Toward a
new HR philosophy
HR should empower managers to decide on standards,
hire how they choose, and develop company-wide leaders.
What is the
appropriate role for the
human-resources function? Many companies view it as merely administrative, with
little or no strategic impact. Of course, HR leaders bridle at this perception
and regularly seek ways to have a seat at the table. In the quest to be viewed
as more strategic and more important, HR often tries to take on greater responsibility. Yet the gap between HR’s aspirations and
actual role persists.
I’ve observed this gap in a variety of
organizations, both as a consultant and as an in-house manager at several
multinationals. Fundamentally, I believe, the gap arises from two complementary
causes. First, executives and managers often think their job is to get
financial results rather than to manage people. Second, when executives and
managers neglect people management, the HR function worries about lapses and
tends to “lean in” to right them itself. On the surface, this approach seems to
meet an organization’s needs: management moves away from areas it views as
unrewarding (and perhaps uncomfortable), while HR moves in, takes on
responsibilities, solves problems, and gains some glory in the process.
But this approach is
based on erroneous thinking. It is bad for management and bad for the company
as a whole. When HR sees itself as manager, mediator, and nurturer, it further
separates managers from their employees and reinforces a results-versus-people
dichotomy. That’s why many HR teams refer to the rest of the company as
“the business”; too often, they don’t really perceive themselves as
a core part of that business.
Helping managers manage
I joined the online travel agency Agoda.com
three years ago to lead the HR function. Mindful both of problematic patterns
in other organizations and of a CEO deeply averse to traditional HR, I have
tried to build a different model. My department’s fundamental goal is to help
managers manage better, not to manage on their behalf. While we have a long way
to go—Agoda is still in many ways in start-up mode, despite having over 2,000
employees in 28 countries—we’ve made significant progress.
I believe that sharing our experience may
prove useful for other organizations as well. Our approach is based on a few
core principles:
·
Managers, not HR,
should define, live, and develop the company’s leadership.
·
Managers, not HR,
should do the hard work of managing people—hiring, evaluating, rewarding, and disciplining
employees—and managers should be evaluated on their results.
·
Employees, not HR,
should “manage up” and take responsibility for solving problems directly with
their managers.
In addition, we’ve taken the symbolic but
important step of renaming our department People and Organization Development
rather than Human Resources. We’ve also tried to hire the smartest and most
talented people we can find, regardless of whether they have traditional HR
backgrounds. Results so far have been promising.
Developing leaders
While leadership development should always be
a top priority for HR, many companies approach it in counterproductive ways.
One major division of a Nasdaq 100 company, for example, outsourced leadership
development to an external provider—not uncommon given the proliferation of
specialist consultancies offering this sort of service.
Outsourcing leadership development, though, is
risky. Perhaps not surprisingly, the management of this division was ultimately
taken over by a different part of the organization. In another multinational I
worked with, every level of employee development (from job candidates to
executives) was evaluated on a different set of leadership criteria, creating
confusion about what mattered for success. In addition, this company’s
high-potential pool varied by as much as 40 percent from year to year because
the assessment was so subjective. Although HR tried to treat these employees as
privileged and told them they were destined for great things, senior management
continued to fill open senior roles from the outside because it did not value
the “high-pos.” Predictably, many of them left the organization.
Rather than hand leadership development in its
entirety over to external experts, we’ve tried to build it from the inside. Our
CEO and senior leaders worked to clarify our own leadership characteristics,
the qualities that make people successful at Agoda, and the behavior and
principles that make it grow. We’ve shied away from evaluations based on
leadership potential because we are skeptical of our own ability to predict
future performance. Instead, we focus on behavior that we can observe now.
Individually, the leadership characteristics
we esteem are not unusual: most organizations, after all, value qualities such
as integrity and intelligence. But when we combine these with “thinking like an
owner,” innovation, and the ability to inspire others, we begin to define
leadership in ways that really matter in the Agoda context. We apply the same
leadership principles to every stage of the employee life cycle. We use them to
guide hiring decisions; we teach them in new-hire orientation sessions; we rate
them in semiannual performance evaluations; and we use them to assess an
employee’s readiness for promotion. This approach means that we have a set of
criteria for the skills and behavior managers should live by and employees
should believe in. It helps us to select and reward employees who contribute
the most to the organization, both in the short and the long run. Leadership at
Agoda is truly suited to the company.
Leadership is also something we expect of all
our employees, whether or not they have people-management responsibilities or
direct reports. We start teaching this principle and the relevant leadership
skills during the orientation of new hires, so that our values are clear from
the beginning. To make sure that the leadership style we teach is really our
own, we involve managers heavily in assessing the needs of the company,
designing and building curricula, and teaching. Not all managers are born to
play that role, of course, but we teach them teaching skills and cofacilitate
where appropriate. We strive to make it clear to everybody that our leadership
values are specific to our company. They are the rules we live by.
