Why We Love to Hate HR (2015) PDF

SPOTLIGHT ON RETHINKING HUMAN RESOURCES SPOTLIGHT ARTWORK Do Ho Suh, Floor, 1997–2000, PVC figures, glass plates, phenolic sheets, polyurethane resin; modules 100 x 100 x 8 cm Install...

SPOTLIGHT ON RETHINKING HUMAN RESOURCES SPOTLIGHT ARTWORK Do Ho Suh, Floor, 1997–2000, PVC figures, glass plates, phenolic sheets, polyurethane resin; modules 100 x 100 x 8 cm Installation view at Lehmann Maupin Gallery, New York Why We Love to Hate HR...and What HR Can Do About It by Peter Cappelli  HBR.ORG Peter Cappelli is a professor of management at the Wharton School and the author of several books, including Will College Pay Off? A Guide to the Most Important Financial Decision You’ll Ever Make (PublicAffairs, 2015). July–August 2015 Harvard Business Review 55 SPOTLIGHT ON RETHINKING HUMAN RESOURCES Recent complaints about the HR function have touched a nerve in a large, sympathetic audience, particularly in the United States. The most vocal critics say that HR managers focus too much on “administrivia” and lack vision and strategic insight. These feelings aren’t new. They’ve erupted now Think back to the Great Depression. People would and in the past because we don’t like being told how put up with nearly anything to stay employed. Line to behave—and no other group in organizational life, managers complained that personnel departments not even finance, bosses us around as systematically were getting in the way of better performance, which as HR does. We get defensive when we’re instructed they thought could be achieved with the “drive” sys­ to change how we interact with people, especially tem: threatening workers and sometimes even hit­ those who report to us, because that goes right to the ting them if they failed to measure up. core of who we are. What’s more, HR makes us per­ Similarly, business leaders didn’t put a lot of form tasks we dislike, such as documenting problems stock in HR during the 2001 and 2008 recessions, be­ with employees. And it prevents us from doing what cause employees—keenly aware of how replaceable we want, such as hiring someone we “just know” is they were—stayed put and more or less behaved a good fit. Its directives affect every person in thethemselves. Because companies had a large pool organization, right up to the top, every single day. of job seekers to draw from, wages stayed flat and The complaints also have a cyclical quality— productivity rose. More employees were working they’re driven largely by the business context. Usu­ harder for the sake of security. And that remains true ally when companies are struggling with labor issues,in our “jobless recovery” from the latest financial HR is seen as a valued leadership partner. When crisis. Although 83% of people in a Salary.com sur­ things are going more smoothly all around, manag­ vey said they would look for a new job in 2014, the ers tend to think, “What’s HR doing for us, anyway?” number who are actually quitting has not yet spiked. This doesn’t mean that HR is above reproach. So it’s still easy for leaders to push back on all those Quite the contrary: It has plenty of room to improve,annoying HR policies. They seem superfluous. and this is a moment of enormous opportunity. Little Consider, in contrast, times when labor wasn’t has been done in the past few decades to examine the so plentiful. In the 1920s—when the economy was booming, and keeping workers was both hard to do value of widely used practices that are central to how companies operate. By separating the effective from and crucial to business—personnel departments the worthless, HR leaders can secure huge payoffs forstarted to make supervisors treat their employees their organizations. But it’s important to understandwell. And after World War II, U.S. industry suffered HR’s tumultuous history with business leaders and a talent shortage unlike anything since. Many of the the economy before turning our attention to what the men (it was always men) who might have gone into function should be doing now and in the future. business had fought instead. It didn’t help matters that talent development had received little or no at­ The “Personnel” Pendulum tention during the Depression. The postwar question How top executives feel about HR pretty reliably re­ “What happens if the boss gets hit by a bus?” pointed flects what’s going on in the U.S. economy. When the to a huge concern. About one-third of executives economy is down and the labor market is slack, they died in office—many of them from heart attacks— see HR as a nuisance. But sentiments change when and no one was around to take their place. A lot of © DO HO SUH labor tightens up and HR practices become essential small companies went out of business, and many big to companies’ immediate success. ones had to be sold. 56 Harvard Business Review July–August 2015  WHY WE LOVE TO HATE HR… HBR.ORG Idea in Brief THE PROBLEM THE OPPORTUNITY THE SOLUTION When talent is in short supply, Instead of sitting tight until HR managers can score big business leaders see HR as a the next market shift changes wins for their companies by valuable strategic partner. But leaders’ perception, HR rethinking programs that have when the labor market loosens managers should set the been around since the 1950s, up, HR suddenly seems like a talent agenda now. They have making a business case for nuisance, because we don’t the required perspective and the initiatives that matter, and like being told how to behave— expertise. cutting loose pet programs and we see no immediate