Gone are the days of human resources teams being the basement's paperwork wizards. Operations expects HR leaders to be strategic partners at the leadership table contributing to the biggest problems they are facing on a daily basis—talent attraction, development, engagement and retention along with strategic planning and improving operational excellence. The bar has been raised, and HR leaders need to catch up to prove their value in their organizations.
HR leaders fought for a seat in the C-suite for decades, and now we're at the table. In order to stay there, we need to stay operationally savvy and valuable. And if you're still fighting for a seat at the table, learning the operational practice is how to get there.
There are four critical parts of an organization's operations that HR leaders need to have not only awareness of but also in-depth knowledge about how they affect the company.
1. Understand How the Revenue Machine Works
Every HR professional needs to be able to answer this question: "How does your company create profit?" It may be easy to answer how the business generates revenue. But can you map out the company's profit journey? Do you have your arms wrapped around how your role affects—positively and negatively—the profit of the organization?
For service-based industries (e.g., construction, engineering, architecture, consulting or accounting), HR needs an in-depth knowledge of billable rates, how billable rates are constructed, what factors are built into the rate and how compensation (directly and indirectly) impacts the billable rate. When HR fully understands the revenue machine, they can contribute to ways to improve profit and reduce risk in a valuable manner.
What does this insight look like in real life? Let's look at a couple of examples:
Example A: A service-based company. Let's say that labor and billable rates for the next year are set in Q4. Clients are notified and contracts are set based on rates increasing by 5 percent next year. However, in the new year, inflation begins to increase drastically in Q1 and Q2. And when it's time for annual salary increases in Q2, HR is now proposing a 7 percent increase in wages because of inflation, which would go into effect in Q2. If labor rates on billable positions are fixed until the next year, operations' profitability could be greatly impacted (a 2 percent flat loss) for the remaining two quarters of that fiscal year. HR's perspective may be that, in order to attract and retain talent for the remainder of that year, compensation levels need to be increased. And operations needs to be informed of the potentially negative impact, in the short term, on profitability.
Example B: A manufacturing plant. Say your factory produces 100 widgets a day. Employees are taking three to four breaks a day because the hard concrete floor and their steel-toed boots have led to lots of leg and foot pain. You dive into the claims analysis on your health insurance plan and see you've had a 10 percent increase in podiatrist and orthopedic visits this year, costing the company an additional $100,000. You also see a 10 percent increase in chiropractic visits for back and hip pain, costing another $50,000. You make a recommendation to operations to purchase new work shoes and padded mats for every line worker. The cost would be $50,000 up front, but you predict the breaks will decline to two to three per day, increasing output to 115 widgets a day. Operations may not have seen the $150,000 cost in health insurance claims or the increase in breaks. Your input can help the organization create more revenue and reduce claims, both impacting bottom-dollar profit!
2. Walk the Operational Walk
HR leaders need to spend time in the operational practice. If you're leading HR for a manufacturing plant, walk the plant floor to understand each role's primary responsibilities and how someone becomes great at that role. The more you understand each position and the tasks needed to complete it, the more you can educate your recruiters to screen for qualified candidates and lead the learning and development team to increase competencies.
Working in banking? Talk with the business development and commercial lending teams to understand what type of clients the organization is trying to attract. Then, train your front-line tellers to be the best customer service agents.
Too many times I've been told that an operations leader interviewed a candidate who never should have passed through screening. The applicant clearly didn't have the appropriate skills. HR can no longer be so distant from the operational work that they misconstrue a well-written resume for a relevant candidate.
Easy fix: If you're struggling to understand your industry, study the job descriptions that exist. Meet with a cohort of people in each role to ensure those job descriptions are accurate. if they're not, edit them to accurately reflect the role and responsibilities for that job. Ensure each role has an up-to-date job description; this will help you understand what each role is doing and how they contribute to the organization's success.
3. Embrace HR Tech Advancements—Particularly AI
HR leaders who are forward-thinking innovators can bring value to the CEO and COO to create change in a meaningful way. If HR is not leading the way in innovation or your specific talent pool, it will be led by someone who may not understand how technology impacts (positively or negatively) the people.
Artificial intelligence is changing at lightning speed and can be of great value to an organization—if it's handled wisely. HR's in-depth understanding of how AI can advance the organization to create more profit and increase talent engagement will be of irreplaceable value to the operations teams.
If people leaders remain antiquated with an attitude towards AI that it's "just another fleeting fad," they will ultimately be replaced in organizations with tech-embracing leaders. In the 1980s, when personal computers came on the market, companies that resisted the technology quickly lost their footing. AI is proving to have the same presence. Organizations will either understand how to wisely implement AI into their organization or they'll lose their footing. If your organization is not finding its technological edge, the best applicants will lean toward companies that adopt newer technological advances.
4. Prepare Your Company for the Future
With the developments in AI and other advancements in technology, people leaders who can implement change management and organizational design will prepare their teams well for the future.
Organizations that are scaling quickly need this support the most. HR leaders can have the biggest impact not by looking three to six months down the road but by trying to prepare for three to six years in the future. What roles will you need? Who internally can be trained to prepare for that role? And what roles will you need to bring in from the outside?
In a small to midsize company, some operational leaders may not be open to the idea of outside talent being placed in high-level roles. If you construct a talent book assessment and determine that a particular skill the organization needs does not exist internally, begin preparing your leaders now for the thought of bringing in an outsider.
The bottom line: HR no longer has the luxury of sitting in the office plugging data and focusing on the standard HR practices. To get a seat at the table—and to remain there—we must forge our path as operational powerhouses that bring value to the bottom line today and show our plans to continue to bring value for years to come.
Whitney Proctor, MBA, SHRM-SCP, is the people operations leader at Hutton, a Kansas-based design-build construction firm.