In times of crisis, how can HR proof its strategic worth?
A few weeks ago I had a chat with a business friend. She mentioned that the biggest challenge for her and many HR people alike is to proof its strategic value, and especially to proof this to top management.
This topic of strategic HR comes back, all the time. And the good thing about a crisis is that it allows HR to proof its strategic worth.
If we think about how crises show organisation´s real culture, the strategic question relevant for the moment is: If you are in a crisis now, you did not prepare well enough for the uncertain future that caused this crisis. This crisis will only be one of the many that keeps hitting us in the foreseeable future. So how you, as HR, ensure you can become more business strategy relevant is by ensuring you are able to future proof the organisation by optimizing communication between people.
Data is one part of communication. Understanding and leveraging data is necessary in strategic management level discussions. Yet it can be difficult if you’re not used to these discussions. So here are some easy examples:
1. Assuming business has optimized the machinery parts and processes, the only further optimization you can create is communication smoothness. According to research described in among others the Harvard Business Review, it typically takes diverse teams up to 17 weeks to be really understanding each other. Smart HR and competent cultural advisories can reduce this time to 9 weeks. Assuming that at an executive level people cost an organisation about 1000 euros per day, a team of 10 people will cost you 10000 euros per day. Saving 8 weeks (40 days) of ineffective communications can therefore safe the organisation 400.000 euros. The costs for a high level training (labour time included) are about 22000 euros for one day – Your return on investment therefore is substantial.
2. Retention: Assuming you have an organisation with 100 people and an employee turnover of 6%, you loose 6 people. At the level shop floor management (middle management) the typical costs in terms of lost production, and finding a new person are up to 3 times the annual salary. The average Finnish managerial salary is 50.000 euros per year * 6 people = 300.000 euros. Working on your culture can reduce your turnover with a factor of 30%.
Furthermore, especially if your organisation is knowledge intensive, the multiplication factor increases even more. Not to even mention the damage lost knowledge can do when it ends up in the hands of competitors.
3. As written in an earlier piece on diversity, the more diverse the make up of your team is (especially in terms of nationality) the more likely the team is to see and expect things monocultural teams might have missed. This adds value. If you had looked ahead, people would have been given virtual communication training prior to today´s crisis. This might have saved up to one month of ineffective communication. Well managed diverse teams can provide up to 14% more ROE (Return on Equity) and up to 35% more EBITDA (operational profit).
Long story short – when organisations have optimized their business processes, it comes down to HR to optimize the people to people interactions (which typically take up between 30-70% of the fixed operational costs).
The most effective way to do this is to ensure an organisational culture where information flows easily, and the goals are clear. This starts at the top. Is your management team operating as a team, or as a collection of gifted individuals?
Just ask your executive team members to individually explain you one thing: What does your organisation sell?
Most management teams, when asked this question independently will give you very different answers, and this is where the organisational information flow starts breaking up in disconnected parts and HR work becomes increasingly difficult. In my experience, simply asking an executive team to describe the above question (what does the organisation sell), and four more questions that I can brief you about in private, is enough to help them understand that perhaps a synchronization exercise is needed. And that action can lead to HR becoming more strategically relevant. Because how else can you optimize people to people interaction if you do not start with ensuring the executive team speaks the same language in terms of chasing the same goal?
Egbert Schram is a Dutchman, residing in Finland. He acts as the Group CEO of Hofstede Insights, a global cultural advisory, advising individuals, organisations and governments on the impact of culture on work life. Currently having operations in 60+ countries, and a global practice of about 150 people (of which 93% outside of Finland).