Commercial HR: How HRDs are cashing in on their expertise
Jenny Roper, September 19, 2016
I was both saddened and concerned with the 'commercial expertise' results of the Henley and CIPD reports. I was fortunate in my very early career to be taught and mentored by ...
Read More Ian Ashcroft
September 19, 2016 12:32
The function's innovators are starting to come up with ideas for HR services that can make money externally
Just imagine: your CEO comes to you and says they’re incredibly impressed with some work your HR team has been doing. In fact they’re so impressed they’ve been talking to the company’s business development team about turning it into a revenue-generating proposition. In short, they’d like your team to turn their hands to a spot of consultancy work. You can practically see the pound signs in their eyes.
For many this may be the point they wake from a fabulous but far-fetched dream. Despite sterling work in some quarters, HR still isn’t famed for its business savvy. CIPD’s 2015 HR Outlook Survey found just 16% of junior HR practitioners felt they needed to combine commercial and HR expertise to bring value to the organisation. Perhaps even more alarmingly, only 27% of senior practitioners thought this.
And Henley Business School’s 2014 What CEOs want from HR report found the biggest theme among CEOs interviewed was the commercial angle, with CEOs bemoaning HRDs’ lack of confidence when it comes to talking business.
The perception is: if HR was pitted against the other business functions in an Apprentice-style challenge it would be the one putting all the expensive ingredients into its street food dish… then flogging each portion for 30 quid.
And yet the above scenario (of HR being executed so effectively in-house that someone spots a money-making opportunity) is happening. And increasingly so, according to Mike Falvey, partner in KPMG’s people advisory team and former senior HR leader at HMRC and DHL Express.
“It’s happening more and more and has been over a number of years,” he reports. “There are two things: HR has become more collegiate and better at sharing best practice over the last few years. And the commercial acumen piece is starting to grow.”
Take the example of Rentokil, whose cutting-edge e-learning strategy and materials are now being shared with customers, for a profit. Or the major UK charity (which asked not to be named) whose HR and L&D teams are offering employee volunteering opportunities that generate income and support commercial businesses’ CSR.
Inspiring stuff. But will this really become the norm? Should KPMG’s Falvey and the many others in the people consultancy space be worried?
Know your market
The first point to consider when branching out into this space is that the marketplace is already rather crowded. “You need to think about your USP; what you would do better than another firm specialising in that outsourced solution,” says Natalie Jacquemin, partner and head of the Talent Strategy Practice at Mercer. The opportunity lies on the transactional side of things, she suggests, where there’s appetite for offloading certain areas to gain efficiencies and save admin headaches.
“There is most probably transactional HR activity that a lot of organisations struggle to make run smoothly, like payroll. That’s very important things where HR needs to fix the basics. We hear that a lot,” she says. “Obviously people already outsource those – I think that would be the bucket of activity that in theory HR teams could compete with Capita on, for example.”
But Jacquemin muses that, though the more strategic, consulting side of things may seem the tougher gig, this could be where at-the-coalface HR practitioners could add the most value. An in-house HR team selling its wares to HR in other businesses could solve the dilemma of whether to outsource or not.
“Very often HR feel they need to make a decision between either/or,” she says. “They give it to a consultant, then the consultant comes in and has no in-house reference point and so the HR team feels it isn’t really set up for them. But the in-house practitioners don’t have the cutting-edge best practice consulting view. So most consultants aspire to have that magic mix between the two – and an in-house HR team could potentially provide that.”
Falvey points out, in agreement, that some of KPMG’s most successful consultancy offerings are based on the firm’s in-house solutions. Its methodology around employee value propositions is one example. Another is its now much-cited and debated move, along with Accenture and Deloitte, to do away with performance ratings and focus on regular, frank, “in the moment” discussions.
Falvey adds though that in his experience there’s a fine line between a commercial proposition innovative enough to differentiate you from the competition, and something so progressive the market simply isn’t ready. “You’re probably going to be fairly quickly wanting to look at the themes of discussion happening in the HR marketplace,” he says. “If you’re going to be bringing leading-edge thinking to an organisation that’s not yet aware it has an issue, that’s a hard sell. It’s about understanding the market readiness for that solution.”
“Business development skills are incredibly hard to find in HR,” adds Jacquemin. “They are hard to find for us as a consultancy. Because you need people with that proactive energy to find organisations not happy with what they’ve currently got. And that is just not obvious.”
The right business fit
The caveat to this would be: perhaps HR doesn’t need such skills; it just needs to know someone who does. HR functions suspecting they have a potential gold mine on their hands will need their business to be up for providing market research resource right from the off, says Falvey. “Once you want to take something to a market, you need to very quickly involve the right people who can help you with the business case and the commercials,” he says.
“Often people go to the finance community but I think it’s just as important to go to procurement or commercial to understand pricing and what the risk factors are.”
Whether this resource will be forthcoming will come down to the business’ amenability to the idea, and whether the company has a strong culture of innovation, advises Richard Gregory, global head of U+ (learning and development) and HRIS at Rentokil Initial. “Our leadership team are very entrepreneurial, they’ll let you try things,” he says. “But I don’t think many organisations have that culture.”
