How HR practices impact profitability

Dinesh Weerakkody

The session by the celebrated HR Guru Prof. Dave Ulrich on the topic “Future-proof your HR” on October 24 at Water’s Edge focused on how HR can deliver greater value to their organisations.

Dave highlighted how and why people issues have become central to business success.

Furthermore Dave identified specific people issues, which are important to organisations and how such matters should be managed for organisational success. The speaker used his wealth of commercial experience, research, learning and knowledge to give a broad overview on the future of HR in the context of its emerging trends for the benefit of HR professionals who work in HR, line managers who use HR tools, CEOs who leverage on HR as a competitive tool and all others interested and involved in the HR discipline.

In fact, Peter Drucker the mother of all gurus many years ago said knowledge is the only meaningful resource. For access to other resources is no longer limited. Capital flows freely across borders, unerringly seeking out companies that need it most.

Technology is available to those who cannot grow it. Raw material is free to be transported today. Crucially the people who bring knowledge to the business will help to differentiate the better-run firms from the rest.

Many top business leaders in their annual reports say their people are their most valuable asset and they are investing money to develop their people, but in reality many of them do not even have a competent HR Manager leading their HR departments leave alone having a person who has some conceptual understanding of people management at board level to raise the level of intellectual rigor of the table when discussing people issues at Board level.

Key job

It was Jack Welch who once said HR is the key job and my HR Head is at the table with me for every important decision. Today there is ample evidence to support this argument.

For example in researching what drives corporate value, the Forbes/Ernst & Young Value Creation Index found the one of the top key factors to be the firm’s ability to attract and manage talented employees.

Therefore a firm’s Human Resource should be the center of any business- it’s the only sustainable advantage. Everything else can be replicated by competition. Human capital as we all know is the foundation of value creation.

Perhaps the current lack of awareness among CEOs stems from the fact that most HR managers they have recruited do not have a clue on how HR can add wealth-creating value to a firm. So I think it is time HR professionals came out of the comfort zone and become part of the business execution and there by propel HR into a meaningful role.

Most businesses in Sri Lanka are today very much people businesses. So at the front-end companies need to make sure they are getting the best people and have the competence to inspire and motivate employees to release their discretionary effort beyond the call of duty.

Retaining talent

In today’s context companies have to work very hard to find good talent because there is a short supply of good talent. So when they find the right talent with the right profile they would have to make sure that they are not only offering very competitive compensation package, but also the kind of culture, development and other benefits that makes the company the kind of company that people want to work for.

The challenge for any company is to create the kind of environment where, when they (staff) get up in the morning they can actually look forward to coming to work.

Also CEOs are no longer judged in their grandeur in their speeches, instead they are judged more by the ability to get people to work together to deliver business results. That requires good people skills on the part of the CEO. The former CEO of Toyota articulated this concept well when he said, “ it is not the system that matters, it is the spirit that supports the system that is important and cultivating spirit is a far more difficult challenge than managing things”.

It calls upon competencies of character more than technical expertise among our CEOs. It relies upon on higher order abilities to create unity and harmony, to instill trust, to create hope and optimism and to work from a base of shared values and interdependence. Leadership of this type is often indirect and behind the scene vs. from the front and top down.

Motivating people

Today Motivating people is very different to what it was some years ago, because nowadays, overseas assignments, stock options, casual dress and free gyms are just as important to attracting and retaining talented employees as salaries, job security and holidays once were.

A happy workforce can reward a company through better profits, better productivity and lower staff turnover. Also there is no special magic in being a good employer. It does not necessarily take money, size, or market to become an employer of choice.

Rather, enlightened HR policy and leadership that is committed to its staff is all that one needs.

It was the National Panasonic founder Matsushita who said many years ago “take care of the people in the company, they will take care of their customers, and then the customers will take care of the cash flow”. Perhaps some of our CEOs should reflect on that statement before they go round saying people are their most valuable asset and we spend so much money on training.

The role of CEO

Many CEOs still substantially underestimate the importance of HRM when the responsibility for good HRM lies with the CEO. Very few realise that it is organisational capabilities that create products and services that result in a customer taking money out of their wallets and putting it into ours instead of giving it to their competitors.

Therefore a Chief Executive should be committed to creating and sustaining value through people. Secondly he must have some understanding as to how HR can create and deliver value to the business.

Thirdly he must get his HR teams to make a strong contribution to the share price and the development of the company. However, the real problem is that most CEOs do not know how to increase their organization’s competence. As a result the HRs influence in the organization gets marginalized.

HR practices

Most companies in Sri Lanka are still behind when it comes to inspiring people and providing the personal sense of passion that count so heavily for a meaningful work experience and for good business performance.

Good HRM helps to make the whole company greater than its sum parts. Now for the CEO to take the HR professionals within their business seriously the HR Leadership should focus more on deliverables than on doable and activities.

The key deliverables are organisation capabilities and intangibles that define the organisation’s identity and personality, and by that deliver high performance to all stakeholders. HR Professionals need to align HR practices to more effectively execute business strategy.

Therefore HR professionals who demonstrate the right competencies and play the right roles will be more effective than those who do not. Therefore the knowledge and skills and ability that HR professionals need to demonstrate to impact company performance are very different to what it was five years ago.

Therefore, HR heads will have to develop fast if they are to transform the HR function. HR professionals should be both generalists and specialists. That is HR professionals are employee champions charged with making sure the employer and employee relationship is one of reciprocal value, secondly they are responsible for building the future work force as human capital developers, thirdly they are functional experts, designing and delivering HR Practices to create organizational capability. Lastly as strategic partner they help the CEOs to achieve business goals.

Also in addition to all this they must be credible leaders. When an HR Professional masters’ these roles they can deliver value to the business and there by get recognised to sit at board level.