Several developments, positive and negative, in recent years have influenced the need for additional human resource (HR) accountability. All point towards a need to know more about the connection between investing in HR and the payoff of the investment.
The triple bottom line
Much attention has focused recently on the concept of the triple bottom line. Not only must an organization be successful financially as demonstrated by traditional bottom-line measures, but it must also be successful with its employees and the external environment. The employee “bottom line” is not readily defined, but it typically translates into the organization having favourable work conditions, treating employees fairly and equitably, and compensating them adequately, while fully recognizing the potential and capabilities of employees in a diverse environment.
This measure has stimulated many organizations to search for ways in which to monitor, measure, and even value the employee’s contribution.
Consequently, there is sometimes pressure to address this bottom line, yet there is no clear direction of what it means. The external environment refers to the impact on and interaction with the community, the country, and the environment. Being a good corporate citizen and protecting the environment are two key issues.
Human capital management focus
The concept of human capital is perhaps overused these days because so much has been written about how to monitor, measure, and value the human aspects of organizations.
Nevertheless, a lot of work still needs to be done with this important topic. In its early movement, much attention regarding human capital focused in the area of HR accounting—an attempt to account for the value of employees through traditional financial reporting methods. The difficulty lies in the methods for assigning a monetary value on the contribution or capability of human “assets.”Although some progress was made, to date, very few results and examples have been offered.
The human capital management trend also grew out of early benchmarking work of the 1980s as HR firms began to benchmark data and compare key indicators. A variety of measures on compliance, compensation, benefits, safety, retention, and absenteeism were developed.
Today’s human capital measurement mix contains those measures plus others, such as leadership, innovation, employee engagement, and learning.
These new measures are critical to organizational growth and success. The challenge is to identify the appropriate blend of measures that reflect the status of human capital and enables decisions to be made about what to do with them.
Top executive demands
Senior executives are asking the HR function to show value. In some cases, HR is asked to show value or have its budget cut. Sometimes, value must be shown before budgets are approved. In a few situations, this concern has led to outsourcing of major parts or even all of the HR function.
For years, HR escaped this level of scrutiny as employers invested in human capital on faith. They inherently believed that the more they invested in people, the more people would respond to the nature of their work. Today, executives are asking for data.
Few organizations have the courage to admit to an HR disaster. The consequences of a flawed, ill-advised, or ineffective HR practice, programme, or strategy can make excellent reading, particularly in the popular press. Unfortunately, a growing number of these stories are making their way into the HR professional press. An intriguing example is an exposé of the cost of an ill-advised HR strategy developed by Rent-A-Centre. A decision to eliminate HR contributed to a $47 million payment required to settle litigation. The story is a classic example in which ill-advised practices and strategies went astray, not only costing a tremendous amount in direct payment but ultimately destroying the morale of the organization (Grossman,2002). Although these types of disasters are reported more frequently in the press now, hundreds of others go unreported but probably represent tremendous mismanagement of human resources.
From an accountability perspective, HR staff has opportunities to add value. If, however, HR programmes are mismanaged, the consequences can be negative. Appropriate data are needed to show how well programmes are working and demonstrate their contribution to the organization. A comprehensive measurement system can help prevent some HR disasters, thus minimizing losses and changing the image of the HR function from one of a nice-to-have auxiliary department to one of a critical business function that contributes in a positive way to the organization’s bottom line.
Perhaps no development has influenced the HR function as much as the advent of technology. Most HR transactions are now automated, including compensation administration, benefits administration, payroll, employee record keeping, recruiting, training, and orientation. Technology has eliminated the need for some HR staff. In certain cases, HR has been shifted to other areas (for example, finance or information technology), leaving some HR staff disconnected from where the work is often done. On a positive note, technology has enabled collection of tremendous amounts of data that were previously unavailable. Employee and performance data can be organized, integrated, and reported in meaningful formats, thereby providing HR staff with the tools to measure the impact of the HR function and major HR initiatives.
Outsourcing of HR services is an important trend among organizations during the last decade. Outsourcing means good and bad news. The good news is that many routine HR functions—not central to HR’s primary mission or values—can be outsourced. This trend was initiated primarily in the payroll and employee-processing areas but has now expanded to include almost every part of the HR function.
In some cases, the entire HR staff and processes have been outsourced to external providers who offer the same services. The bad news is that outsourcing is sometimes pursued for the wrong reasons. HR personnel fail to provide appropriate data and results to demonstrate the function’s contribution to the organization. Sometimes, outsourcing brings a short-term fix of immediate cost savings because fewer people earning lower salaries are doing the work. On a long-term basis, however, the result can be detrimental because satisfaction with the outsourced services can deteriorate.
The accountability trend of all functions
It is somehow comforting to know that HR is not the only function being asked to show accountability. Many other functions are undergoing the same level of scrutiny, paradigm shifts, and changes. To be sure, they areall more accountable for expenditure. Consider, for example, the information technology (IT) function. A few years ago, technology and IT groups had a blank cheque. They could implement almost any type of new technology, and it would be accepted because of the prevailing notion that technology was a competitive weapon that no firm could afford to be without. Unfortunately, many technology implementation processes were dismal failures that added tremendous costs but did not improve—or sometimes made worse— the very situations they were supposed to improve. In recent years, IT has been asked to show value even before investments are made and then carefully track the value to make sure that the projections are realized.
This scrutiny has caused those responsible for implementing technology to measure not only the return on investment (ROI) but also a variety of other qualitative and quantitative measures thereby producing a balanced profile of success.
A paradigm shift for HR accountability
The factors described in the foregoing sections have had a tremendous effect on HR functions and their attempt to improve the effectiveness, impact, and the overall accountability of the HR function. Because of these influences, three important shifts have taken place in HR functions.
Shift to a results-based approach
The approach to organizing, managing, and implementing the HR function has shifted from a traditional activity-based approach to a more results-based approach. The following are a few indicators of result based approach:
a) New programmes are initiated only after a legitimate need is established.
b) The emphasis is on having fewer programmes that offer great opportunity to make an impact.
c) Existing programmes are regularly reviewed, revised, or eliminated when necessary
d) HR impact is measured by determining the bottom-line impact of programmes on the organization.
e) Management is extensively involved and collaborates in the HR process.
f) HR is viewed as an investment in employees.
g) The HR staff is very knowledgeable about operations.
h) The HR staff is well versed in basic finance and business concepts.
Dr. Kellen Kiambati holds a PhD in business administration with a focus on strategic management from JKUAT and an MBA from KEMU. She is a certified business associate (CBPA) and a member of the Institute of Human Resource Management of Kenya. She is also the author of business Research Methods and can be reached on email@example.com