The Market-Valued Model: A New Paradigm for HR

Learn a new model for valuing your work, one that moves away from all that jargon about “HR as a profit center” and presents HR as a supplier of necessary expertise that helps the core business to be successful.
By Kevin Herring
W hat is the value of a human resource department? What led Bank of America, BP Amoco, and others to transfer all HR activities to an outside vendor? What is the future of HR and what role should it play in business? These are questions on the minds of human resource professionals and executives alike, and the answers are not to be found in traditional models of human resource staffs. In fact, the very survival of human resources hinges on the ability to shift to a new model.

The traditional view
The role of HR has been described as personnel administrator, corporate conscience, trainer, legal guardian, corporate communicator, employee ombudsman, and labor placater. Recently, the designation strategic partner has come into vogue to imply greater alignment of HR activities with business requirements, although HR activities still center mostly on the traditional roles of hiring, firing, and administering rewards.

Consequently, most methods of quantifying the value of HR are directed at these transactional activities. For example, common approaches to measuring HR value include activity tracking, costing, benchmarking, surveying client satisfaction, and measuring HR as a "profit center."

A new approach
Although the various methods for valuing HR departments are useful, they fail to account for the business of the business. In other words, the company's purpose is to successfully produce, deliver, and/or sell a particular product or service, not to engage in efficient HR practices. Human resource departments exist to support the organization in achieving its objectives and can do so by finding ways to create improved business results.

This is the new model of HR value. It identifies the HR department as potentially a market-valued resource to the organization. In the market-valued role, HR professionals recognize that their value is based on marketplace perception, which is, in most cases, based on the experience of those in the core business.

Human resource departments must embrace the concept of being subject to market pressures.

They must be prepared to demonstrate high market value. To do so, they need to actively seek opportunities to help the core business resolve problems, improve results, and reach objectives.

An HR focus on the core business acts as a kind of low center of gravity, keeping HR close to the real issues of the day-to-day business and creating greater quantifiable results. For example, instead of seeking methods to administer and track performance management activities efficiently, a market-valued HR professional might help core workers obtain customer feedback in order to respond more effectively to customer needs.

Or, rather than creating another leadership development program, market-valued HR staff will work on creating knowledgeable employees who act to eliminate production bottlenecks.

In other words, in place of activities with weak relationships to the bottom line, HR can serve the core business by using its expertise to directly address business needs.

To become a market-valued resource, HR professionals must do three things:

First, they must strategically partner with internal business people, aligning themselves with operations and its purposes. Knowing the business is a precursor to becoming a partner, and becoming a partner is vital to having an impact on the business.

Partnership in the true sense of the word implies ownership and risk. A business arrangement with no risk to one party and considerable risk to the other is not a partnership at all. Partners share in the decisions and the risk. This means that human resource personnel must be willing to put themselves at risk, just as their clients do in the marketplace. For example, HR can pay, out of its own budget, the cost of a consultant if objectives are not met.

Second, as described above, HR needs to focus on business problems rather than HR activities. Demonstrating the value of HR by rolling out elaborate training programs or hiring policies may do little to address the business needs of the production group.

The business problems faced daily in production are things like machine availability, customer response time, retooling time, marketplace demands, production bottlenecks, quality issues, production costs, shareholder value, and production efficiency. In a market-valued approach, the business gains value when these issues are addressed.

Third, HR must assess its impact on the business in terms of measurable results rather than in activity efficiencies and costs. It is useful to show the dollar savings in advertising as a result of innovative recruitment methods, but the true value of HR is measured in bottom-line business results, such as a 20 percent decrease in retooling time, a new and innovative response to the marketplace, a 15 percent improvement in quality, or a 25percent increase in company stock price. These are the outcomes that demonstrate the value of HR.

Becoming a market-valued HR practitioner
Human resources, training, and other support departments can gain market value in a company by adhering to some simple guidelines for working with "clients" from the core business.

Determine the key issues. Find out what the needs of the business are. One way is through HR metrics that may point to high turnover, low retention for first-year employees, or morale issues in a particular department. Further analysis should reveal root causes that HR can address.

A second, more powerful approach is to directly find out from operations or the core business which issues concern them most, without regard to whether or not the issues fit into the realm of HR. This is where HR can truly have an impact. Core-business employees constantly wrestle with issues that frustrate them in their efforts to reach production or financial targets. Since revenue is generated at this level, anything that addresses improvement to the product or service, cost, or response to the customer is an opportunity to add value.

Determine the impact on the business. To understand the difficult issues facing a department or work group, try to see how the problem, unresolved, affects the business. Is it creating quality problems? Are people working inefficiently? Are decisions avoided, and if so, with what result? Are products being rejected or reworked? In other words, what price is the organization paying for these problems? This becomes the basis for HR's work, and the way HR shows its value.

Develop collaborative solutions. Once HR has defined the problem, and can see its business impact, it can then turn to its own storehouses of knowledge, skills, and abilities to determine how it might be able to help. This is in contrast to its traditional role, in which HR personnel, who unilaterally identify the problem, define the solution, and mandate actions for the target group without regard to whether or not they are addressing the needs of the business.

Using HR skills to develop solutions with the client, while resisting the temptation to mandate, will increase the client's ownership of and commitment to a solution. That increases the likelihood of success.

Establish measurable outcomes. If Step 2 is done well, the outcomes to measure should become apparent. If the business problem necessitates the reworking of products, then measuring that rework (before and after the changes are instituted) is the way to see if the intervention is having an effect. Likewise, if people are working inefficiently, then a measure of efficiency is in order.

Demonstrating hard-number results in these areas allows HR to set itself apart from those following benchmarking or profit-center models, and it establishes solid value for HR in the minds of those in the core business.

Assess effectiveness. This is not a one-time, post-implementation step, but rather an ongoing process of meeting with the core-business "client" to discuss progress, problems, and needs. It is where the adjusting, fine-tuning, and regrouping occurs. It ensures that the focus remains on identified business outcomes and the results that can be achieved.

The new market-valued model presents HR as a supplier of necessary expertise that helps the core business to be successful. As such HR continuously provides answers to real business problems to maintain a reason to exist inside the organization. HR and other staff support departments that are committed to having an impact on the core business can establish themselves as market-valued departments that are indispensable to the success of any organization.

For more information:

"The Future of Staff Groups: Daring to Distribute Power and Capacity," by Joel P. Henning. Berrett-Koehler Publishers, Inc., 1997.

"Delivering Results: A New Mandate for Human Resource Professionals," edited by Dave Ulrich. Harvard Business School Press, 1998.

"Results-Based Leadership," by Dave Ulrich, Jack Zenger, and Norm Smallwood, Harvard Business School Press, 1999.
Kevin Herring is President of Ascent Management Consulting. He consults to HR and other staff groups on how to become market-valued contributors. Kevin can be reached at 520/742-7300 or by e-mail at kevinh@ascentmgt.com.
Next Article: 1. Studies in Market-Valued HR
With the help of HR, one company produced at a lower cost, and another was able to meet sales expectations.