The Hindu Business Line : HR department weighing in on financials

Around 95 per cent of a company’s market value is reflected by its non-tangible assets or intellectual capital such as IPRs, quality of staff and loyalty of customers.

Prof. T.V. Rao teaches Organisational Behaviour at IIM-A

Divya Trivedi

The importance of human resource development in an organisation becomes apparent when we take into account the fact that around 95 per cent of a company’s market value is reflected by its non-tangible assets or intellectual capital such as IPRs, quality of staff and loyalty of customers. Only five per cent of the market value actually comes from tangible assets such as money and other variables.

Quoting studies by Father Abraham of XLRI and Dave Ulrich, Professor T. V. Rao, who teaches Organisational Behaviour at the Indian Institute of Management, Ahmedabad, has reinstated the importance of HR.

Ulrich is a management guru from the US and has spoken about how the financial position of a company is directly affected by its HR policies. He has written several books on HR including HR Competencies and HR Scorecard.

Speaking to The New Manager, Prof. Rao stressed that the HR managers of today were akin to business managers and decisions taken by them largely affected the financial performance of a company.

“Variables such as money have become abundant and can be made available within the country or elsewhere. But companies across borders are feeling the pinch of the talent pool which is irreplaceable. With attrition rates of 20-30 per cent becoming the norm, it is becoming clear that HR managers should evaluate themselves and implement changes effectively to retain their staff,” says Prof Rao, who heads TV Rao Learning Systems Pvt Ltd, an HR consultancy.

Short on trust

The proof that HR managers are not doing enough is the fact that employees maintain a cordial relationship with them but do not actually share their personal dilemmas or ideas with them.

“Will you tell your boss about the part-time private course you have taken up to improve your job skills? No, in fact you will resort to lies to hide the fact from him,” says Prof Rao. The reason being that such a move would be perceived as your dissatisfaction with the current job and position and your aspirations for another company.

“The point we are forgetting is that the HR department was founded years ago with the objective of gaining the employee’s trust and fulfilling some of his extra-curricular needs in view of the fact that he spends nearly 70 per cent of his day at work,” he says.

“Today, the HR department organises a picnic once a year, an office party every three months and thinks it has done the needful. But in effect, these do nothing to boost the long-term morale of an employee,” he adds.

The sorry state of affairs can also be attributed to the lack of connect between HR personnel and line managers. In order to bridge the gap, it is time that HR departments held an internal evaluation of their actions and found ways to improve the communication, he says.

In his book, HR Audit, Prof Rao provides a detailed methodology to enable corporations to conduct an internal audit of their HR functions. With the help of a score card, the company can determine where it stands in relation to specific variables. HRD systems and strategies are judged on the basis of interviews conducted with both line managers and HR personnel.

HR audit

Firstly, the line managers can be judged on their competencies, for example, their interest to learn. This is necessary, because if the managers are not interested, then whatever HR does would not be effective.

Secondly, the top management styles should be judged, which should not be too coercive or pin-pricking.

Thirdly, the culture of a company plays an important role in how managers deal with each other. An open culture goes a long way in winning the trust of the managers and reducing misunderstandings.

The attributes that go into making a healthy culture can be spelt out as OCTAPACE — openness, collaboration, trust, authentic, pro-action, autonomy, confrontation and experimentation. OCTAPACE has been found to be directly linked to the financial performance of a company, and special importance should be given to strengthen it, says Prof Rao.

“It might happen that the systems put in place by HR are good, but the company lacks in culture. This can be detrimental to the company’s growth in the long term,” he said.

The fourth critical variable is the creation of intellectual capital. “Simply filing a lot of patents is not a measure of good HR. This could happen in spite of HR too. One needs to ascertain how much of it HR has impacted through its policy measures. Intellectual capital also includes human relations, the method of performance appraisal, talent management, the level of engagement and speed of employment.”

Having a number of successful schemes is not enough. The key is to communicate to the line managers what is being done. These measures should be understood and appreciated by the line managers for whom they are implemented and should result in a positive fall-out. The boss and the subordinate should have the same understanding of what has to be done with the time available to them.

A proper performance management system with 360 degree feedback can be the most beautiful and appropriate system to manage a company, no matter how big. “But here too, not everybody can be satisfied as all are human beings with different needs. It is like nectar filled with poison. You have to be patient and keep on taking the nectar and not get frightened by the poison. It will pay off in the end.”

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