Friday, September 6, 2013

The Emergence of Strategic HR Risk Management … Finally

HR Risk Management, as a functional area within the broader Human Capital Management domain, seems poised to evolve beyond defensive (i.e., mostly compliance-related) strategies, programs and capabilities. This might actually be a major untapped source of strategic or competitive advantage for many organizations.

Proactively managing the Human Capital risks inherent in building, running, re-structuring and/or transforming a business is arguably as important to having a successful enterprise as having winning products and services, the best sales and marketing machines, highly efficient back-office operations etc.

So here is a list of 4 "Strategic HR Risk Management" opportunities that most organizations can still focus more attention and resources on to drive improved business results:

1. Advanced Human Capital Due Diligence … in the context of hiring new business leaders, M&A transactions (pre and post deal closing), corporate re-structurings around key executives, investing in businesses largely due to key personnel or people capabilities, etc. As two concrete examples:

· Confirming previous accomplishments or the scope of former positions that a key employee decision is partially or largely being made on … since the average person exaggerates at least to a modest extent when promoting themselves, and some embellish in ways that place personal integrity (and possibly the health of the business) in question. A type of claim such as … “grew the business from $10M to over $50M” is often made by multiple people talking about the same company during the same time period!

· Assessing degree of culture or “work style” fit, as well as the fit with a direct manager’s style or particular team dynamics … while most people intuitively recognize these issues to be legitimate areas to think about, many organizations simply do not make a serious attempt to evaluate these factors – PARTICULARLY when other factors such as revenue production history or impressive credentials are creating a “halo effect.” Moreover, while validated assessment tests can be employed to identify some of these potential risks or gain assurances that there’s no major cause for concern, proven techniques and processes which look at work history patterns using the right analytical models/ frameworks can often serve the same purpose as sophisticated assessment tests while perhaps covering a broader area of potential risk.

2. Leadership Risk Management … including ensuring an adequate bench of future leaders and successors from both inside and outside the company, since externals bring new perspectives, internals should ideally measure up to the best people the external market has to offer, and very few organizations have enough “potential successor coverage” for all key positions relying exclusively on internals – particularly when unplanned vacancies occur in critical roles at the same time. Leadership continuity issues = business continuity issues.

3. Ensuring that all major sources or indications of “actual or potential business value” associated with each employee are known, catalogued on an appropriate system (e.g., as “Employee Value Indicators”) and considered when making employment or career-impacting decisions about that employee.  As an example, an employee may only be a “slightly above average” performer in a non-mission critical role but (a) could be a much better performer if they could bring some of their other competencies to bear in a different job; or (b) is perhaps a major contributor in non job-specific ways such as referring many new employees each year who are ‘A’ players, or is considered a mentor by many younger employees, or is a key ‘connecting node’ within that organization’s internal social network.

4. And finally, not just identifying key employee retention risks, but predicting key employee retention risks and taking appropriate steps to mitigate. Similarly… not just identifying employee engagement downturns, but predicting employee engagement downturns. Both retention risks and engagement downturns are typically triggered by a workforce-related event -- such as changes in Comp and Benefits plans, the announcement or aftermath of an M&A transaction (which might result in staff redundancies in particular areas of the business), change in HR policy (e.g., eliminating a work from home policy), payout of deferred bonuses, etc. Some organizations have the analytical models ready before the event so that risks can be appropriately mitigated.

Steve Goldberg