HR takes center stage: in the age of intellectual property battles, this long-overlooked corporate function is becoming a critical weapon in the arsenal - Management

Chief Executive, The, Nov, 2003 by Catherine Fredman

'He's not a backroom, second-chair member of the staff," says Robert Nardelli, referring to Dennis Donovan. The first executive Nardelli hired "after becoming the president and CEO of The Home Depot in December 9000, Donovan makes presentations at every board meeting, gives quarterly progress reports to financial analysts and regularly sits down with suppliers to describe the company's latest processes and planning.

It would be easy to mistake him for a chief operating officer--after all, his responsibilities reach every corner of the company. But Donovan's title is "executive vice president of human resources." And his role--an amalgam of company ambassador, personal confidante and self-described "chief change officer"--represents a profound shift taking place in C-suites across the country.

HR is finally garnering respect in companies of all sizes and across many industries. "CEOs and boards of directors are learning that human resources can be one of your biggest game-changers in terms of competitive advantage," says Donovan. His boss is counting on it." The success of the strategy rests in people's execution," Nardelli says. "That's why the HR manager has to be an equal partner at the strategic table."

CEOs have long parroted the cliche: "Our people are our greatest asset." But when the economy sours, those assets often become the first costs to he cut. So why now are CEOs finally walking the walk?

One reason is that competitive advantage is increasingly vulnerable. Patents in technology used to give companies an edge. Then it was the sales and the marketing behind the technology that boosted their batting average. Then the Internet leveled the playing field by offering easy access to intelligence across the globe. "The one thing competitors can't quickly access is the brains of your work force," explains Susan Meisinger, president and CEO of the Society for Human Resource Management in Alexandria, Va. "The skill sets .your people can bring to the organization are much more likely to be a differentiator than they were in the past." In other words, the right people increasingly do represent an organization's competitive edge.

At the same time, sophisticated data-collection systems and a variety of statistical methods are enabling companies to measure the return on investment of their specific HR practices. CEOs now have quantifiable measures of what had once been mostly anecdotal evidence, comparison to industry benchmarks and flat-out guesswork.

They also have findings such as the Gallup Organization 2002 analysis of 309,000 employees across 11,000 business units in 51 companies throughout 23 industries directly linking employee engagement to financial results. According to Curt Coffman, global practice leader for Gallup's Workplace and Customer Consulting, highly engaged business units boast an employee-retention rate 1.44 times higher than the average, productivity levels 1.5 times higher, customer outcomes 1.56 times higher ant profitability spiking 1.33 times the norm.

And in July 2003, Mercer Human Resource Consulting published a survey of 300 U.S.-based organization: showing 88 percent believed their human capital strategy was linked to their company's business strategy. "This means a whole new era for managing the work force," says Dave Kieffer, leader of the strategy group at Mercer.

Technology has transformed HR in another way. Many of the mundane operations that once relegated the HR director to being a custodian of such administrivia as defined contribution and benefits administration, health ant welfare benefits, and relocation services can now be outsourced, freeing up time to concentrate on strategic functions, such as recruiting and retaining talent, training and development, organization design and execution. "The new line is making sure people strategies are aligned with the business strategies so you can execute and get to where .you want to go," says Meisinger.

Teaching a company to fish

Wim Roelandts is a believer. The CEO of Xilinx, a San Jose, Calif.-based technology company, Roelandts likes to quote the Chinese proverb that says, "Give a man a fish and he will eat for one day. Teach a man to fish and he will eat for the rest of his life." Roelandts thinks HR can teach an entire company to fish: "The role of HR is not to do the job of management; the role is to improve the quality of management so they can do a better job."

At Home Depot in Atlanta, Donovan and Nardelli couldn't agree more. "Effective leadership is the common denominator in overall performance," says Donovan. "If I had a buck, I'd spend 99 cents on picking great leaders."

As a result of a 75-question survey that went out to 276,000 Home Depot employees--and sparked an 81 percent response rate--Donovan was able to link the turnover rates of store managers with the financial performance of the store. This was especially important because, Donovan recalls, "When we did the first HR review, we found we were changing store managers like people change underwear."