On the Outside

Dec. 21, 2004
Companies ignore potential of HR departments to help drive change.

In an era that finds employees touted as a company's "greatest competitive advantage," business remains reluctant to make human-resources departments partners in shaping business strategy and driving change. That's a mistake, says Sanjyot Dunung, president, AcrossFrontiers International Inc., an HR consulting firm based in New York. "How can you be sure you are engaging employees in the company's visions and values" without using HR to help transfer "knowledge, ideas and practices throughout the organization?" she asks. But giving HR that responsibility is still far from a common occurrence. "Overall, the rate of change toward a new role for human resources appears to be less dramatic than much of the rhetoric . . . would lead one to believe," says Edward E. Lawler III, director of the Center for Effective Organizations (CEO), Marshall School of Business, University of Southern California. Indeed, a CEO study released earlier this year reveals that in 1998 HR executives spent a smaller percentage of their time (20.3%) being a strategic partner than they did in 1995, when they devoted 21.9% of their time to such matters. "The finding suggests that HR executives may be guilty of a bit of wishful thinking as they compare their present situation with the past," says Lawler. "The truth is that not all of line management really wants HR as a business partner and that a lot of HR people are not seen as credible businesspeople." Lawler's study isn't the only one that suggests that more companies talk about using HR as a strategic tool than actually do. A staggering 85% of top-level U.S. and European HR executives surveyed recently by Arthur Andersen LLP, Chicago, said they have only moderate involvement -- or less -- in the development of their company's overall business strategy. Instead, HR executives said they spend the majority of their time developing services, creating executive compensation plans, and recruiting. "That doesn't mesh with the assertion by corporations that their ability to succeed is becoming increasingly dependent upon their ability to cultivate and leverage their human capital," says Sarah Cuthill, partner in Arthur Andersen's Human Capital practice. Equally troubling: At a time when many of the top challenges for managers relate to people management, very few companies surveyed by Arthur Andersen even had a strategy or a program in place to address such human-resource challenges. Ironically, in an economy dominated by information technology, Lawler's study suggests that most human-resource departments still use information technology largely for benefits programs and address changes. "Much of the impact of computer technology in aiding people management has yet to be felt," says Lawler. Still, he is optimistic that soon the day will come when HR is a valued business partner. His research indicates that the more HR departments are asked to help identify and obtain the competencies that organizations need to succeed, and to assist with knowledge management, the greater their focus is on business strategy. And the better the results are for the company. Paradoxically, Lawler suggests that the talent issue might be HR's best opportunity in the short term to become a business partner. "With the continuing war for talent, HR can use its expertise in recruiting to convince top management of its value." In the long run, making HR a business partner won't be an option, asserts Lawler, but "a matter of survival because we are in the era of human capital."

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