that lack impact. benefit to complying. In that leadership void, modern HR was born, Meanwhile, supervisors spent less and less time ushering in practices such as coaching, developmen- on their direct reports. They had too many people tal assignments, job rotation, 360-degree feedback, under them to manage everyone carefully, and assessment centers, high-potential tracks, and suc- other tasks were given higher priority. In his book cession plans. They sound routine now, but they The Leadership Factor, the Harvard Business School were revolutionary then. And they arose from an professor John Kotter reported on this phenom- urgent need to develop and retain talent in the 1950s. enon at a leading New York bank in the early 1980s. In that “gray flannel suit” era, 90% of positions Junior managers complained that their people- (and virtually all those in the top ranks) were filled management tasks were distracting them from their from within—and 96% of large companies dedi- more important roles as individual contributors, so cated an entire department to planning for work- the bank’s leaders allowed them to devote less en- force needs. Those numbers reflect an intense ergy to evaluation and coaching. commitment to development, which paid large divi- Thus employees weren’t getting the investment dends. HR was a powerful function, voted the most and attention they needed to grow. Even HR’s brief glamorous area in business by executives. resurgence during the dot-com boom—corporate re- Things have changed quite a bit. Only a third or cruiters, rather than IT workers, had the hottest job so of today’s hires are internal. Companies engage in the United States then, according to the Bureau of executive search firms to fill most senior-level vacan- Labor Statistics—was limited to hiring and retention. cies. One in four CEOs comes from the outside. And At the same time, more and more tasks that had companies spend less time and effort than they used traditionally been performed by HR (from hiring to mapping out the talent they’ll need in the years to to development to compensation decisions) were come: By the mid-2000s only a third were doing any pushed onto line managers, on top of their other planning in this area. In the “gray work. And that’s been the case ever since. HR is now What happened? The economic slowdown of the in the position of trying to get those beleaguered 1970s practically eliminated labor shortages, and flannel suit” managers to follow procedures and practices with- business leaders began dismantling those postwar era, 90% of out having any direct power over them. This is programs designed to identify and develop good positions were euphemistically called “managing with ambiguous managers and workers. Corporations that held authority,” but to those on the receiving end, it feels on to them, such as GE, were the exception. New filled from like nagging and meddling. companies, particularly in tech, could hire all the within—and I recently participated in a debate of HR leaders executives they needed when—thanks to layoffs 96% of large staged by Will Peachey, the head of HR transforma- and stalled advancement—people left the great or- tion for Capgemini. He kicked it off with a provoca- ganizations. Microsoft became the largest company companies tive question: Is HR as a function doing more harm in the world in terms of market capitalization, with had an entire than good by prompting line managers to take their virtually no investment in developing management department to responsibilities as supervisors more seriously? The skills. Others followed its example. As one CEO said position that carried the day was that things would to me at the time, “Why should I train people when do workforce be much worse for employees without HR’s involve- my competitors are willing to do it for me?” planning. ment. But there was also a palpable sense that in July–August 2015 Harvard Business Review 57 SPOTLIGHT ON RETHINKING HUMAN RESOURCES many organizations HR is simply slapping bandages relevant experience, now that fewer of them are on problems that will persist until top executives coming up through training programs and rotational make talent issues a clear priority for managers. assignments in which they could have learned effec- tive people-management practices from knowledge- What HR Should Be Doing Now able peers. So the HR team can show these executives As the economy continues to recover, businesses may what they should care about and why. That means very well wait for labor to become scarce again before articulating a point of view on every people-related looking to HR for meaningful support. But HR can topic relevant to the business. For instance: speed things up by assuming the reins now. It has the Layoffs. According to a report published near the expertise to help companies get ahead of the market beginning of the 2008 recession, only about a third shift that we should all see coming. Here are the basic of HR departments said they were consulted on but powerful steps HR leaders can take: company decisions about which people to let go. Set the agenda. Like any other function, HR That’s a stunning lack of influence in an area where must show why the issues it addresses matter to the HR has the most expertise of any function. business and that it has sensible ways to manage Recruiting. HR understands that structured inter- them. A few years ago the head of HR at a leading views help identify the best candidates. Yet many corporation—someone who had survived lots of