How can HR become more commercial?

Written by
Changeboard Team

10 Feb 2014

10 Feb 2014 • by Changeboard Team

HR perception. What does being commercial mean?

Being commercial is about being able to answer a series of ‘so, what?’ questions about the business from a business, rather than an HR, perspective. It is being able to identify with the needs of the business rather than seeing opportunities to implement the human resources agenda.

When presented with data and information about the market or the business, we need to be able to ask ‘so, what does that mean to us?’, ‘so, what do we need to do?’, ‘so, what impact will that have on our plans for the year?’ and provide compelling and clear answers.

How can HR take a commercial view?

There are many tools and techniques that can be used in commercial analysis. What they generally do is take data and turn it into information. To operate more commercially or to think more strategically, the HR manager needs to become skilled in looking at the outputs of that analysis and taking them to the next level. Through reflection and usually in challenging dialogue with others, they must draw out the big issues that drop out of that information.

What are some of the key models, frameworks and effective executive uses in business planning? Experience shows that frequently it is a matter of less being more, that having a small set of tools used well enables you to engage with a business very rapidly and in an informed and relevant way. 

Business value more than bottom line for HR

A good place to start is to look at what drives the value of a business. In a modern market based world, most businesses are focused on creating and capturing value. And creating shareholder value is the key measure of success.

The main benefit of thinking about value based measures is that they are clear and simple. They enable you to think about why an investor should invest in you as a business and why they should stay as investors. At one level, thinking about value creation gives you access to the mind of the investor. 

  • How do they view the value of your business? 
  • How do they look at the risk involved in investment decisions? 
  • How do they value your business?
  • How will different options we face affect value in the business? 
  • What are the variables they are interested in when you present yourself to them?

Value measures enable you to spot opportunities and to work through the impact of external factors on the future of the business. How will a declining market impact on profitability and value over the coming year? What is the value to us of entering a new high growth market that might have high volatility and intense competition?

Recruitment & staffing key HR commercial issue

If the business wants to pursue growth opportunities in markets that are adjacent to their existing space, we need to question whether this requires a different type of person to make it happen. If we can understand how fast the business wants to grow, we can ensure that the best staffing and skills are in place and do not create an obstacle to its ambitions.

It's surprising how often we see business plans for even quite sophisticated businesses that completely under-estimate the magnitude of the task to properly staff a new growth initiative. Having a human resources team who are business savvy involved at an early stage can reduce a major area of risk.

Link HR to the overall business plan

Thinking about the value creation capabilities of the business enables us to ensure we have the right internal resourcing to deliver and execute the plan. It is one thing to decide which markets to access and why, but quite another to make sure we execute the plan and do it more rapidly and better than our competitors.

From an HR perspective, this means understanding the connections between each part of the business and even how the whole of the business fits together to leverage value. For example, what is the position of the business within the industry value chain and why are we doing that? How does each functional area connect to the overall business plan? What resourcing needs do they have?

Here, it's not just a matter of waiting to be told by each part of the business what they need and by when, but understanding what the business and business lines are seeking to do and being part of the discussion in a proactive way.

HR needs to engage with three main business areas

HR professionals need to understand the full range of functional perspectives and these follow easily from the notion of value. For example, once we have identified what we want to do as a business, we need to address issues of:

  • Finance – how we measure and monitor success. This is often a weak spot for HR managers. But the reality is that to have credibility amongst your business line colleagues, you have to ‘understand the numbers’
  • Marketing – how do we get the message out and create our position in the hearts and minds of our markets?
  • Operations – how do we set up and resource the right functions behind the strategy?

All this enables HR business partners to have conversations that reflect their ability to understand the needs of their partners; to engage and Challenge their thinking. At the very least, to be to be part of their world and their discussions. 

Place the HR function in context

The context that HR operates within is an important variable. Context for us has two main dimensions. These are:

The business context: the kind of business you are and where you are positioned in it. In large and complex corporates, there is the need to have a much more systematic approach than can be used in smaller, more entrepreneurial businesses. A small or mid-sized business will likely not have the scale to warrant highly specialised HR structures and systems. And much of the role of HR is fulfilled in a highly personalised way with relationships dominating the way in which the role interacts within the business. 

The market context: the industry or sector you are in. Is it highly regulated or free of such controls? Is it global or national in profile? Is the ‘business’ a government service or part of the not for profit sector?

Being commercial means HR can add value

Depending on the context, while the underlying principles may be the same, HR needs to manifest its ability to be commercial in subtly different ways.     

The moment is ripe for the human resources function to act in a more commercially minded way, engaging more effectively with business issues to contribute to the creation of both financial and social value for their organisations.