NEXT GENERATION HR
"Tell us about your business."
That's how we like to start when we sit down to work with senior HR professionals. We find that it is a good litmus test for assessing the current state of HR in a company.
Most replies start with discussing the latest challenges or innovations in HR practices (hiring people, training leaders, building incentive compensation, doing HR analytics, and so forth), relating to business leaders (having a voice at the table, getting buy-in), or managing the increased personal demands of the HR job (allocating time, staying upbeat in the face of overwhelming demands). That is, HR professionals almost invariably define business as "HR business" and are inclined to talk about their current initiatives in leadership training, recruiting, engagement, or rewards—the areas where they focus their attention on the job.
These efforts are important, but they are not the business. They are in support of the business.
The real business is external: the context and setting in which the business operates, the expectations of key stakeholders (customers, investors, communities, partners, employees, and so forth), and the strategies that give a company a unique competitive advantage. If HR professionals are truly to contribute to business performance, then their mindset must center on the goals of the business. They must take that outside reality and bring it into everything they do, practicing their craft with an eye to the business as a whole and not just their own department.
Focusing on the business of the business enables HR professionals to add meaningful and sustainable value. When they start and ground their work with the business, HR professionals think and behave from the outside in. Working from the outside in shifts the emphasis in a number of subtle but important ways:
Placement and promotion from the outside in: Customer expectations set the standards for bringing new hires into the organization and for promoting people into higher ranks. The new maxim is: Rather than be the employer of choice, we want to be the employer of choice of employees our customers want to work with.
Training from the outside in: When experts teach, delegates learn; when line managers teach, delegates act; when external stakeholders teach, delegates act on the right things. So customers, suppliers, investors, and regulators are invited to help design the content of training to make sure that what is taught meets external expectations. They also participate in training sessions as delegates who are co-learning with organization employees, and they present materials either as a live case study or as visiting faculty.
Rewards from the outside in: Customers help determine which employees are rewarded for their efforts. For example, an airline we often travel with allocates a portion of its bonus pool to its most frequent fliers, inviting them to distribute bonus coupons worth varying degrees of value to deserving employees. By essentially allowing customers to control 2 percent of the airline's bonus pool, company leaders remind employees that the outside matters.
Performance management from the outside in: Rather than setting standards by HR doctrine, the department gives key customers the opportunity to assess its performance review standards and tell the company if those standards are consistent with their expectations. When external stakeholders participate in assessing performance review standards, leadership 360-degree reviews may be shifted to 720-degree reviews that include customers and other external stakeholders.
Leadership from the outside in: HR helps the company focus on developing a leadership brand, where external customer expectations translate to internal leadership behaviors. We found that a large portion of the top companies for leadership involved customers in defining competencies for their leaders.
Communication from the outside in: HR makes sure that messages presented to employees are also shared with customers and investors, and vice versa.
Culture from the outside in: We like to define culture as the identity of the organization in the mind of key customers, made real to every employee every day. This is a far cry from the inside-out approach that focuses on how a company thinks and acts, as embedded in norms, values, expectations, and behaviors.
Our message of HR from the outside in is simple to say but not easy to do. Outside-in HR is based on the premise that the business of HR is the business. This logic goes beyond the current state of the HR profession, where the focus is on connecting strategy to HR.
We have been active participants in helping HR professionals turn strategy into results. We now believe that rather than a mirror in which HR practices are reflected, business strategy should be regarded as a window through which HR professionals observe, interpret, and translate external conditions and stakeholder expectations into internal actions.
So in this book, as in our conversations, we reply to, "Tell us about the business" with a quick synopsis of business conditions followed by implications for HR.
The Business of Business
The bar has been raised for HR; HR must create and deliver value in real business terms.
If people are asked to name a business, most could quickly name a famous company (such as Google) or a local establishment (such as a restaurant). But naming and understanding a business are different things. The appreciation of how a business operates requires a three-tiered approach. First, understand the context in which the business functions, including general societal pressures that encourage or discourage it (such as the increased interest in and access to knowledge enabled by rapid technology change that drives Google's phenomenal growth). Second, understand the specific stakeholders who shape and sustain the business, including customers, investors, regulators, competitors, partners, and employees. Third, understand the business strategy to uniquely position the business to serve stakeholders, respond to general conditions, and build a unique competitive advantage.
Everyone experiences the changing context or general drivers of business, sometimes without being consciously aware of those changes. The abstract concept of globally connected economies becomes fiercely concrete when Greece, for example, has an economic crisis, and the distress reverberates around the world, increasing the cost of fuel in London, Sydney, and New York. The "Arab Spring of 2011," where citizens began redefining political institutions, indicates a concern with the status quo and a reform mentality. The 30 million people online at Skype at any given moment, the 900 million monthly users of Facebook, or the 3 billion searches a day on Google show that technology now enables ubiquitous information and global relationships.
Omnipresent information outside a company changes behavior inside a company. After a disappointing experience at a well-respected restaurant, for instance, we wrote a negative review and posted it on one of the many blog sites. Within hours, the owner and manager of the restaurant contacted us to apologize and invite us to revisit the restaurant so we could update our public review.
When informed HR professionals tell us about their business, they often have a relatively long list of general trends that affect them. Unfortunately, such lists may be skewed by personal experience, overemphasizing(Continues…)