July 1, 2020
In an era where long term strategic initiatives are taking off across the GCC region, it is critical for HR functions, and more importantly HR leaders, to position themselves as strategic business partners in order to support organizations achieving their short- and long term goals.
Should we differentiate pay?
When working with clients on designing their grading frameworks and various rewards programs, I often get the question, “should we differentiate between support and core function leaders when it comes to grade (and naturally pay)?” In this context they generally refer to HR as well as Marketing, Finance and IT as support but this is more a classification of cost centers versus revenue generating functions. My answer has mostly been that it is a decision that needs to be made by the business leader, based on how he/she perceives the layer of function leaders below him/her. In my mind however, I sometimes found myself leaning towards ‘yes’ and at other times ‘no’ depending on the organization that I am working with. I never really thought about why that is until recently.
I have been doing a lot of work with clients on HR transformation projects over the past few years and through this type of work we had deeper and more complex conversations about HR topics and how improvements in these areas can add value to the business. With so many organizations embarking on HR transformation journeys to better position themselves for the future and adapt to the changes happening in the region, these conversations have recently become more frequent and it became clear to me why I was leaning towards a yes and other times towards a no.
The difference between transactional and strategic HR
If the HR function fits the description of what I like to call transactional HR, where the core focus is on payroll, visas, onboarding and off-boarding, as well as employee relations then I found myself leaning towards a yes. A leader in that function would occupy a lower seniority level and pay grade than the core function leaders which aligns with the label ‘support’ function. On the other hand if the HR function is strategic in nature and is driving initiatives around organizational optimization, workforce planning, strategic recruitment, effective learning and development programs, as well as intelligent compensation and benefits planning, then I found myself always leaning towards a no. Let’s not forget to mention the immense undertaking of implementing a state-of-the-art Human Resource Information System (HRIS) and digitization which is applicable to the latter group. The differentiation seems obvious when it is laid out like that, doesn’t it?
While identifying the difference was simple, it takes time to transform the transactional HR function into a strategic one.
Historically in our region, HR and the broader support functions have always been looked at as support. It has not been an easy task for HR leaders to change that perception, and in many cases, they were not even trying.
History will repeat itself
If you think about it for a moment, it quickly becomes clear that in today’s business environment an organization cannot achieve its full potential without a strategic HR function in place. We are starting to see a shift towards strategic HR and its importance in the Middle East region, but very slowly.
The good news is that this shift has already happened in mature markets so we have the opportunity to learn from that experience. The term CHRO first emerged in 1985 when it was mentioned in a Harvard Business Review article titled ‘Tailor Executive Development to Strategy’ by James F. Bolt. In short, the main reason for the term appearing was the urgent need for HR functions within organizations to step up from basic people management to becoming a strategic partner of the business. This is what is now happening in our region.
While HR departments are facing many challenges such as talent shortages, Merger & Acquisition activities, budget pressures, employee demands and disruptive new technologies, HR teams have a core role in leading the way to deliver bottom-line results by transforming talent practices and supporting the broader business strategy. Given the current COVID-19 crisis, HR functions have the potential - today more than ever - to become a valuable business partner in strategic discussions such as new ways of working, innovative business models and coming up with creative ways to address compensation and benefits challenges. With all of the negative impact the pandemic has brought on the world, it may actually provide HR leaders with an opportunity to show what they can bring to the table, if they decide to take it.
The bottom line is that business leaders in the region need to stop looking at HR as the people management or payroll department. Business leaders need to push more responsibility and accountability on their HR leaders, while also empowering them to make strategic decisions. What is equally – or even more important - is that HR leaders need to stop marketing themselves as personnel or payroll managers and position themselves as strategic partners who can truly add value to the core business. Not only will this enable businesses to be more efficient, but individual employees will feel the benefits as well. A well-managed business often has happier, more engaged employees.