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The Market-Valued Model A New Paradigm for HR

June 23, 2001
Related Topics: HR Services and Administration, Featured Article
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What is the value of a human resource department? What led Bank of America, BPAmoco, and others to transfer all HR activities to an outside vendor? What isthe future of HR and what role should it play in business? These are questionson the minds of human resource professionals and executives alike, and the answersare not to be found in traditional models of human resource staffs. In fact, thevery survival of human resources hinges on the ability to shift to a new model.

The traditional view
    The role of HR has been described as personnel administrator, corporate conscience,trainer, legal guardian, corporate communicator, employee ombudsman, and laborplacater. Recently, the designation strategic partner has come into vogue toimply greater alignment of HR activities with business requirements, althoughHR activities still center mostly on the traditional roles of hiring, firing,and administering rewards.

    Consequently, most methods of quantifying the value of HR are directed at thesetransactional activities. For example, common approaches to measuring HR valueinclude activity tracking, costing, benchmarking, surveying client satisfaction,and measuring HR as a "profit center."

A new approach
    Although the various methods for valuing HR departments are useful, they failto account for the business of the business. In other words, the company's purposeis to successfully produce, deliver, and/or sell a particular product or service,not to engage in efficient HR practices. Human resource departments exist tosupport the organization in achieving its objectives and can do so by findingways to create improved business results.

    This is the new model of HR value. It identifies the HR department as potentiallya market-valued resource to the organization. In the market-valued role, HRprofessionals recognize that their value is based on marketplace perception,which is, in most cases, based on the experience of those in the core business.

    Human resource departments must embrace the concept of being subject to marketpressures.

    They must be prepared to demonstrate high market value. To do so, they needto actively seek opportunities to help the core business resolve problems, improveresults, and reach objectives.

    An HR focus on the core business acts as a kind of low center of gravity, keepingHR close to the real issues of the day-to-day business and creating greaterquantifiable results. For example, instead of seeking methods to administerand track performance management activities efficiently, a market-valued HRprofessional might help core workers obtain customer feedback in order to respondmore effectively to customer needs.

    Or, rather than creating another leadership development program, market-valuedHR staff will work on creating knowledgeable employees who act to eliminateproduction bottlenecks.

    In other words, in place of activities with weak relationships to the bottomline, HR can serve the core business by using its expertise to directly addressbusiness needs.

    To become a market-valued resource, HR professionals must do three things:

    First, they must strategically partner with internal business people, aligningthemselves with operations and its purposes. Knowing the business is a precursorto becoming a partner, and becoming a partner is vital to having an impact onthe business.

    Partnership in the true sense of the word implies ownership and risk. A businessarrangement with no risk to one party and considerable risk to the other isnot a partnership at all. Partners share in the decisions and the risk. Thismeans that human resource personnel must be willing to put themselves at risk,just as their clients do in the marketplace. For example, HR can pay, out ofits own budget, the cost of a consultant if objectives are not met.

    Second, as described above, HR needs to focus on business problems rather thanHR activities. Demonstrating the value of HR by rolling out elaborate trainingprograms or hiring policies may do little to address the business needs of theproduction group.

    The business problems faced daily in production are things like machine availability,customer response time, retooling time, marketplace demands, production bottlenecks,quality issues, production costs, shareholder value, and production efficiency.In a market-valued approach, the business gains value when these issues areaddressed.

    Third, HR must assess its impact on the business in terms of measurable resultsrather than in activity efficiencies and costs. It is useful to show the dollarsavings in advertising as a result of innovative recruitment methods, but thetrue value of HR is measured in bottom-line business results, such as a 20 percentdecrease in retooling time, a new and innovative response to the marketplace,a 15 percent improvement in quality, or a 25percent increase in company stockprice. These are the outcomes that demonstrate the value of HR.

Becoming a market-valued HR practitioner
    Human resources, training, and other support departments can gain market valuein a company by adhering to some simple guidelines for working with "clients"from the core business.

  1. Determine the key issues. Find out what the needs of the business are. One way is through HR metrics thatmay point to high turnover, low retention for first-year employees, or moraleissues in a particular department. Further analysis should reveal root causesthat HR can address.

    A second, more powerful approach is to directly find out from operations orthe core business which issues concern them most, without regard to whetheror not the issues fit into the realm of HR. This is where HR can truly havean impact. Core-business employees constantly wrestle with issues that frustratethem in their efforts to reach production or financial targets. Since revenueis generated at this level, anything that addresses improvement to the productor service, cost, or response to the customer is an opportunity to add value.

  2. Determine the impact on the business. To understand the difficult issues facing a department or work group, try tosee how the problem, unresolved, affects the business. Is it creating qualityproblems? Are people working inefficiently? Are decisions avoided, and if so,with what result? Are products being rejected or reworked? In other words, whatprice is the organization paying for these problems? This becomes the basisfor HR's work, and the way HR shows its value.

  3. Develop collaborative solutions. Once HR has defined the problem, and can see its business impact, it can thenturn to its own storehouses of knowledge, skills, and abilities to determinehow it might be able to help. This is in contrast to its traditional role, inwhich HR personnel, who unilaterally identify the problem, define the solution,and mandate actions for the target group without regard to whether or not theyare addressing the needs of the business.

    Using HR skills to develop solutions with the client, while resisting the temptationto mandate, will increase the client's ownership of and commitment to a solution.That increases the likelihood of success.

  4. Establish measurable outcomes. If Step 2 is done well, the outcomes to measure should become apparent. If thebusiness problem necessitates the reworking of products, then measuring thatrework (before and after the changes are instituted) is the way to see if theintervention is having an effect. Likewise, if people are working inefficiently,then a measure of efficiency is in order.

    Demonstrating hard-number results in these areas allows HR to set itself apartfrom those following benchmarking or profit-center models, and it establishessolid value for HR in the minds of those in the core business.

  5. Assess effectiveness. This is not a one-time, post-implementation step, but rather an ongoing processof meeting with the core-business "client" to discuss progress, problems,and needs. It is where the adjusting, fine-tuning, and regrouping occurs. Itensures that the focus remains on identified business outcomes and the resultsthat can be achieved.

    The new market-valued model presents HR as a supplier of necessary expertisethat helps the core business to be successful. As such HR continuously providesanswers to real business problems to maintain a reason to exist inside the organization.HR and other staff support departments that are committed to having an impacton the core business can establish themselves as market-valued departments thatare indispensable to the success of any organization.


For more information:

"TheFuture of Staff Groups: Daring to Distribute Power and Capacity," byJoel P. Henning. Berrett-Koehler Publishers, Inc., 1997.

"DeliveringResults: A New Mandate for Human Resource Professionals," edited byDave Ulrich. Harvard Business School Press, 1998.

"Results-BasedLeadership," by Dave Ulrich, Jack Zenger, and Norm Smallwood, HarvardBusiness School Press, 1999.

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