Linking HR To Business Value
By: Margot Thom
Business leaders generally acknowledge that the workforce is critical to success. Yet many companies continue to treat HR as an administrative function – or a necessary evil – rather than a major driver of shareholder value and competitive advantage. Why the disconnect? One reason is the lack of a tangible link between HR activities and specific business results, which makes it hard to identify or appreciate HR’s contribution to the process.
Value mapping helps close that gap. It provides a visual connection between HR activities and key business objectives, improving alignment between HR and business strategy and helping the HR group operate more credibly and effectively.
Forrester Research calls value mapping “a powerful tool for focusing, prioritizing, and communicating improvement initiatives that will lead to increased shareholder value,” and says it “represents unique thought leadership in human capital management and is an effective tool for companies struggling with how to better leverage their human capital for strategic advantage.”1
Connecting HR To Strategy
An HR value map provides a comprehensive look at HR’s role in creating value for the business. Yet it is also very simple to create and use, consisting of just three basic elements – all linked to shareholder value:
- Value Drivers – These are the primary factors that drive shareholder value and business performance – revenue growth, operating margins, asset efficiency, and market expectations.
- Improvement Levers – These are the high-level strategies businesses use to improve performance and results.
- HR Activities – These are the discrete services and activities HR provides to support the business.
An HR value map explicitly links every HR activity to specific value drivers and improvement levers. For example, if a top business priority is revenue growth through premium pricing, the map lists a broad range of HR activities that support such an objective including new incentives tied to profitability instead of volume, improved negotiation training, and a focus on valuebased selling. Similarly, if a company’s primary strategic focus is on improving its execution capabilities, the map provides an extensive list of activities to support improvements in that area including more effective use of virtual workforce practices, greater collaboration across functions, and corporate quality programs.
HR activities can generally be divided into seven categories, based on the type of work involved.
- Strategic HR Alignment – aligning HR strategy with business strategy
- Learning and Development – training, coaching, and mentoring managers and employees
- Performance Management and Improvement – fostering desired behaviour through goals, performance measures, evaluations, feedback, compensation, and benefits
- Workforce Planning, Talent Management, Acquisition, and Deployment – hiring and retaining qualified employees to meet current and future business needs, and matching people with the right opportunities
- Organizational Capability – creating an organization structure and corporate culture that maximizes performance and results
- Change Leadership and Transformation – supporting improvement efforts by identifying and addressing barriers to change
- HR Services and Administration – maintaining HR systems and conducting day-to-day HR transactions such as payroll, benefits, safety, and compliance
These categories provide a good starting point for companies as they develop their own customized version of the HR value map. There are two ways to look at an HR value map. The strategic approach starts with shareholder value and value drivers, drilling down to identify the HR activities needed to support a company’s high-level business objectives and strategies. The tactical approach starts with activities, comparing the HR group’s current and planned activities against the HR services specifically requested by the business units, such as assistance with hiring and training.
HR is often viewed as an administrative activity or cost centre, not a strategic function. Atop-down approach to using the map helps reverse that perception, enabling HR to align its activities with overall business strategy and objectives – increasing the HR group’s relevance to the business and improving its credibility as a true strategic partner. Here’s how it works.
- Step 1: Meet with the business units to clarify their primary value drivers and improvement levers.
Some business units might choose to grow revenue by focusing on customer acquisition. Others might elect to grow revenue through premium pricing or to boost operating margins through improved asset efficiency. Different strategies require a different response from HR.
- Step 2: Develop workforce strategies and programs based on the priorities identified in Step 1.
The HR value map helps HR managers understand the company’s strategic priorities – and the specific activities needed to support them.
- Step 3: Meet with the business units to validate HR’s plans.
Using the map can show how they mesh with the company’s overall business objectives and strategies. The end result is tighter alignment between HR strategy and business strategy, and improved understanding of HR’s contribution to overall business performance.
Giving The Business What It Wants
Most business units have a pretty clear idea of the services they want from HR. Unfortunately, those aren’t always the same services HR intends to provide. For example, an independent survey of business and HR executives at a major pharmaceutical firm revealed significant differences in its HR priorities. In particular, business executives rated performance management and improvement as their number two HR issue, while HR executives rated it fifth.
An HR value map can minimize such gaps, helping HR leaders identify and deliver the services that businesses need most. The process goes something like this:
- Step 1: Ask the business units to prioritize the various categories of HR work, identifying activities they consider particularly essential This can be done through formal surveys and workshops, or through informal discussions with HR managers.
- Step 2: Examine each category, comparing current HR activities and plans to the priorities identified by the business units The value map provides a structured reference point to help HR leaders determine which activities:
- to add
- to continue or expand
- to eliminate or scale back
- Step 3: Validate the findings Here, the map can be used to communicate plans and build agreement with the business units.
The strategic approach helps HR reposition itself as a strategic partner to the business. However, the tactical approach can be just as important, helping to ensure that every operating unit gets the HR services it needs.
Many HR executives and thought leaders have tried to quantify the impact of HR on business performance and shareholder value, but the results are usually complicated and hard to follow. Value mapping takes a more direct approach, providing a clear, visible link between HR and shareholder value – using terms anyone in business can understand. That simplicity is the key to its power. By giving HR and business leaders a common frame of reference, an HR value map promotes strategic alignment, improves communication, and helps the HR function become a credible strategic partner to the business.
Margot Thom is a director in Deloitte’s Human Capital practice and leads the firm’s global HR transformation initiative.
1. Forrester Research, March 2, 2005; ‘The Human Capital Management Value Map: Deloitte Demonstrates That HR Can Be Strategic,’ by Craig Symons with Tom Pohlmann, Natalie Lambert, and Olivia Ester
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