HR needs a mind for business

The concept of ‘commercial HR’ requires professionals to re-think their role and knowledge base.

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  • There are many definitions of the term ‘commercial HR’.
  • Commercially-minded HR professionals derive their HR strategies from their organisation’s business agenda.
  • Non-HR experience can help HR professionals to develop a commercial edge to their abilities.

The phrase ‘commercial HR’ is bandied about the industry as freely as Labour MPs’ heckles within the House of Commons whenever the coalition government talks about economic recovery.

But what does it mean and what does it take for HR to develop a commercial outlook? Debbie Pask, director and founder at recruitment firm Pask Partnership, says: “It is about trying to justify strategy and demonstrating a return on investment. It’s got be a mindset; you can’t just wish it. It’s the people who have introduced metrics into the workplace and outcomes into the HR language. A commercially-minded HR professional is numerate, able to understand a business case and translate a company business plan into the achievable from a people perspective.”

Nick Holley, director of the Centre for HR Excellence at Henley Business School, believes a commercial HR professional ultimately has the ability to derive their HR strategy from an understanding of their organisation’s commercial goals. But he adds: “With any organisation, it is more than just understanding the financial and commercial issues; it is understanding the broader stakeholder environment and what value looks like in the business. In a lot of private sector organisations that means shareholder value.”

In its research report, Business savvy: giving HR the edge, published in March 2012, the Chartered Institute of Personnel and Development (CIPD) outlined what it deems the four foundations of a business-savvy HR professional: understanding the business model in depth; generating insight and impact through evidence and data; connecting and collaborating with curiosity, purpose and impact; and leading with integrity, consideration and challenge.

Vanessa Robinson, head of HR practice development at the CIPD, says: “We define business savvy as being more than financially literate, but having a broad appreciation of how the business works and what it does. It requires HR to have a deep understanding of the core value drivers and a deep appreciation of what makes the business successful or not.”

Neil Morrison, HR director at publishing firm Random House, agrees that his role is about more than numbers, which can become a preoccupation for some HR professionals. “The term ‘commercial HR’ is understood by many as a silver bullet to HR and with this comes a worrying preoccupation with financial literacy and, particularly, business metrics,” he says. “I think people think it means they’ve got to be talking about numbers all the time. We absolutely need to be conversant with the financial models of an organisation, but it doesn’t mean we need to do the job of a finance director; that’s their job. The value that we can bring to an organisation is by bringing a different insight, rather than trying to replicate someone else’s insight.”

Metrics more important

Clare Kelliher, professor of work and organisation at Cranfield School of Management, Cranfield University, says: “Metrics are becoming more important and will continue to become more important, but it is also important to recognise the limitations of metrics, what you can measure and what you can actually interpret from those measures.” So how can HR professionals acquire a more commercial outlook? Henley Business School’s Holley says: “I don’t think it’s something you can be taught, but it’s something you can learn.

There’s a subtle difference there. The danger is [the assumption] that if I go on a one-week course and learn about earnings per share and price-earnings ratios and shareholder value, then I’ll get it. It’s so much more than that. It’s something HR and benefits professionals have really got to immerse themselves in to get a deeper understanding and challenge the way they think about their job.”

Holley says common attributes of commercial HR professionals are curiosity and a passion to understand what is going on in the business. “It’s then about the ability to translate that back into what HR needs to do. What I’ve heard said about good HR directors by chief executives is that when they look at them, what they see is an equal member of the board who sees their role as a member of that leadership team, creating value for the business. They bring an HR perspective to it, but they see their primary role as being a board member, not an HR director.”

Commerciality does not depend on an HR professional having a board role, as long as HR and people issues form part of the board agenda. But a board position can be dependent on commerciality. For example, Random House’s Morrison attributes his promotion to the board in 2010, two years after joining the organisation, to his commercial focus. He says non-HR experience is a big help in developing a commercial edge and, consequently, in being able to make a valuable contribution to a business (see box below).

Consultancy experience

Catherine Ward, former group director, people and communications at BMI Healthcare, agrees, attributing her business acumen to her consultancy experience, which she gained as an executive consultant at KPMG. “Selling became a core part of the role,” she says. “You had to develop business, so that meant being with a client selling on the next piece of work, and pitching for business with new clients. You were very conscious all the time that you had to earn your way. That kind of pressure, which is on other parts of the business, is not always on HR. In consultancy, you learn to pay your way. That has informed my approach to HR. I am conscious we are a cost on the business and therefore we have to be delivering value into the business.”

The CIPD’s 2012 HR outlook report, published last month, reveals that nine out of 10 HR leaders have worked outside the HR function.

But Ward says a well-balanced team is equally important in helping HR professionals develop a commercial outlook. Her 47-strong HR team includes operational roles, specialist roles, be they in learning and development, communications or HR policy, and staff who focus on cost implications and value contribution to the business. Ward says: “It helps having a blend of experience in the team.”

