by Frank DiBernardino
“The key to successful leadership today is influence, not authority,” according to Ken Blanchard, author of The One Minute Manager. Influence in the C-suite, or lack thereof, has been a long-standing challenge for leaders of support functions such as HR and IT. In all too many companies, CHROs (head of HR) have wielded less influence in business decisions than their organizations’ challenges call for. Yet that can change and the people with the most power to affect that change are the heads of HR themselves.
To achieve maximum influence in the C-suite, a CHRO must provide compelling information and insight that can advance business success. Unfortunately, all too often that is not the case.
At the SHRM Symposium on Human Capital Analytics, a participant observed, “If the human capital analytics don’t support the numbers that finance people are looking at, they’re easily discounted. Any framework has to support advancement of the business or it will be disregarded and ignored.” This reality means that CHROs must back-up their ideas with empirical, company specific financial evidence that can be quickly and easily digested by CEOs and boards. The Conference Board Research Report Evidence-Based Human Resources reinforces this point by stating, “Human Resource executives are beginning to realize that it’s important to be able to demonstrate empirically how their talent management strategies are impacting company performance.”
An Approach to Maximize Influence
Knowing that influence follows usefulness, what can the CHRO do to help advance the business strategy and financial success? Here are some thoughts:
1. Start by putting yourself in the CEO’s shoes. What is the CEO’s primary motivation? A CEO is evaluated by the continuous, measurable improvement of business results. So in any context, the CHRO’s challenge will be to show a direct link between human capital strategy, or any proposed changes in strategy, and a continuous improvement in business results. The so-called business case.
2. Assume responsibility for and authority over the human capital investment. Just as the CFO has responsibility for financial capital, HR can assume responsibility for the company’s investment in human capital (not just the HR department budget). Begin by isolating your company’s total investment in human capital, consisting of
* employee costs (salaries, benefits & payroll taxes)
* costs in support of employees
* costs in lieu of employees.
This information is readily available from a company’s financial system.
Knowing how much your company invests in human capital enables you to measure the business value driven by human capital (in contrast to financial capital), and establishes the magnitude of the investment over which you will have influence. You are likely to find, as with most companies, that your company invests a whole lot more in human capital than financial capital.
3. Measure the financial results of the human capital investment. Once you have isolated the magnitude of the human capital investment, it is imperative to use a credible set of metrics to measure its financial performance, with a clear line of sight to business results.
Traditional HR-specific metrics such as turnover rates, costs per hire and benefit costs per employee simply don’t demonstrate a correlation with business performance. But a new generation of human capital metrics do exactly that. They pull data directly from an organization’s financial system to isolate and measure the ROI, productivity, and liquidity of the human capital investment. Finally, CHROs can measure the financial impact of human capital and communicate results in the same language the CFO uses for financial capital. This is a huge step forward for CHROs
4. Manage to the numbers. By tracking key performance indicators such as human capital ROI, productivity, and liquidity, a CHRO can pinpoint the major drivers of business performance and recommend changes in human capital strategy to maximize returns on the investment. Moreover, a CHRO can drill down into segmented financial results over time (horizontally, by business unit, or vertically, by category and line item) to isolate financial causes of people performance issues and identify specific opportunities to improve business results. The new metrics also can be used to conduct “what-if” scenarios, predict the financial impact of changes in strategy, and ultimately, demonstrate measurable success.
These four steps can forever change CHRO’s influence in the C-suite and the boardroom.
John Chambers, CEO of Cisco Systems said, “I expect HR to act like an ROI department.” Following the path described above will meet the John Chambers challenge and demonstrate how your strategic use of the human capital investment drives shareholder value and provides your organization with a real competitive advantage.
Frank DiBernardino is managing principal and founder of Vienna Human Capital Advisors, LLC, and co-inventor of the Vienna Human Capital Index™, a decision support tool for CHROs to measure and maximize the performance of their human capital investments.
