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The future of visionary HR


The bottom of the business cycle is never an easy time for corporations, but HR has a fight on its hands simply to justify its existence. Stefan Stern investigates

The boom of the late 90s was one hell of a party. Sadly, reports of the death of the business cycle were greatly exaggerated. The party is now over: todays priorities are to do something about that headache, and tidy up. But not everything need be gloomy as the economy turns sour. The bottom of the cycle is a good time to take positive action. And downturns expose the lazy thinking, management-by-fad and empty sloganising that tend to characterise the fat years.

Tougher economic times present both a danger and an opportunity for HR managers. A danger, because when cuts are being made HR is vulnerable wherever it is not proving its value to the organisation; an opportunity, because any half-decent board of directors will be open to the ideas and initiatives that only HR professionals can provide.

Whatever the next few years throw up in the way of recovery or recession, HR is going to have to fight its corner and justify its existence, as never before. There will be little patience with outlandish or maverick ideas. There will be cries of back to basics as trading conditions deteriorate. There will also be an inevitable backlash against the apparently misguided, trendy ways of working found in new economy companies the informality, the lack of hierarchy and conventional business disciplines, the table football and the scooters.

Leaner times, with both private and public sector employers demanding change and results, will mean that management is under increasing, unforgiving scrutiny. Who will have time for so-called soft skills when there is hard work to be done?

This article looks at five obvious and not so obvious areas where HR managers will need to make their marks over the next decade. These are the HR challenges that must be met. How the HR profession reacts to them will have an enormous impact on the overall success or failure of businesses and organisations. There is a lot more than just your job at stake.

Be a player

It seems that dedicated people managers are always having to re-fight the last war. HR is exposed to the vagaries of fashion and the business cycle as much as any other part of the business. In the good times, the board may be interested in learning and development, the skills agenda, the psychological contract, and other quality-of-life-at-work issues. But when belts are being tightened, HR falls prey to the whims and short-termism of chief executives and finance directors.

How much better if HR were permanently at those crucial board meetings, punching its weight in bad times as well as good. But the familiar story of exclusion isnt getting any better. According to research from the Cranfield Institute of Management, by the end of the 1990s there were 20% fewer HR directors on company boards than there were at the start of the decade.

Today only one in five FTSE-100 companies has an HR director on the board. (Human Resources own survey of the FTSE-100 as at 19 June 2001 put the figure at 18.) Bizarrely, this could be explained by the lack of priority some service companies have given to HR the manufacturing companies they have displaced had better established HR structures.

Can you force HR on to the top tables agenda? Some seasoned observers believe so. HR managers have to make telling interventions in the business if they are to win that vital credibility at the top, says Clive Morton, head of the Morton Partnership, and co-author of Leading HR. Its all about showing you can take that helicopter view of the challenges facing the organisation, he argues.

Ah yes, credibility. The HR community is entitled to feel a little insecure considering how many times managers are asked to justify their existence. The traditional argument has always run as follows: if HR proved it understood the business and became more fluent in the language of business, it would be taken more seriously. Take a harder, more finance-focused approach to the disciplines of people management and the board will stop neglecting you. They will see that HR has its part to play in the battle for profitability.

But maybe this approach is misguided. (Cranfields figures would certainly suggest that it hasnt been terribly successful). Professor Andrew Mayo, author of The Human Value of the Enterprise, published by Nicholas Brealey, takes a radically different view. The very label of human resources suggests that we are dealing with costs rather than genuine assets, Mayo says. This is the danger of taking the finance-driven route to that place on the board. Businesses know how to cost people, but they dont know how to value them. And the problem is that numbers speak louder than words for most managers. Mayo believes there should be more discussion of human capital as an asset that genuinely needs to be maximised, rather than succumbing to the finance directors analysis that people are a cost that needs to be minimised. His analysis follows on from the work done on the balanced-scorecard approach to corporate performance.

It is a challenging, perhaps even slightly unsettling thought for HR managers. Maybe they have been arguing the wrong case these past few years in the search for elusive credibility. Maybe a completely new front needs to be fought: the battle for human capital, not simply mere human resources. Win the human capital argument and you will get all the attention you could possibly want.

Corporate social responsibility

You were just about to leave for home when the phone rings late one night in the office. Its the CEO calling. Apparently some of our guys in the Asia-Pacific business have been arrested and charged with corruption, he says, more than a little edgily. I gather we have been oiling the wheels of deals like this for years. Why didnt I know about this? he asks. Why havent you done anything about it?

Welcome to the new exciting world of global business and corporate social responsibility. You mean, you didnt realise ethics had landed on your desk along with all your other duties? Perhaps you are one of those more fortunate HR managers whose CEO or company secretary takes more than a passing interest in your companys practices.