re- organizations allow managers with no training in structurings—was asked about the key to his success. interviewing to go with their gut in asking ques- He said, “I do whatever the CEO wants.” Though do- tions and deciding whom to hire—which increases ing things the boss doesn’t want is certainly a career- the risk of litigation as well as the cost of poor hires. limiting strategy, too many HR managers wait to Flexible work arrangements. Line managers who be told which issues to tackle. If a company starts want to retain control often resist flextime and a wellness program after the chief executive has a working from home. But HR leaders know that heart attack, or launches a women’s initiative after these arrangements can be highly effective. his daughter takes a job in the business, you can be Performance management. Forced ranking— sure that the HR team is not leading the charge. imposed by top executives who thought supervi- CEOs and other operating executives are rarely sors weren’t tough enough in their evaluations—was experts on workplace issues. They often have no the rage about a decade ago. Now most companies HR’s Activities Closely Track the Labor Market EARLY 1900s 1920s 1930s 1950s The HR function (known In a thriving economy, During the Great After World War II, one as “industrial and labor good workers were Depression, supervisors third of executives relations”) was born. hard to come by and favored the “drive” died in office with no After steel and oil had even harder to keep. system of management one to replace them. transformed U.S. business HR induced supervisors (threatening and To fill that void, in the 19th century, it to treat people well. sometimes hitting) and HR created a host of became clear that saw HR as a hindrance. revolutionary hiring workforce management Workers put up with and development needed its own discipline. almost anything to programs. stay employed. Talent development was practically nonexistent. U.S. UNEMPLOYMENT SOURCE BUREAU OF LABOR STATISTICS 58 Harvard Business Review July–August 2015  WHY WE LOVE TO HATE HR… HBR.ORG (including GE, where the practice became famous) one ought to understand its pluses and minuses in are stepping away from it as they realize what HR has various circumstances. Such plans add volatility to long known: Supervisors need the training, the time, compensation that can be difficult for the business and the incentives to have serious conversations to control, so they may not be the top choice in an with subordinates about performance and growth. economy that’s already unstable or even one that’s HR should be in front of every one of these issues, in recovery but subject to unpredictable swings. saying, “Here’s how we should be managing this task, And they are effective only when employees feel and here’s the evidence behind that view.” that they have sufficient autonomy and authority to Focus on issues that matter in the here and influence stock performance. now. Many U.S. businesses still follow the talent- To appreciate the importance of context, con- management playbook written in the 1950s. For ex- sider what’s happening in consulting and tech firms, ample, even though elaborate succession plans are where developing skills and human capital is crucial rarely used, companies keep creating them. Instead to success. PwC and Juniper Networks have already of copying what large corporations did decades ago, abandoned traditional performance appraisals—per- HR should craft company-specific (and industry- haps the most reviled standard practice in all of man- specific) policies that respond to today’s challenges. agement—and moved toward a model of ongoing If you’re wondering why that’s not obvious, think conversation designed to improve skills and results. of the simmering debate within HR about whether (See “Bright, Shiny Objects and the Future of HR,” it should be a profession like accounting, with uni- on page 72.) Microsoft and Deloitte are moving in a versal practices. This view has been championed by similar direction. Concerned about retaining key tal- the Society for Human Resource Management and ent, Deloitte broke up the traditional promotion lad- driven by its very successful certification programs, der, providing a more open and flexible framework which teach and then document knowledge in de- for career advancement that accommodates both signing compensation systems and other specialties. employee interests and changing business demands. Detailed knowledge of practices is essential, but (See “Reinventing Performance Management,” HBR, it’s more important to understand what works when April 2015.) And Infosys, in India, has figured out how and where. For example, rather than just knowing to use the classroom to deliver the kind of contextual how to put a broad-based stock option plan in place, knowledge people previously assumed had to be 1970s EARLY 1980s LATE 1990s 2001 2015 As the economy The U.S. went into a deep During the dot-com boom, When the dot-com With the effects of slowed, labor was recession, and workers companies competed bubble burst and the Great Recession once again plentiful. clung to their jobs. fiercely for “employer of the economy tanked, of 2008 still lingering, Business leaders Rather than invest in HR, choice” status to meet business leaders felt most people with jobs started undoing companies pushed hiring their soaring talent needs. little urgency to attract aren’t jumping ship all those postwar and development tasks So HR enjoyed a brief talent. Productivity