Strategic HR
1st Annual Study on State of the CHRO India
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Role of the CHRO has moved from just compliance and control to include strategic partnering in business
7 out of 10 CHROs surveyed in this year’s Study agree that business exposure is critical to be a successful HR leader. But only 4 out of 10 have ever served a non-HR role (with only 10% of those having led a sales role). Willingness to build business acumen is there as 80 per cent of CHROs surveyed plan to take a non-HR role soon. The question is: Will the CEO wait?
What do CEOs want?
Survey-after-survey, fingers have all pointed towards human capital as the most worrying factor that keeps CEOs awake at night. The most distinctive differentiator for competitive edge in today’s business context is talent. HR being the owner of human capital makes the role crucial in organizational growth and business progression.
While core expectations from CHROs remain the same, CEOs today expect their HR leaders to also get actively involved in solving business problems. Julie Gebauer, Managing Director, Towers Watson clarifies, “Role of the CHRO is to help organizations and people become more effective. That has been the case, it will always be. What’s changing is the level of impact that HR has on business. Role of the CHRO has moved from just compliance and control to include strategic partnering in business and while doing that, HR needs to think of the future in terms of talent and skill so as to help the company move forward, especially as companies are now globalizing at a fast pace.”
This year’s Study reveals four key competencies that are high on demand from CEOs:
• Business acumen and strategic partnering: Requirement for business and strategic acumen has amplified more than ever. While processes and compliance continue to be grounded in the CHRO function, the emphasis today is on business understanding and strategic partnering that can contribute to the future of the organization. As per our survey, even the CHROs are aware that having business acumen is critical to the CHRO function with 78 per cent believing that deep understanding of business model and business levers are the most important elements to be a successful HR leader. Business acumen should be complemented by the ability to connect business requirements with talent capability. “Best of the HR leaders are those who know the pulse of the company and can keep it thumping by connecting people’s purpose to organizational goal,” says Anurag Goel, Co-founder and CEO, CACTUS Communications. An ideal CHRO is said to bring a baggage of business exposure such as sales, operations or finance, and at the same time be intuitive when it comes to people management.
• Ability to finding innovative ways of attracting & retaining talent: More than half the CHRO respondents have identified attracting and retaining key talent as their top challenge. The CEOs expect the CHROs to understand the requirements of different generations that form the workforce and want them to apply innovative attraction and retention strategies that suit different segments of employees. It is important for CHROs to understand the finer nuances of employee requirements and strategically and innovatively build an engaged workforce, believe CEOs.
• Lead change and manage culture: The survey reveals that as many as 7 out of 10 are struggling with architecting the right organizational culture and only 36 per cent of the CHROs surveyed have had experience in building a strong and enabling work culture. As globalization deepens, and business landscape evolves, CEOs expect CHROs to take responsibility in building a unifying culture, which is capable of showcasing one single organizational identity. “CEOs are looking at HR who can manage change and act as stewards of culture in a world that is constantly getting challenged by evolving customer needs and increasing globalization,” says Sandeep Chaudhury, CEO, Aon Hewitt Consulting, India. In an environment of stringent competition, not just locally but also at the global platform, constant introduction of pioneering services and products has become the key to success; CHROs have to lead this change in business and organizational design and at the same time manage culture.
• Tech-savvy and digital acumen: Revolution brought about by technology has digitalized every aspect of the drivers of business. Continued experiment with technology makes the previous ones irrelevant one after the other. That is why it is necessary for CHROs to keep up-to-date when it comes to technological innovation to create organizational effectiveness. But 35 per cent of surveyed CHROs find it challenging to keep up with technology upskilling. The HR function for the longest time was thought to be a qualitatively driven role, but CEOs want more predictability and measurability from the HR function. “While some believe HR to be opinion based, I believe HR to be solely evidence based,” emphasizes Julie Gebauer. CHROs should be data driven and be able to quantify return on investments by promptly leveraging technology. However, our survey reveals that more than half the CHROs struggle with measuring ROI of HR initiatives.
While the expectations from CEOs are increasing, there is also a flipside to these expectations as the HR function is not an HR person’s job alone. “CEOs actually do not fully acknowledge that the HR person’s job is to facilitate HR processes, but the real owners of HR need to be the business leaders, including the CEO,” Arvind Pandit, CEO of ViaHRx points out.
Where do CHROs stand?
