Here is an excerpt from an article written by Ram Charan, Dominic Barton, and Dennis Carey for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
CEOs know that they depend on their company’s human resources to achieve success. Businesses don’t create value; people do. But if you peel back the layers at the vast majority of companies, you find CEOs who are distanced from and often dissatisfied with their chief human resources officers (CHROs) and the HR function in general. Research by McKinsey and the Conference Board consistently finds that CEOs worldwide see human capital as a top challenge, and they rank HR as only the eighth or ninth most important function in a company. That has to change.
It’s time for HR to make the same leap that the finance function has made in recent decades and become a true partner to the CEO. Just as the CFO helps the CEO lead the business by raising and allocating financial resources, the CHRO should help the CEO by building and assigning talent, especially key people, and working to unleash the organization’s energy. Managing human capital must be accorded the same priority that managing financial capital came to have in the 1980s, when the era of the “super CFO” and serious competitive restructuring began.
CEOs might complain that their CHROs are too bogged down in administrative tasks or that they don’t understand the business. But let’s be clear: It is up to the CEO to elevate HR and to bridge any gaps that prevent the CHRO from becoming a strategic partner. After all, it was CEOs who boosted the finance function beyond simple accounting. They were also responsible for creating the marketing function from what had been strictly sales.
Elevating HR requires totally redefining the work content of the chief human resources officer—in essence, forging a new contract with this leader—and adopting a new mechanism we call the G3—a core group comprising the CEO, the CFO, and the CHRO. The result will be a CHRO who is as much a value adder as the CFO. Rather than being seen as a supporting player brought in to implement decisions that have already been made, the CHRO will have a central part in corporate decision making and will be properly prepared for that role.
These changes will drive important shifts in career paths for HR executives—and for other leaders across the company. Moreover, the business will benefit from better management of not just its financial resources but also its human ones. We say this with confidence, based on our experience with companies such as General Electric, BlackRock, Tata Communications, and Marsh, all of which act on their commitment to the people side of their businesses.
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