Cranfield’s Kelliher says: “I think it is important to understand the contributions that people can make by having expertise in the HR field. Historically, there may have been an element of HR people coming to more general roles to manage human resources, but not extending beyond that. So I think they can’t be all things to all people, but there is a strong case for their knowledge extending beyond factors that influence human resources.”

Neil Morrison

Viewpoint

Right language is the key to success

Neil Morrison, HR director at Random House, believes an appropriate use of language is central to the concept of commercial HR.

For example, if he is talking to his company’s publishers about recruiting different skillsets into the organisation, he will explain it in the context of digital publishing. “That is something our publishers understand,” he says. “If I was talking about competency based frameworks and diversification of skill base, they would probably look at me wide-eyed and tell me to go away. Being truly commercial is about being able to get an agenda that is best for the organisation because people understand the value in the context for them, rather than it being about having a separate HR agenda that nobody really understands and gets fearful of.”

Using plain English is also important, says Morrison. “The concept of HR-speak drives me nuts because most people don’t understand it because they’re human. If we talk about human capital, it means nothing to the vast majority of people. When I’m talking to publishers, I need to talk to them in a language they understand, not in some sort of weird lingo that only happens in my department.”

An understanding of the limitations of business metrics is also key, says Morrison. “I remember one of the key turning points in my thinking on this was at Home Retail Group [where he was HR manager]. I did a big project on employee engagement and we were looking at business-linkage models and whether we could demonstrate that engagement would increase business results. I can remember working with statisticians doing all sorts of analysis and going to see the managing director at the time, sitting down and saying ‘we can show this and we can show that’. She pushed the papers to one side and said, ‘it’s kind of intuitive, isn’t it?’, and me thinking, ‘that just told me, and you’re right; we can cut to the chase, be more agile and get things done.’

“What it told me is there are certain things where being commercial isn’t just getting caught up in analysis and statistics and trying to demonstrate that. If I’d gone and said ‘it seems to me that people who are better engaged are more likely to serve the customer better and therefore give a better experience, what do you think?’, I’m sure everyone would have agreed and we would have probably got a reaction more quickly and delivered more, and that would be me being more commercial than thinking I’ve got to justify myself and my existence.”

Morrison has since avoided making similar mistakes by learning to be more confident in presenting his business cases. “Most HR data, in my experience, can be argued either way pretty easily,” he adds. “You can produce gazillion pieces of data that don’t actually give you insight.”

Michael D Haberman

Viewpoint

Michael D Haberman, consultant, adviser and writer, Omega HR Solutions

The HR function has evolved a lot since the days of the personnel department, and it is this shift that I believe has resulted in an identity crisis for HR professionals, both internally and externally.

The external crisis is a long-held view by management and employees that HR is a necessary evil to be avoided at all costs. Fortunately, this situation is improving as the HR role evolves, but it will not be fully resolved until the internal identity crisis is solved. Quite simply, we HR professionals don’t know what to call ourselves.

As a profession, we call ourselves HR, but critics say people should not be viewed as resources. We don’t hire people now, we ‘acquire talent’ and recruiters are now ‘talent-acquisition specialists’. And we no longer manage employee relations, but employee engagement.

Meanwhile, we are being encouraged to be more commercial, but we are not commercial directors. And although we are not finance directors, we still need to have a firm grasp of our organisations’ numbers. One thing that is clear is that HR professionals increasingly require a complex skillset and must be competent in knowing how their business operates well beyond its marketing brochure. As if this wasn’t enough, the HR professional must also ensure that all the organisation’s interactions with its employees are legally compliant. Lawyers can advise on the law, but HR has to apply it.

So the HR professional must walk the fine line of being a company manager and a people champion. As difficult as this makes it sound, the good news is that people are coming into HR jobs today much more capable and prepared for their roles than many of us were in the past. People now actually want to be an HR professional rather than falling into the profession, so it is up to us to ensure they receive the right training and development to become the commercial professionals required in the current economic climate.

Catherine Ward

CASE STUDY: CATHERINE WARD

Consultant’s nous helps to bridge the gap

Catherine Ward, former group director, people and communications at BMI Healthcare, is adept at taking a commercial approach thanks to the consultancy-based roles she took when starting her career. Ward was an executive consultant at KPMG and subsequently ran her own consultancy business, as well as taking on a range of HR-based roles, before joining BMI Healthcare in 2006.

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This stood her in good stead for dealing with the complexities of recent pay freezes. She says: “Three years ago, and this year, we had a pay freeze, which required sitting as part of the senior team. We were looking at the budgeting process and costing out different options around a pay review and actually saying that the consequence of giving a pay review was potentially that we could not afford to do some business initiatives or, worse, that we needed to create some job cuts.”

Ward says the ability to present her business cases in commercial terms is crucial. “It is also about being able to see the implications for what has been discussed in business terms in HR terms without dropping into too much operational detail. It’s about being able to keep at that level and then go off and deliver those things that establish your credibility with the senior team, and being able to contribute to the discussion more widely than just defaulting to some operational piece of HR.”

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