By Regan W. Garey, DBA, CPA
Item #: 61.15015
Chapter 2. The Seven Competencies
In recent years there has been a renewed enthusiasm within the HR profession. Open-minded, visionary members of the HR community are developing and promoting their profession. Several authors’ and researchers’ findings have gained so much popular support that they have changed the paradigm in the HR community.
What is all the excitement about?
HR competencies are in the forefront of numerous discussions, conferences, and Society for Human Resource Management (SHRM) meetings. For example, in the well-received book, HR Competencies: Mastery at the Intersection of People and Business, the authors illustrate the evolved “HR Competency Model” (see figure 2.1). In this chapter we will explore the application of these HR competencies to financial concepts.
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CORE HR COMPETENCIES
We start with discussion of the widely accepted six HR competencies (see figure 2.2), add our business literacy competency, and build from there.
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Your goal is to read and understand the key financial concepts related to your career and organization. That is where this survival guide will come in handy over and over again. Use this book as a resource throughout your career. Refer to it before management meetings or before you deal with your peers, subordinates, suppliers, or customers. Show them you can “talk the talk” and know the language of business: accounting.
This key competency is the cornerstone of the other competencies, according to Dave Ulrich. Basically, without this first competency the other competencies are less meaningful. It can be summed up as being accountable, taking initiative, and doing the right things the right way.
The Credible Activist focuses primarily on relationships and relationship building.
Cultural and Change Steward
Human resources has always been an integral part of promoting corporate culture. Since passage of the Sarbanes-Oxley Act of 2002 (SOX), the focus on ethical cultures has become even more important. According to Ulrich, of all the competencies, Cultural Steward is the second highest predictor of performance of human resources on both an individual and departmental level. In addition, change management is a key aspect of human resources.
Talent Manager/Organizational Designer
Talent management focuses on how employees get hired, get promoted, and make lateral moves, as well as how employees move out of the organization. Ulrich believes that human resources focuses too much on talent acquisition instead of organizational design. Ultimately, the talent of the employees must be aligned with the organizational structure.
This competency involves being able to recognize business trends and their impact on the business, while also identifying potential roadblocks and opportunities. This may be described as a SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Human resources can and should be actively involved in the business decision making within the organization by understanding how the business makes money, who the customers are, and why customers buy the company’s products or services. Having business intelligence is a critical steppingstone to having a “seat at the table.”
Some may argue that transactional duties such as drafting, adapting and implementing policies are the drudgery aspect of human resources. But Ulrich argues that these nuts-and-bolts activities are also critical to the financial success of the organization.
Financially literate individuals understand the interconnectedness of business decisions. They know how to interpret the financial statements; financial ratios; internal controls; red flags for financial waste, fraud, and abuse; and the new legislative acts that can have a tremendous impact on the accounting framework of their organization.
CREDIBLE ACTIVIST ALIGNED WITH BUSINESS LITERACY
Integrity, self-confidence, and knowledge. Harnessing these strengths simultaneously can lead to tremendous potential for an HR professional to become a strong voice within his or her organization. The Credible Activist must capitalize on both interpersonal and technical skills since these are the two cornerstones of this competency.
Per Ulrich’s research, the four characteristics of Credible Activist include:
Delivering results with integrity
Building relationships of trust
A certain level of assertiveness
One of the fastest ways anyone can lose credibility is to be a loud voice in the organization without knowledge of the business or to be a wallflower with immense technical and business knowledge but no voice.
This author proposes that there is a correlation between the characteristics of the Credible Activist and having business acumen. Specifically, understanding the concepts and terminology of business will allow the HR professional more opportunities to share accurate information with colleagues within the organization.
Relationships that are built on trust include the essentials of honesty and open communication. The Credible Activist understands the goals of the organization and can communicate those goals in an effective, professional manner.
People at all levels of an organization usually have know-how that can be of use to decision makers. Human resources should ask to what extent information is widely shared in their organization so that those who make decisions have access to such knowledge.
ALIGNMENT BETWEEN BUSINESS INTELLIGENCE AND THE CREDIBLE ACTIVIST
In this hypothetical example, the HR manager, Meggan Logan, approached Gerry Smith, the CEO of the organization, with a request for new computers for the HR department. Knowing that the CEO could be skeptical of this request, Meggan took it upon herself to first research the viability of this request. She did a cost-benefit analysis in which she was able to document that the new computers would increase productivity and reduce overtime pay within her department.
She reviewed the cash flow statement and understood that the timing of her request was important and that she had to understand the cash sources and uses throughout the year. She also knew not to rely that much on the income statement, which showed that the organization had earned a positive net income, since she knew that income and cash are not necessarily the same thing (more on that later). By being an informed member of the management team, Meggan made a financially sound request based on her knowledge of the financial situation of the organization.
