Home > Articles > Business & Management > Human Resources

Financial Analysis for HR Managers: Business Strategy, Financial Strategy, and HR Strategy

Many firms fail to achieve their maximum success because they do not utilize their HR departments optimally. Steven Director explains how HR can maximize your success in this introduction to his book.
This chapter is from the book

What makes one company more successful than another? Is it because it has nicer office buildings, newer research labs, or better manufacturing equipment? If it is the differences in people that create differences in corporate value, then the HR function (though not necessarily the HR department) is critical to a corporation’s success. Clearly line managers have an important role in hiring, developing, and motivating the people that can make an organization successful. Perhaps surprisingly it is the role of human resource managers in this process that is less clear. Should human resource managers have primarily an administrative role focusing on the processing of transactions and compliance with regulations? Should human resource managers be business partners charged with developing and maintaining a workforce with the specific capabilities required to execute their firm’s business strategy? Or should human resource managers be true strategic partners participating along with top management, and their counterparts from other functional areas, in the actual development and monitoring of a firm’s business strategy? In many organizations HR departments play only one or two of these three roles. It is a premise of this book that many firms fail to achieve their maximum success because they do not utilize their HR departments optimally. It must be acknowledged, however, that line managers may be underutilizing their HR departments because they are not confident that HR can perform at higher levels.

Is HR Weakest in the Most Critical Areas?

A study conducted by the Corporate Leadership Council (CLC)1 found that in the opinion of the 16,000 line managers who were surveyed, fewer than one in five HR business partners were highly effective in their strategy roles. That’s a statement that the HR profession should find troubling. The good news is that there’s lots of room for improvement, and we know how to generate those improvements. The CLC study also estimated the relationship between HR staff competencies and degree of success as a strategic partner. Their findings are summarized in Exhibit 1-1. Each vertical bar represents an estimate of the maximum impact on strategic role effectiveness of a particular HR capability. The maximum impact was calculated by comparing the strategic role performance of individuals rated high and individuals rated low on each capability. Of far greater importance than expertise in any HR specialization was overall business acumen. What are the implications of that statement for the way you select and train HR professionals? Does it mean you don’t need individuals with specialized training or experience in HR? No, but it suggests that while specialized HR skills are necessary, they are not sufficient.

Exhibit 1-1

Exhibit 1-1. Impact of HR competencies on strategic role effectiveness

Source: Graph created using data from Corporate Leadership Council, “Building Next-Generation HR-Line Partnerships,” Corporate Executive Board, 2008, p. 32.

HR professionals need both HR knowledge and a high degree of business acumen. Most individuals in the field today have strong HR skills. There is, however, a wide range in the level of business acumen they possess. That creates substantial competitive advantages for corporations whose HR staffs possess both sets of skills. For individuals who have both sets of skills, it also creates great opportunities for them to advance within their HR careers. The specific mix of skills required depends, of course, on the individual’s job duties and position in the corporate hierarchy. In general, the higher the individual is (or hopes to be) in the corporate hierarchy, the greater the need for strong business acumen to complement their HR knowledge.

What is business acumen, anyway? At the most fundamental level, it is an understanding of how your company makes money and how your decisions and behaviors can impact the company’s financial performance. The business acumen needed by HR managers includes an understanding of their firm’s business strategy, the key drivers of their firm’s success, and the interrelationships among the different components of the organization. This understanding is necessary to develop and execute an effective HR strategy. There is no business department, function, or activity whose success is not dependent upon the firm’s HR strategy. An organization’s HR strategy determines who is employed in each functional area, how much will be invested to enhance their skills and capabilities, and what behaviors will be encouraged or discouraged through the compensation system. A firm’s HR strategy must be tailored to support its business strategy. To produce this alignment, HR managers need the ability to analyze which choices will add value to the firm and which will weaken it. Do most individuals in the HR profession have that ability? In a survey conducted by Mercer Consulting,2 HR leaders were asked to assess the skills of their staffs. They rated their staffs weakest on the following skill sets:

  • Financial skills
  • Business strategy skills
  • Organizational assessment
  • Cross-functional expertise
  • Cost analysis and management

They felt their staffs were strongest at the following:

  • Interpersonal skills
  • Recordkeeping/data maintenance
  • Team skills
  • Functional HR expertise
  • Customer service

The skill sets where these HR staffs were strong are important, but they are not the skill sets that drive corporate success or the career success of individual HR managers. No company is going to become an industry leader because of the interpersonal skills or recordkeeping abilities of its HR staff. It is rather striking that the areas in which these HR staffs were weakest are exactly the skill sets that are most likely to contribute to a corporation’s success, and exactly the skills that individual HR managers need to progress in their careers.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020