To Be Strategic or Transactional? That is the Question
The Case for Human Resources in Strategic Planning Ask most business leaders and professionals, and they will describe human resources in transactional terms. “They are the department that hires people, fires people, manages our benefit plans, and tells us how much we can pay people.” A lot to unpack there for sure, but that perception misses the mark entirely. While it is true that human resources has a lot of transactional components, it is no different from any other department or function within a business. For example, consider your Accounting Department. Arguably it is one of the most critical roles within the business as it has the power of the purse. Its transactional tasks include logging debits and credits into the general ledger, the monthly close process, development of quarterly and annual statements, or logging receipts and outflows through the AR/AP departments. Human Resources also has its share of transactional components. Someone has to enter payroll weekly or biweekly, manage open enrollment, conduct onboarding, or even manage recruitment requisitions. If that is the extent of the value leadership perceives human resources brings to the table, there is a lot they are missing. We would argue that perception is precisely what is holding a business back from achieving its fullest potential. At its core, a business is its people. Try starting a business without any people at all? You can’t do it. You know why? You are a person. If you start a business, even a company of one, say a single shingle consulting business, then a human is part of that business. Humans are the brainchild of every initiative and action internally and externally to the company. Even with all the automation being implemented today, from software to robots, people must maintain, repair, and monitor them to ensure they continue to perform as intended. There is a strategic component that is often overlooked, and it begins with strategic workforce planning. When your business develops its strategic plan, you look at a 3-to-5-year horizon. With the fast pace of change in business today, it is almost always the case that many of the roles, skills, and competencies needed to fulfill that strategic vision do not currently exist. Absent strategic workforce planning, that vision is doomed to fail from the start. Strategic HR professionals can work closely with executive management to flesh out a human capital plan according to organizational goals. Such a plan may include developing career pathing to move key talent from current roles that will be going away and into the new positions that will be created. It may also have a compensation analysis and benchmarking strategy to determine what to pay roles that don’t yet exist in your business (or even, possibly, anywhere). Plus, learning development programs to teach existing employees the very knowledge and skills they need to succeed in roles they don’t even know are coming, employee relations strategies that will drive engagement and retain key talent, and manage the impact on your people as the organization marches towards that strategic vision. None of this is transactional. All of it requires a very strategic and planned approach aligned with the organization’s strategic plan, outcomes, and goals. As with many areas of your business, there are laws and regulations involved. The EPA places restrictions on the output of carcinogens that can be expelled by smokestacks of factories or waste that can be dumped into rivers and streams. The SEC restricts actions they consider insider trading. Even your sales teams have restrictions to protect consumers from “bait-and-switch” tactics. Human resources is no different— well, maybe a little different. Employment law is a fickle beast, constantly weaving and bobbing, changing all the time. A great example is a recent court case in Minnesota (Hill v. City of Plainview) that appears to have upended decades of legal precedent about the use of disclaimer statements that prevent an Employee Handbook from being interpreted as an employment contract. To the untrained and uninitiated in the ways of human resources, it can seem that the application of employment law bends with the proverbial wind. Though it is rare when significant landmark laws are passed (i.e., Affordable Care Act, Health Insurance Portability and Accountability Act, or even the Civil Rights Act), the way many of the laws are interpreted by the courts is what drives the most significant adjustments by businesses to comply with employment law. With the right strategic HR leadership in place, appropriate plans for implementing changes to employment law can be made that will protect the organization from costly fees, fines, and government-imposed remedies. Strategic human resources leadership can also guide your business by executing transactional HR tasks and even positively impacting the bottom line. For example, there is a time in the business lifecycle when outsourcing transactional HR tasks are more cost-effective. That does not mean every aspect of human resources should get outsourced. That would be a huge mistake. It means that a strategic HR leader should guide or even lead the research, selection, and implementation of an appropriate Administrative Service Organization (ASO) or Preferred Employer Organization (PEO) to handle these transactions. That strategic HR leader should lead the selection and implementation of appropriate Learning and Development (L&D) programs, develop and direct a total rewards strategy, and even the selection and relationship management of the suitable recruiting partners to align human capital needs with the strategic workforce plan. As an economy of scale is reached internally due to headcount and revenue size, it becomes more economically feasible to bring back the human resource tasks formerly outsourced to an ASO or PEO. The organization will further benefit from greater command and control over transactional HR tasks and align better with corporate strategy. There is no magic universal breakpoint to determine when to do this. You will have to look at your business’s demands, nature of employment, industry, and geographic reach as each impacts a company differently. However, the right strategic HR leader will make the correct business case, leading to the most beneficial outcomes. It’s a new year. We have
