The general scenario in most companies is as follows. HR management teams have well-developed visions of their departments, their roles and responsibilities. But, the senior management is generally skeptical of HR’s role in the firm’s success. They generally consider HR to just be another necessary appendage but not something that can contribute to the success of the company. Even if the senior management does believe that human capital is their most prized possession and asset, they cannot understand how the HR team can make this belief come alive.
There is one reason for all of this. Human capital is an intangible asset and HR’s influence on firm performance is difficult to measure. The standard elements of a firm’s resource architecture that are measured include total compensation, employee turnover, cost per hire, percentage of employees that undergo performance appraisals and percentage employee satisfaction. The question to be asked is: Are these the measures crucial to implementing the firm’s strategy? This is clearly not the case. Interesting attributes would include a committed workforce, competency development programs, etc. But, it is very difficult to imagine measures for these quantities. Hence, in the current state of HR there is a clear rift between what is measured and what needs to be measured.
The role of HR is no more just administrative. It has a much broader, connected and strategic role to play. But, these statements must be substantiated. The reasons why HR must be considered as a strategic asset must be highlighted. A strategic asset is something difficult to trade or imitate. They are normally a set of scarce, special or even exotic resources and capabilities that bestow a firm its competitive advantage. An unlikely paradox is that the very intangibility of human capital that makes it so difficult to measure and evaluate, also proves to be the one quality that makes it a strategic asset.
Consider the difference between being able to align employee efforts with the company’s strategic goals and instead having innovative policies of performance appraisals. The latter is a policy. It is visible to competitors and can be easily copied. The former on the other hand is a strategic move. It is not easy to imitate since it is a very circumstantial effort, which depends on the specific firm, its goals and its people. This proves to be a strategic asset i.e. something that competitors cannot see but that can be utilized to gain a competitive advantage. It is thus important to align the HR strategy to the overall business strategy signifying a top-down approach as opposed to a bottomup approach where each division such as marketing, HR etc. performs its standard individual roles without a clear outlook towards the firm’s strategy.
Many firms have realized this and have made efforts to measure HR’s influence on the firm’s performance. However, most of these approaches seem to focus on the individual, as it is believed that if one can achieve an improvement in individual employee performance, it would automatically enhance the performance of the organisation. The point that is missed is the fact that organisational units, be it individuals or teams, do not function in isolation. The stress is on streamlining and cooperatively working towards a common goal. The individualistic approach once again does not show directly, in measurable values, the competitive advantage that can be gained. Financial policies and numbers and plans on the other hand do. HR is neglected in the process.