Business Today Demands a Comprehensive Talent Strategy. Can HR Deliver?

BUSINESS TODAY DEMANDS A COMPREHENSIVE TALENT STRATEGY. CAN HR DELIVER?

By Emilie Petrone and Gabriella D. Kilby

Human resources departments are in a state of transition.

Even as companies increasingly outsource administrative HR tasks, these departments are being asked to identify and develop nextgeneration leaders and manage globalized talent pools. And yet it is clear that not every HR executive has embraced this larger strategic role.

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he HR function is in a state of transition caused by the increasing pressure to identify and develop next-generation leaders, the growing globalization of businesses and talent pools, and

the CEO’s requirement that HR be more strategic and relevant to the business as a whole. As HR seeks to meet these demands, others have questioned its effectiveness.

In a talent management study released in 2008 by McKinsey & Company, 58 percent of the line managers interviewed agreed with the statement that “HR lacks capabilities to develop talent strategies aligned with business objectives.” Twenty-five percent of HR professionals surveyed concurred.

Another question addressed whether HR professionals feel they are empowered or even equipped to be strategic. Fifty-one percent of HR professionals agreed with the statement, “HR is an administrative department, not a strategic business partner,” startlingly close to the 60 percent of line managers who shared that opinion.

In fairness, we acknowledge that not every organization requires or is ready for a strategic HR function. Nonetheless, there is evidence that as the world grows more complex, HR professionals increasingly will be asked to take on strategic responsibilities.

For example, CEOs feel a keen need for HR strategists. In the PricewaterhouseCoopers 12th Annual Global CEO Survey, released in 2009, 97 percent of CEOs said they believe that access to and retention of key talent is critical or important for sustaining growth over the long term. These talent issues ranked first in the list of critical drivers of long-term success, followed in order by ability to adapt to change, strength of brand and reputation, and high-quality customer service.

Clearly, the HR function has a pivotal role to play in ensuring that the top drivers of long-term business success are in place, and executives in the profession need to focus on developing the necessary expertise within their organizations because it will be needed if not now, then in the future.

The Path to HR Leadership To assess how well HR is prepared to address major business issues, it may be instructive to look at the career paths of senior HR professionals. In a recent Korn/Ferry study of Fortune 1000 chief human resources officers (CHROs), 81 percent of those holding this title had been divisional CHROs or senior HR generalists prior to their appointment. More than 50 percent of these CHROs have been promoted into their jobs. Of those who were hired from outside the company, 78 percent were either existing CHROs or senior HR generalists.

On reflection, it is not surprising that generalists are preferred over specialists. Because of the diversity of assignments and experiences, generalists tend to have a broader view of the organization and of the business. Their cross-functional understanding and relationships are likely to be stronger than those of specialists, and they more often have exposure to change management activities and global business strategy.

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Figure 1: BEST PRACTICES DRIVING STRATEGIC HR

influence

Influence effectiveness Ethical influence tactics Organizational power sources Personal power sources

access

point-of-view

rganizational alignment O “ Seat at the table” Best-in-class strategic HR capability

usiness acumen B rganizational savvy O Functional depth

The practical value of these attributes is confirmed by the HR best practices model developed by Korn/Ferry’s Leadership and Talent Consulting group. Our strategic HR model calls for three primary intersecting capabilities: influence, access and point of view (see Figure 1).

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“I just hope HR executives will pound the table to get a voice in their organizations.

I just think riding along, being a bureaucrat, playing less than a critical role in the organization shouldn’t be acceptable to anybody worth their salt.”

– Jack Welch former CEO of GE in an interview with the Society for Human Resources Management publication, HR Magazine

Strategic HR executives must be able to influence the thinking and actions of others through proven capability and relevance to the business agenda as well as ethical influence tactics (Influence).

The organization’s structure must ensure a pathway (Access) through which HR executives can communicate with decision makers. Most importantly, strategic HR professionals must possess the business acumen, strategic thinking, organizational savvy and functional depth to have a convincing opinion or voice (Point of View).

Our model shows that all three capabilities must be present for HR to realize its full potential. For example, the CHRO with access and influence but who lacks strategic skills and business acumen (point of view) will not have true business impact. Likewise, an executive who has solid opinions and influence without access will find that his or her ideas rarely reach decision makers. And, a CHRO with access and a point of view but who lacks the capability to influence will not be fully effective. So, strategic HR depends on the presence of all three capabilities.

Achieving a “best practices” strategic HR function is challenging.

Despite the tremendous growth in outsourcing of routine administrative HR tasks, CHROs retain overall responsibility for executing the transactional side of the function, whether retained internally or managed through an external partner. Doing this well is part of the “business of HR” and is necessary for a successful organization. However, the trend to outsource these tasks or to consolidate them into a shared services organization should also free the HR executive to spend more time on strategy.

