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Memo from HR: We Do Too Create Value

A professor's criticism of the profession stirs up a frenzied debate.
David McCann, CFO.com | US
April 9, 2009

Rutgers University professor Richard Beatty sparked a verbal conflagration at last month's CFO Rising conference, where he criticized the human resources profession for being mostly unable to talk the language of business and help companies build economic value. After his remarks were reported on CFO.com, they spread through the blogosphere and generated an extraordinarily high number of comments to a CFO.com article.

While some commenters agreed, in whole or in part, with Beatty's take on HR, many were wounded human resources professionals. Typical comments were "Thank you for enforcing those stereotypes," "Beatty needs a reality check," and "My reaction? Outrage." A fair number of responses to the article or blog posts claimed that the professor's attitudes were outdated and disapprovingly noted that he is a career academician with no direct corporate employment experience.

For his part, Beatty, a well-known scholar who has written or co-written hundreds of articles and more than 20 books, felt a bit wounded too. "I don't want to be the bad boy of HR," he told CFO.com. "I love HR — I've dedicated my whole career to it. I want the profession to be great. And it clearly is improving, but I think it can get a lot better."

While Beatty is hardly the first person to knock the profession's business acumen, human resources does have some solid supporters in the C-suite. Ed Goldfinger, the CFO of ZipCar, told CFO.com that the HR people he has worked with "are just as much business professionals as anyone else. They often come with their own angle, just as finance, marketing, and engineering do."

Goldfinger acknowledged that at some companies, human resources departments are ineffective at providing data analysis that helps to create economic value. But he blamed the companies themselves. The mistake they make is not valuing HR to begin with, he said, so they underhire and underpay the heads of that department and deny them a seat at the leadership table. "To expect the same level of business savvy from a layer down is not the right thinking," Goldfinger told CFO.com.

Beatty insisted that his address at CFO Rising was not an indictment of the entire human resources profession, but merely of those practitioners who are more focused on the "HR scorecard" than the "business scorecard." The new book he co-wrote, The Differentiated Workforce, cites many companies where the HR function is doing a great job, he notes.

The Value of Happiness
Among the professor's incendiary opinions is that HR people often are disproportionately focused on employee job satisfaction. There is no evidence that greater job satisfaction produces better performance, he claimed, and in fact, it is the other way around: People who are high performers tend to be more satisfied and engaged.

One veteran HR professional told CFO.com that he could agree with that only to a limited point. John Eve, a former vice president of human resources at National Register who has been consulting for the past year but will start a new job next week, said he has seen many high performers destroyed by their companies' management and culture.

"You can't put a great sales performer, say, into a culture that dismisses him as unimportant, give him a bad manager, and think that he will be driving results," Eve said. "No, no, no. The professor's statement was an overstatement."

Eve and others disputed the professor's suggestion that there is no evidence of a correlation between engagement and productivity. Plentiful research exists that makes the opposite point, they said.

According to Anna Erickson, an industrial psychologist and consulting director at Questar, a business research and consulting firm, one of the most-often-cited such studies is "Business-Unit-Level Relationship Between Employee Satisfaction, Employee Engagement, and Business Outcomes: A Meta-Analysis," which appeared in the Journal of Applied Psychology in 2002. She also referenced what she called a seminal study done at Sears a few years ago that found that engaged customer-service employees drive increased profits.

In research circles, studies that are only a few years old often are considered quite recent. In contrast, according to Erickson, Professor Beatty's views are indeed outdated. Although they constituted state-of-the-art thinking when she was in graduate school in the 1980s, they have since then have been rendered obsolete by newer research, she said. "When you stop and think about it, it doesn't make sense that my attitudes would not impact how I perform. Intuitively, it's not very logical."

What HR departments measure has changed over those years from job satisfaction to employee engagement, which are different things, Erickson said. Surveys no longer ask whether employees are happy and how much they like their jobs. Instead, they ask such questions as: Are you getting clear direction? Are you able to provide input into your role? Do you have the tools and equipment that you need? "The focus is more on things that are important to getting the job done," she said.


For his part, Beatty argues that the old and new approaches really are getting at the same thing. "We started years ago looking at job satisfaction, commitment, and involvement," he said. "But 'engagement' may be this generation's satisfaction and commitment. Some have called it old wine in new bottles."

The problem, he continued, is that definitions of "engagement" vary widely from study to study and company to company, so "who knows what you're measuring? We don't have a uniform definition, let alone a uniform understanding of what its drivers are, let alone knowledge of what impact engagement may have on value creation."

The Value of Numbers 
His broader assertion that HR is weak on providing data analysis that drives economic value frustrated many of those who commented on the article; they claimed, in one way or another, that human resources does provide useful data analysis.

One, though, said that, "We are not supposed to be good at data analytics. We are supposed to be good at helping craft the decisions [management wants] to make ... so that they stay within the law and the policies and procedures the company has in place."

Indeed, ZipCar's Goldfinger said he doesn't look to human resources to provide financial analysis. He wants HR to understand the impact that employees have on the bottom line, how the business works, and what decisions make sense for the business. "Are they as financial minded as finance people? No. Neither are marketers or engineers," he said.

While Eve is a human resources professional himself, he took Beatty's side on the issue. There are many HR people who don't spend enough time understanding the business or creating metrics for the value employees deliver, he said — though many metrics are easy to fashion, such as employee impact on budget, productivity per employee, and even differential economic value between high performers and others. "HR doesn't have full control over those things, but finance analyzes numbers that it doesn't control, and HR should be doing that too," he said.

Beatty said HR departments should focus their efforts on measuring the value created by the company's strategic talent and by its culture, and on metrics identifying employees as either "top talent," "emerging talent," "career level," or "not a fit with the role requirements anymore."

The Value of Branding
Beatty's suggestion that many human resources departments are ill-advised in their focus on branding their companies as "the employer of choice" also drew heat.

Typical of comments posted to the article were, "Who in their right mind would not want to be an employer of choice, especially in today's economy?" and "If you are not an employer of choice, then why would excited, enthused people want to work for your firm in the first place?"

Beatty said the employer-of-choice position generates an overabundance of candidates, which wastes time and money. Estimates for the cost of processing a job applicant range from a few hundred dollars to thousands of dollars, depending on how far the person gets in the evaluation process, he noted.

Instead, according to Beatty, companies should make clear that they are looking only for the cream of the crop.

But, wondered Erickson, how much cream can you find if your crop is small? "By having fewer candidates to choose from, their quality is going to improve? Really?" she said.




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