This year’s Study reveals that 9 out of 10 CHROs surveyed agree that their role has become both critical to business and more challenging than before. Here is a snapshot of the DNA of the CHRO in India.
CHRO’s Background: While only 2 out of 10 CHROs surveyed believe that HR educational background with HR experience is the right career path for an HR professional to become a CHRO, the reality is that almost 80 per cent of the CHRO respondents have graduated in HR. Further, only 44 per cent have actually led a non-HR function during their career. The Study reveals that business education with joint business and HR experience is ideal career path for the aspiring CHRO.
CHRO in the organization: In the organizational structure, more than half the CHRO respondents report to the CEOs and 22 per cent also recognize the CEOs as their mentor (30 per cent of respondents admit they don’t have a mentor). In relation to their peer group in the C-Suite, 6 out of 10 respondents believe they are equally compensated. According to Mercer’s data, CHRO compensation in large organizations increased by 78 per cent in the last five years, bringing the CHRO compensation to over Rs 1 crore average of total cash compensation, at par with their peers, CFO and CMO. In small organizations however, the compensation growth for CHROs has not been as high as that of the CFOs and CMOs. The CHRO total cash average in small organizations is Rs 65 lakh, which is 26 per cent less than the CFO average total cash compensation.
The friction between the CEOs’ expectation and the reality of the HR leaders is likely to trigger a new generation of CHROs. ”This is the third generation of CHROs (the transformers) who are expected to be more agile and business centric in their approach,” shares Pankaj Bansal, Co-founder and CEO of PeopleStrong.
The future of the function
Ram Charan raised the idea of an HR breakup in which the administration and compensation side will report to the CFO and the side that deals with people capabilities will report directly to the CEO. This debate also circles the question on what within HR is core and needs to be taken in-house and what can be outsourced.
There is case that a lot from the operational aspect of HR can be outsourced and managed from outside because it may not have any impact on strategy. “The idea of HR breakup is not totally baseless; there are three components of HR that include shared services, center for excellence and business partner; if we look at the shared services part of it, it does not matter who takes up the function (CFO, CMO, etc.),” says Pankaj Bansal. On the other hand, core CHRO function of culture, change management, and organization building are critical to business and are strategic in nature. So these cannot be handed down to another department
Others argue that the focus needs to shift from splitting HR to building shared services. “With growing costs and tightening regulatory environment, the CHRO and the CFO would have to work together. However, it will be incumbent upon the CHRO to manage the balance with the ‘care’ and ‘compliance’ part of the equation. HR as a function is one of the most critical anchors to succeed in the industry and critical roles like Organization Capability and Development should be staffed by individuals who are able to integrate the right outcomes relevant to business and aligned to employee aspirations. Taking purely business view may not fully align employee aspirations and hence the ability to win in the marketplace will be hampered,” emphasizes Sandeep Chaudhury.
Regardless of the fact that HR breaks up or not, what matters to business beyond increasing the effectiveness of the HR structure is ultimately its impact in business results. It is important for the function to move from being transaction oriented to outcome oriented.
Ulrich’s three box structure emphasized the need for three components – Centers of Excellence, Shared Services on the operating part of HR and, Business Partners of HR who enable business.“When these three components are missing, the result does not get translated into the desired employee experience. HR departments do not have these components due to which the current structure of HR is not very effective,” claims Pankaj Bansal.
Progressive organizations around the world today are adding management and governance as one more layer to the present three-box structure. The fourth box ensures that HR gets delivered efficiently. “Having management with governance in HR structure is an important next generation development. Organizations are establishing the right processes and governance, setting up change management system and installing the right technology to support this transformation,” adds Julie Gebauer.
Building effective HR function: a two-way process
Today 97 per cent of the CHROs agree that HR function has become more critical to business, but at the same time feel it’s becoming more challenging; this mirrors the sentiment of the CHROs. “HR has always been seen as a backend function,” concludes Niraj Kaushik, VP, Application Business at Oracle. One has to give CHROs the flexibility to engage in business. “The problem comes from both sides. While CHROs are still looking through the rearview mirror, business leaders are not providing them with the equipment to look forward and get involved in business growth,” adds Kaushik. 80 per cent of the CHROs are willing to take up a non-HR role in the future. The question is will the CEOs support this transformation?
Get the full coverage of the State of the CHRO 2015 through the links below:
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