the 7 universal HR building blocks that each organization needs to have
The first “HR pains” appear in SMEs around the 20th employee. This is when CEO’s realize that they spend as much (or more) time managing their staff than their business. But the decisions they will make seem more to increase the pain rather than reduce it.
To start: distinguish between the administration and management of HR
To understand HR problems in organizations, you have to distinguish between the administration and the management of HR. Administration refers to “transactional” activities, such as payroll management, holidays follow up, etc. Within smaller organizations, these activities are in general efficiently piloted by the finance department, often with the support of specialized partners. Management of human resources refers to all the activities associated with the use and optimization of human potential. These activities are associated with the Return on Human Capital Investment. This approach can seem economic focused. In fact, it is not, as we’ll explain shortly.
In HR management, the difficulty is the “how”, not the “what”
The first reflex of an overloaded CEO towards activities associated with managing their staff is to pass the buck to their CFO. Given that they are already taking care of the “what” (administrating HR), this step seems logical. However, the problems the CEO delegated to the CFO concern the “how”: how to build a reward policy, how to motivate for performance, how to decide on a recruitment need versus HR costs, etc. The CFO, whose agenda is already overloaded, is not particularly better equipped than the CEO to answer these questions. And the “HR” investments start, which can often include hiring a HR manager.
The management of performance
A legacy of the respected Peter Drucker or Jack Welsh, the management of performance is the first reflex for managers relating to HR management: “We are small. Our challenge is profitability. Let’s concentrate above all on performance. We’ll focus on other HR aspects later.” With or without external help, they implement a more or less effective process to monitor performance, following up with a “Pay for Performance” approach. But the problems continue, and are often worse. In effect, performance problems are often just a symptom. The roots causes are found elsewhere, and could include problems with role definition, equity, competences, organization or leadership…
“Kwakkers” – another symptom of the HR illness
“Kwakkers,” sometimes referred to by Philippe Mailleux, a specialist in Situational Leadership, are often found near the coffee machine. If we listen closely, we can hear “Kwa-Kwa-Why did they get a smartphone and not me? Kwa-Kwa-Why were they invited to the meeting and not me? KwaKwa-Why did they get that title/car/bonus/office…” How did we get there, and above all, how do we solve the problem?
System thinking in HR management: a real opportunity (for SMEs)
Beyond bank systemic, which was often spoken about during the last global financial crisis, the notion of systemic or system thinking is little known to the public. It is “a scientific approach to economic or social systems, which deals with problems as a set of mutually related elements. (…)”. In matters of organizational management, Peter Senge (MIT professor recognized for his research on learning organizations) highlighted the interest in transposing this scientific approach to the HR management context. Research completed at the Free University of Brussels and the Solvay Brussels School of Economics & Management identified the lack of a systemic approach (meaning integrated) to HR management as one of the elements at the source of SME difficulties in managing their human resources. In Belgium, it could also be one of the main variables that make CEO reluctant to growing beyond 50 employees.
The risks of “single-criteria” HR management (in SMEs)
Performance management, which we talked about above, is without a doubt a priority. Additionally, it is one of the key building blocks in HR management. But it is only one of the blocks among a series of others that are equally important, in a system that must be considered as an indivisible whole. Thus the necessity for a systemic approach. With the lack of a system thinking in HR management, SME executives often make decisions today that will end up becoming problems tomorrow. This situation, which often has tragic consequences, was exposed in a case study used at the Free University of Brussels. This study showed how an HR policy based on a single criterion (such as performance management) can trigger cascading problems.
The 7 universal building blocks for HR management
Of course, there are more than 7 building blocks in matters relating to HR management. Research has shown that there can be up to 23. However, there are 7 that seem to be in constant interaction in HR management, and generally in a universal way. Like in cooking, the lack of one ingredient, or poor measurement of said ingredient, will have a significant negative impact on the quality of the meal. Here are the 7 universal HR building blocks that each organization (starting from 20 employees) needs to have, and, additionally, needs to have shared with their employees:
1. A segmentation and role description method.
This method must allow both managers and employees to easily distinguish the purpose, expectations and authority associated with each role. NB: you need to make the distinction between “segmentation” of roles (a simple method used in daily management) and job
“classification” (i.e. well-known classification systems which have a larger impact,
such as Hay, Tower, Watson, Mercer, Hudson, etc.).
2. An evaluation grid of the level of competence for each employee.
3. An evaluation grid for their performance level.
4. An evaluation grid for potential (talent).
5. An appreciation grid pertaining to the alignment of an employee with the vision and values.
6. A method to structure the main pay elements (base, variable, etc.)
7. A method for planning resources.
Based on these 7 building blocks, and not one less, you can implement a good management policy for human resources. The “HR” work will consist of properly dosing the different building blocks, monitoring and adjusting them based on needs. This is already a significant challenge in itself!
R.O.H.C.I. and employee engagement: the two sides of the same coin
We recalled the purpose of HR management at the start of this article: Return on Human Capital Investment (R.O.H.C.I.). This notion has been criticized due to the fact that it deals with the idea of “man exploits man,” central to the work of Karl Marx, which makes it a controversial topic even today. Yet R.O.H.C.I. is at the centre of concerns for all organizations around the world. Whether they are commercial, political, social, cultural, and including union organizations and “free” organizations, none of these organizations deliberately look to poorly use their resources, whether they are human, financial or other. Everyone attempts, in their own way, to get the best return on their investment in their human capital. There is nothing shameful in looking to optimize R.O.H.C.I. The real debate is around how one can obtain a better R.O.H.C.I. And almost everyone agrees that there is a single answer: by ensuring better employee engagement.
Create the conditions for engagement using the 7 building blocks for HR management
How can you obtain better engagement in the workplace? Many authors once again agree on a single answer – which includes two elements: create a feeling of equity and a feeling of well-being. This combines and aligns the interests of both employees and organizations. You then need to understand how you can obtain this feeling of equity and well-being. On this topic, you can’t rely on luck. You need to simply apply, in a systematic way, the right fundamentals – ensure clarity of vision and objectives, create transparency with regards to roles and reward policies, encourage personal development, ensure regular feedback, support, recognition… Here we are referring to a systemic approach that relies on a group of building blocks – not one or the other but rather with each other. And with the emerging collaborative revolution of the 21st century, this systemic approach to HR management will be, more than ever, necessary to ensure the success of a SME, specifically if it wants to focus, as it should, on its core business. Its management of its human resources must become, just like its financial management, logical, objective, transparent, universal and simple.
These are also the conditions that ensure that line managers feel truly responsible for their human resources, and that HR managers finally have an unchallenged seat at the Executive Committee table.