But in the era of the Seattle and Davos protests, and with the memories of Brent Spar and Ken Saro Wiwa still fresh in the mind, corporate social responsibility (CSR) has stormed straight to the top of the business agenda. There is danger for HR managers, already seen too often as the resident softies, being closely associated with the drive for good ethical practice. Arguing for ethics may sound like just another dose of whingeing from the people who never understood the business anyway.

In any case, the buck should really stop at the CEOs desk. After the Hatfield rail crash, and while there was still uncertainty as to who was responsible for the accident, Railtracks then chief executive Gerald Corbett did the right thing with his swift offer of resignation.

But seizing CSR as an issue for HR is also an opportunity to raise the profile of the people agenda. Corporate behaviour is a reflection of internal practices and attitudes. Businesses that show contempt for the environment or other external stakeholders have probably got a lot going wrong for them internally already. Good corporate behaviour is a reflection of effective internal communications, team work, leadership, and other bread-and-butter aspects that confirm the HR department has been at work and knows its stuff.

Vernon Ellis, international chairman of Accenture (formerly Andersen Consulting), is one of the worlds leading proponents of intelligent, business-friendly CSR in fact he favours the term corporate citizenship.

What does Ellis say to those who argue, as Milton Friedman famously did, that the business of business is business, or, as Martin Wolf put it in the Financial Times recently, The role of well-run companies is to make profits, not save the planet. Well, replies Ellis, I can share a secret with you. Most analysts now believe that the end of the world would have a depressing effect on company profits.

Good citizenship needs to be institutionalised within all aspects of the business, Ellis believes. HR has a vital role to play, not least in concentrating on aspects of corporate citizenship that meet employee expectations. Lord Browne at BP was famously inundated with responses when he gently inquired what sort of company his staff wanted to work for.

CSR is part of the emerging corporate agenda that HR can truly own.

Corporate governance

When Jac Nasser was turfed out of the Ford boardroom in the autumn, Fords global HR director was given half an hours notice to get to grips with the situation to agree severance terms, to decide who would say what to the press, whether Nassers departure would be immediate, how his affairs would be run in his remaining time with the company. It is never easy fulfilling the HR role for board members, especially for domineering CEOs, but this was an almost impossible task.

Which only goes to show that whatever we are supposed to think about good HR practice, in reality things can go wrong very fast in organisations, big or small, and sometimes HR may be the last to find out about it.

In the UK, we are now at the end of an almost 10-year process of corporate governance reform. Cadbury, Greenbury and Hampel have all produced their reports, and have at least raised awareness of the complexity of the issues involved. While most observers can happily agree about the priorities for good corporate governance, there has been no shortage of boardroom scandals, fat cats, and otherwise regrettable corporate behaviour. This confirms two things that will not be news to HR professionals: if the board is not communicating effectively, potential disasters may not be averted in time. And if the board is dysfunctional, corporate culture is doomed.

If they are to make an effective intervention in the interests of good corporate governance, HR managers need to understand the two main factors that have made good corporate governance an even more elusive goal: the speed of change in business life, and the enormous proliferation of information that executives have to deal with.

As Andrew Kakabadse at Cranfield has pointed out, no single chief executive could possibly assimilate and master the amount of data that is potentially coming across his or her desk every day. The media supports the myth of the all-knowing, all-powerful chief executive; in reality no business leader can know everything.

Kakabadse argues for a team-based approach to the leadership that the board offers the organisation. Effective boardroom teams are the only way forward for businesses and organisations coping with information overload and the increasing pace of change. As coaches to the board, HR managers have a role in ensuring the board is genuinely working as a team. If that vital teamwork breaks down, you can be sure that the next corporate governance disaster is not far away.

Andrew Forrest at the Industrial Society points out that the pace of change has also blown most organisations traditional succession plans out of the water which again has implications for corporate governance. It is a rare organisation GE is an example that successfully prepares the ground for a new CEO in the way Jeff Immelt took over smoothly from Jack Welch.

But Forrest echoes Kakabadses warning that competence at board level may be spread too thinly. He argues for continuing director development, where the disciplines and demands of every board members responsibilities are understood by all the other board members. Conversations at board level should not be exchanges in only dimly comprehended language. HR should step up to the challenge of ensuring timely, relevant and thorough director development.

Not all HR directors can match Bob Stack at Cadbury Schweppes (see HR magazine December 2001), who seems to be as much coach to the board as HR chief. But he is an inspiring role model.

