Linkage, Inc. - HR Leaders Gazette

How HR Adds Value
By: Dave Ulrich and Wayne Brockbank

As the pressure to do more with less increases and as the human or organization factors become ever more important, human resources (HR) must be transformed. The transformation of HR matters to CEOs who want to turn strategy into sustained results. The transformation of HR matters to employees who realize that their competence or ability to do their job and their commitment or ability to focus their attention derives in part from how the HR practices affect them. While these two internal groups (line managers and employees) recognize that HR must be transformed, the realization now goes outside the firm as well. Customers who desire to maintain long term and increasingly complex relationships with a supplier recognize that a supplier's HR practices help assure them a steady flow of products and services they desire. And, investors who realize that intangibles determine a large source of a company's wealth, increasingly look to HR as a source of a firm's market value. For each of these stakeholders --- line managers, employees, customers, and investors - the transformation of HR revolves around a simple idea: value. All HR investments in a firm (practices, departments, and professionals) must deliver value. As the administrative and transaction work of HR is being automated and/or outsourced, the remaining work must create value.

To create value, we propose an architecture for the HR Value Proposition (see Figure 1). Using the logic in this figure, we have may specify 14 criteria for HR transformation. In doing HR transformation, the ideal logic is to move through these five elements sequentially, following the solid lines in the figure, but sometimes it is useful to follow the dotted lines instead. For example, you might start your transformation of HR with a competency assessment of your staff (box 5 of Figure 1), but to ensure that this competency assessment leads to an integrated transformation, it must be connected to the other elements of the overall blueprint. Or, you might start by investing in e-HR (box 4 of Figure 1), then move to the other four boxes to complete the transformation.

Each of the five basic elements defines criteria for what makes an effective HR function. In presentations and team meetings to initiate your HR transformation, these criteria should be discussed as a way to envision the future. (Note that this logic can be applied to other staff groups by changing "HR" to IT, Marketing, Finance, Legal, and so forth. Each of the five elements could be used to create a template for transformation any staff function.)

External Business Realities
HR actions inside a firm must reflect and influence business realities outside that firm. HR professionals should be able to cogently discuss these external realities-the technology, regulatory and economic factors, and demographics of the global business environment-and connect them to their day-to-day work. Knowing business realities makes it possible to put HR practices in context, tie them to competitive challenges, and relate them to concerns facing line managers. These contextual factors offer the rationale for why a transformation should occur. Everyone in your HR function should be conversant with both the realities of the external world and how HR actions will help your firm compete in this changing context.

Criterion 1: An effective HR function has HR professionals who recognize external business realities and adapt HR practices and allocate HR resources accordingly.

Stakeholders
Value is defined by the receivers of HR work-the investors, customers, line managers, and employees-more than by the givers. HR is successful if and when its stakeholders perceive value from it. Delivering what matters most to stakeholders focuses on the deliverables (outcomes of HR) rather than on the doables (activities of HR). The deliverables of HR involve investor intangibles, customer share, organization capabilities, or individual abilities.

Criterion 2: An effective HR function creates market value for investors by increasing intangibles.
Criterion 3: An effective HR function increases customer share by connecting with target customers.
Criterion 4: An effective HR function helps line managers deliver strategy by building organization capabilities.
Criterion 5: An effective HR function clarifies and establishes an employee value proposition and enhances individual abilities.

HR Practices
HR practices institutionalize beliefs and values and make them real to all stakeholders. For example, the way you hire, train, or pay people or the way you organize work sends messages to employees about what matters most. By creating practices around people, performance management, information, and work flows, you shape an organization's identity and personality. These HR practices deliver value to internal and external stakeholders when they are appropriately aligned with your organization goals. They also ensure that the organization outlives any individual leader. They become cultural pillars for your organization.

Criterion 6: An effective HR function manages people processes and practices in ways that add value.
Criterion 7: An effective HR function manages performance management processes and practices in ways that add value.
Criterion 8: An effective HR function manages information processes and practices in ways that add value.
Criterion 9: An effective HR function manages work flow design and processes in ways that add value.

HR Resources
Your HR function needs a strategy and structure that will deliver value. The strategy will help you focus attention on key factors and respond appropriately to business realities; the structure will organize HR resources in ways that govern how HR work is done. The strategy and structure of your HR department will ensure that HR resources are deployed where they add the most value.

Criterion 10: An effective HR function aligns its organization to the strategy of the business.
Criterion 11: An effective HR function has a clear strategic planning process for aligning HR investments with business goals.

HR Professionalism
Each HR professional in your organization must learn to play a role and master competencies to deliver value. Roles represent what people do; competencies define how they do it. HR functions are only as good as the people who inhabit them, so having clear roles and distinct competencies ensures that they will deliver they value they intend.

Criterion 12: An effective HR function has HR professionals who play clear and appropriate roles.
Criterion 13: An effective HR function builds HR professionals who demonstrate HR competencies.
Criterion 14: An effective HR function invests in training and development of HR professionals.

With these criteria in place, leaders and HR professionals may now turn the desire for transformation into action. They can do so by assessing their HR departments on the 14 criteria and by then investing in ways to assure that HR professionals add value. When such a process is followed, leaders can rest assured that HR professionals, practices, and departments will be designed and delivered in such as way as to create value, for employees, line managers, customers, and investors.

The picture of HR we present here may seem unfamiliar to many organizations, but it is, we believe, what is needed to meet the demands of the current and foreseeable business environment. It has implications across the board, for general managers, HR executives, and professionals working in HR, and for the profession of HR itself.

