Human Resources-In / Human Resources-Out The difference between Performance and Effectiveness
Towards Human Capital Management
Organizations, both public and private, today demand that Human Resources specialists and each of their Leaders (all those who supervise personnel) develop and grow the most important capital they possess: "Human Capital". To understand the role of Human Capital, we first have to understand the concept of Capital.
We can define the Capital of an Organization, as: "the sum of all the assets it has", both tangible and intangible assets.
As tangible assets we can identify: cash, money in banks, inventories of products and materials, accounts receivable, etc.
By intangible assets we can identify: the strategy of the organization, information, human resources, organizational culture, brand value, institutional image, etc.
"In such a way, that the achievement of Human Capital is achieved only if we get people to make an impact in the Execution of the Strategy and in the Creation of greater Value."
Under this context of seeing capital as the sum of various assets, both tangible and intangible, one of the most important intangible assets is Human Capital. By Human Capital we have to understand the following:
- Human talent becomes capital, only if it impacts the Strategy and contributes directly to the Creation of Value. Human Capital is an “intangible capital”, which, when used appropriately, can become “creation of tangible value. ”For the organization. Human Capital only adds value, in the context of its alignment (contribution or direct impact) with the execution of the strategy
The two keywords for Human Capital Management are then: Strategy Execution and Value Creation.
By Execution of the Strategy, we understand the implementation, monitoring and adjustment of all those tasks necessary to achieve the objectives and future goals of the Organization. Within these tasks we can cite some of them:
- Establish critical initiatives and projects that drive the strategy Establish a budget that drives the strategy Install structures, processes, and systems consistent with the strategy Establish policies, procedures, and standards consistent with the strategy Install information systems that support strategy execution Design rewards and incentives that are closely aligned related to the execution of the strategy and the achievement of results Establish a leadership style that supports the execution of the strategy And more
We can then clearly see that one of the most important roles of human resources specialists is to directly impact the implementation of all these tasks, so that Human Capital is really created.
On the other hand, We Create Value when we satisfy or exceed the needs and expectations of all the Stakeholders of the Organization.
For leaders to understand, this symbiotic relationship, codependent (the results of the Organization depend on the achievements of the Stakeholders and vice versa) is critical for the sustainability of the Organization.
"Stakeholders are those groups of individuals whose objectives and achievements depend on the results of the Organization and on which, in turn, those of the Organization depend".
There are different types or groups of Stakehoders that an Organization must satisfy, both private and public, to guarantee the creation of value, such as:
- Consumers and / or usersCustomers and / or intermediariesShareholders and / or ownersDirectors and / or ManagersHeads and / or SupervisorsEmployeesUnionsCreditorsSuppliersGroups of influence on opinionCommunity associationsThe GovernmentEnvironmental groupsEtc.
How we see for each Organization these Stakeholder Groups vary, but internal and external are always present.
We can observe the number of Stakeholders that an Organization has to cover, each one of them has different demands and expectations, so the determination and prioritization of them is critical, to maintain an "Adequate Balance" in meeting those needs.
This concept of Adequate Balance is the central point in the long-term sustainability of the "business model" for a private Organization or the "political model" for a public Organization.
The Adequate Balance, means that the strategy of the Organization and its business model, must be articulated in such a way, to guarantee to satisfy the priority needs and expectations of its different Stakeholders, that is, to guarantee to satisfy employees, clients, consumers, shareholders, directors, union, etc (perspectives).
Various studies have been carried out in this context to achieve “Adequate Balance”, which show that any imbalance has a negative impact in the medium or long term on the sustainability of the Organization. For example, in the short term I could satisfy customers and shareholders, to the detriment of suppliers, employees and society, but in the long term, the Organization will surely get into trouble. Long-term sustainability for an Organization is based on the principle of “Adequate Balance”. Successful leaders are those who understand and work for this balance.
“It will undoubtedly be the key function of the future of human resources, Guarantee Speed in the Execution of the Strategy through People. People are the essence of speed of execution and value creation.
