How often have we heard that CEOs and line executives do not respect HR leaders because of their lack of business acumen concerning the company’s financial, operating and strategic matters? By definition, this means there is insufficient depth of practical knowledge in these important business matters. This lack of respect, in turn, is the main reason why a company’s HR leader does not have a seat at its C-Suite table. The next logical question becomes: what specific business knowledge does the HR leader need?
Such knowledge falls into two categories: general and specific.
GENERAL BUSINESS ACUMEN
The following data should be compiled on the performance results achieved in the last two fiscal years and the current fiscal year goals for the company and each of its major divisions, while observing year-over-year trends.
- Financial
o Net Sales or Revenue
o Operating Profit – both dollar and percent of net sales or revenue
o Net income – both dollar and percent of sales or revenue
o Net earnings (income) per share
o Cash Flow – dollar amount
o Major capital expenditures
- Sales/Revenue
o Top ten customers by dollar sales volume
o Top ten products by dollar sales volume and gross profit margin percentage
o Major sales contracts up for renewal
o Customer Service improvement metrics
- R&D and Product Development
o Major product engineering projects to be launched in the next few years
o Current year new product introduction and launch with the expected sales volume increase
o Current year existing product enhancement with the expected sales volume increase
o Expected quality, reliability and performance specification improvements
- Manufacturing
o Key quality improvement metric(s)
o Production efficiency improvement metric(s)
o Production scheduling improvement metric(s)
o Specific cost control improvement metric(s)
o Key Purchasing improvement metric(s)
o Key Inventory Control improvement metric(s)
- Strategic Planning
o Anticipated acquisitions and their expected financial and market results
o Expected new product and/or market introductions
o Expected amounts of net income and earnings per share improvement[/message]
After such data is acquired, it can be easily placed into a template that can be updated every year. This data gives the HR leader the necessary awareness of the company’s crucial financial, operating and strategic activities and goals which, in turn, gives him/her the ability to interact with the CEO and line executives on them, rather than simply discussing only HR matters.
SPECIFIC BUSINESS ACUMEN
With a sound general overview of the business, the HR Leader can now concentrate on the more specific aspects of it.
Most HR leaders desire the same goal – the respect of the CEO and line executives as an equal business partner. Unfortunately, few have achieved it; primarily because they have little or no pragmatic financial, operating or strategic business knowledge. Recently, some HR leaders have tried to gain that respect by utilizing HR analytics. However, these analytics are very costly and must measure the right metrics to identify actionable items that will have a positive impact on the effectiveness and, hopefully, profitability. Even when the right metrics are identified and yield meaningful results, they will typically have only an indirect impact on profitability. To have a direct impact on profitability and thereby gain the respect of the CEO and line executives, a thorough understanding of the specific business acumen is needed.
First, the HR leader must understand: (a) the key financial priorities on the company, division or group’s Income and Cash Flow Statements, and Balance Sheet from the CFO, (b) the key operating priorities and business objectives of each major division or group from the COO and (c) the current overall business strategy for the company and each major division or group from the CEO. This information is best acquired at the start of the fiscal year after the business objectives and strategies have been finalized.
Now, the question becomes HOW does the HR leader use such information? The answer lies in the HR leader’s ability to utilize some innovative HR services that help the CEO and line executives to achieve their objectives. Each fiscal year, the company and each division or group have certain financial, operating and strategic objectives.
Some financial objectives might be increasing earnings per share, improving sales volume and/or product profitability, and increasing cash flow. Some innovative HR services to achieve those objectives might be conducting a cost control/productivity improvement workshop to identify potential profit and cost improvement opportunities, conducting an inventory control workshop to identify items that can be eliminated, reduced or replaced by less expensive ones, or training sales personnel how to collect outstanding receivables more efficiently to increase cash.
Some operating objectives might be increasing sales volume on a key product through the use of new technology, reducing the time-to-market for the redesign of a key product, or improving product quality and/or customer service to exceed industry standards. Some innovative HR services might include redesigning the sales incentive plan to recognize the new technology and its increased profit impact while retraining all appropriate personnel, facilitating several teams to re-engineer and streamline the entire product design and market launch cycle, conducting project management workshops to help ensure that all product development projects are achieved on time, and conducting several inside and outside surveys to assess the future standards, technology and practices needed to support quality and customer service goals, and retraining all appropriate personnel.
Some strategic objectives might be acquiring a business that will gain market share and/or increase profitability, acquiring a new technology that is needed for future product development, or developing 30 or so executives who can operate a $50 million per annum business. Some innovative HR services might include acquiring the HR expertise in-house to conduct all HR-related due diligence of potential acquisition candidates thereby avoiding outside consulting expenses, acquiring specific HR knowledge on what recruitment, sales and management incentives, technical skills development, innovation recognition, and performance review practices are used for the new technology, and enhancing the succession planning program and developing a line-oriented General Management seminar that trains executives on financial management, product/market planning and development, strategic planning, executive-level customer interaction, and leadership.
In sum, when the HR leader uses this general and specific business acumen to help the CEO and line executives to achieve THEIR objectives by providing some innovative HR services, a quantum leap in respectability will occur. However, in doing so, HR leaders will likely have to realign their HR staff capabilities dramatically away from the conceptual aspects of interpersonal and leadership skills training and towards the financial, operating and strategic needs of the business.
Jack,
Wonderful post. One of the challenges I give to HR people is to write their Annual Report each year. Most of the time they are shocked at the concept. I also provide a tool of questions HR can ask fo their business partners to help them gain a seat at the table.
Mary
Thanks Mary. Hopefully, this article can help you in your endeavors. Like Sales, Marketing, Manufacturing, etc., HR leaders need to remember that they are a function of the BUSINESS and should do everything they can to practically support it. Best regards, Jack.
If HR recognizes their role in the business, they can offer some creative new opportunities
This is a great primer, Jack, and valuable for HR practitioners who want to speak the language of their operational leaders. I have found that when HR uses these fundamentals to plan their work in partnership with the operational leaders instead of marketing to them, they gain sponsorship that shifts the responsibility for success back to the operational leader rather than HR. When HR plans and implements without having engaged leaders in the design, and figured out exactly what they are willing to put into making the program a success, they seem to proverbially be out chasing compliance. Thanks for putting together such a great primer.
Thanks Carol. I hope the article helps you and others to provide a practical template for assisting HR Leaders who want to become a Business Leader first. All the best, Jack