The One Number HR Needs to Know (Part 1)

It didn’t help that Jeff had just missed his connection to Las Vegas. He was already in a sour mood.  And now he was dragging himself into the hotel at one in the morning to attend a conference on ‘Best Practices in Human Resources’. Before he could even check in, he saw his co-worker Curt at the bar. Jeff waved him off and headed upstairs.

Over a cup of coffee  the next morning, Curt explained to him his strategy for making it through conference- a full day’s worth of Bulls**t Bingo. Jeff looked puzzled and Curt explained.

“Just listen to the speakers and highlight every time you hear one of the buzzwords on the card. First one to fill it up wins the first round of drinks.”

Jeff was annoyed. First the job, now this conference?  Work wasn’t fun anymore. It hadn't been for a while. Not just the mind-numbing meetings and the office politics. The job seemed pointless. How had he become a glorified personnel manager? He was the guy looking into the C-Suite and not really part of it, despite his VP title and corner office.

Jeff took his card and followed Curt into the large room, just in time to hear the keynote loudly announce: "HR needs to consider a unified finance and ERP system for competitive advantage”.

Curt gave him a nudge- "There you go, mark it out on your card."

The speaker droned on; something about building human capital. Curt whispered to Jeff. “Did you hear that? The guy just gave you a ‘two-fer’.  He used ‘empowerment’ and 'alignment' in the same sentence....at this rate, we'll be buying you drinks all night."

Jeff was checking his phone to see if he could leave town early. The next speakers were talking about competency models, team building, and talent acquisition. He was sure to fill his bingo card, but not keep his interest.

Still, he had three hours to kill before he could catch the earlier flight.

 He checked his program and saw the program title: "What’s Your Number?" Mildly curious, Jeff stood outside the door and listened.

The speaker introduced herself as Diana Wright.  After a blessedly brief introduction, she got right to the point: “How many of your firms made a profit last year?” A number of people raised their hands. “Keep your hands up. Now, how many of your companies created wealth?”  Heads darted around the room. There was an uncomfortable silence…and a few tentative hands stayed up.

Diana paused, looked at the audience and continued. “If you're not sure what I’m talking about or don’t have a way to prove your answer, you’re making my point:  Leaders in Human Resources have lost their way. You are too busy talking to yourselves and being inwardly focused.  You are busy counting- turnover rates, cost per hire or the number of training programs offered. Instead, I want to urge you to take an outside-in look at HR”.

“Take off your Human Resources hat for a second and think about what's important to investors, the C-Suite, and the Board of Directors.  They know that your organization should be a sustainable, value creation machine.”

She paused and looked at the audience.  “When you forget that the viability of your organization is measured by Shareholder Return and Economic Profit, your actions are misdirected.  So, my question to you is: What role is HR playing in building value and creating wealth?”

And more specifically, “What’s your number? What’s the total economic profit- both the current and future value you need to create?”

There was a shuffling of chairs; a few people left. Jeff walked into the room and took a seat up front.

Ms. Wright pressed on.” I’ve only got a few slides for my presentation. I’ll leave it to the other speakers to inflict ‘death by power point’.  Jeff noticed that got a few chuckles. “Here’s my first point”, she noted. “When people think about growing value, they consider three traditional sources. But when you look at the list, you’ll notice that it’s largely the domain of operations and finance.”

                                                 Traditional Value Drivers

•       Revenue growth,

•       Operating margins and

•       Asset efficiency

 Bad News:  Hard for HR to directly impact any of those…outside HR’s purview.

After pausing to answer a few questions from the room, Diana continued. “But there is an additional, less noticed source of value creation, called Organizational Capital- a set of capabilities that are directly within the expertise and control of HR.” 

                         Organizational Capital- The Hidden Value Driver

•       Increasing the speed, adaptability, and fitness of the organization to respond to the business environment, through the proper organizational design and the design of leadership systems.

•       Improving Operational effectiveness by skillfully deploying people and capital today, to increase the Current Value (CV) of the business.

•       Enhancing the capability of the company to innovate- to discover new products, services and business models that can increase the Future Value (FV) of the enterprise

 Good News: It’s what HR does or should be doing

Someone raised their hand to ask a question and while Diana answered, Jeff started thinking about his company.

Jeff continued thinking. He had more questions than answers at this point.  Still, he paused, tore up his bingo card, and walked up to the podium.