In a knowledge economy, companies with the best talent win. And finding, nurturing, and developing
that talent should be one of the most important tasks in a corporation. So why does human resources
do such a bad job — and how can we fix it?
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BY FAST COMPANY STAFFLONG READ
Well, here’s a rockin’ party: a gathering of several hundred midlevel human-resources executives in Las
Vegas. (Yo, Wayne Newton! How’s the 401(k)?) They are here, ensconced for two days at faux-glam
Caesars Palace, to confer on “strategic HR leadership,” a conceit that sounds, to the lay observer, at
once frightening and self-contradictory. If not plain laughable.
Because let’s face it: After close to 20 years of hopeful rhetoric about becoming “strategic partners”
with a “seat at the table” where the business decisions that matter are made, most human-resources
professionals aren’t nearly there. They have no seat, and the table is locked inside a conference room to
which they have no key. HR people are, for most practical purposes, neither strategic nor leaders.
I don’t care for Las Vegas. And if it’s not clear already, I don’t like HR, either, which is why I’m here. The
human-resources trade long ago proved itself, at best, a necessary evil — and at worst, a dark
bureaucratic force that blindly enforces nonsensical rules, resists creativity, and impedes constructive
change. HR is the corporate function with the greatest potential — the key driver, in theory, of business
performance — and also the one that most consistently underdelivers. And I am here to find out why.
Why are annual performance appraisals so time-consuming — and so routinely useless? Why is HR so
often a henchman for the chief financial officer, finding ever-more ingenious ways to cut benefits and
hack at payroll? Why do its communications — when we can understand them at all — so often flout
reality? Why are so many people processes duplicative and wasteful, creating a forest of paperwork for
every minor transaction? And why does HR insist on sameness as a proxy for equity?
It’s no wonder that we hate HR. In a 2005 survey by consultancy Hay Group, just 40% of employees
commended their companies for retaining high-quality workers. Just 41% agreed that performance
evaluations were fair. Only 58% rated their job training as favorable. Most said they had few
opportunities for advancement — and that they didn’t know, in any case, what was required to move
up. Most telling, only about half of workers below the manager level believed their companies took a
genuine interest in their well-being.
None of this is explained immediately in Vegas. These HR folks, from employers across the nation, are
neither evil courtiers nor thoughtless automatons. They are mostly smart, engaging people who seem
genuinely interested in doing their jobs better. They speak convincingly about employee development
and cultural transformation. And, over drinks, they spin some pretty funny yarns of employee
weirdness. (Like the one about the guy who threatened to sue his wife’s company for “enabling” her
affair with a coworker. Then there was the mentally disabled worker and the hooker — well, no, never
mind. . . .)
But then the facade cracks. It happens at an afternoon presentation called “From Technicians to
Consultants: How to Transform Your HR Staff into Strategic Business Partners.” The speaker, Julie
Muckler, is senior vice president of human resources at Wells Fargo Home Mortgage. She is an
enthusiastic woman with a broad smile and 20 years of experience at companies such as Johnson &
Johnson and General Tire. She has degrees in consumer economics and human resources and
And I have no idea what she’s talking about. There is mention of “internal action learning” and “being
more planful in my approach.” PowerPoint slides outline Wells Fargo Home Mortgage’s initiatives in
performance management, organization design, and horizontal-solutions teams. Muckler describes
leveraging internal resources and involving external resources — and she leaves her audience dazed.
That evening, even the human-resources pros confide they didn’t understand much of it, either.
This, friends, is the trouble with HR. In a knowledge economy, companies that have the best talent win.
We all know that. Human resources execs should be making the most of our, well, human resources —
finding the best hires, nurturing the stars, fostering a productive work environment — just as IT runs the
computers and finance minds the capital. HR should be joined to business strategy at the hip.
Instead, most HR organizations have ghettoized themselves literally to the brink of obsolescence. They
are competent at the administrivia of pay, benefits, and retirement, but companies increasingly are
farming those functions out to contractors who can handle such routine tasks at lower expense. What’s
left is the more important strategic role of raising the reputational and intellectual capital of the
company — but HR is, it turns out, uniquely unsuited for that.
1. HR people aren’t the sharpest tacks in the box. We’ll be blunt: If you are an ambitious young thing
newly graduated from a top college or B-school with your eye on a rewarding career in business, your
first instinct is not to join the human-resources dance. (At the University of Michigan’s Ross School of
Business, which arguably boasts the nation’s top faculty for organizational issues, just 1.2% of 2004
grads did so.) Says a management professor at one leading school: “The best and the brightest don’t go
Who does? Intelligent people, sometimes — but not businesspeople. “HR doesn’t tend to hire a lot of
independent thinkers or people who stand up as moral compasses,” says Garold L. Markle, a longtime
human-resources executive at Exxon and Shell Offshore who now runs his own consultancy. Some are
exiles from the corporate mainstream: They’ve fared poorly in meatier roles — but not poorly enough to
be fired. For them, and for their employers, HR represents a relatively low-risk parking spot.
Others enter the field by choice and with the best of intentions, but for the wrong reasons. They like
working with people, and they want to be helpful — noble motives that thoroughly tick off some HR
thinkers. “When people have come to me and said, ‘I want to work with people,’ I say, ‘Good, go be a
social worker,’ ” says Arnold Kanarick, who has headed human resources at the Limited and, until
recently, at Bear Stearns. “HR isn’t about being a do-gooder. It’s about how do you get the best and
brightest people and raise the value of the firm.”
The really scary news is that the gulf between capabilities and job requirements appears to be widening.
As business and legal demands on the function intensify, staffers’ educational qualifications haven’t kept
pace. In fact, according to a survey by the Society for Human Resource Management (SHRM), a
considerably smaller proportion of HR professionals today have some education beyond a bachelor’s
degree than in 1990.
And here’s one more slice of telling SHRM data: When HR professionals were asked about the worth of
various academic courses toward a “successful career in HR,” 83% said that classes in interpersonal
communications skills had “extremely high value.” Employment law and business ethics followed, at
71% and 66%, respectively. Where was change management? At 35%. Strategic management? 32%.
Finance? Um, that was just 2%.
The truth? Most human-resources managers aren’t particularly interested in, or equipped for, doing
business. And in a business, that’s sort of a problem. As guardians of a company’s talent, HR has to
understand how people serve corporate objectives. Instead, “business acumen is the single biggest
factor that HR professionals in the U.S. lack today,” says Anthony J. Rucci, executive vice president at
Cardinal Health Inc., a big health-care supply distributor.
Rucci is consistently mentioned by academics, consultants, and other HR leaders as an executive who
actually does know business. At Baxter International, he ran both HR and corporate strategy. Before
that, at Sears, he led a study of results at 800 stores over five years to assess the connection between
employee commitment, customer loyalty, and profitability.
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