The Two HR Executive Profiles To further assess the executive HR landscape, we analyzed Korn/Ferry’s proprietary database of executive profiles and found that the top 20 percent of HR executives fit into one of two profiles: operational or strategic. (The existence of two distinct profiles in our opinion reflects the evolving nature of the HR function itself as 4

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organizations re-invent their business models to meet new economic and competitive realities.)

Operational HR executives have strong social and communication skills, tend to emphasize execution and short-term goals, and view themselves as implementers of organizational initiatives, rather than members of the management team.

Figure 2: HR LEADERSHIP VERSUS OTHER C-SUITE EXECUTIVES Leadership Style:

Thinking Style:

An individual’s decision-making style when influencing and motivating others or when engaging with an audience

An individual’s decision-making style when focused on the task to be addressed rather than on his/her behavior

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0 Task Focused

Social

Intellectual Participative

Strategic HR

Action Focused

Flexible

Operational HR

Complex

Creative

C-Suite Executive

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Strategic HR executives, while also emphasizing social and interpersonal skills, use more collaborative skills, are more flexible in their operational styles, display higher tolerance for ambiguity and uncertainty, and view themselves as partners in the overall management of the organization and of addressing long-term issues.

Particularly interesting is the striking resemblance our data analysis uncovered between the leadership styles of strategic HR professionals and C-suite executives in general (see Figure 2).

This leads us to propose that senior HR professionals desiring to play a greater role within their organizations or to groom the next generation of HR leaders should focus on developing the core strategic leadership competencies necessary for the C-suite. Use of the strategic profile to guide assessment, selection and development will be of considerable help in achieving this.

Developing Strategic HR Leaders Strategic capability includes a number of competencies: business acumen; strategic agility; problem solving; perspective; and the ability to deal with ambiguity, to learn “on the fly,” to manage innovation and creativity, and to make quality decisions on complex issues that have long-term consequences.

Business acumen rates among the most important of these competencies. In our conversations with more than two dozen CHROs, CEOs and other senior corporate leaders in the United States and Canada, a clear understanding of the organization’s business and the ability to speak the language of business were unanimously endorsed.

Behaviorally, this is observed as an understanding of the environment in which the organization does business, a grasp of the company’s standing relative to its competitors, an awareness of the strategic and operational challenges facing the business, and an appreciation for the concerns of functional leaders, managers and employees.

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Drew Mackay, vice president of HR for the engineering consulting firm Stantec, places business acumen high among his criteria for promoting HR staff. “I have people who are really super as regional people,” he says. “But, I’ll never put them in a bigger role if I don’t see the thought process, the problem solving and the engagement that tells me they understand the business.”

Building on business acumen are the other competencies discussed above, which enable strategic leaders to see what must be done now to position the business for future success and how the human capital strategy will support that. They can leverage their understanding of the business and HR practices to conceive of solutions that have practical relevance in the current context and deal creatively with longer-term obstacles.

Because of the balance HR must walk between its transactional responsibilities and its strategic capabilities, HR would be wise to remind others of its business acumen by being conversant in relevant metrics. “The people around the executive table have significant accountabilities in terms of business results,” says Lilydale’s Pelletier.

“HR needs to talk about metrics, as opposed to social experiments.”

The ability to speak to ROI as other functions do will translate into the ability to influence, another essential ingredient for a successful strategic HR function. One easy question to ask when assessing strategic HR capability is whether the HR executive in question understands how to read and analyze a balance sheet.

Mastering the Art of Influence More than 20 years of research by Lore International Institute, a Korn/Ferry company and a leadership development consultancy, finds that true leaders convince followers to act by inspiring, coaching and setting an example. They do not get their way by exerting direct control over others. Power – organizational and personal – is the foundation for influence.

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In establishing their power base, strategic HR executives must guard their reputations and ensure, by the actions they take and the positions they support, that their role is not viewed solely as that of a gatekeeper or a compliance monitor. Otherwise, they will be unable to persuade line managers that they are capable of delivering anything of strategic value, including a talent management strategy.

HR leaders must collect relevant, useful information about talent strategies and disseminate, sell and implement it among executive teams.

HR executives also need to form broad networks, especially internally. Strategic HR executives must be sufficiently connected within the organization to have a deep reach and understanding of the business. This circles back to the CHRO Fortune 1000 analysis, which showed that HR generalists, who often have such broad networks, are favored for the C-suite HR role. This is reflected in the social and participative leadership style exhibited by best-in-class HR leaders. These executives must be able to build bridges across functions, understand the motives and drivers of senior-level decision making, and help translate that thinking to their key executives.

