Strategic Business Knowledge for Senior HR Executives: An HRPS "Mini-MBA" Workshop on Financial Linkages

Article excerpt

For companies to create shareholder value, human resource executives must link human capital to specific financial success indicators and must assess how both financial and nonfinancial HR factors drive shareholder value.

To help HR executives determine those linkages, The Human Resource Planning Society recently held the workshop "Strategic Business Knowledge for Senior HR Executives: A Mini-MBA for Increasing Your Business Acumen" in Atlanta. The workshop featured leading consultants and practitioners, including Ram Charan, world-renowned consultant to top CEOs; Nancy C. Humphries, Vice President, Investor Relations, BellSouth Corporation; Michael Lanning, Chairman, The DPV Group, LLC; and William Rosner, Senior Vice President, Human Resources, PNC Bank Corporation.

Understand the Business-HR Linkage from a CEO Perspective

According to Charan, co-author of Every Business Is a Growth Business: How Your Company Can Prosper Year After Year, a linkage is a measurable relationship to core operating priorities that create shareholder value. Effective CEOs rely on the perceptual intuition-the "thought architecture"-to establish the priorities and positioning that move their companies into high price-to-earnings ratios with consistent, reliable, and predictable earnings per share growth rates.

The HR executive must understand the CEO's perspective: "Start with creating shareholder value," Charan advised. "That's what CEOs focus on. Master the one or two key priorities and link HR to them."

"Linkage is a mental activity," said Charan. "It is understanding what the financial anchors are [margins and velocity, and the resulting returns] and the shifting nature of the game [the company's positioning, business model, external context, competitors' positions, and set of targeted customers]."

How does the HR executive understand the CEO's perspective? Spend time one-on-one with the CEO, advised Charan, to "peel the onion until you get to the core"-to clarify anchors, priorities, and the shifting nature of the game. Then, focus on creating the "new gene pool" in positions around the CEO-for example, marketing, sales, strategic planning, and merchandising. Whether the "new genes" come from within the company or from outside, the CEO needs the right mix of competencies to achieve key priorities.

Focus on Earnings Growth and Strength of Management

"Understanding corporate strategy is Job 1," reported Nancy Humphries. "You need to know today's reality and tomorrow's vision." As Vice President of Investor Relations for BellSouth Corporation, Humphries manages investors' expectations by communicating BellSouth's strategies, financial results, and management philosophy to institutional and individual owners. She is also responsible for communicating investors' opinions to key internal decision-makers.

Corporate strategy centers on positioning the best value proposition to investors, said Humphries. "Stock price is the ultimate score card for the CEO," she noted. HR executives must ask the key question, "Are we a good investment?"-not "Are we a good company?" Sustained earnings growth drives stock price, and HR executives must have the right management, processes, and measurements in place to create sustained growth.

One approach for linking growth to management performance is through stock options. For example, Humphries said that at BellSouth options comprise 25 to 50 percent of the total compensation for executives, and direct ownership requirements are one to four times base salaries. Cash bonuses also are tied to growth in revenue and earnings.

Deliver Profitable Value in Terms of Customer Experiences

Michael Lanning, author of Delivering Profitable Value: A Revolutionary Framework to Accelerate Growth, Generate Wealth, and Rediscover the Heart of Business, suggested that HR executives focus on the experiences that their companies want customers to have. …