This principle of "Adequate Balance" is the origin of the concept of the Balanced Scorecard (BSC), which must be in essence a measurement system that guarantees the monitoring of the execution of the strategy, at the same time that it ensures the creation of value. for all the different Stakeholders of the Organization (multiple perspectives).
In such a way that we can conclude that we are creating Human Capital, when the human resources processes guarantee at the same time, directly impact the implementation of all the necessary tasks to execute the strategy and those necessary to satisfy the needs of all the various Stakeholders of the Organization. Creation of Value and Execution of the Strategy must be the primary tasks of human resources executives in today's world.
To the extent that the design of the Strategy guarantees more and more the principle of "Adequate Balance" of the various needs of the Stakeholders, then the task of human resources is simplified towards guaranteeing the execution of the strategy, an aspect that will undoubtedly be the key function of the future of human resources, “Guarantee Speed in the Execution of the Strategy through People”. People are the essence of speed of execution and value creation.
Seeing the Human Resources Organization as a Strategy Execution System and Value Generation
The change in focus of Human Resources Management towards the creation of Human Capital, in addition to these two concepts: value creation and strategy execution; it has been substantially accelerated by the increasing use of quality and high performance models, such as: the United States Quality Award, Malcolm Baldrige Quality Award, ISO 9000 standards and the most recent and popular Balanced Scorecard (BSC).
“This approach of seeing the human resources function as a system, occurs when the human resources processes are aligned with the strategy, to directly support the
guarantee the creation of value ”.
These criteria redefine the role of human resources towards the "creation of a high performance work system".
This approach of seeing the human resources function as a system occurs when the traditional processes of the area (selection, training and development, evaluation, compensation and benefits, career and succession, etc.) are aligned with the organization's strategy, to directly support the achievement of business objectives and goals and thus guarantee the creation of Value. The key principle is to "Align" the processes and functions of human resources, with the execution of the strategy to guarantee the creation of value for the different stakeholders of the Organization.
This alignment means that each of the human resources processes are redesigned to guarantee "maximizing the effectiveness" of each employee and thus achieving the execution of the business strategy, turning the human resources function as a true strategic partner in the value creation.
The purpose of this system is to accelerate the implementation of the strategy and the achievement of objectives and goals, to guarantee Organizational Effectiveness, through "attracting, retaining and motivating" high performance employees. The concept of "creating a system" is used to intentionally strengthen the human fact, it must first of all, see its processes as a system, not as a series of disintegrated parts.
To function as a system, human resources must see its functions as a series of "integrated events", which are directly interrelated with the execution of the strategy and the achievement of the objectives and goals of the business, to guarantee effectiveness in the value creation. This focus on seeing all processes as a system, not as isolated elements or functions, is an essential part of the redesign of human resources processes and the thinking of area executives.
The results of the organizations that manage to align their human resources processes with the strategic objectives and thus create true Human Capital, are more than evident, since as shown in "Graph No. 1", the organizations that have adopted and redesigned Their human resources processes to achieve a "high performance system", obtain on average more than double the results, than those that maintain their processes in a traditional way.
In Graph No. 1, the x-axis represents the companies that have redesigned their human resources processes to achieve what is required in high-performance systems, representing with "100 points" those processes that fully meet the requirements of this system and with "0 points", those that operate their processes in a traditional way; and on the "y axis", the results of the organization are represented, in terms of the "value of its shares per employee":
The results achieved in the investigation, which collected data from more than 2,800 companies, are summarized in Graph No. 1, which indicates that there is a correlation of more than 90% between both variables (compliance with human resources practices aligned to the execution of the strategy and the price of the shares per employee) this means that those companies that have managed to align their human resources processes, with the execution of the strategy and the creation of value, have a high probability of obtaining excellent results, while those that operate under the traditional schemes of the human resources function “do not”.
This shows the causal relationship (cause-effect), existing between the human resources processes aligned to the execution of the strategy and the results of the organization, with which we can conclude that an accelerator of the results of the organization are the practices of how they manage the human resources processes and their level of alignment with the execution of the strategy and the creation of value.
