It has long been established that Human Resources (HR) departments play a pivotal role in shaping corporate culture, cultivating collaborative work environments, and retaining a diverse pool of top talent. Today, however, the impact of HR practices extend starkly beyond people management. According to a new study by The Boston Consulting Group (BCG) and the World Federation of People Management Associations (WFPMA), titled How to Set Up Great HR Functions: Connect, Prioritise, Impact, HR capabilities correlate highly with a business’ economic performance.
The report, the eighth in the annual Creating People Advantage series, explores emerging trends in HR. For this year’s edition, we at BCG, amassed survey responses from more than 3,500 executives across a slew of industries in more than 100 countries, including the UAE.
In parallel, in-depth interviews were conducted with 64 HR and non-HR leaders.
As part of our research process, we also examined the ten-year stock performances of the public companies in Fortune magazine’s “Best Companies to Work For” rankings in 2014, and compared them with the S&P 500 Index.
The result? The 100 best companies – those with optimal HR performance – outperformed the index by nearly 100 percentage points.
In line with these findings, we studied the foundations of great people management and three core elements emerged:
First and foremost, a world-class HR department serves as a true partner of the business. This means it boasts a powerful people strategy – comprising multi-phased recruiting and communication processes – that is inherently aligned with the company’s overall business objectives.
Moreover, strong HR divisions develop critical capabilities designed to support the company in the execution of its operations.
More importantly, they have a deep understanding of business targets; this, in turn, enables them to anticipate future management training and development needs.
Secondly, the link between HR prowess and financial success, can only be established if HR leaders can quantify workforce performance. This entails generating and reporting people-based Knowledge Performance Indicators (KPIs), which carry the data for formulating strategic solutions, and having automated processes in place. In short, people analytics, which shed light on people management processes, are an indispensable tool to help HR functions impact the business.
Lastly, robust HR departments relentlessly focus on self-improvement.
They identify their organisations’ most urgent priorities and target their people management-related investments accordingly. Urgency is assessed based on the gap between the current capability level and the future importance of a specific HR topic.
To highlight the biggest priorities for companies in different regions and industries, the report looked into 27 HR topics.
In the UAE, for example, leadership was ranked as the topic most urgently in need of action, followed by performance management, and HR & people strategy.
Interestingly, performance management ranked considerably lower, in terms of urgency, across most of the other countries. No other country actually mentioned it among its top three topics.
This indicates that, in the UAE, HR leaders must focus their efforts on developing management’s leadership skills.
Based on the report’s findings, they, essentially, need to connect with internal stakeholders, outline clear priorities to enhance their HR functions, and use HR KPIs to support their organisation’s strategic goals.
After all, doing so could help them significantly drive their company’s financial and operational performance.
Christopher Daniel is a principal at the Boston Consulting Group
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