8 Tips for Value Creation for HR Professionals: Become Line Managers

Have you ever asked yourself why HR is considered a staff function?

Because historically they were administrators, managing the policies of the company and conducting HR jobs as labour management, hiring, firing, raises etc.

I gave a seminar on converting HR to a line function. We also worked on Creating Value in HR. Attendees included top HR managers from companies like Tata’s. They all agreed there was a need for HR to be more strategic and to become line managers. I think they are more strategic today but follow the business strategy instead of leading it.

How do HR professionals become line managers (other than managing their department)? First they have to understand they must influence the most important assets of the company to give the company more returns. To make this asset, the employee asset perform better, you have to create value for them. Many HR managers understand this. I was at the Randstad employer awards, and every HR manager talked about Creating Value. They had generic methods of Creating Value. Walk the talk, have values etc. But there was no real concentrated method or focus on Value Creation. What creates value for the employee? How is this value created, and communicated?

And to create value for the employee assets, actually the HR Head has to become the Chief Employee Value Creator. This means his other work has to become subservient to Creating Value and not the reverse. It is a change in mind set, which has been honed over the years to create value for the company, cut costs, show limited raises are sufficient, police policies and benefits and manage employees for the company with their departments and their bosses.

The second reason is that most companies are in the people business, because they deal with employees and customers. They are not in agri businesses, or hospitality but in the people business. And who better equipped to influence this people business than HR. One more reason for HR to be a line function.

The third reason stems from the HR’s Value Creation role. For too long companies have felt that shareholder wealth is really created or influenced more by CEO’s, CXO’s etc. may be 20 people in all. But if we get employees to create value, and this value creates value for customers, then the combined influence on the business and shareholder wealth will be much more than what would be created in the old top led regime that felt only a few people can influence shareholder  wealth. By getting employees to create value meaningfully, the HR department becomes the most important line department.

How can these people turn on their head and become the opposite of what they have been doing traditionally?

They have also to teach the employee to create value, which is what he does in return for the value you create for him. You have to increase his brand equity to increase the company’s brand.

There is an objection that having a Chief Employee Value Creator will act as a deterrent to get everyone involved. But the Chief Employee Value Creator works with the Chief Value Creator (the CEO) and aligns the entire company to create value for employees, through building employee strategies, and revamping the culture.

Perceived investment in employee development by the employee is very important, but when an employee perceives value is being created for him, he is powerfully stimulated. Value Creation for the employee includes the employees’ beliefs about the organization’s commitment to improving his competence and enhancing his marketability, both internally and externally. This is what I have called brand equity. Building the employee’s brand equity creates a belief of greater control personally of his development and future. Lee and Bruvold proved that in healthcare morale and dedication to the level that emotionally binds them to the organization and encourages them to stay on improved considerably (Lee and Bruvold: Creating Value for Employees).

John Ingham in a blog states that Creating Value requires that people are put first, not just current business objectives.  In other words, my take is that look at Creating Value for employees and brand equity of employees as coming first. Business results follow in the form of value creation for the company. This is different from looking at business results first and what to do next.

To make this happen, I propose an Employee Value Creation strategy which is managed by various departments and bosses, and the EVA and CVA are metrics for success and bonuses of the bosses (Employee Value Added and Customer Value Added where

EVA  =             Value added to your employees by you

Value Added by your competitors to their employees

 

And CVA  =                    Value added by you to your customers

Value Added by your competitors to their customers

 

And so the first place to measure the employee value creation impact is on the customers. All such measurements are versus competition. Business results will follow if customers are happier with your company. Note you must be measured against competition, because if all of the companies are the same the employee and the customer will have nothing to differentiate between them. They want to work where they perceive they will get more value, and if that is your competitor, that’s where they will go. Work on differentiating yourself by building next practices described here.

Value is the juxtaposition of financial benefits and non-financial benefits. A financial benefit may be non-financial in nature (they provide me with unpaid maternity leave for a longer time).

Suddenly the HR Head becomes the Chief Employee Value Creator, and because he impacts the Value Creation for the customers and thereby for the company, the HR Head become an extremely important line manager, shedding his staff garb, and finding a higher purpose!

As Gitte Larsen and Erica Skafdrup Hornemann stated:

The value-creating employee is the foundation for the working life of the future. In the industrial society it was about making the capital productive, and in the knowledge society it is about people being productive – it is people that Create Value. This makes it necessary to redefine the way we organise companies, organisations, management and working life.

They are making a strong case for ousting age old beliefs in working hours, employee expectations (discipline) etc.

Watson Wyatt in his book, the Human Capital Edge says:

“Focus on the basics. People are more alike than different.” It seems counter-intuitive when researchers use detailed data to identify the unique factors that make people tick, but we suggest that companies stop looking so hard for differentiating factors. I think this is important on an organisation wide Value Creation approach born out of measuring the EVA. Basics and fundamentals must be in place to Create Values. This includes the Values of the company and the culture for Value Creation.

An example is when Joie de Vivre Hospitality took over Hotel Carlton in San Francisco, they decided to give the housekeepers new vacuum cleaners every year. The cost was minimal but the housekeepers felt cared for and performed better, proving the age old belief that happy employees perform better.

The lesson is if your Value Creation Culture is not in place, customising Value Creation for each individual employee is useless.

But successful companies go beyond the generic set up to find differentiating factors for different individuals. This will get Value Creation to take hold. David Zinger suggested give people hints about the sorts of factors which may engage them (this approach also helps people understand the variety in the sorts of things which engage different people and work with them on customising).

All this builds the company’s brand. The Chief Employee Value Creator is then also seen as contributing to the company’s brand, another line function.

To recap, there are 8 steps HR has to take:

1.     Recognise the purpose of a business is to Create Value for the customer and thereby for the company

2.     To do so the company must Create Value for the employee

3.     Build an Employee Value Creation strategy and how to involve various departments. As employees create more value for customers, shareholder wealth will increase.

4.     The HR department has to reinvent itself with the HR head becoming the Chief Employee Value Creator, and help the company, various departments and managers to Create Value, and to believe that they are in a people business

5.     Measure Employee Value Added and Customer Value Added. Understand what value the employee is looking for

6.     Build a basic Value Creation Culture

7.     Customise or individualise Value Creation

8.     Correlate employee value, Customer Value and company financial metrics

Before we end, let us understand Value Creation better:

Value Creation is the primary aim of any business entity. Creating Value for customers helps sell products and services, while Creating Value for shareholders, in the form of increases in stock price, insures the future availability of investment capital to fund operations. From a financial perspective, value is said to be created when a business earns revenue (or a return on capital) that exceeds expenses (or the cost of capital). But some analysts insist on a broader definition of “Value Creation” that can be considered separate from traditional financial measures. “Traditional methods of assessing organizational performance are no longer adequate in today’s economy,” according to ValueBasedManagement. “Stock price is less and less determined by earnings or asset base. Value Creation in today’s companies is increasingly represented in the intangible drivers like innovation, people , ideas, and brand”. Create Value for employees!

So we have learnt HR managers can re-invent themselves to become line managers and transform themselves by becoming the Chief Employee Value Creator, by transforming companies to think of their business as a people business, and to help employees Create Value for themselves, the customer, the company and the shareholder.

Your comments are welcome.

Call at (+91) 9971288580

Gautam Mahajan, President-Customer Value Foundation

M: +91 9810060368
Tel: 11-26831226, Fax: 11-26929055
email: mahajan@customervaluefoundation.com

website: http://www.customervaluefoundation.com

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) focuses the entire company and its employees on Creating Value for the customer, thereby increasing Customer Value and Shareholder Wealth.

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