How HR practices impact profitability
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
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
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.
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
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.
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
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.
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
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
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.