How HR Adds Value

Dave Ulrich and Wayne Brockbank

As the pressure to do more with less increases and as the human or organization factors
become ever more important, human resources (HR) must be transformed. The
transformation of HR matters to CEOs who want to turn strategy into sustained results.
The transformation of HR matters to employees who realize that their competence or
ability to do their job and their commitment or ability to focus their attention derives in
part from how the HR practices affect them. While these two internal groups (line
managers and employees) recognize that HR must be transformed, the realization now
goes outside the firm as well. Customers who desire to maintain long term and
increasingly complex relationships with a supplier recognize that a supplier’s HR
practices help assure them a steady flow of products and services they desire. And,
investors who realize that intangibles determine a large source of a company’s wealth,
increasingly look to HR as a source of a firm’s market value. For each of these
stakeholders --- line managers, employees, customers, and investors – the transformation
of HR revolves around a simple idea: value. All HR investments in a firm (practices,
departments, and professionals) must deliver value. As the administrative and transaction
work of HR is being automated and/or outsourced, the remaining work must create value.

To create value, we propose an architecture for the HR Value Proposition (see Figure 1).
Using the logic in this figure, we have may specify 14 criteria for HR transformation. In
doing HR transformation, the ideal logic is to move through these five elements
sequentially, following the solid lines in the figure, but sometimes it is useful to follow
the dotted lines instead. For example, you might start your transformation of HR with a
competency assessment of your staff (box 5 of Figure 1), but to ensure that this
competency assessment leads to an integrated transformation, it must be connected to the
other elements of the overall blueprint. Or, you might start by investing in e-HR (box 4 of
Figure 1), then move to the other four boxes to complete the transformation.

Each of the five basic elements defines criteria for what makes an effective HR function.
In presentations and team meetings to initiate your HR transformation, these criteria
should be discussed as a way to envision the future. (Note that this logic can be applied to
other staff groups by changing “HR” to IT, Marketing, Finance, Legal, and so forth. Each
of the five elements could be used to create a template for transformation any staff
function.)

External Business Realities

HR actions inside a firm must reflect and influence business realities outside that firm.
HR professionals should be able to cogently discuss these external realities—the
technology, regulatory and economic factors, and demographics of the global business
environment—and connect them to their day-to-day work. Knowing business realities
makes it possible to put HR practices in context, tie them to competitive challenges, and
relate them to concerns facing line managers. These contextual factors offer the rationale
for why a transformation should occur. Everyone in your HR function should be
conversant with both the realities of the external world and how HR actions will help
your firm compete in this changing context.
• Criterion 1: An effective HR function has HR professionals who recognize
external business realities and adapt HR practices and allocate HR resources
accordingly.

Stakeholders
Value is defined by the receivers of HR work—the investors, customers, line managers,
and employees—more than by the givers. HR is successful if and when its stakeholders
perceive value from it. Delivering what matters most to stakeholders focuses on the
deliverables (outcomes of HR) rather than on the doables (activities of HR). The
deliverables of HR involve investor intangibles, customer share, organization capabilities,
or individual abilities.
• Criterion 2: An effective HR function creates market value for investors by
increasing intangibles.
• Criterion 3: An effective HR function increases customer share by connecting
with target customers.
• Criterion 4: An effective HR function helps line managers deliver strategy by
building organization capabilities.
• Criterion 5: An effective HR function clarifies and establishes an employee value
proposition and enhances individual abilities.

HR Practices
HR practices institutionalize beliefs and values and make them real to all stakeholders.
For example, the way you hire, train, or pay people or the way you organize work sends
messages to employees about what matters most. By creating practices around people,
performance management, information, and work flows, you shape an organization’s
identity and personality. These HR practices deliver value to internal and external
stakeholders when they are appropriately aligned with your organization goals. They also
ensure that the organization outlives any individual leader. They become cultural pillars
for your organization.
• Criterion 6: An effective HR function manages people processes and practices in
ways that add value.
• Criterion 7: An effective HR function manages performance management
processes and practices in ways that add value.
• Criterion 8: An effective HR function manages information processes and
practices in ways that add value.
• Criterion 9: An effective HR function manages work flow design and processes in
ways that add value.

HR Resources
Your HR function needs a strategy and structure that will deliver value. The strategy will
help you focus attention on key factors and respond appropriately to business realities;
the structure will organize HR resources in ways that govern how HR work is done. The
strategy and structure of your HR department will ensure that HR resources are deployed
where they add the most value.
• Criterion 10: An effective HR function aligns its organization to the strategy of
the business.
• Criterion 11: An effective HR function has a clear strategic planning process for
aligning HR investments with business goals.

HR Professionalism
Each HR professional in your organization must learn to play a role and master
competencies to deliver value. Roles represent what people do; competencies define how
they do it. HR functions are only as good as the people who inhabit them, so having clear
roles and distinct competencies ensures that they will deliver they value they intend.
• Criterion 12: An effective HR function has HR professionals who play clear and
appropriate roles.
• Criterion 13: An effective HR function builds HR professionals who demonstrate
HR competencies.
• Criterion 14: An effective HR function invests in training and development of
HR professionals.

With these criteria in place, leaders and HR professionals may now turn the desire for
transformation into action. They can do so by assessing their HR departments on the 14
criteria and by then investing in ways to assure that HR professionals add value. When
such a process is followed, leaders can rest assured that HR professionals, practices, and
departments will be designed and delivered in such as way as to create value, for
employees, line managers, customers, and investors.

