Evolution of HR Management

It seems to be that HR Management is coming of age? This is not to suggest any level of past problems but just that as "people" have grown in strategic importance, so must the HR function. What we know today as "human capital" is probably the most valuable resource that any organization has access to, and it is also the resource that consumes the largest amount of cash. What does "coming of age" really mean? In my mind, and based on my fifty years of business experience the analogy is similar to accounting.

Historically accountants focused on compliance and control. Making sure that financial assets were properly protected and "nurtured and managed" so as to produce the best results for shareholders. Then two things happened that changed the profession (even though certain aspects still have not caught up - see my book "How Accountants Lost their Balance!"). First automation - records are now almost completely automated and many controls are built in to the underlying systems. Secondly business became increasingly competitive and accountants started to focus on activities that aimed at enhancing management decision making. Better understanding of financial performance by managers led to better control and allocation of financial resources. The era of management accounting developed and the profession changed - most accountants today are NOT employed in compliance and audit but in management related roles. This required a changed "mind set" as well as different skills. Accountants became internal management consultants focusing on the effective deployment of financial capital.

Is this where HR is today? Human capital has grown in strategic importance and many functions of HR especially related to the "mechanics" of compliance and control have been or are being automated (we call it analytics today). Yet the effective use of human capital is not an HR issue but a leadership challenge. Organizations can have the best HR processes in the world and attract great talent - but if they fail to create a supportive and engaging work climate (the culture), then performance will be sub-optimum. This requires the role of the CHRO to be at the strategic decision making "table" ensuring that all managers - especially those in leadership roles, understand the importance of establishing and maintaining a work climate within which people can make their greatest contribution. The senior HR individual is, in fact the CEO but the CHRO must be there as a close advisor on strategic policy towards human capital. Just like the CFO has become a partner with the CEO for financial capital.

Nowhere is this need for a strategic shift more clearly seen than in the selection of metrics being used to assess human capital. Today most are focused on traditional areas of HR performance. There is almost no linkage with the role of people in value creation, and no clear linkage between metrics and the assessment of organizational resilience and risk management. Even potential SEC requirements and existing SASB metrics perpetuate the traditional approaches - leaning heavily on areas of compliance. In Europe the heavy focus is on human rights and the societal impacts of people management. The new ISO standard on human capital reporting, ISO 30414 is a great start but much more will be needed in the future.

A final analogy. In the 1970's management used to think that quality was all about specifications and inspection, and it was only when quality became a strategic imperative, driven from the very top of the organization that "zero defects" and "right first time" became reality. This is where HR is today. It is no longer a functional issue but an area of strategic resource management that permeates EVERYTHING that an organization does. Only when people truly become the centre of strategic decision making will the optimum performance of human capital drive leading edge performance.