Business Acumen: Building a Better HR

By Peter Cappelli Dec 18, 2015
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HR Magazine December 2015​In the past year, we’ve seen articles proclaiming that it’s time to “blow up” HR in order to rebuild the field to be more focused on the bottom line. HR is in part unpopular because it makes people behave and enforces policies about how every employee, including executives, must interact with others.

Nevertheless, it’s hard to deny that HR is often perceived by corporate leaders as being out of step with the rest of the business. Indeed, according to an article in the Fall 2015 issue of People + Strategy, business leaders both inside and outside the field consistently rate HR as moderately satisfactory at best in terms of skills and effectiveness.

The most frequent and persistent criticism is that HR can’t connect to the language of finance, which defines how business operates. Every HR professional can ensure that this doesn’t hold true for himself or herself by developing business acumen. What’s the best way to do that?

Here are three tips for sharpening your strategic skills in 2016:

Recognize that good HR is about making choices. There is no single best-practice model. Rather, your policies should be predicated on what works well for your particular business. It makes sense for some companies to outsource their hiring, for others to avoid the use of incentive pay and for still others to refrain from using employees at all for certain tasks. Knowing what to do when is the key—and that requires understanding business strategy. This is the first step to figuring out the different ways companies can compete and succeed.

Learn enough finance to understand the factors that drive shareholder value. It isn’t enough to understand how to calculate a rate of return on investment. You must be able to articulate arguments in terms of return on investment. Learn enough cost accounting to grasp how the metrics you collect—about engagement, retention, benefits, etc.—lead to improved organizational performance and a stronger bottom line. Become fluent in the language of numbers and balance sheets.

Choose your continuing education options wisely. Many courses in HR don’t reflect the issues of today. Some classes are based on 30-year-old texts. While books and curricula have all been updated, the old corporate model, in which employees were hired for life, remains at their core. Many are disproportionately focused on compliance, job analysis and training programs. While those topics still have a place in HR, today’s professionals must also learn how to partner effectively with vendors, manage organizational change, shape corporate culture and navigate the conflicting demands around executive compensation.

So instead of detonating HR, let’s embrace the evolution of its mandate. It’s growing just like all the other functions of business in our rapidly changing world. And that can’t happen without a little pain along the way. But the investment of time and effort will be well worth it in the long run.

Peter Cappelli is the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources.

​​See an Overview of What HR Needs to Know in 2016​​
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