HR Leaders: Are you Managing a Business or Managing a Budget?

The fourth calendar quarter of the year is busy time for Human Resources.  The iterative budget process is coming to a close and the final effort to lobby for funds, justify expenditures and rationalize programs is at full throttle.  For those HR leaders who manage a budget, this is the essential occupation; this is their craft and their trade.  As important as securing funds for HR programs may appear to be to these HR “administrators,” the real work of HR has changed.  HR programs in themselves don’t add value to the enterprise.   It’s not what you will do (i.e. run a training program), it is WHY and HOW these programs deliver value to the business.  HR needs to be a business partner and, perhaps more importantly, HR leaders need to operate their department like a business as well. 

HR needs to transform its thinking from a “cost center” mentality (where success is measured by how big or small the budget is) to a business mentality (where success is measured by effectively allocating scarce resources to achieve critical strategic intent).   Three key hallmarks of successful businesses, to which HR should aspire, are:

1) Identify your competitive advantage. (Read more in Michael Graham’s book Effective Executive Compensation, especially Chapter 4: Business Strategy.) 

2)  Understand what your customers value. (Read more in our blog 10 Questions That Can Help YOUR ORGANIZATION Move Forward.) 

3) Remain nimble in order to exploit change.

Like all other parts of an organization, HR should evolve as the business changes and grows.  What an emerging organization requires from HR is far different from that of a mature organization.  What a growing organization requires from HR is far different from that of an organization in decline or in turnaround. An organization’s business strategy and life cycle should dictate the roles and responsibilities of Human Resources.

For organizations facing significant restructuring, it is more important than ever for HR to be business focused and carefully aligned with new and unique business models.  The competitive environment is increasingly fierce, and HR business men and business women must effectively allocate and deploy core HR resources to help position the organization to be more competitive.

We have assisted HR departments to evolve from a “budget” to a “business” paradigm by helping to optimize the design of the HR unit.   We begin this process with an HR Audit.   As we shared in our blog It Was Twenty Years Ago Today the goal of an HR Audit is to create an HR structure that helps an organization invest its most scarce resource (i.e., money) in those things that help to achieve its business goals.  An HR audit starts with a testing approach that helps management determine what priorities it has for Human Resources.  The process uncovers what is it that HR must do (these would be the threshold requirements such as getting people paid and protecting the organization from HR related risk) and what strategic and valuable support functions HR can perform (these would be the functions that support the organization in achieving its business goals and strategic plan).

Change is the new normal (and always has been), and HR needs to be both nimble and adaptive in order to address the changing needs of its customers (management and employees).  Time after time, our HR Audits show that the critical needs of employees and management are poorly addressed by HR.  Even more telling is that those things seen as important to HR are not important to its customers.  HR must be ever vigilant to the shifting needs of its customers to ensure that the investments are aligned with customer expectations.  

More and more, human capital is the driver of business success in the US.  HR departments need to deliver intrinsic value across the enterprise in talent management, leadership effectiveness, and employee engagement.  To do this HR must transform itself from the green eye shades days of “budget management” to the new demands of “business enterprise.”    A great way to start is with an HR Audit.