottom-line facts, HR professionals should easily be able to sell their organizations on the idea that people are the key to making a profit.

As Bob Collins, CEO of GE Fanuc, emphasizes: "This isn't a matter of choice anymore, but a matter of how quickly you can make this change and get the changes implemented."

Workforce, June 1997, Vol. 76, No. 6, pp. 62-68.