This alignment between the execution of the strategy and the human resources processes, guarantee Organizational Effectiveness, through "attracting, retaining and motivating" high performance employees, who are capable of accelerating the execution of the strategy and achieving high value. for all stakeholders. In such a way that the human resources processes (selection, training and development, evaluation, compensation and benefits, career and succession, etc.) must guarantee that each person achieves Effectiveness and Value in their work, more than just performance or results.
Performance Vs. Effectiveness:
To understand the difference between Human Resource Management and Human Capital Creation, you have to understand the difference between "Performance and Effectiveness."
Expressions of people such as: "we want to do it", "we work hard", "we work a long time", "we have a lot of work", etc., almost always make mention of the amount of work of the people and their performance to do it, but this does not guarantee that this work will be effective.
For there to be effectiveness, performance (people's work) must be aligned with the execution of the strategy and the creation of value, rather than the activity of “doing things”, the connection between those things that the companies do must be sought. people and the generation of value, which we call Effectiveness. When human resources processes are designed to develop people's competencies (knowledge, skills, and behaviors) that are aligned to the job function and the process, this guarantees performance, but does not ensure effectiveness.
For example, XYZ Company, aligned its human resources processes with the development of people's competencies for its processes, which consisted of making perfect "wooden squares". They select, evaluate, train, compensate, etc. based on these competencies. Over time the performance of the employees rose to the highest levels, thus ensuring the production of perfect wooden squares.
"Then we can measure the effectiveness, as the level with the human resources processes contribute to guarantee the alignment between the performance of the people, the execution of the strategy and the creation of value."
However, months later the company lost the market, until it disappeared, since I never detected that customers would require "wooden circles" in the future and no longer "squares". Although employee performance was excellent and HR processes supported this level of performance, they never created value for clients, as they lack the execution of the transformation strategy from crafting “squares” to “circles”. That is the difference between Performance and Effectiveness.
Effectiveness is achieved, when people's work is aligned with the execution of the strategy and the creation of value, otherwise, we are creating nothing but short-term performance and results, which perhaps in the long term, are the main problems performance of the organization. Performance does not necessarily guarantee effectiveness. Performance is the activity of doing, Effectiveness is the activity of achieving value with what we do. Then we can measure the effectiveness, as the level with the human resources processes contribute to guarantee the alignment between the performance of the people, the execution of the strategy and the creation of value.
The anachronistic models of competence development and design of current human resources processes, aligned with the tasks of the position and the operation of the process, disconnected from the strategy, or even worse, copying theoretical competency models from books or other companies or countries, which are driven by "false prophets" (consultants and academics who do not understand the difference between human resources and human capital) only contribute to creating performance, but do not guarantee effectiveness.
For many years, we have seen in Latin America that the main problem of the Effectiveness of Organizations lies in the fact that executives and mainly those of human resources, do not understand that the achievement of Human Capital is achieved only if we get people to impact on the Execution of the Strategy and the Creation of Value.
This paradigm shift must start from the very definition of the "job and function descriptors", which are already true "Position Effectiveness Systems", and which are the center where the various human resources processes revolve. See Graph No. 2 “Human Resources Effectiveness System.
The Job Effectiveness Systems include a series of elements beyond the typical ones included in the job descriptors, such as:
- The alignment between the objectives, goals and indicators of the position, with the objectives, goals and indicators of the Organization Strategic maps of the contribution of the position, aligned to the strategic maps of the Organization Competencies of the position aligned to the achievement of the execution of the strategy, Functions and tasks connected to the objectives and goals of the position and others.
Understanding the difference between Performance and Effectiveness is the fastest way to transform the human resources function into true generators of Human Capital.
Human Resources-in / Human Resources-out:
Taking into account the concepts of Human Capital and Performance vs Effectiveness, seen previously, a new model for grouping executives, the vision of managing people and human resources processes, emerges in the current business world, which classifies the function into two large groups: "Human Resources-in" and "Human Resources-out".
