Why CEOs need to invest in HR

Strategy is a promise made by the few which must be delivered by the many

When your business develops and communicates its strategy, it is making a promise to stakeholders about how it will create value over time. This promise must be met with confidence, both internally and externally. Most importantly, it must be kept.

By making this promise, a cheque has been written which must ultimately be cashed by the knowledge, skills, systems, processes, behaviours, physical structure and assets of your organisation acting together. We call this alliance of elements “organisational capability”. Effective strategy execution requires a balance between strategy and organisational capability. If there is too much of a mismatch, the strategy may be delayed, diluted, or even destroyed.

The role of HR in strategic execution

Organisational capability is divided into three pillars sitting under the strategy:

1. Demand – this focuses on identifying growth and performance opportunities and turning them into products, services and propositions that underpin the strategy and drive competitive advantage.
2. Supply– this involves identifying the resources needed to satisfy demand and putting them in place as and when required.
3. People and Organisational Enablement – this focuses on the people and organisational implications of the strategy, identifying risks and ensuring the business is equipped to deliver.

Yet, all too often, the People and Organisational Enablement pillar is overlooked. This leads to a two-dimensional strategy which lacks necessary input. As a result, key risks to strategy delivery may not be identified until it is too late, leading to higher costs and delays.

In my experience, CEOs understand the importance of talent in executing strategy. But there seem to be disconnects and inconsistencies in follow-through to those functions in the organisation whose expertise is required to identify and build the necessary capability.

Start thinking about HR in terms of return on investment

Research by Gartner reveals that the average HR functional spend as a percentage of revenue is just 0.74%, the lowest among all functions. This underinvestment, along with steady headcount erosion, has trapped HR in operational rather than strategic mode, reinforcing its perception as a 'support function'.

To break this vicious cycle, CEOs must encourage the organisation to recognise HR as a 'value enabler', worthy of investment. They should give HR the mandate to implement critical disciplines such as Strategic Workforce Planning and Organisational Development. In return, HR must step up and demonstrate its capability to contribute at a more strategic level.

However, while HR is seen as the guardian of development spend for the wider organisation, getting HR to spend money on its own development is moving from difficult to impossible. This creates a perfect storm where the need for the People and Organisational Enablement pillar has never been greater, yet HR's capability gap is becoming more acute than ever.

In the short term, HR is stuck in reactive mode, focused on tactical external recruitment rather than building sustainable, segmented talent strategies. In the longer term, this limits the organisation's ability to identify and mitigate risks in strategic planning. Without the ability to step back, apply its expertise and educate the wider business, HR plans and activities risk being unfocused and disconnected from the business reality – again, fuelling the vicious cycle.

A call to action for CEOs

I urge CEOs to ensure HR has the capabilities and tools it needs, and to start thinking about HR in terms of return on investment, not just a cost. This empowers HR to focus its resources, time and effort on the things which make most difference – driving better bang for buck right through the people value chain.

At the very least, the promise made by the strategy requires a change in thinking. There is very little more fat to come out of HR; in fact, we are well into muscle in most organisations. Muscle that you need to deliver against the promises made. And we cannot starve ourselves to performance.