Strategic Value | What has HR Done to Add Value?

Driving strategic value means helping the organisation perform in the short and long term. Alison Grace (National Express) summed up as follows: 'HR adds value when it delivers stuff that makes a positive difference to the business, which means addressing those areas that need to be addressed in each business and not by adopting a "this is good for you/everyone is doing it" approach. It is about being relevant, about identifying a change agenda and then helping the business deliver this agenda'. This means being clear about what really matters to the organisation. This was echoed by Martin Moore (Royal Mail) who also emphasised that strategic value was delivered when HR was at the heart of change. For Ian Muir (ESAB), delivering strategic value means building an engaged workforce so that a performance edge is created through people. Roger Cooper focused on HR's strategic role in working issues proactively, in creating healthy organisations and in identifying and managing risk.

An excellent example of strategic value-add can be seen in National Express Group when Alison Grace was their Group Leadership Development Director and which is presented in the case study below.

Case Study — National Express

When Alison Grace became Group Leadership Development Director, National Express Group had no previous experience of HR contributing at a group level. The business was devolved and operated as largely stand alone business units. As an organisation of 30,000 people operating in the UK, North America and Spain, there was a strategic need to develop future leaders. In rolling out a framework called DNA — Driving National Express Achievement — it could be argued that the HR team put in place the kinds of people processes you would expect to see in any large organisation: a leadership capability framework; a talent management process; new reward arrangements; common leadership development programmes, etc. However, DNA was more than this. As Alison Grace explains: 'DNA was a vehicle for the business to ask and answer some critical questions it needed to ask, for example, "how far should we be integrated as a group of businesses?" and "what drives high performance in our businesses?" Although led from HR, this work created a series of powerful conversations and debates at senior levels in the business. It meant HR challenged prevailing business thinking and helped shape the strategic direction of the organisation. Through this challenge, the business took the opportunity to put greater professionalism into core people processes such as performance management, reward and talent. It also gave people the opportunity to set expectations concerning the type of leadership the business needed. This work was the precursor that enabled discussion and decisions to be taken about a National Express Group brand and gave people an opportunity to get excited about being part of National Express Group rather than just their business unit'.

So in this example, the development of a leadership strategy provided a catalyst in helping the business engage in a conversation about the kind of organisation it needed to become to deliver high performance.

Process Value | What has HR Done to Add Value?

We often view HR processes solely through the lenses of efficiency and effectiveness. Efficiency and effectiveness measures are important, but value adding processes deliver more than this. As Maggie Hurt (Renolds) puts it: 'I am keen to get across to my team that the value that comes through good HR is not through ticking the box in a work process. It is about ensuring the output is right. We need to engage the brain — develop "thinking HR" at all levels of the function'. So processes need to deliver specific outcomes and these outcomes must drive engagement, commitment and performance.

Take the selection process as an example. How well this process works could be measured in terms of recruitment cycle time, quality of candidates, costs of recruitment, number of recruits, etc. — all standard activity, efficiency or effectiveness measures. The outcomes of recruitment though are, arguably to:

• find the best fit person (role and organisation) and for that person to have the potential to grow and develop further;
• ensure that that the unsuccessful candidates leave with a positive impression of their experience.

To secure the best candidate will be the result of many interactions that person has with the organisation or its agents — from the first point of contact through to the period before joining. One of our senior practitioners who has recently moved roles talked of a selection process that did not go smoothly and contrasted a poor impression given by the headhunter at the initial meeting (which nearly resulted in the person leaving the interview) to extremely favourable impressions of the organisation itself: even when the process did not run smoothly senior managers behaved in a way that not only recovered the situation but turned it into a positive experience. For this person, these are excellent examples of value adding moments during a process.

A different type of process value in selection is seen in the way KPMG UK recruits graduates. Graduates value straightforward, quick and transparent selection processes. In response, KPMG was the first large employer to go 100% online (back in 2000) and the first to have online reasoning tests. The KPMG process is one of the quickest in the marketplace with most decisions being taken within 1 month from initial application. Graduates are told in advance what they will be assessed against and KPMG gives feedback to candidates at each stage of the process regardless of outcome. When offers are made candidates are sent a link on the same day that takes them to their electronic offer. They can accept online and access all the relevant documentation online.