We speak of "HR-out" and "HR-in", according to the degree of alignment and contribution of the human resources processes, towards the achievement of the execution of the strategy, the business objectives and the creation of value for Stakeholders.
The current situation of the human resources function was evidenced by a study carried out in 2002, by the Balanced Scorecard Collaborative and the Society for Human Resources Management, on the situation of the Human Resources function around the world. 1,300 HR executives and 1,000 business executives participated in this study, which demonstrates the reality of the human resources function:
- More than 70% argue that HR "fails" to align (link) their plans, budget and effort, with the execution of the organization's strategy Only 20% see the role of HR as a "strategic partner", the rest as a "Personnel manager" The conclusion is that HR has a long way to go
Taking this report as a reference, we can clearly see how around 80% of the Organizations fail to align their human resources processes with the achievement of Effectiveness, which shows us the blurring of the function towards performance, rather than towards the creation of Human Capital In other words, we can conclude that the vast majority are considered as “Human Resources-out”, not as strategic partners that support the generation of Value through people.
A typical “human resources-out” department is one that is bureaucratic, task-oriented, which is static in its comfort zone of completing forms, developing policies, norms and procedures, communicating benefits and developing induction programs, to create and implement competency models oriented towards the process, to carry out training programs that only contribute to generating knowledge and skills for employees which do not help to create value, in short, trying to improve employee performance, but unfocused in the effectiveness, execution of the strategy and creation of value.
It is because of this approach towards operability and performance, that the Organizations have decided that many of the human resources processes should be managed outsourcing (outsourced to third parties), since they do not contribute to generating value, the question is: are the human resources processes which do not generate value? Or is it the vision of HR executives on how to manage staff development processes that does not generate value?
“The key question is: how is the human resources function seen in your Organization, as“ HR-in ”or as“ HR-out ”? Depending on the answer, it is the degree to which results are achieved and effectiveness is achieved in your Organization ”.
For these reasons, it is said that the human resources approach towards creating value and towards becoming a true strategic partner of the business is a vision, not a reality. If we still add to this reality of “human resources-out”, the fact that the true accelerators of the execution of the strategy and the achievement of value are people, we are still in a more problematic situation, since while do not change the vision of the human resources function towards achieving effectiveness, the results will not be the same and the impact on value may not be achieved.
On the other hand, a new class of human resources executives emerges, one that has managed to be a truly strategic partner of the business, "human resources-in", those who are focused on achieving effectiveness, through aligning their attraction processes, retention and development towards the execution of the strategy and the creation of value, those who truly contribute and understand that their role is in the speed with which employees manage to execute the strategy, those who manage Human Capital, and who achieve that the Organization see people as the most important capital, not as another resource, those who return to the individual being considered as the center of efforts.
Conclusions:
Organizations, both public and private, today demand that Human Resources specialists and each of their Leaders (all those who supervise personnel) develop and grow their most important capital: "Human Capital".
Human Capital is achieved only if we get people to make an impact in the Execution of the Strategy and in the Creation of greater Value. The two keywords for Human Capital Management are then: Strategy Execution and Value Creation.
We can then clearly see that the most important roles of human resources specialists is to directly impact the implementation of all the necessary tasks to execute the strategy and create value, so that Human Capital is really achieved.
To achieve this generation of Human Capital, it is necessary for human resources specialists to clearly understand the difference between Effectiveness and Performance. Effectiveness is achieved, when people's work is aligned with the execution of the strategy and the creation of value, otherwise, we are creating nothing more Performance and short-term results, which perhaps in the long term, are the main problems performance of the organization. Performance does not necessarily guarantee effectiveness. Performance is the activity of doing, Effectiveness is the activity of achieving value with what we do.
In addition, to achieve this generation of Human Capital, human resources processes must be designed as true systems for generating value and executing strategy, through the development of "effective systems for each position", which are the core of all Human Capital development efforts and processes.
The change in the vision and role of the function is great, so that human resources is considered as a true strategic partner, as "human resources-in", focused on the speed of execution of the strategy and the generation of value.
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