HR looks at business and itself from new points of view

By Beth McConnell Oct 13, 2006
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PHOENIX—Attendees at the Society for Human Resource Management’s Strategic HR Conference here ended their conference experience Oct. 6 by looking at HR and business from different perspectives.

What if, instead of competing with many other businesses for the same customer base, companies looked instead to develop new products and win new customers? What if HR took a long, hard look at itself—and its critics—and started doing business differently? And what if the business world took the advice of an economist from Chicago who said he didn’t know a derivative from a hole in the wall when he started his Ph.D. work?

The day began with author Renee Mauborgne, who co-authored the book Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant (Harvard Business School Publishing Corp, 2005). During the morning’s general session, she challenged the attendees to question whether competition is really good for business.

“The only way to beat the competition is to stop trying to beat the competition,” Mauborgne said.

In the book, Mauborgne and co-author W. Chan Kim give examples of companies that, instead of fighting with other companies in the violent, bloody “red oceans” for the same pool of customers, found new products or services to sell to an all-new pool of customers in the calm, wide open “blue oceans” of innovation.

For example Mauborgne said, orchestras have historically been very expensive, very exclusive providers of music. Their audiences have shrunk 30 percent in the past decade as their costs have skyrocketed. However, the Andre Rieu Orchestra, based in The Netherlands, has turned the traditional orchestra business model on its ear: The orchestra employs half the usual number of musicians; the conductor—Andre Rieu—is approachable and entertaining; and there are no famous, high-dollar star soloists. Instead, there are laser-light shows, fireworks and audience participation. Audience members are all ages, from babies on up, and tuxedos are optional.

The Andre Rieu Orchestra is making more money than the venerable London Symphony Orchestra and, through ticket prices, is grossing more per concert than Bruce Springsteen, Mauborgne said.

The model works, she said, because the music and atmosphere appeal to a wide variety of customers, instead of the same narrow market other orchestras are competing for. Costs to put on the show are low.

“You can reconstruct the environment in your favor to create all-new demand,” she said. “Find your noncustomer group.”

HR, take a hard look in the mirror

“I’m going to be provocative,” Scott Pitasky, general manager of Microsoft Global Staffing, told conference attendees at the start of one of the morning’s concurrent sessions. “There’s nothing comfortable about this.”

And he started off with an article that made many HR professionals do a career reality check: August 2005’s “Why We Hate HR,” by Fast Company magazine. The article was especially significant to Pitasky—he was the keynote speaker at a conference that sparked the writer to publish the article.

Paraphrasing from the article, Pitasky said, “ ‘HR is the key driver of business performance, and it’s also the one that consistently under-delivers.’ … There are a lot of things in the article that are true, and many things that are not true.”

To help attendees begin to over-deliver instead of under-deliver the HR goods, Pitasky shared his framework for a new approach to HR:

    • Reactive work is administrative. It can be done efficiently, and most HR professionals accept having to do it as a matter of course; for example, dealing with employee issues and compliance issues.

    • “Goodness”—Pitasky mentioned that he wanted to rename this category—encompasses the work that is vital to building the health of the organization, such as leadership development, building managers’ skills and succession planning.

    • And HR is playing offense when it uses skills and knowledge specifically related to what the business does to build a competitive advantage.

“A lot of the work HR does is ‘goodness’ or reactive,” Pitasky said. “There’s not as much work as there should be on offense.”

To build an HR team’s offensive skills, Pitasky said, the team needs the specific knowledge of its company’s industry. More often than not, he said, he finds that students with a master’s degree in business administration perform better and learn the nuances of the company’s industry more quickly than their peers with graduate degrees in HR.

HR staffs “haven’t really made business knowledge part of the job; you may know your business, but you can’t apply it” to other companies, Pitasky said. It’s the ability to create business strategy specific to the industry that sets top-performing companies apart—and that will enable HR to be a top player on the company’s strategic team.

For example, HR should know where to focus its recruiting energies for business success, Pitasky said. He discovered, when poring through budgets, that a significant chunk of advertising dollars was coming to MSN from international businesses. Later, when it came time to find a new vice president of sales and marketing, he pushed to find candidates with international experience to make the most of overseas contacts and sales.

“There are different elements to business strategy,” Pitasky said. “It’s my job to architect and execute [the HR piece] and know how my piece fits with others.”

‘Incentives matter’

Steve Levitt, professor in the University of Chicago’s economics department and author of the bestselling Freakonomics (HarperCollins, 2005), who eventually mastered calculus after his first semester of doctoral work, gathers data and interprets it in new ways—which is how he came to conclude that the Americans with Disabilities Act (ADA) discourages employers from hiring people with disabilities.

Though passed in 1990 to allow greater numbers of people with disabilities to enter the workplace, the percentage of employed people with disabilities has fallen from 60 percent to 48 percent since the law’s passage, Levitt said. Employers are afraid to hire people with disabilities for fear of having to make costly accommodations or being sued for wrongful termination if the employer decides to fire someone with a disability. The ADA, he concluded is a disincentive.

Also, prior to the 1980s, parents in the United States had an incentive to cheat the federal government by claiming as dependents on their tax forms children they didn’t have. However, a tax auditor suggested making a simple change to the 1040 form, adding a line to record the Social Security number of each child, and “7 million children disappeared overnight,” Levitt said. The tax auditor’s suggestion has saved the government $2 billion each year since that change.

“Incentives matter—incentives to cheat or to innovate,” Levitt said.

After the publication of his book, Levitt said, many businesses contacted him, wanting advice on how to compile, analyze and sort their data. The Central Intelligence Agency wanted to know how to hunt terrorists better. A bagel baker wanted to increase sales. Levitt told them that since he didn’t have any business experience, he didn’t want to be paid for the work, but he would like to dig around in the companies’ data for analysis. The trade-off seemed to work.

However, “I am not a business guru. So I am very ineffective,” Levitt said, adding, over the attendees’ laughter, that not one of the businesses for which he has consulted has acted on his suggestions. Admittedly, some of his recommendations were pretty radical, such as not advertising products in certain markets for months at a time, or during the end-of-year holidays, to see if sales went down or not. Don’t assume that sales will plunge, he said, citing a company that inadvertently failed to advertise for a three-month period in one city and didn’t see much of a change in sales.

Nonetheless, he had some words of wisdom for HR professionals, to encourage them to collect, measure and analyze the information they already have at their fingertips. For example, after each interview by a hiring manager, ask the manager to rank how well he thinks the new employee will perform. After a year or two, go back and see how closely the manager’s prediction matches the employee’s performance.

“You may find out who are the good interviewers,” Levitt said. “It seems like a simple, costless measure to test the interview process.”

Beth McConnell is associate editor for HR News. She can be reached at emcconnell@shrm.org.

For the latest HR-related business and government news, go daily to www.shrm.org/hrnews.

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