For many small to mid-size companies, however, investing in anything more than “tactical” HR seems like a luxury. When your goal is to simply get a product to market or even just get a product to work, this lofty talk of “organizational development” or “change management” seems misplaced. Justifying an investment in these so-called “soft” skills when the opportunity cost is the non-hire of a quality assurance engineer can be difficult.
I’m not arguing, however, not to hire the QA engineer. If you critically need one, then hire one. But I do believe that most companies wait entirely too long to invest in “transformational” HR, as opposed to simply “tactical” HR. CEOs intuitively understand and value the role of Marketing or Sales or Engineering within an organization. Typically, they may have spent time in one of these departments as part of their career path. When creating these departments at a start-up company, they hire VP’s or SVP’s to head each of these divisions from day one.
The same is generally not true with the HR department. When launching a new company, a typical scenario will have the CEO hiring a recruiter while asking someone in Finance to handle payroll. He might also ask the office manager or some other clerical person to ensure that all new employees fill out the appropriate paperwork to stay in compliance with governmental rules and regulations. Or he may just outsource the tactical part of HR altogether to an outside firm.
Once this skeletal structure is in place, the day-to-day running of a company tends to blind a CEO from understanding when it is time to up-level the skills of his HR department. As long as people are getting paid and people are getting hired, he will assume that everything is fine and no changes are needed. It will generally take an employee relations crisis or a spike in attrition before a CEO will turn his attention back to HR.
By that time, however, it is already too late. The CEO must now manage through an otherwise preventable crisis and quickly try to bring on more senior HR talent to help them solve the problem. This HR person will also be tasked with creating the next level of HR tools and processes, including tasks such as implementing a performance management system, ensuring appropriate compensation pay bands, ensuring that the right benefits providers are in place, etc. But typically, this person will be hired without having the requisite skill to truly manage the work at a strategic level. They will be able to implement a compensation program but will do so in a vacuum, not linking their work in a strategic way to solve business problems.
For example, they may implement a one-size-fits all compensation plan that fails to address the most pressing of business problems. Is the hiring of underwriters especially critical now such that you need a separate sign-on bonus program to attract them? Should the stock option pool be weighted towards giving a majority of new shares to key engineers in order to retain them for the next year while the new product is launched? Should certain groups within the company be hired at different percentiles within range in order to ensure that the majority of the company resources are being used to attract the most critical talent?
There is no right answer to any of the questions. Each company at different points in its growth cycle will need to answer these questions differently in order to meet its specific challenges. It is up to the HR professional leading that group to help guide the organization to both ask and answer these questions appropriately.
By not hiring a senior HR person to help them focus and understand these issues, the CEO does herself and the organization a great disservice. Systems get implemented without a full appreciation for the ramifications to the business; programs are launched without being optimized to take full advantage of the resources being expended; and things that could otherwise be a source of competitive advantage are squandered.
I know of one CEO who wanted a senior HR person to be one of his first three hires at his start-up. He had built other successful companies before and he understood that getting senior HR talent on-board at the beginning would be pivotal in helping him achieve success. He expected this HR person to help create the right culture for the business, as well as ensure that all of the HR systems were created and aligned to give the maximum boost to the business.
The sad truth is, most CEO’s are at a loss for defining the strategic value of HR to their organization and so they don’t invest in it. They see it mostly as a necessary bureaucracy. This isn’t only the fault of the CEO, however. HR must bear the responsibility of its reputation. For too long, HR has reveled in its control of the tactical thinking that it was adding value. People with administrative backgrounds began to fill HR departments as a way to climb the corporate ladder. The best and the brightest saw HR as a dead end and no serious MBA would think about including a stint in HR as a means to corporate success.
For those companies who don’t understand the value of managing their human capital well, theirs is a road to oblivion. The rules have changed and so must companies change to adapt new strategies for survival. While it’s now cliché for CEO’s state “Our people are our most important resource”, the business environment now demands that it be more than a platitude. Indeed, focusing relentlessly on your employees should be at the foundation of an organization’s growth plan.
The HR department cannot be the sole part of the organization devoted to focusing on employees. The entire management team, lead by the CEO, must drive this focus down into the company. It must become part of the company culture. The HR department, however, is responsible for leading the way.