The human resources (HR) function faces many organisational and financial hurdles, particularly in a gruelling business environment. Hiring and training budgets are being slashed, which makes the attraction and retention of talent challenging at best. At the same time, HR is confronting a continued perception problem in that many organisations view HR as a services provider rather than a critical business partner.

In a survey of 199 senior executives worldwide, 66 percent of respondents from the HR function said they have identified opportunities to streamline processes and cut costs during the recession; only 49 percent of non-HR respondents agreed that HR has done so.

The findings of the new report by the Economist Intelligence Unit, sponsored by Oracle, underline the need for HR professionals to find ways to close this gap by becoming an acknowledged strategic partner with the business.

Lack of business understanding
C K Prahalad, a professor at the University of Michigan’s Ross School of Business, notes how rare it is for HR to comprehend the operations of the business as a whole. “Show me a company where senior HR leaders fully understand the business and are as comfortable with profit-and-loss statements as any business manager,” he challenges. “HR has to speak the language of business if it wants to reach its full potential.”

Survey respondents said that a big obstacle for HR is that, when there is a need for staff reduction, HR has an inadequate understanding of how such reductions will affect business goals. This might be due to the fact that senior managers have not explained the company’s goals. The poor perception of HR in certain organisations could be improved by a more intimate knowledge of the business, as it has the potential to play an important role during the global recession.

While the economic downturn has taken a toll on businesses worldwide, the tumultuous environment also provides a unique opportunity for HR to demonstrate leadership and creativity. Indeed, the majority of survey respondents agree that when business conditions become unfavourable, senior managers rely on HR more than they do in good economic times.

“Doing more with less resources makes it imperative that HR be in sync with the business,” said Gilda Stahl, an editor at the Economist Intelligence Unit. “Developing an awareness of the skills of each employee can help HR align these to its business strategy.”

Other key findings of the study include:

• Thirty-nine percent of survey respondents said performance management is a top priority at their organisation, and 43 percent said it should be. An overwhelming ninety-three percent of respondents said their HR organisation has developed or is in the process of developing a quantitative performance management programme.
• Survey respondents cite four methods that are roughly equally successful in gaining additional productivity from employees without raising compensation costs: creating additional training programmes (44 percent), adopting more efficient methods of service delivery (44 percent), adopting more quantified and/or stringent performance evaluations (47 percent) and adopting mentoring programmes (47 percent).