More than ever before, the business world needs strong HR leaders.
The workforce in the developed world and China is rapidly aging. New, first-time workers are barely replacing workers who are retiring. Despite increasing automation, in the next 20 years there will be a serious shortage of skilled workforce everywhere.
Due to the lack of employment growth and longer life expectancy, over the next 10 years the ratio of workers contributing to social programs compared to those receiving benefits will have changed from 2.5:1 to 1.5:1. At the same time, the world’s economic center of gravity is moving east, while labor costs in emerging economies are increasing.
The changing workforce demographics require a more nimble and skilled approach to linking talent and business outcomes. Now more than ever, business leaders need strategic insight and the ability to model how workforce trends impact revenues and profits — quickly and accurately.
A February 2015 study — conducted by Harris Poll on behalf of Visier — surveyed 301 corporate executives at companies with revenue of $1 billion or more across America and asked about sought-after HR leadership skills. The results are clear: strong CHROs are crucial to business success.
Successful CHROs are:
- 80% of executives say their company cannot succeed without an assertive, data-driven CHRO, who takes a strong stance on talent issues and uses relevant facts to deliver an informed point of view.
- 81% of executives say that when hiring new senior HR talent they value business acumen more than technical HR skills
- 78% of executives say that their company cannot succeed without a CHRO that takes on responsibility for contributing directly to business performance.
But if you are aspiring to reach the executive level by moving up within the talent function, take note: our survey results also reveal where business leaders expect to find top CHRO talent — and it’s not in HR.
Many executives believe the best CHROs do not come from the talent function:
- 63% of all executives say the most effective CHROs come from non-HR backgrounds (in areas such as finance, operations, or legal).
C-level executives agree more with this statement than those with less senior titles:
- 79% of executives who have a C-level, president, or chairman job title say the best CHROs come from non-HR backgrounds, compared to 57% of executives with a VP title, and 42% of executives with other titles (such as director and managing director).
Why The Talent Function is Under Pressure to Perform
The fact that senior executives have high standards for the HR function is a good thing: it represents an opportunity for those who want to emerge as a trusted business capacity advisor.
When PWC asked 1,700 CEOs in its 17th annual Global CEO Survey where they are applying resources and energy to make the business successful, the data revealed that companies are focusing on talent strategy.
Informed business executives know that talent has the upper hand in today’s market (hiring, new job creation, and voluntary turnover are all at 5-year highs, according to the BLS Job Openings and Labor Turnover Survey released in February 2015). And as seen in this extreme example of a CEO who raised every employee’s minimum salary to $70,000 per year, some leaders are going above and beyond to create an environment of happy, motivated employees.
While the $70,000 approach will not work for every organization, a strategic focus on talent simply makes good business sense. As found in this Boston Consulting Group report, leadership and talent management capabilities have a strong correlation with financial performance:
“Talent magnets”—those companies that rated themselves strongest on 20 leadership and talent management capabilities—increased their revenues 2.2 times faster and their profits 1.5 times faster than “talent laggards,” or those companies that rated themselves the weakest.
According to professional services firm Towers Watson, “effective HR programs are a leading indicator of financial performance.”
So when HR works, it works. And executives know it.
What CEOs Want: Is HR There Yet?
However, the fact that executives (and CEOs in particular) expect to find top CHRO talent outside the HR function is likely due, in large part, to the perception of HR’s data savviness.
CEOs want to think of the CHRO the way they think of the CFO. They want a strategic advisor who can speak the language of the business with hard data. According to our survey, 74% of executives agree that their company’s HR organization needs to be more data-driven in workforce decision making.
When I was CEO of Business Objects — a global company that had more than 30,000 customers worldwide prior to its acquisition by SAP — I always valued the HR executives who could provide an informed point of view on talent issues, and even welcomed those opinions that diverged from my own, provided they were based on evidence.
But unlike Wall Street, HR does not have the tradition of closing the books every quarter, gaining instant access to data — revenue, profit, and earnings per share — that clearly paints a picture of business outcomes. I have seen that, unfortunately, when the numbers from HR and Finance don’t match up, most executives tend to side with Finance (whether it is warranted or not).
There is also another key reason why CEOs are seeking top talent advisors in other functions: HR is most often process-oriented — providing support for transactional processes, like hiring, performance reviews, and compensation reviews. But this is less of a focus for executives: 81% say that, when hiring new senior HR talent, they value core business knowledge more than technical HR skills, according to our survey.
The Case Against Splitting HR
HR’s reputation as a transactional — instead of a strategic — player in the business has led some experts to argue for the splitting of HR departments. As Ram Charan writes in this It’s Time to Split HR article, one administrative HR function should focus on managing compensation and benefits, and the other (made up of people who have backgrounds outside of HR) should play the more strategic role of improving the people capabilities of the business.