Letting management manage
As often as possible, we strive to ensure that
managers make the critical HR decisions. Managers have to live with the results
the people on their teams produce, so managers should be empowered to make
relevant decisions and held responsible for outcomes. If HR constrains
decisions too closely—by determining who should be hired, how much they get
paid, or their performance ratings—managers no longer have the freedom to
obtain the results they desire. In that case, it is neither logical nor
productive to hold those managers accountable.
With freedom, of course, comes responsibility,
especially the responsibility to make good decisions. One example is
recruitment. Our People and Organization Development team provides a flow of
qualified candidates, but it is the managers who conduct the interviews and
choose whom to hire. Our role is to provide managers with actionable data and
useful tools, such as an in-house recruitment certification program we are
building to develop hiring skills.
We also evaluate our candidates using an array
of standardized tests—an important approach for our global company, which, at
last count, employed people of 65 nationalities. Test scores help us compare
different candidates in a group with each other and with our current employees.
While we don’t have strict cutoffs, we are building guidelines that correlate
with performance. The goal is to enable managers to make better hiring
decisions through objective data.
Agoda applies the same philosophy to other people
processes, including performance assessment; our goal is to help shape
management decisions rather than make them. We’ve adopted an employee-scoring
system and work hard to communicate what the five-point scoring range means for
managers and employees. We do not try to fit every department’s scores to a
predetermined ratio. Instead, we take the data from each review cycle back to
department heads and ask them whether their evaluations really reflect their
departments’ performance—and what their underlying development needs really
are. We ask a lot of questions and share lots of data, but we don’t come up
with the answers. This approach, we believe, builds responsibility and makes
for better management over time.
As with performance, so with compensation: the
People and Organization Development team consults rather than controls. We do
not set strict minimum and maximum pay numbers. Instead, we research market
salaries and provide guidelines (but not limits) to managers. Departments make
compensation decisions because they are responsible for hiring the right people
and managing how those people perform. We make a particular point of not
setting predetermined caps for jobs (in technology, for example) that provide a
significant competitive advantage for the company.
Perhaps surprisingly, this approach does not
fuel extravagant pay. Department heads have an incentive to be conservative
with pay packages because senior management’s compensation depends on the
company’s profitability. At times, indeed, we encourage departments to pay more
than they first proposed to do. In addition, our CEO reviews all annual
compensation, providing a company-wide check and balance. If we conclude that
an employee’s contribution will justify his or her cost, we can compensate at
levels higher than industry norms. While this approach may lead to
inconsistencies in the pay of employees who are nominally at the same level,
we’re willing to accept this outcome. We believe that the resulting improvement
in company performance benefits all of our employees.
Dealing with conflict
Our philosophy of helping managers to manage
plays an important role when people problems arise. Traditional HR departments
often find themselves—or put themselves—in the position of mediator between
managers and employees. We try to avoid this role. Instead, our goal is to
empower both managers and employees with the skills, information, and best
practices to resolve problems together. We teach people-management skills not
only to managers but also to employees, who need to know that they are
responsible for helping to resolve problems by having difficult conversations
and “managing up.” This belief reflects our philosophy that leadership skills
are critical for everyone in the company.
Obviously, problems do arise, but we teach
employees that when they do, their next port of call is not HR but the
manager’s manager—or even managers further up the chain, up to and including
the department heads who report directly to the CEO. This approach is a challenge,
but it works when management is prepared to take on greater management
responsibility rather than say, “HR can handle it.”
People people
Last, we take a somewhat unconventional
approach to hiring into People and Organization Development itself. Our function
is quite lean, and we are rigorous about whom we hire. We test candidates and
make sure they are interviewed extensively, both by senior members of the
department and by our internal clients. And while some department members do
have direct experience in HR fields, a number—even some in senior roles—do not.
In fact, we usually rule out candidates with too much big-company HR
experience; we find them excessively bound to an HR-knows-best philosophy.
Instead, we look for very smart people with an interest in the field and a
desire to enhance the company’s performance from a people perspective.
International education, high test scores, emotional intelligence, and
commitment matter more to us than résumés that check the HR boxes.
Creating a different kind of people function
requires a shift in perspective from the department and company management
alike. We believe that HR best serves the company’s interest by analyzing and
sharing data, building skills, and developing leaders. The company’s
management, for its part, must take real responsibility for hiring, evaluating
performance, determining compensation, and releasing underperformers. This
shift is still a work in progress.
But as both sides let go of old attitudes, the false dichotomy
between employees and managers is beginning to fade. Our people are working
together, and our company is becoming more productive. By taking what appears
to be a less active role than other HR departments do, we are actually
gradually achieving greater influence and greater success—both for the company
and for ourselves.
byPeter L. Allen
FOR EXHIBITS SEE
http://www.mckinsey.com/insights/organization/Toward_a_new_HR_philosophy?cid=other-eml-alt-mkq-mck-oth-1504
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