Rackspace, a global managed hosting business, demonstrates process value in their approach to on-boarding. This is presented in the case study below.

Case Study — Rackspace

Rackspace has enjoyed considerable growth in recent years and differentiates itself from others in the market through a strong corporate culture. 'Fanatical Support' is its value proposition and therefore the successful on-boarding of new talent, so that they are not only productive quickly but assimilate into the Rackspace culture, is a critical success factor for the business.

The philosophy that underpins the Rackspace approach to Rackers (or 'employees' in more conventional language) is that if you get the Racker experience right, Rackers will get the customer experience right.

You probably get the drift already that Rackspace is no ordinary company. Fanatical Support is not just a front end proposition, it applies to all functions. So on-boarding is no conventional experience either. There are four parts to on-boarding:

• Rapid Induction Programme (RIP)
• Rookie Orientation (Rookie 'O')
• Team On-boarding
• Pathfinder

RIP is your day 1 experience. Led by Steve Pegler, a trainer in Rackspace University, the day involves the usual paperwork and briefings on health and safety. But it is informal, it is personal (people are walked around the whole office and they get to meet fellow Rackers), it is non-hierarchical (if the MD or other Directors are sat at their open-plan desk they are introduced to new Rackers), they are shown the many photo walls with pictures of fun days, charity events, parties and the hall of fame — fanatic of the month and they get to feel the culture.

Rookie O is a 4-day orientation run monthly. But this is no 'chalk and talk' orientation. There is no job-specific training. It is all about the culture. So, Rackers are given some of the Rackspace values to think about and during the 4 days they have to gather real life examples from around the organisation of these values being lived. So new Rackers need to get out and about and talk to people. They also get to understand the business. They visit a data centre and literally get under the floorboards to understand what the business is all about. Perhaps the most compelling part of Rookie O is that during the week every function gets to present to new Rackers. This could be very dry and lead to death by PowerPoint. Not at Rackspace. It is highly competitive and new Rackers get to rate each presentation against a set of customer engagement measures (NPS) on how much they have learnt and how engaging the presentation was. At the end of Rookie O week (Friday afternoon) all Rackers are invited to celebrate the arrival of new starters and awards are given — including which function presented best! Needless to say, this approach has resulted in some very creative presentations being developed around game shows and the like.

Team on-boarding has two distinct characteristics. First, a framework is given to managers for them to decide how best to on-board their new Racker. So, managers will be expected to set expectations/standards; discuss training needs; brief communication protocols, etc. but how they do this is up to them. This is to ensure consistency. Second, as with most Rackspace on-boarding, managers are encouraged to be creative. So, for example, instead of simply giving people a list of business contacts/resources, new Rackers are given direction and they then need to go and actually meet people/find resources for themselves.

Finally, Pathfinder focuses on job-specific training. What is interesting about this training is that it is assumed that new Rackers will know the technology. The focus is therefore on how this technology is used/how things are done at Rackspace.

Rackspace has been recognised in the Sunday Times Best Companies to Work and the Financial Times Great Place to Work and has won the most welcoming company award.

We present this case study as an excellent example of process value and how a people process is fully aligned to the business goals and value proposition.

An exercise we completed with the HR leadership team of a FTSE 20 company was to review people processes and consider whether each was having a positive, neutral or negative impact on employee engagement. This was an illuminating experience and revealed that most were either neutral or negative. As a result, we were then able to identify what could be done to shift the employee experience for each key people process.

Value Adding HR

Moving from the world of academic research to the experience of HR professionals, we have identified an interesting dilemma that needs to be faced: if we accept that 'value add' is essentially what stakeholders consider to be of value to them (PULL) — how do we also influence stakeholders so that their needs change (PUSH)? Put more simply — if managers consider value adding HR to be excellent HR administration, slick HR processes and timely and helpful case management support, how do we also help managers to understand that HR professionals can add value not only through delivering the basics, but also through delivering business projects more successfully, managing change, or shaping the strategic agenda? Returning to the Economist Intelligence Unit/Deloitte report quoted earlier — how do we influence senior executives so that they see HR and people issues as one in the same?