HR still has to do a certain amount of selling in and pitching of the idea, he points out – something HR professionals may not be well-versed in. “If you can prove a good business case and ROI [you’ll get somewhere]… The problem a lot of the time is HR doesn’t talk the language of the business; it doesn’t talk cost and revenue.”
Rita Trehan has also experienced the challenges of turning in-house nous into a viable commercial proposition, through her transition from CHRO at both Honeywell and AES Corporation to running her own business transformation consultancy. She adds that, even where an HRD’s sales patter would put Del Boy to shame, senior leadership teams may still be resistant – because they have good reason to be.
Viability may well depend not just on market appetite but on whether it sits well with what the organisation is trying to do from a business strategy and brand positioning point of view, says Trehan. In her view the most likely candidates will be organisations already offering consultancy services, public sector organisations needing to generate funding in the face of cuts, and educational institutions.
“Universities are struggling to figure their place out because there is so much more competition,” she says, regarding the latter type of organisation. “There’s more online learning and different ways people are seeking education… By doing this they can say ‘not only do we excel in people development in terms of what we can teach and bring to the table, but our HR teams display that as well.’”
“I think it’s much harder to pitch that in other companies,” she adds. “I could see it being an opportunity potentially in tech companies because those are very people intensive. But I would struggle to see it playing out in other organisations such as manufacturing or industrial companies.”
Know your stuff
There is a notable exception to that rule: logistics, rail and automotive manufacturer Unipart Group. Along with engineering activity the firm also boasts a consultancy arm that advises a wide range of organisations – including the NHS, HMRC and National Grid – on applying the manufacturer’s lean techniques, which emphasise empowering individual employees to push for continual improvement.
The secret to success is, however, that Unipart’s consultancy arm takes a holistic approach, with the people element just one important part. This comes back to Trehan’s point about a business needing a consultancy focus already if HR is to sell expertise further afield.
Unipart is a good benchmark though of the length and breadth of HR experience and knowledge needed to offer consultancy services. Group HR director John Greatrex describes the rigour with which his team goes about building expertise around a certain area – a rigour the organisation would apply internally regardless of its consultancy arm he says, but which nonetheless demonstrates the approach required.
“When we look at a capability, we find out where the body of knowledge is, where’s the best practice, what does the theory tell us, what do other organisations do here, and what are the external benchmarks. Then you bring that back into the business,” he says.
Unipart offers a strong example of how sustained a HR team’s experience in their chosen area will need to be. “Clients quite often want to understand the mistakes you’ve been through and how you’ve learned from those,” reports Greatrex. “And in reality it takes some time for you to have made some mistakes. That’s not a quick win. I don’t know how you can show that in a short-term timescale.”
But when it comes to the actual day-to-day execution side of things, it won’t just be about whether the team is capable, but whether it has the time and resource. The consensus from most is that the biggest risk when it comes to white-labelling HR services is compromising internal delivery.
“The challenge is: is this seen as a distraction? If you’ve got your job of managing a large workforce then shouldn’t that be your focus?” says Andy Dodman, chief HR and corporate officer at The University of Sheffield, an organisation that launched, in February last year, a subsidiary offering health and wellbeing consultancy, activities and online portals to others.
So while the central HR team dictates strategy and provides all-important connection with the wider HR community, the day-to-day delivery of Everyday Juice Limited services is executed by a team of close partners. This is something KPMG’s Falvey recommends anyway given that HR might not necessarily be well-versed in consultancy-specific skills – this time those of “adapting and nuancing” a strategy to another organisation’s bespoke needs.
HR does still need to be very closely involved though, reiterates Gregory. “The way it all functions behind the scenes [at Rentokil] is all driven by HR, because at the end of the day we’re the experts in how digital learning works,” he says. “The last thing you want is people who aren’t experts in L&D running a learning function.”
Another incentive for HR to keep involved is that commercialising a HR strategy doesn’t only generate revenue and boost brand engagement with the company. It also delivers the added benefit of upskilling an HR team to make them much more commercially literate and customer-service orientated.
“We’re finding that some of the skills and expertise we’re having to build to support this are actually adding value back in-house,” explains Dodman. “We’re learning new skills about intellectual property, marketing, business development skills, accountancy skills… Those are all quite useful for HR people.
“It’s so easy to be inward facing – just talking to your own staff, your own leaders and managers,” he adds. “I think supporting a commercial entity that has to engage with all sorts of different businesses and talk to all sorts of non-HR people… that intelligence is really useful and that gets us away from being inward looking.”
Such a venture will as a result then boost HR’s credibility with the rest of the business, points out Gregory. “Before, HR at Rentokil were seen as the flower arrangers,” he says. “Now [the business] appreciates us as equals who have something to offer. It’s opened a lot of doors for us internally.”
First mover advantage
For those able to make a success of it, selling on HR services to others externally seems very much to be a win-win. But the crucial words here are ‘those able’.
There are many factors to consider – all dependent on what’s being sold, who it’s being sold to, and whether the HR team’s organisation has the resource to assist.
And the bottom line for many will be that most in HR still need to focus on getting their own houses in order, and calling on consultancy expertise themselves to do so. They will also need to get their commercial acumen to the level required by their own business and CEO first.
Yet first mover advantage is certainly a factor. For those who do genuinely have a unique proposition, the dream of HR themselves bringing in the dollar.
HR departments turn consultant: University of Sheffield