The picture of HR we present here may seem unfamiliar to many organizations,

but it is, we believe, what is needed to meet the demands of the current and foreseeable
business environment. It has implications across the board, for general managers, HR
executives, and professionals working in HR, and for the profession of HR itself.

Implications for General Managers

General managers set expectations for HR departments, practices, and professionals.
When general managers demand value from HR investments, they set high standards.
These standards communicate aspirations and shape how HR professionals act. General
managers should continually follow up on standards to ensure that HR measures up. This
follow-up engages general managers in HR issues and holds HR professionals
accountable for them. When general managers are aware of the value that HR produces
for them and for their organization, they encourage and advocate HR actions.
To have value-driven HR in your organization, your general manager should
recognize HR’s impact on investor, customer, business, and employee results. This
awareness should show up in talks and presentations both inside and outside the
company. It means that HR issues should be part of every manager’s performance
scorecard. It means that general managers need to accept ownership for HR’s efforts by
personally referring to them as “my” work not “HR” work. It means that organization
capabilities and individual abilities are not just rhetoric but action.
For HR to have maximal effectiveness, general managers must base their
reputation and identity on their ability to deliver value through people. In private
conversations with other business leaders, general managers need to discuss and hold
them accountable for their HR actions. The general manager is a cheerleader for people
and organizations, and also a coach who helps design the HR processes and a player who
helps implement them. As a result, the company’s leadership brand will include people
and organization issues.

Implications for Senior HR Executives

Senior HR executives have many conversations that lead to action. With the HR value
proposition as a foundation, these conversations focus on results relevant to each
stakeholder.
• With investors, conversations focus on how intangibles become a determining
factor in the creation of sustained market value. Actions focus on intangibles
audits and how these audits can provide specific insights on how to improve
shareholder value.
• With customers, conversations focus on customer needs and how HR practices
can be aligned with customer expectations, with a view to increasing customer
share. Besides adjusting practices, action may involve ways to engage customers
in designing and delivering HR practices.
• With line managers, conversations center on delivering business strategies
through prioritizing and creating organization capabilities. Actions follow as the
concept of capabilities translates into investments of budget, time, and energy.
• With employees, conversations provide insight into an employee value
proposition that assures that if and when employees deliver value, they will get
value. Actions may then be specified to ensure that employees have both the
ability and the attitude to do what is expected of them.
• With HR professionals, conversations capture both the roles and competencies
they require to deliver value. This helps HR professionals realize their roles and
demonstrate their competencies.
Each of these conversations is then sustained by creating HR strategies,
organizations, and practices that endure. HR strategy that offers a clear line of sight from
business realities to HR practices is designed by HR and owned by line managers to
complement an existing business strategy, and it is supported by an HR organization that
delivers HR transactions with efficiency and HR transformation with effectiveness.
Investments in people, performance management, information, and work flow processes
deliver sustained value as guided by the strategy. With strategies, organizations, and
practices in place, conversations turn into commitments and rhetoric into results.
Senior HR executives also need to develop more powerful HR agendas as laid out
in the HR value proposition and then develop HR professionals able to deliver on the
agendas. Individual HR professionals should avail themselves of job assignments and
career moves as well as high-impact training experiences that cover the full range of the
HR value proposition.
Implications for HR Professionals
Most HR professionals want to do good work. When roles are clear, HR professionals
can describe what they do in ways that set expectations of themselves and others. When
competencies are defined and demonstrated, HR professionals can ensure that they know
how to deliver value.
To be competent in your role, you need a mental model of the value you create,
and you should constantly be assessing yourself against that model both formally and
informally. Simply engage in daily and weekly personal reflections about what worked
and what did not. Connect choices and consequences, then take corrective action and
make yourself responsible for improvement. With this kind of learning and
accountability, you become an HR professional who is respected not only for what you
know and do but for the value you deliver.
Careers for HR professionals who fully grasp and deliver value may vary widely.
They may concentrate in one domain (people, performance management, information, or
organization flow practices) or in one organization structure (a center of expertise or a
line of business). Or, more likely, they will move across domain and organizational
boundaries. Increasingly, we envision top HR professionals moving into and out of
formal HR assignments. We would not define the success or “arrival” of HR by the
number of HR professionals who move into senior line management jobs (that actually
belittles the importance of HR), but nonetheless HR professionals who fully deliver value
will be able to work outside HR as well. Some companies—Unilever, Procter & Gamble,
Baxter Healthcare—already regularly move HR professionals into and out of line
management roles.

Implications for the HR Profession

Given the technological, economic and regulatory, and demographic realities of our
global world, HR insights have been pushed to the forefront of business success. Leading
thinkers, admired firms, and respected executives converge on issues central to HR. Good
to great companies, leaders who execute, firms with reputations as best places to work,
and leaders in management’s hall of fame all exist because of the people and organization
practices that are put in place.
Now more than ever, business success comes from HR. And the DNA for HR
success is the value proposition. With this value proposition, the HR profession has a
point of view about what can be and should be for all stakeholders, a set of standards
about how HR investments in strategy, structure, and practices should be made, and a
template for ensuring that each HR professional contributes. The HR value proposition is
the blueprint for the future of HR.
Figure 1:
Stages in HR Transformation

1
Knowing external
business realities
(technology, economics,
globalization,
demographics)

5 2
Assuring HR Serving external and
professionalism internal stakeholders
(HR roles and HR Value (customers, investors,
competencies) Proposition managers, and employees)

4 3
Building HR resources Crafting HR practices
(HR organization and (people, performance,
strategy) information, and work)