Her request was granted by the CEO, who now viewed her as a manager who was looking out for her subordinates within her department but was also aware of the financial constraints of the organization. The level of trust between the HR manager and her department and between the CEO and the HR manager was enhanced because the information communicated by the HR manager was based on financially sound facts.
CULTURAL AND CHANGE STEWARD ALIGNMENT WITH BUSINESS INTELLIGENCE
Ethics and accounting and finance are strongly interwoven. If the HR department is not a strong advocate and promoter of an ethical corporate culture, a feeling of laissez faire (do as you want to) can permeate the entire organization.
As will be discussed in chapter 10, instituting and continually communicating to all employees about the whistle-blower option is the responsibility of human resources. This author maintains that the whistle-blower provision of the SOX is a back-up mechanism for organization-wide promotion of an ethical culture. Some smaller or non-publicly traded companies have not been required to institute an anonymous whistle-blower provision as part of the passage of SOX. However, many organizations have set up some sort of procedure in which employees can anonymously report unethical or fraudulent activities.
Human resources needs to be keenly aware that the culture drives the way employees view their role within the organization. For example, if there is a careless way of analyzing revenue recognition and the accounting department is not continually vigilant in its recording of revenue only when it is actually earned, other employees may sense that “anything goes” in that organization.
Unethical or erroneous transactions are often recorded and go undetected until they end up in the financial statements or until the auditors conduct their annual audit. Having management rather than auditors find errors or fraud is paramount to the viability of the organization, the sense of employee accountability, and investors’ perceptions of the organization.
Think about Enron and the role that human resources could have played if they were more aware of what can go wrong in an organization’s financial reporting procedures and techniques. The ensuing implosion of Enron speaks volumes about the disaster that can occur when corporate culture is not implicitly and explicitly ethical. The HR professional plays a pivotal role in promoting an ethical culture.
One way to verify that key management practices such as budgeting are accurately aligned with the culture is to conduct a culture audit. This author has created a corporate culture audit for this scenario. See the textbox for a small sampling of the questions.
The other aspect of this HR competency is change steward. It would be difficult to find any organization, large or small, that is not continually instituting some sort of change. Human resources must be diligent in supporting and promoting change that is occurring. The change can be something as small as a new target market for the organization to something as widespread and monumental as an acquisition or a merger.
INTERCONNECTION BETWEEN BUSINESS INTELLIGENCE AND CULTURAL AND CHANGE STEWARD
Software changes are often made within organizations that are undergoing expansion or are seeking cost savings and higher employee productivity. Many archaic forms of organizations still operate with the silo system wherein departments are making decisions independently of each other. Software changes are often instituted in order to integrate procedures and processes across the organization. Software engineers are often deployed to set up processes that input financial information with specific criteria for report format and content.
Human resources can become a key player during and after this process if and when they understand the financial metrics of the organization. For example, during meetings when these changes are being discussed human resources can ask questions of how the information will now be disseminated across departments and functions. Human resources can also recognize which information should come from each aspect of the business and how the end results should appear on the financials.
In this hypothetical example, our HR manager Meggan, along with other top management in the organization, developed an initiative to coordinate the many departments within the organization for improved integration of procedures and policies. Meggan realized that employee productivity could be enhanced with improved communications between the functional areas of the organization. Without integrated systems, Meggan knew that some procedures would continually result in duplicated efforts between various departments and those duplications are costly to the organization. Because Meggan was aware of many financial metrics used to measure employee productivity and profitability in her organization, she was an instrumental part of aligning the HR function with the business aspect of the organization.
TALENT MANAGER/ORGANIZATIONAL DESIGNER ALIGNED WITH BUSINESS LITERACY
Historically, human resources has been responsible for recruiting and training the best employees for their organizations. But the story cannot end there anymore. When human resources can assimilate top management’s strategic plans into their day-to-day activities (or better yet, be part of them), they can envision how the employees will add value to the organization both now and in the future.
In this hypothetical example, our HR manager, Meggan, had several meetings with the organization’s CEO, Gerry Smith, about the immediate need to hire a high-level marketing director. Meggan had anticipated the challenge of deciding on the compensation package that would be offered to the best candidate for the position since she remembered the financial aspect of this decision. During their meetings, Meggan and Gerry looked at the financial statements from the past two years and discussed the benefits costs for the new manager. Issues such as the organization’s recent income levels and cash flow were part of their discussions. Since their organization was in the manufacturing business, the issue of the increased overhead costs associated with this new hire had to be discussed. Meggan’s business literacy enhanced her strategic decision making role in the organization.
INTERCONNECTION BETWEEN BUSINESS INTELLIGENCE AND TALENT MANAGER/ORGANIZATIONAL DESIGNER
In a recent Time magazine article, the founder of Starbucks was featured as he discussed the company’s plans to reorganize and change its strategic focus in response to the weak economy. Creating and promoting new products is the focus of the company, which has been struggling to rebound from store closings and lower levels of sales. The other opportunity for the company is more expansion into overseas markets.