Implications for General Managers
General managers set expectations for HR departments, practices, and professionals. When general managers demand value from HR investments, they set high standards. These standards communicate aspirations and shape how HR professionals act. General managers should continually follow up on standards to ensure that HR measures up. This follow-up engages general managers in HR issues and holds HR professionals accountable for them. When general managers are aware of the value that HR produces for them and for their organization, they encourage and advocate HR actions.

To have value-driven HR in your organization, your general manager should recognize HR's impact on investor, customer, business, and employee results. This awareness should show up in talks and presentations both inside and outside the company. It means that HR issues should be part of every manager's performance scorecard. It means that general managers need to accept ownership for HR's efforts by personally referring to them as "my" work not "HR" work. It means that organization capabilities and individual abilities are not just rhetoric but action.

For HR to have maximal effectiveness, general managers must base their reputation and identity on their ability to deliver value through people. In private conversations with other business leaders, general managers need to discuss and hold them accountable for their HR actions. The general manager is a cheerleader for people and organizations, and also a coach who helps design the HR processes and a player who helps implement them. As a result, the company's leadership brand will include people and organization issues.

Implications for Senior HR Executives
Senior HR executives have many conversations that lead to action. With the HR value proposition as a foundation, these conversations focus on results relevant to each stakeholder.

With investors, conversations focus on how intangibles become a determining factor in the creation of sustained market value. Actions focus on intangibles audits and how these audits can provide specific insights on how to improve shareholder value.
With customers, conversations focus on customer needs and how HR practices can be aligned with customer expectations, with a view to increasing customer share. Besides adjusting practices, action may involve ways to engage customers in designing and delivering HR practices.
With line managers, conversations center on delivering business strategies through prioritizing and creating organization capabilities. Actions follow as the concept of capabilities translates into investments of budget, time, and energy.
With employees, conversations provide insight into an employee value proposition that assures that if and when employees deliver value, they will get value. Actions may then be specified to ensure that employees have both the ability and the attitude to do what is expected of them.
With HR professionals, conversations capture both the roles and competencies they require to deliver value. This helps HR professionals realize their roles and demonstrate their competencies.

Each of these conversations is then sustained by creating HR strategies, organizations, and practices that endure. HR strategy that offers a clear line of sight from business realities to HR practices is designed by HR and owned by line managers to complement an existing business strategy, and it is supported by an HR organization that delivers HR transactions with efficiency and HR transformation with effectiveness. Investments in people, performance management, information, and work flow processes deliver sustained value as guided by the strategy. With strategies, organizations, and practices in place, conversations turn into commitments and rhetoric into results.

Senior HR executives also need to develop more powerful HR agendas as laid out in the HR value proposition and then develop HR professionals able to deliver on the agendas. Individual HR professionals should avail themselves of job assignments and career moves as well as high-impact training experiences that cover the full range of the HR value proposition.

Implications for HR Professionals
Most HR professionals want to do good work. When roles are clear, HR professionals can describe what they do in ways that set expectations of themselves and others. When competencies are defined and demonstrated, HR professionals can ensure that they know how to deliver value.

To be competent in your role, you need a mental model of the value you create, and you should constantly be assessing yourself against that model both formally and informally. Simply engage in daily and weekly personal reflections about what worked and what did not. Connect choices and consequences, then take corrective action and make yourself responsible for improvement. With this kind of learning and accountability, you become an HR professional who is respected not only for what you know and do but for the value you deliver.

Careers for HR professionals who fully grasp and deliver value may vary widely. They may concentrate in one domain (people, performance management, information, or organization flow practices) or in one organization structure (a center of expertise or a line of business). Or, more likely, they will move across domain and organizational boundaries. Increasingly, we envision top HR professionals moving into and out of formal HR assignments. We would not define the success or "arrival" of HR by the number of HR professionals who move into senior line management jobs (that actually belittles the importance of HR), but nonetheless HR professionals who fully deliver value will be able to work outside HR as well. Some companies-Unilever, Procter & Gamble, Baxter Healthcare-already regularly move HR professionals into and out of line management roles.

Implications for the HR Profession
Given the technological, economic and regulatory, and demographic realities of our global world, HR insights have been pushed to the forefront of business success. Leading thinkers, admired firms, and respected executives converge on issues central to HR. Good to great companies, leaders who execute, firms with reputations as best places to work, and leaders in management's hall of fame all exist because of the people and organization practices that are put in place.

Now more than ever, business success comes from HR. And the DNA for HR success is the value proposition. With this value proposition, the HR profession has a point of view about what can be and should be for all stakeholders, a set of standards about how HR investments in strategy, structure, and practices should be made, and a template for ensuring that each HR professional contributes. The HR value proposition is the blueprint for the future of HR.


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1) Everybody Wins: The Story and Lessons Behind RE/MAX, by Phil Harkins and Keith Hollihan (December 2004, John Wiley & Sons)

2) The HR Value Proposition by Dave Ulrich, Wayne Brockbank (June 2005, Harvard Business School Press)

3) The Workforce Scorecard: Managing Human Capital to Execute Strategy by Mark A. Huselid, Brian E. Becker, Richard W. Beatty (March 2005, Harvard Business School Press)

4) Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim, Renée Mauborgne (February 2005, Harvard Business School Press)

5) Human Resources Business Process Outsourcing : Transforming How HR Gets Its Work Done (Jossey Bass Business and Management Series) by Edward E. Lawler, Dave Ulrich, Jac Fitz-enz, James Madden, Regina Maruca (July 2004, Jossey-Bass)

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