It's been ten years since Keith Hammonds took a flaw-filled snapshot of HR in 2005 when he wrote "Why We Hate HR" and--maybe intentionally, maybe not--dared HR to increase their business strategy. And sadly, recent data shows HR isn't any more involved in business strategy now than they were then. However, 2015's strengthening economy has given HR a prime opportunity to become more strategic.
The "Personnel" Pendulum
Peter Cappelli's theory of the personnel pendulum suggests that when the economy is great, HR strategy is needed in order to find and keep great employees, and this causes people to appreciate and invest in HR. But when the economy crashes, employees feel lucky to even have jobs and turnover isn't a huge concern--which makes HR a low priority.
In 2015, we've started to see the pendulum swing in HR's favor. Well, kind of--I'm not sure HR is fully appreciated yet. But companies are at least starting to realize the incredible need for strategic HR. Consider some of the things Harvard Business Review has said about HR this year. They've suggested we blow up, love (and hate), and rethink HR. They've also talked about how we're the favorite corporate punching bag. Good or bad, HR is definitely 2015's department of the year. But why?
I'd like to thank the economy...
In August the U.S. hit a new record for number of full-time jobs. There were 122 million--which passed up the previous record set in November 2007, just prior to the recession. And with a record level of full-time jobs available, many companies now realize the importance of strategic recruiting and retaining.
CareerBuilder's CEO Matt Ferguson shared data at the Society for Human Resource Management's national conference this year showing a wage growth of around 5 percent in 2015 and predicted the same growth in years to come. That data suggests a need to have a strategic plan to keep pay in-step with market growth (or come up with some strategy to keep employees once they realize they can make at least 5 percent more elsewhere). And who should come up with and execute that plan? HR.
The economy is heating up and a lot of companies realize they need a strong, strategic HR department to weather the hot labor market. And HR needs to strike while the iron is hot.
Changing the perspective (and reality)
The improving economy calls attention to the fact that HR needs to be empowered to be more strategic, and research shows less than 15 percent of HR's time is currently spent as a strategic business partner. Instead of arguing with criticisers, HR should take this time to advocate for support to enable their strategic influence in the organization--take advantage of the current situation and finally change the snapshot Hammonds painted of HR 10 years ago. Then the issue shifts to finding ways to actually be strategic.
Dave Ulrich, business professor and co-founder of The RBL Group said, "You're only effective if you add value. That means you're not measured by what you do but by what you deliver." Bottomline, HR has to start focusing on deliverable, strategic outcomes.
HR's Strategic Outcomes
The entire list of strategic outcomes for HR could go on forever, but these are a few that pack a huge punch:
Employee satisfaction: The obvious reason to increase employee satisfaction (especially in a hot job market) is to increase retention. After all, unsatisfied employees are 11 times more likely to leave their companies in the next year. But that's not the only reason. Happy employees are 50 percent more productive and create 33 percent higher profitability for their companies. HR can strategically influence this outcome by keeping their finger on the pulse of the organization. Regular feedback and check-ins with managers lets HR know if a rockstar is at risk of leaving or if high-potential employees are missing the mark because they're not happy. With that sort of insight, HR can help the company do what it takes to keep employees satisfied and contributing more effectively.
Employee engagement: Engaged employees go the extra mile to make sure things are done right. And this creates value. Companies with engaged employees outperform those without by 202 percent, which explains why another study found that engaged organizations grow profits by as much as three-times faster than competitors. Engagement is really about getting employees to care just as much about their work as the founders did when they started the company, but only 41 percent of employees know what their company stands for and what differentiates it from competitors. HR is in the best position to figure out how to ignite that passion and commitment. One great way HR can start on this is by creating or more effectively communicating company mission and values.
Employee retention: This is the outcome your company is likely most concerned about as the economy improves. Facts about how much it costs to replace employees (90-200 percent of his or her salary) and how much money is lost annually due to employee turnover ($11 billion) make it pretty clear why this strategic outcome makes financial sense. Understanding why employees are turning over isn't enough. HR has to be empowered to create and execute plans to keep employees around. So when HR proves salaries need to increase by 5 percent to stay competitive, companies need to trust them. If HR finds employees are leaving because the workload is too intense, they need support in creating a plan to make workloads more manageable.
Like Ulrich said, in order to be viewed as strategic partners, HR needs to deliver value. HR needs to start figuring out which outcomes deliver the most value in their organization and creating strategic plans to reach them, and they need support from executives in order to make that happen.
Making HR 2016's Comeback Kid
2015's improving economy set the stage for HR to increase their perceived and real value. They've been the punching bags and source of critique for long enough, and it's time for them to take Hammond's dare and change how they're perceived in organizations by advocating for their roles. HR can be strategic. Companies need them to be.
2016 will be the year HR can take full advantage of the stage that's been set. If they do, they'll provide immense value for their organization--look no further than the stats above about how the HR outcomes impact bottom line. If they don't, brace yourselves for the pinch of a hot job market taking a toll on recruiting and retention efforts.