rose, yet, so executives feel programs designed onto line managers, heyday, focusing primarily wages stayed flat, and no urgent need for HR to attract and who had neither the time on hiring and retention. HR lost the influence programs. HR must develop talent. nor the training to it had enjoyed during make a case for them. do them properly. the boom. July–August 2015 Harvard Business Review 59 SPOTLIGHT ON RETHINKING HUMAN RESOURCES Why HR Is Still Hot Everywhere but in the U.S. Back in the 1950s, HR controlled the promotions and career of every manager at every level. For precisely that reason, William H. Whyte wrote in The Organization Man, it was the acquired on the job. The company teaches manag- most glamorous job in business. The only other time that ers how to do business in other cultures and in par- was true in the United States was in the late 1990s, when ticular industries—for instance, how to tailor their the labor market tightened up again and companies vied to IT services to chemical companies in Germany. All this is a matter of looking more closely at the become the “employer of choice.” environment in which the organization operates. It’s HR hasn’t fallen out of favor in have to deal with aggressive about continually identifying new challenges and other countries, however. In Japan government regulation of the designing tools to meet them. it is still the preferred track to the workplace, strong unions, political Acquire business knowledge. HR has (and C-suite. And in India, my studies support for workers’ interests, and should have) deep knowledge about workplace is- with colleagues suggest, it’s often a real shortage of people who sues. But it should also bring first-rate analytic minds arguably the most powerful of all the can even be trained for key jobs. into the function to help companies make sense of functions. Indeed, across Southeast Among developed countries the U.S. all their employee data and get the most from their Asia, top executives are investing has the most favorable environment human capital. in the training and development of for employers—and the least In a recent survey by Deloitte, HR leaders said employees and more-sophisticated incentive to make changes. they felt least prepared in the area of analytics—but systems, especially for hiring. Even in Ideology plays a role as well, Europe, which has a talent glut, HR though. The leaders who ran U.S. some are doing exciting work on that front. Not sur- appears to be growing in influence as corporations after World War II had prisingly, Microsoft and Google mine their own data companies recognize the importance broad training in and appreciation for to predict good hires, and IBM uses its enormous em- of organizational culture, knowledge management and used a governance ployee database to create project teams more effec- management, and so forth. The U.S. model based on balancing the tively. But companies outside the tech sector, too, are is the outlier. interests of stakeholders, who bringing analytics into HR. Cigna uses sophisticated The main reason HR is more vital included employees. Those leaders data to minimize its own health care costs and iden- elsewhere is that organizational have been replaced by people tify its best performers. Managers of Cornerstone power goes to the group that deals disproportionately from financial OnDemand (formerly Evolv) and other providers of with the biggest problems—an backgrounds, whose model of call center software are parsing simple jobs in a hun- idea dating back at least to the governance—maximizing shareholder dred ways to predict and then improve performance. great economist Alfred Marshall. value—awards no special role to the Businesses in the rest of the world interests of employees. In many businesses, CIOs and their teams are the ones wrestling with big data to solve classic HR problems, such as how to find the best candidates and which practices increase productivity. If HR is No doubt most HR departments were initially to set the agenda on people management, it must caught off guard by questions about whether prac- either staff up to handle those analyses itself or part- tices such as expat and rotational assignments actu- ner with people in the company who can do the work. ally pay off. The information they gathered tended Otherwise, the answers to fundamental HR ques- to focus on individual outcomes, such as job satis- tions will come from elsewhere in the business, and faction; they didn’t feel equipped to estimate finan- HR might as well pack it in. cial returns. But that excuse no longer holds. The Highlight financial benefits. During the tight enterprise resource planning systems of most orga- labor market of the late 1990s, an HBR article de- nizations contain copious data on turnover, produc- scribed how the HR team at Sears, Roebuck had dem- tivity, and other factors that suggest which talent onstrated that improved employee attitudes led to a development programs merit investment. better customer experience and, in turn, to higher Take IBM’s recent decision to retrain IT consul- store profits. (See “Employee-Customer-Profit Chain tants whose skills were obsolete. The company said it at Sears,” January–February 1998.) Few HR depart- would provide on-site training during working hours ments since have felt compelled to make the case one day a week for anyone who wanted to participate, that any of their practices could drive profits. Many but employees would share the costs by forgoing pay don’t calculate ROI, even though other functions for the days they participated. With that requirement have been expected to do so for at least a generation. baked in, it was relatively easy to make a financial That just feeds into business leaders’ view of HR as a case for offering the program: The savings in hiring cost center where the goal is always to cut, cut, cut. would be more than twice the costs of the training. 