Memo to CFOs: Don't Trust HR

A professor says most human resources professionals are ill-equipped to carry out value-added workforce planning and transformation.

David McCann - CFO.com | US

March 10, 2009

Addressing a crowd of about 300 financial executives this morning, a professor of human resources soundly denounced the corporate HR profession for being mostly unable to provide analytics that are useful in making workforce decisions that build economic value.

Most companies today spend too little effort on attracting and retaining top strategic talent and too much on satisfying the rest of the employee base, asserted Rutgers University's Richard Beatty, who spoke at a general session during the CFO Rising conference in Orlando. In fact, he claimed that typical human resources activities have no relevance to an organization's success. "HR people try to perpetuate the idea that job satisfaction is critical," Beatty said. "But there is no evidence that engaging employees impacts financial returns."

Beatty based this conclusion on employee surveys done at IBM and other companies that found little relationship between job satisfaction and performance ratings. Not only is employee engagement very expensive, but "how do you know you're not satisfying a lot of people you really wish weren't there?"

To buttress his argument, Beatty presented data from a Gallup survey on the performance of about 4,500 customer service employees at an unnamed major financial firm. The survey results, which were based on customer feedback, showed that the employees who scored in the top quartile had a positive effect on 61 percent of the people they talked to. The next two quartiles registered 40 percent and 27 percent positive responses, respectively, but there were enough neutral responses that the employees' net performance was positive. The lowest quartile, however, scored a net 2 percent negative impact.

"You'd be better off had you paid these people not to come to work," Beatty said. "You'd be a lot better off if you paid them to work for your competitor." The financial firm paid about $30 million in salaries and benefits to the employees in the lowest quartile, whose performance cost the firm as much as $50 million worth of business.

However, Beatty pointed out that this kind of performance variability means there is an opportunity to build a more valuable work force. Usually in such a situation, HR professionals try to figure out what the top performers are doing right, then train the others accordingly. That is faulty thinking, insisted Beatty, who asserted that selection is a more powerful predictor of performance than training. In addition, training may not be the problem - some employees may know what to do, but choose not to do it, opined the professor.

"HR wants to treat most employees the same way, and they spend considerable time trying to defend or fix poor performers, taking on the St. Bernard role," he said. "Low turnover isn't necessarily a good thing. Think about where you might want to disinvest."

Human resources is also behind what Beatty called the "silly" idea that a company should try to be the "employer of choice." If you are the employer of choice, he asked rhetorically, who's going to be applying for your jobs? "Everybody and their dog's brother," he said. "You want people who are excited, enthused, and understand how to contribute to what you do, as opposed to those who simply want to find a good place to hide out."

Beatty said that it is most important to think outside the HR department box when it comes to filling the strategic positions that create the bulk of a company's value. To that end, he suggested that companies might be better off appointing someone from outside the HR department to manage strategic talent. He pointed to Precision Castparts Corp., a $7 billion machine-parts manufacturer, as one company that has bypassed HR in several situations. For one, it reassigned an operations executive who ran a third of the company's 150 plants to take control of scouting for and retaining strategic talent.

Such tactics are warranted because while "the language of organizations is numbers, HR isn't very good at data analytics," Beatty said. "They don't think like business people. Many of them entered human resources because they wanted to help people, which I'm all for, but I'm also for building winning organizations."

It's the CFO's job to make sure that the work of analyzing and, as necessary, reconstituting the work force gets done by someone qualified to do the job, added Beatty, and there has never been more at stake than there is now.

"The labor market is in a position to provide you with better talent than you have ever had," said Beatty, co-author of the new book, The Differentiated Workforce. "If you don't emerge from this market with better talent in the roles that really make a difference, I don't think you're trying."