In conversation with Frances Allcock (BBC), we were able to articulate this dilemma as shown in Figure 3.2. This figure captures well the challenges faced by HR professionals — how do we shift the conversations we hold with our business colleagues so that we not only hold the conversations we need to hold with colleagues but also engage in those areas they don't expect us to? As an illustration, Allcock has observed that one of things managers value from HR is excellent and slick reorganisation — the implementation piece. If HR does this well they get to the table. Yet HR is often unable to get to talk about the really challenging aspects of change because managers either do not have the time or they do not see it as an area where HR can contribute (sometimes with justification).

 

Figure 1: Shifting conversations.

Answering the question 'what do we actually talk to managers about?' will vary from organisation to organisation — you may want to reflect upon Figure 1 to review your own conversations with business colleagues. What is important is that we create value not just by meeting stakeholder needs, but in shaping their thinking and influencing their decisions. As Alison Grace (National Express Group) put it: 'it is about working in ways that make a positive difference to our businesses and that means bringing fresh thinking to the table, challenging assumptions and getting the business to grapple with tough issues from multiple perspectives'.

If changing the conversations we have with colleagues is one of the challenges we need to confront another is measurement. Many HR departments are involved in measuring their company's operational performance against key performance indicators (KPIs). Fewer have a role in measuring and providing hard evidence of the efficiency and value they are adding to delivery of their organisations' strategic objectives.

As Martin Moore (Royal Mail) put it: 'The problem with many HR measures is that we measure what is measurable not what we need to measure'. Sticking to traditional measures of HR effectiveness also induces a way of thinking and working leading to a heavy reliance on the latest fads and fashions of espoused 'best' practice and over-preoccupation with benchmarking.

One commentator, Gary Hamel, has suggested that this is the Achilles heel for HR. He has noted that 'unlike the Finance function, HR does not have an explicit and accepted theory about how it adds value to the business'.

The reason for this is addressed in the research led by Lepak et al. cited above: non-financial benefits of the sort offered by effective HR functions are very rarely based on a set configuration of cause-effect but rather, value is derived through a combination of connecting processes, information, strategy and service delivery aligned to the specific needs of each business. Whereas finance is largely based on a universal model of added value, HR is based on a situation-specific model of added value. In other words, we need to take excellence in people management practices and align these with the specific needs of our organisation.

But where to start?

In our conversations with senior practitioners there is a strong appetite for HR to develop ways of measuring the impact of core business issues. To frame this discussion, we have been able to identify four ways in which HR drives value (see Figure 2):

• Transactional value — running HR administration in ways that capture and provide accurate, timely and insightful information and advice. Measures of transactional value include: costs/value for money, data and information quality, reporting capability and flexibility, delivery against service levels, etc. A test of transactional value will be whether managers get high quality information and advice when they need it and whether this information tells them anything new.
• Process value — putting in place people processes that are efficient (speed, cost, quality), fit for purpose — relevant to the circumstances of your organisation, meaningful and engaging for users and aligned to organisational goals, etc. A test of process value is the experience people have of the process, for example, with regard to selection — does the selection process build commitment and engagement from the first point of contact through to decision?
• Strategic value — participating in shaping strategy so that people and organisational issues are surfaced from the outset and supporting the effective execution of strategy. Tests of value in this context include challenging thinking, aligning people and business strategies, executing strategy in a way that makes change stick, delivering projects and securing stakeholder commitment to change. It also means adding value through shaping organisational design and being confident in manipulating data so that the organisation is able to gain insights concerning the workforce profile and cost structure.
• Reputational value — doing things that help to deliver the strategy and which build a positive internal and external image of the organisation. Examples of this are ethical and sustainable practice, good governance and leadership, effective risk management, being seen as a good employer, etc. A test of reputational value may be that those people you need to attract really want to work for your organisation.
  
  

 

Figure 2: Value drivers.

Clearly, all value drivers are 'strategic' but the sense we have used strategic above is to focus particularly on the delivery of the business change agenda. Each of these ways of value creation also requires a multiple stakeholder approach and a deep understanding of external and business realities. This emphasis on relevance to stakeholders and to your organisation aligns with Lepak et al.'s research in the 'Value creation — what it means and how it is created' section and with the contingency approach to organisational development.