How can human resources be involved with this new mindset and strategy? Human resources can propose some new programs to strengthen ties to customers and grocery store owners. Human resources can become directly involved in finding the best people to conduct viability studies for overseas markets. By understanding the potential customers’ buying habits and deploying the right salespeople for these newly established regions, human resources can position itself as part of the value chain.
Human resources also plays a key role in the following areas: global workforce assessment, forecasting, recruitment, planning, and development.
STRATEGY ARCHITECT ALIGNED WITH BUSINESS LITERACY
For many years human resources has been a tactical rather than a strategic partner in most organizations. Strategic decisions are made, and human resources is tasked with the tactical or “make things happen” part of the process. When that aspect is the only part human resources sees, it is easy to lose sight of the vision or mission of the organization—especially during times of change.
Opportunity costs exist for every business decision made. Simply stated, if one course of action is undertaken, others cannot be taken simultaneously. It is one key mechanism or mindset to help an organization realize that there are always financial and time constraints and not all opportunities can materialize at the same time.
There are costs and benefits associated with every decision made. The goal is to maximize benefits and minimize costs. But what are those specific costs? If human resources is aware of the numerous costs involved in any decision or project, they are more likely to become part of the solution rather than be an afterthought for top management. For example, understanding fixed overhead costs and variable costs may help human resources be a partner in the decision making process.
Most importantly, if HR professionals understand the financial constraints and opportunities for new strategic directions, there will be more synergies between management of all departments within the organization. Human resources will be on the inside of these key management decision-making processes.
In this hypothetical example, CEO Gerry Smith had asked to meet with all of his top management. Along with other members of management, the HR director, Meggan, was invited to offer her input into the decision of how a potential merger would have an enormous impact on the organization. Trend analysis was one of the many financial tools used during these meetings (more on this topic later). Management assessed the profitability trends and analyzed cost savings that could occur from a merger with another organization. From a strategic architect perspective, Meggan understood the many financial ramifications of this key decision. For example, she realized the importance of reviewing the statement of cash flows to see the sources and uses of cash in recent years, the level of retained earnings to see how much of recent earnings were retained in the organization, etc. Meggan’s understanding of the financial strength of her organization gave her more credibility.
BUSINESS ALLY ALIGNED WITH BUSINESS LITERACY
This competency is the foundation for this book, so it will be approached and discussed in a slightly different manner. Becoming business literate is the most critical aspect of being a member of the decision making team of any organization. A comprehensive understanding of how the organization makes money, expands its market reach, and is financially sound all work in concert to help human resources ask and answer financially based questions in a convincing fashion.
OPERATIONAL EXECUTOR ALIGNED WITH BUSINESS LITERACY
In previous decades, HR professionals spent most of their time and energy on this competency. Operational Executor involves systems and processes that human resources both develops and follows up on. Recently there has been an increasing reliance on software systems throughout the organization. All employees including HR professionals have been coaxed or trained into using systems that exist to increase employee productivity and dissemination of information.
Internal controls are the veritable nuts-and-bolts of financial risk management, and they ensure that the financials will truly reflect the organization’s business transactions. Internal controls are numerous and varied, but basically they help prevent fraud, waste, and abuse of resources (more on this in chapter 10). Every aspect of the organization must be built on certain processes and procedures. Without these processes and procedures, the organization can tend toward eventual chaos.
Human resources must trust in their organizational structure despite the seemingly overreliance upon rules. Each department must ensure that there are common goals and objectives that are reflected in the processes and procedures. Employees rely on human resources to communicate the organizational goals and objectives.
In this hypothetical example, our HR manager, Meggan, hired a new HR vice president. This new vice president, Larry Lee, had no formal training on the financial aspects of the business but he was a very experienced HR professional. Larry did not recognize the critical aspect of internal controls’ role in preventing fraud, waste, and abuse and he had not learned about the financial risks of the business. Larry possessed great interpersonal skills but he lacked the ability to think strategically and he was not aware that the business’ departments could evolve into silos. Lack of coordination and communication between functional areas or departments within an organization can lead to an atmosphere of laissez-faire instead of a coordinated effort within the entire organization to reach organizational goals. His lack of business acumen was detrimental to his department and the organization as a whole.
In extreme cases, lack of continuity of processes and procedures throughout the organization will result in cases such as Enron. Enron’s accounting scandal could be partially attributable to the corporate culture and lack of strict internal controls. Turning a blind eye to other employees circumventing rules ended up hurting the entire organization. We all know the rest of the story of this financial disaster.
As seen from the numerous examples above, HR competencies from Ulrich’s research have so many interconnections to business literacy. As the HR community becomes more knowledgeable about the many financial ramifications of strategic and tactical decisions made within their organizations, they can help their organizations reach their goals and objectives more expeditiously.
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