HR managers play big role successful business

By Greg Doyle

JAKARTA (JP): In an article in the Sept. 25 edition of The Jakarta Post, Budi Hanoto argued that effective human resource (HR) management links business strategy and HR processes. This idea, common currency in most management courses, is finding wide application in the leading firms of the world. As Indonesian business struggles to redefine its place in the global economy, it therefore makes sense to look at how far people practices here differ from this new world class standard.

It does seem we have a long way to go after looking at HR management in multinational and local companies in Indonesia. However, Indonesia is not alone in having problems with effective people management. According to a recent global study conducted by the Economist Intelligence Unit (EIU) and Hewitt Associates, the problem of how to get better performance from employees in a positive way prevents many from realizing the visions of senior management. The difference for Indonesia, though is that we have less time up our sleeves to get our companies running as effectively as possible.

In Indonesia business managers do not often enough see HR activities or people practices as an essential way to improve the value of their offer to customers and clients. In an environment where one had a monopoly, or where the market was very large, the idea of needing to focus employees on delivering value to clients did not figure highly in managers' minds. This is in stark contrast to a place like the United States, where people are now seen as the only way to secure a competitive advantage over business rivals.

In a world where a competitor can quickly replicate your technology and access capital at the same price the only way to get a market edge is to leverage employees. The way to leverage them depends on how you want to compete. An increasingly common approach, based on the controversial approach of Treacy & Wiersema in their 1995 work, The Discipline of Market Leaders, is to compete through aligning business strategy with client need in one of three ways: customer intimacy, product leadership or operational efficiency.

Each of these approaches (or any other) makes different demands on people and requires different types of people programs in an organization. Some customers value low cost, some high service. A company with a strategy of lowest cost production will need different types of behavior from its employees than one that seeks to offer tailor-made products specific to customers' unique needs.

Whatever a company's strategic style, all businesses require that the HR manager and his or her staff have a thorough understanding of business strategy and business processes.

A HR manager who understands business processes can work with line managers to determine the specific skills needed to drive internal processes more effectively and efficiently. By knowing how to cost HR activities, HR staff members can design cost- effective systems to deliver the right kind of people to the line and keep them there.

In practice, more and more leading companies are requiring their HR managers to act like this. To make sure, they are increasingly hiring HR professionals with line experience or from MBA programs.

It is sometimes a different story in Indonesia where many companies undervalue the potential contribution of HR managers. This can be because neither business nor HR managers see their work from the perspective customers and client needs. Also, the HR professional itself in Indonesia has hardly asserted its role as an architect of business success.

Of course, there are always exceptions -- there are individual HR managers and HR Departments in the country that are world class by any standard. It is unfortunate, however, to not see more companies looking at how effective people practices can help get them through the present crisis.

The opportunities for HR staff to make a difference are enormous. Looking at the short term, where the objectives are probably to reduce operational costs, increase performance and protect employees from burden of high inflation there are several immediate steps HR professionals should consider.

The first thing a business-focused HR manager would do in the current environment is attempt to re-engineer the high-cost, low- value practices and policies that built up in most Indonesian organizations in the good years.

The first place to look at would be the employee benefits programs, the pension plan, the medical plan and the car loan scheme. The cost of these programs in Indonesia is far greater than their value to either employees or the organization. Provider premiums are too high and vendor service levels are poor, especially in the area of medical insurance. For internally managed systems, the bureaucratic costs and financial ambiguity are likely greater than the cost of outsourcing programs. Of course companies need, and should have, all these programs, but only at a much more advantageous cost than they now pay.

The second step would be to audit all HR activities against the functional requirements of line managers. HR managers should clearly understand labor utilization costs, including the costs of turnover, recruitment, training. By auditing these functions HR managers can design programs to reduce costs, through better service delivery.

In the longer term, revising the performance management system and linking it more closely to employee reward would help HR managers better support line managers. With new environmental and economic pressures on companies and changing business strategies, most companies have new performance requirements of employees. Unfortunately none of the systems that support, motivate and measure employees have caught up.

The real change for Indonesian management is likely to come with a change in mind-set for both senior business managers and HR staff. To achieve this a few things need to happen. First, business managers and HR managers need to recognize the role effective HR activities and people programs play in driving business processes. Second, HR needs to see itself as an internal business consultant, with clients whom they must help improve business results. Third, as with all consultants, business management must hold HR responsible for delivering measurable results.

The writer is director of Hewitt Associate, Jakarta.