Technological change

Is Dolly, that beautiful cloned beast, a wolf in sheeps clothing? Is our DNA really up for grabs? Just how fast will computers be able to work next year? Will employers be allowed to inspect our genetic make-up as part of a new improved psychometric screening of potential recruits?

Scientific advance and technological change are so rapid and dramatic, you could become quite dizzy from it all. When you can no longer tell the difference between a genuine science programme and the latest episode of Star Trek, you know how far we have come.

How to stay on top of this all? There is a case for the introduction of chief information officers or chief technology officers, if only to brief the rest of the organisation about relevant developments in the outside world.

But HR remains the business of people. And in the wake of the dotcom bubble, it is clear how risky the uninformed worship of technology can be. Customer relationship management (CRM) is the latest example of technology being pushed as an alternative solution to simply managing human beings better.

There is doubtless some wonderful software now available to help field and transmit customer enquiries. And with the sensitive use of technology, it may be possible to offer a more responsive customer service. But customers remain, overwhelmingly, human beings. And HR needs to stand up and remind over-enthusiastic purchasers of CRM kit that it is the crucial interaction between living, breathing people where sales decisions are ultimately made. CRM is no alternative to getting the human management right.

Wonderful new technology should be brought in only when you have got all the human bits right. And on that practical level, the challenge remains knowing how much IT to invest in, and how much (and what sort of) training to provide. An amazing statistic from the US Giga Information Group suggests that only 8% of IT spending actually delivers value.

Chris Gant, a partner at KPMG Consulting, told the Financial Times recently: Companies are becoming more rigorous. They are looking before they leap when it comes to IT investment. They have started to look at things in a more rounded way seeing how any project links to other areas in their business.

If this is true, we may be getting nearer the end of that wasteful period of splurging on IT. But the pessimistic voice says that HR managers will still be clearing up the mess of wasteful IT investment for many years to come.

Changing demographics

Age is the next great management challenge. Here are some numbers from the Employers Forum on Age (EFA) that are worth knowing about: by 2006 there will, for the first time, be more 55-64 year olds in the UK than 16-24 year olds; by 2006, 45-59 year olds will form the largest group in the labour force; there are one million fewer people in their 20s than there were 10 years ago; and at least 40% of people who retired early feel that they were forced to and would rather have continued to work.

There are lessons here to be learned from the other key demographic change of the past century. Women now make up roughly 50% of the workforce (although most full-time posts are held by men). But more than 20 years after legislation was introduced to create equality of opportunity for women (and ethnic minorities) at work, genuine equality is still some way off.

You may think that the ageing population is one of the oldest stories around. But there is more to this trend than that simple label suggests. And ageism, of course, can take many different forms.

Why the focus on the year 2006 in the EFA data quoted above? Because by that date, European legislation bringing age discrimination into line with existing laws on gender, ethnicity and disability will have taken effect throughout the EU. If employers thought they could forget about age discrimination, it is time to wake up.

Age is perhaps the key demographic to wrestle with because its effects are most dramatic and least well understood. This goes far beyond good old equal opportunities. Our workforces, and customer bases, are changing. There are fewer young people entering the jobs market, because of declining birth rates, but also because of the greatly increased numbers of young people going on to higher education. And more and more people would like to retire, or stop full-time work, earlier.

Something has got to give, and it may be the dangerous unbalancing of the age-profile of our workforces. Age is the last area where there is still so much stereotyping of people going on, say Sam Mercer, campaign director of the EFA. But smart employers are trying to maintain an age-balanced workforce because it reflects the customer base, she says. HR directors could be asking themselves more questions about what skills they require to fill certain jobs, and how their recruitment decisions affect the age-profile of their workforce.

The benefits of diversity at work have been clearly established, and it is to HRs credit that these arguments are now much better understood than they once were. Put that down as a major victory. It is an example of how HR professionals can genuinely provide thought leadership and help raise the performance of their organisations.

Further reading

  • As the Future Catches You: How Genomics and Other Forces are Changing Your Life, Work, Health and Wealth by Juan Enriquez, Crown Business (2001) 16.00

  • Corporate Governance, edited by Robert A G Monks and Nell Minnow, Blackwell Publishers (2001) 25.99

  • The Human Face of Corporate Governance by Lynn McGregor, Macmillan Press (2000) 27.50

  • Business and Society: Corporate Strategy, Public Policy and Ethics by James E Post, Anne T Lawrence, James Weber, McGraw Hill College Division (2001) 79.99

  • The Geopolitics of Governance: The Impact of Contrasting Philosophies by Andrew Kakabadse and Nada Kakabadse, St Martins Press (2001) 50.00

  • A Future Perfect by John Micklethwait and Adrian Woodridge, Random House Business Books (2001), 14.99