But I am more inclined to agree with Dave Ulrich, who argues against Charan’s “splitting HR” idea by stating that: “20% of the professionals are exceptional, adding value that helps organizations move forward, 20% of HR folks are locked into a fixed mindset and lack either competence or commitment to deliver real value, and 60% are in the middle.” In short, he says, we need to teach the 60% about what they can do to deliver value.
This is not about making the CHRO role a carbon copy of the CFO job description: a solid understanding of people dynamics is also key. Forward-thinking HR leaders are seizing this opportunity to complement their knowledge of people dynamics with analytical capabilities and business-linked, cost-driven thinking.
As Bersin by Deloitte analyst Karen O’Leonard highlights in a blog post on the changing role of the CHRO: “The need for CHROs with strong business and financial acumen is more pressing than ever. CHROs need to understand where the business is going and how the business makes money.”
This kind of transformation doesn’t happen overnight. It requires skills-building around financial issues, using data to provide insights into how talent relates to business goals, and empowering HR to become a strategic business partner.
Want To Be a Sought-After, Modern HR Leader? Make These 5 Things a Priority
Becoming a modern HR leader goes beyond presenting key performance indicators — It’s a cultural shift towards data-driven decision-making. By making the following areas a priority, you can take steps today towards making this culture a reality:
1. Exercise Your Strategic Thinking Abilities
Essentially, being strategic is about mapping your HR programs back to larger business goals. This requires you to have three key traits, such as curiosity, big picture thinking, and the emotional intelligence required for collaboration — skills you likely already have as an HR leader. To learn more about how do foster these traits, check out this blog post: 3 Surprising Signs You Have the Chops for HR Transformation.
2. Make HR a Talent and Leadership Magnet
Obviously, you want to avoid the situation of the shoemaker’s children having no shoes: attracting top quality to your HR function should be as important as attracting top talent to your overall organization. The first step is to ask: “How do people get HR jobs in my company?” If they are accidentally moving into HR, this may be holding you back. Create rigorous assessments for top HR staff and find incentives to attract strong leaders to the function.
3. Upskill Your HR Team
Josh Bersin illustrates the trend towards number-savviness well when he writes: “One CHRO told me, ‘I am no longer hiring anyone into HR who does not have at least a working set of expertise in statistics.’ ”
For you, as an HR leader, this is about your team understanding the basics of data analysis. While you don’t need to become experts in logistic regression, it can be useful to know key concepts, such as the difference between causation and correlation.
You should also consider making data literacy training a key component of development programs for you, your HR business partners, as well as line managers. This analytical approach helps HR leaders deliver an informed point of view on where to make targeted program investments related to hiring, retention, employee engagement and productivity.
4. Ask Questions to Anticipate Future Trends
Becoming a true strategic advisor is also about asking the right questions. Consider recruitment as an example. The old school approach to measuring recruitment success is to focus on time-to-fill metrics. But the recruitment process is much more complex: there is always a balance between cost, quality and location of the hire. If you are just focusing on time-to-fill, the quality of hires will drop or costs will skyrocket. Instead, focus on these questions:
- What are the bottlenecks in the hiring process?
- What recruiting sources are the best? Where are the people we need?
- What candidates succeed?
With the answers to these questions, you can make better decisions about hiring in a different location, for example, or bringing forward an informed point of view about how you can adjust your plans.
5. Have an Informed Point of View on Workforce Cost Concerns
This is one area where HR can really step into the gap and own something cost-related where Finance is weak: understanding how much the organization’s whole workforce really costs. This goes beyond compensation and benefits to looking at everything from contingent workers and taxes to tools and productivity, IT allocations and equity.
The workforce is the biggest investment an organization can make, but decoding a Total Cost of Workforce (TCOW) is often where it is weakest. Finance doesn’t have a deep enough understanding of the workforce to deliver this information. It has a much more historical and accounting-oriented point of view.
With a TCOW, you can deliver a very clear workforce plan and project where costs are going. It puts you in the position of having the facts to support the talent needs of the business when these issues are debated with Finance and the C-suite.
The Golden Age For Business-Linked Strategic Talent Advisors
In the near future, the majority of successful CEOs will make moves to have what they want: data-driven, business-oriented, performance-focused talent leaders who can deliver a strong point of view.
Strategic, business-savvy talent advisors will be sought after by all executives as experts who can drive increased revenues and an organization’s competitive advantage. Ultimately, as an HR leader, you can achieve this by becoming more cost-focused and evidence-based in your thinking.
To stake out a place as key strategists, HR must be prepared to take hold of the reins and steer into the future. Read this guide to learn about the top 10 tech trends that will impact HR and work over the next decade.