How much does HR’s work contribute to overall business results? This is a challenging question given all the variables that impact business performance. So challenging that most of the time, business and HR leaders look to qualitative explanations. Occasionally, however, we have the chance to accurately measure the correlation between HR’s actions and business results.
The last round of the HR Competency Study, led by RBL and the University of Michigan conducted earlier this year provides one such opportunity. Findings from this research demonstrate that of all the variables (business strategy, economic conditions, direct competitors, products, customer preferences, etc.) that influence a given organization’s results, HR work can explain over 25% of the total variation in business results among more than 1,000 organizations included in the study from around the globe.
We believe this is an important number, as it implies that wherever HR is not a full partner in accelerating results by advancing human capabilities, organizations and their leaders are giving up one quarter of their potential performance. They are essentially running a competitive race on a three-legged horse. This not very promising scenario is the best you can expect without effective HR organizations.
Furthermore, the study tells us that although everybody is entitled to an opinion about HR work, there are three concrete pathways for HR to enhance results:
It doesn´t seem wise for any organizational leader to ignore HR when it doesn’t perform at its full potential. To help your organization get better results, focus on how well HR defines and builds key business capabilities, embodies the characteristics of high-performing HR functions, and develops the right individual competencies in HR professionals.
HR partners must come together with the rest of the organization to align and deliver on the few and critical capabilities that provide competitive advantage. When we work as consultants with many organizations, we always ask their leadership team members to tell us what their organization needs to be effective in the marketplace. A correlation we always find is that with higher alignment around what needs to be done the organization performs better. In order to know and develop capabilities that make the difference in becoming more agile at every level, you need to continuously adapt your organization and align your culture, leadership, and talent accordingly. Without the right HR leadership and processes it’s very difficult to achieve effective agility. Furthermore, HR’s ability to align behavior and purpose with performance at the individual, team, and organizational level, becomes essential when we need a faster, empowered and diverse organization that connects to all customers effectively.
Business capabilities, together with the HR Department (or how the function organizes to deliver and reinforce these capabilities) account for almost all of HR’s contribution to business results. HR’s role in helping the business define and build business capabilities is essential.
The second path through which HR impacts business results is the HR organization’s effectiveness, especially how HR’s practices and policies build human capability, or help employees to elevate their results and to improve their experience and engagement. This also has to do with how much HR’s practices reinforce and build those critical business capabilities to create and sustain competitive advantage. For example, if we want an innovative organization, we can’t continue to punish every mistake. If we want to move more quickly in taking ideas into prototypes, HR needs to drive organizational changes that reduce complex bureaucracy. HR’s practices need to foster strategy.
HR organizations also add value when they have the right data and analytic capabilities to provide useful information that leads to better and more agile decisions. Trust and reliability in the HR organization are as important as trust and reliability in finance, and yet we are surprised to see how many organizations make money decisions based on data but fail to look for relevant data to make HR decisions.
This second path also contributes significantly to the 25% impact on business results. To get better results, business and HR leaders need to focus on how HR functions can reinforce and build business capabilities through agile, data-based strategic support.
The third and final path is the direct contribution of HR professionals to business results. It accounts for the smallest amount of HR’s contribution to business results, which might be expected since HR professionals normally don’t interact much with creating products and services, or with delivering to customers. This figure shows us that HR needs to work as a team effectively within the HR organization and with the rest of the organization to understand deeply how all processes impact business results.
The results from Round 8 of the HRCS underline the importance of the competencies required to position HR work in the context of the business and shape actions that build business performance. It identifies the HR professional’s ability to accelerate business through advancing human capabilities, as the main competencies for today’s effective HR professionals. This starts with the ability to simplify today’s complexity, as HR professionals need to understand what’s going on in their business, with their people and with society, in order to find the mindset and cultural leverages that debottleneck required changes. Then HR needs to know how to mobilize the information and foster collaboration at every level to connect the dots in simple ways that enable everyone to articulate and implement strategy effectively.
What happens with HR “traditional” competencies? They are required tools to do good HR work. However, when you need agile organizations that are evolving their strategy and the way they do things continuously, HR needs to step up so that all organizational processes become an integral part of this evolution. The faster your HR organization and your HR professionals develop today’s required capabilities, the bigger the cumulative effect in business results and stakeholder’s confidence and value. Or, to say it the other way around, those who lag in taking advantage of HR’s full potential and capabilities, could very quickly be left behind by customers, investors and even their own employees.
HR’s full business impact is needed in today’s business environment and rapid pace. Up to 25% of your ability to deliver results depends on it, and HRCS Round 8 findings provide us with a simple framework for each path through which HR impacts business results.
So please, ask how well your organization’s HR delivers as a business partner and accelerator, as an effective organization, and as a team of competent business professionals. Your business’s future depends significantly on your answers.
Learn more about how to implement these findings from the HRCS round 8 research report.