A highly flexible thinking style, which is more pronounced in the best-in-class HR leader profile, indicates that highly effective HR executives are strategists who can adapt their methods to deal with changing organizational needs and differing levels of sophistication, understanding and support across the business.

In terms of personal power, HR leaders need to be perceived as knowledgeable about talent, broadly, and business strategy.

They must be equipped to help coach and align the CEO and the executive team.

Deepening the Bench

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A strategic HR executive’s ability to attract, grow and retain the organization’s HR talent is critical to maintaining and growing the function. In practice, there appear to be different paths to deepening the HR bench.

Many of our interviewees offered suggestions for helping young HR professionals gain the necessary business insight. “I would absolutely send someone out for 18 months in a line function,” explains Dean Mackey, vice president of HR and administration for Parkland Industries Ltd., Canada’s largest independent operator of fuel and convenience stores.

John Pothin, a senior vice president of HR at Hasbro, agrees. “The development cycle in HR should include more experience outside HR and exposure to other businesses and functions.”

Assessment can help to uncover staff who possess the skills, at least in their basic forms, that a strategic HR leader needs. High-potential employees have specific capabilities. They succeed in first-time situations because they have the mental capacity, people skills, ability to cope with change and performance level to learn and deliver results quickly, all of which can be identified through assessment.

In terms of developing HR staff, what appears to be most important from our experience is placing promising candidates in complex scenarios involving multiple stakeholders. Such experiences will teach them about the business, will stretch their problem-solving and critical thinking abilities, and will hone their persuasion skills.

Developing the strategic HR leaders of tomorrow depends, of course, on attracting business-savvy high potentials to the profession. Part of the answer, in our opinion, lies in building the HR function into one that influences business results and is high profile, thus requiring HR leaders to use their entire skill set.

Conclusion HR executives who desire to create the organizational capability and talent strategies for the post-recession world need to be competent tacticians who also can think and act strategically. This means understanding the fundamental administrative side of HR and being

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able to oversee the execution of such tasks while at the same time being a well-developed business person who can frame the function within strategic goals.

CHROs and other senior leaders must thoughtfully develop HR managers who behave and think more like their colleagues with profit-and-loss responsibilities. And, they need to re-think their approach to workforce analytics, with an eye towards linking what they do to the fundamental drivers of the business, thus demonstrating their ability to help the organization achieve its long-term goals.

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Acknowledgements

Korn/Ferry would like to thank the following CEOs and HR leaders for their participation in this research: Robert Armstrong Alberta Health Services

Matthew Handford Forzani Group Ltd.

Peter Arnold EPCOR

Bob Kolida Hudson’s Bay Company

Steven Berger Viterra

Jennifer Koury Enerplus

Donna Boles Becton, Dickinson & Company

Dean Mackey Parkland Industries Ltd.

Annette Butt FortisAlberta

Drew Mackay Stantec

Benito Cachinero- SĂĄnchez ADP

Kevin McManus ConvaTec USA

Jim Donihee Pengrowth Corporation

Dale Morrison McCain Foods Limited

John Duncan Canada Post

Ed Oke Trinidad Drilling

Laura Famularo Johnson & Johnson

Jacques Pelletier Lilydale Inc.

Peter Fasolo KKR

Kevin Pennington Rogers Communications

David Fulton CCS Corporation

John Pothin Hasbro

Terry Gill ARC Resources Ltd.

Mike Williams TransAlta

Jim Grossett Agrium

Janice Wismer McCain Foods Limited

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Emilie Petrone is a Senior Client Partner in Korn/Ferry’s Human Resources Center of Expertise, based in Princeton, N.J.

Gabriella D. Kilby is a Client Partner in Korn/Ferry’s Leadership and Talent Consulting group, based in Toronto.

Korn/Ferry wishes to acknowledge the significant contributions made

by Terry Bacon, Ken Brousseau, Christine Fuchs, Dee Gaeddert and Kathy Woods in the preparation and development of this whitepaper.

About The Korn/Ferry Institute The Korn/Ferry Institute was founded to serve as a premier global voice on a range of talent management and leadership issues.

The Institute commissions and publishes groundbreaking research utilizing Korn/Ferry’s unparalleled expertise and preeminent behavioral research library. It also serves as an exclusive destination for executives to convene and hone their leadership skills. The Institute is dedicated to improving the state of global human capital for organizations of all sizes around the world.

About Korn/Ferry International Korn/Ferry International, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions celebrating 40 years in business. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, develop, retain and sustain their talent.

Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute.com for thought leadership, intellectual property and research.

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