60 Harvard Business Review July–August 2015  WHY WE LOVE TO HATE HR… HBR.ORG Quantifying costs and benefits in this way turns company leaders say, “We will do this without our talent decisions into business decisions. own employees, by outsourcing or engaging contrac- Walk away from the time wasters. HR invests tors,” HR folks should be involved, because they’re heavily in many programs that lack impact. Consider best able to assess whether those engagements will the current preoccupation with generational differ- succeed. (After all, outsourcing is just paying to use ences. There’s little compelling evidence that they another company’s human capital and becoming even exist: Young employees today appear to be reliant on it.) But meanwhile, HR should also keep remarkably like young employees decades ago, and stepping back to study those initiatives in the aggre- they’ve always been a challenge to older managers. gate: What emerging needs do they point to? How do Their supervisors aren’t having any unusual prob- those needs map to the organization’s talent pipeline lems with them now. Nevertheless, many HR de- and practices? Which capabilities need shoring up? partments spend a lot of energy worrying about how Companies How are things likely to change in the marketplace, Millennials want to work. Given all the other things seldom have and what will be needed then? Why don’t we have to worry about, it shouldn’t be a priority to learn how long-term the ability to handle those tasks internally? That’s to manage one subset of subordinates differently. the kind of analytic counsel the “new HR” should Everyone wrestles with engagement and satisfac- plans with provide. Then its job is to help organizations act on tion; Millennials aren’t alone in that. But even if they straightforward the insights. were unique in their preferences, HR couldn’t make talent Consider the recent decision at Comcast to bring managers tailor the supervision of them—it doesn’t world-class IT capabilities in-house, which will allow have the authority. requirements. the company to develop its own software for man- The same is true for diversity programs. Em­ploy­ Instead they aging and delivering online entertainment. The HR ment law prohibits diversity mandates in hiring and generate challenge there is clear: attracting and retaining the promotion practices, so companies try to change line best talent in Philadelphia, which is not known as managers’ attitudes and priorities instead. But such projects and an IT center. But with HR’s guidance, the company efforts are effective only if top executives lead them, initiatives is addressing that in creative ways, such as build- transforming the culture. Otherwise HR is just a to address ing and supporting an IT start-up community and cheerleader for an initiative it can neither enforce nor targeting IT students and recent graduates raised in measure; its leaders will end up pleading with line successive Philadelphia for internships and jobs. This big bet on managers to take on yet another set of tasks, burning needs. the future rests on HR’s ability to pull all that off. up more social capital in the process. Tech companies such as Google, Microsoft, and Apple are now on the front lines of HR innovation, The Way Forward largely because they have an acute need for special- One of traditional HR’s biggest difficulties has been ized talent. Human capital is practically their only supporting business strategy, because it’s such a major asset; talent is in short supply; and competi- moving target these days. Companies seldom have tors are eager to lure employees away. There’s been long-term plans with straightforward talent require- some creative HR thinking in financial services as ments. Instead they generate streams of projects and well, to predict and ward off unethical behavior. initiatives to address successive needs. JPMorgan, for instance, is using an algorithm to But HR is by nature a long-term play. Developing identify employees who are likely to break the rules. talent, heading off problems with regulations and No crisis or scandal is necessary for HR to trans- turnover, building corporate culture, and address- form its practices, though. Nor should the function ing morale problems all take time. Often, leadership focus solely on innovations in hiring. Discretionary teams and priorities change before such initiatives effort—by employees who are engaged and willing to have paid off. And when companies don’t meet their give their best—is at the heart of organizational suc- performance goals for the quarter, those programs cess, and managing and developing people is the way are among the first to go. to drive and sustain that effort. So the time is ripe How can HR bring the long view back into or- for reimagining human capital much more broadly. ganizations? By reconciling it with the immediate Business leaders will see that—if HR makes a com- pressures that businesses face, which those one-at- pelling, evidence-based case for what matters, and a-time projects are designed to address. Even when jettisons what doesn’t.  HBR Reprint R1507C July–August 2015 Harvard Business Review 61