Strategic HR
How Small to Medium-Sized Businesses Can Get the Most Out of the HR Function “For the world is changing: I feel it in the water, I feel it in the earth, and I smell it in the air.” These words were spoken in the movie and written in the book “Lord of the Rings,” and very accurately sums up what is happening in our world today. The fast pace of change for businesses due to recent social unrest, economic recession, and a global pandemic shined a light on just how unprepared so many companies, regardless of size, industry, or sector, were when it came to crisis management. If there is one lesson small to mid-sized business leaders have learned, it likely is the value, importance, and absolute need for strategic human resource professionals. Years ago, when I joined an underground utility company as the HR Manager, I knew nothing about the business. If I were going to add value to the organization, I had to understand the business— what they did, how they did it, their competition, and how the company could compete. Only then could I collaborate with superintendents on staffing planning, project managers around their pipeline of projects that would feed the revenue wheel, and the employees to understand how to keep them engaged and reduce turnover. In small to medium-sized businesses, many business leaders struggle with understanding the strategic partnership that HR can have within the organization. This is too often because HR does not properly understand the business and because many business leaders only understand the transactional support HR provides. Many business leaders determine a need for dedicated HR personnel only when the transactions become more burdensome than they are willing or able to handle. For HR to demonstrate the strength of the strategic partnership, they must be intimately familiar with all aspects of your business, understand when to outsource transactional tasks, and when to bring those back in-house. To get the most out of your HR department or function, business leaders should differentiate the transactional tasks of HR from their strategic partnership with the business. Transactions can be outsourced and automated. Many solutions are available, some of which were shared in a previous article, Resistance is Futile, that addresses many affordable HR compliance solutions (the primary transactional tasks of HR) for small to medium-sized businesses. The low to no-cost solutions available are numerous, and when employed, these services free up the HR team member(s) to become true strategic partners. There is a time in the business life cycle where outsourcing transactional tasks is the right strategic move, and when bringing such tasks in-house is best. A May 8, 2019, Gartner article, Gartner Survey Reveals That CEO Priorities Are Slowly Shifting to Meet Rising Growth Challenges, indicates that in the annual Gartner 2019 CEO and Senior Business Executive Survey, “a growing number of CEOs… deem financial priorities important, especially profitability improvement.” The survey also states that “at the same time, mentions of financial priorities, cost, and risk management also increased.” The appropriate treatment of transactional HR tasks can be a huge help in addressing such concerns in your organization. Outsourcing can stabilize cash flow, especially in a seasonal business, make it more predictable and easier on the budget. It can introduce automation, such as self-service portals, reporting, and file maintenance. Outsourcing transactional HR tasks can even shift the risks of non-compliance to a vendor, potentially saving your business hundreds of thousands of dollars in fines, fees, and government-imposed remedies. Typically, much later in the business life cycle, insourcing these transactional tasks is the right strategic move. It will provide more control of data, improve the quality of service transactions, develop deeper metrics and tracking, and improve innovation and creativity around HR initiatives. Due to economies of scale, it may even be more cost-effective to insource than outsource. Knowing the right time to do each is somewhat challenging, but HR becomes a more strategic partner to your business when done right. To help HR be more strategic, now that the transactional tasks have been appropriately addressed, we need to immerse them in the business fully. Take HR under your wing and teach them the business from the ground up. Company history is part of that, but only a small part. For example, in horticulture, your HR function needs to understand what growers do and what various crops and systems challenge them. They need to know the role and responsibility of those leading operations, whether they are working with plants in a field or a greenhouse, and the relationship between customer service, sales, product development, marketing, and operations. HR should visit and have a chance to shadow every department or function within your business, meet the key leaders, and have a chance to talk with entry-level employees. Invite HR to meet with key customers to understand this relationship and the customer’s challenges your company is trying to help them solve. Expose them to the entire industry through the various trade show events and conferences such as Cultivate, MANTS, Far West, or the Plug & Cutting Conference so they can learn about all the companies that make up the horticulture industry as well as interact with other HR leaders to share best practices. Expecting HR to stay in their silo, their office, or behind their cubicle separates them from the business. It hinders their innovation and creativity when tasked with solving real business problems. Strategic elements that HR brings include assisting with developing the organization’s strategic and tactical plan, organizational development and design, strategic workforce planning, succession planning, and learning and development. Even the development of compensation and benefits programs, collectively the total rewards program, is strategic. In a March 14, 2019 article by The Predictive Index, Top CEO Priorities Are Business Strategy and Talent Strategy, the top two priority concerns are… well, as the title states… business strategy and talent strategy, two core areas addressed with an HR function that performs a strategic role. Add to that the January 17,