Context | What Is HR's Value Proposition?

Terms such as 'value adding' and 'value creating' are much used in organisations and have become by-words that articulate what HR transformation is seeking to achieve. 'We want to move from transactional to "value adding" HR' is a typical, and justifiable, aspiration for HR transformation. It suggests that even though HR professionals are currently delivering worthwhile work in organisations there is still something missing: a contribution to key business challenges that is not being made currently; contributions that will make colleagues sit up, pay attention and find valuable.

Ask a line manager or business leader what they value from HR and you are likely to get a divergence of opinion. Paying people on time is valued; accurate employee informationis valued; support to managers who are handling difficult disciplinary, sickness or grievance cases is valued; slick people processes are valued; efficient restructuring is valued. We should not delude ourselves that these activities are somehow worthless. They are not. HR adds value through these activities.

But there is still something missing. What about the people issues we are not engaged in, but could be? What about working the data so that we bring real insights to business colleagues?

This kind of 'value add' is what an Economist Intelligence Unit/Deloitte report in 2007 (Aligned at the Top) called 'the big challenge' and their research drew an interesting distinction: 'When senior business executives talk about HR, they focus on administrative activities such as rewards and benefits, performance evaluation and HR operating efficiency. When those same executives talk about people issues (our emphasis), they focus on talent management, workforce productivity and leadership development and, in many cases the HR function isn't even mentioned'.

A KPMG report — HR: Architect or Artisan? (2008) reported the following insight from the CEO of a major high street retailer: 'When the marketing director comes to the executive board meetings he presents data on our consumers, and we are given enormous insight about their buying habits, their aspirations, their concerns and their hopes. We have clear demographic data, and we can predict with real accuracy how patterns will evolve. But when HR presents information about our employees it is less precise, less concise, less insightful and less predictive'.

These CEO insights cannot be dismissed and they set out challenges of relevance and data insight the function must respond to.

We propose to unpick what is meant by value creation referring to recent research and then examine HR practitioner perspectives. We will outline how some HRfunctions are responding to this desire to extend the range of value adding contributions and finally highlight a number of challenges that remain if HR is to create value through people.

What Is HR's Value Proposition?

Terms such as 'value adding' and 'value creating' are much used in organisations and have become by-words that articulate what HR transformation is seeking to achieve. 'We want to move from transactional to "value adding" HR' is a typical, and justifiable, aspiration for HR transformation. It suggests that even though HR professionals are currently delivering worthwhile work in organisations there is still something missing: a contribution to key business challenges that is not being made currently; contributions that will make colleagues sit up, pay attention and find valuable.

Ask a line manager or business leader what they value from HR and you are likely to get a divergence of opinion. Paying people on time is valued; accurate employee information is valued; support to managers who are handling difficult disciplinary, sickness or grievance cases is valued; slick people processes are valued; efficient restructuring is valued. We should not delude ourselves that these activities are somehow worthless. They are not. HR adds value through these activities.

But there is still something missing. What about the people issues we are not engaged in, but could be? What about working the data so that we bring real insights to business colleagues?

This kind of 'value add' is what an Economist Intelligence Unit/Deloitte report in 2007 (Aligned at the Top) called 'the big challenge' and their research drew an interesting distinction:'When senior business executives talk about HR, they focus on administrative activities such as rewards and benefits, performance evaluation and HR operating efficiency. When those same executives talk about people issues (our emphasis), they focus on talent management, workforce productivity and leadership development and, in many cases the HR function isn't even mentioned'.

A KPMG report — HR: Architect or Artisan? (2008) reported the following insight from the CEO of a major high street retailer: 'When the marketing director comes to the executive board meetings he presents data on our consumers, and we are given enormous insight about their buying habits, their aspirations, their concerns and their hopes. We have clear demographic data, and we can predict with real accuracy how patterns will evolve. But when HR presents information about our employees it is less precise, less concise, less insightful and less predictive'.

These CEO insights cannot be dismissed and they set out challenges of relevance and data insight the function must respond to.

We propose to unpick what is meant by value creation referring to recent research and then examine HR practitioner perspectives. We will outline how some HR functions are responding to this desire to extend the range of value adding contributions and finally highlight a number of challenges that remain if HR is to create value through people.