CHROs – The Next Endangered Species
…The End of the CHRO as We Know Them
What is the role of the CHRO in helping a company grow?
Relative to creating lasting business value, organic revenue growth is key. Our experience has shown that organic revenue growth is overwhelmingly driven by human capital, organizational effectiveness, and compensation and incentive redesign – versus factors such as strategy, product, process, and technology. The CHRO directly controls or is positioned to greatly influence these primary drivers of organic growth. Given their unique position to be a meaningful leader in revenue transformations, it is time for the CHRO to claim their equal seat at the table - or else CHROs may find themselves next on the endangered species list.
CHRO leadership can lead to better outcomes for revenue and growth transformations
For many companies, earnings growth continues to be achieved through cost reduction rather than through top line revenue growth. Historical earnings rates (per the S&P 500) have outpaced sales growth . Looking towards 2017, analysts anticipate more of the same – earnings growth is projected to at 11.4% and revenue growth at 5.8% .
In the face of the earnings versus growth imbalance, it should not come as a surprise that most executives define overcoming the challenge of revenue growth as a top priority. In three separate studies spanning 1000 companies in 2016 , Aon found that the top two business outcomes organizations are looking to achieve are “driving are profitable growth” and “revenue growth” (in that order). Even so, many executives don't know where to begin – 66% say determining which growth levers to pursue is harder now than it was a decade ago . Share-price performance of 550 US and European companies over the prior 15 years reveals that for all levels of revenue growth, those companies with more organic growth (as defined in Exhibit 2) have generated higher shareholder returns than those whose growth efforts have relied more heavily on acquisitions. Therefore, it may be obvious where we advise companies turn their focus in achieving their growth priorities – organic revenue growth . We explored the business case for organic revenue growth in our 2015 paper “Grow, Get Acquired, or Die ” – and the market landscape today continues to demand growth .
Increasingly, CEOs are looking towards large-scale transformation programs to meet their organic revenue growth objectives. These efforts can span the entire company, and are intended to challenge the fundamentals of how the business makes decisions, operates, and behaves in an effort to fuel growth. Changes can involve a fundamental redesign of customer segmentation, significant resizing and redeployment of the sales force, a complete overhaul of the company's channel and go-to-market strategy, as well undertaking programs which bolster and strengthen the most basic processes and capabilities across functions ranging from Sales, Marketing, and Product Development – to Service, Fulfillment, IT, and HR.
Regardless of the changes at play in a sales and commercial transformation, our experience has shown that strategy, product, process, or technology are often not responsible for the success of organic revenue growth efforts. If you take those avenues off the table, what changes yield results and succeed in driving meaningful growth? In our experience in operating roles and serving as advisors to dozens of commercial organizations, 80% or more of the changes which drive growth most often stem from the areas of human capital, organizational effectiveness, and compensation and incentive redesign. This reveals to us that the most suitable candidate (from a functional perspective) to lead revenue transformation and change, therefore, is not one of the “usual suspects.”
Surprisingly, it is instead the Chief Human Resource Officer (CHRO) who is perhaps the best-positioned to play a leadership role in guiding an organic revenue growth transformation towards success. After all, the CHRO is the leader responsible for the organization's human capital, and is likely the senior leader best structurally positioned to work across the many organizational groups involved in a transformation effort. In fact, in our 2015 study “Developing the Next Generation of CHROs” found that of the 45 CHROs interviewed, 84% cited that thinking strategically was the top behavioral competency required to do their jobs (see Exhibit 1).
Even so, CHROs rarely find a seat at the table during change program design and decision-making. Sponsorship for growth transformation programs typically stems from commercial or financial leadership (e.g. CEO, CFO, Chief Operating Officer, Chief Revenue Officer, Business Heads, VPNational Sales Executive) – and despite the structural and strategic positioning of the CHRO in the organization, the CHRO is often left on the sidelines providing only transaction-oriented support.
This is unfortunate. In our experience, core elements of revenue and growth change programs are likely to suffer without the CHRO's involvement. For example, talent efforts will likely lack a meaningful and full-reaching approach, and expected transformation benefits will ultimately fail to make it to the bottom line. For these reasons, it is critically important that CHROs step up to play a broader role in transformation efforts and in strategic business planning more broadly. The actions required of a CHRO include establishing a clear talent baseline for a transformation, prioritizing human capital initiatives, and modeling the desired mindsets and behaviors by transforming the HR function itself.
If organic revenue growth is often not primarily driven by strategy, process or technology – the answer is that it is driven by people, organizational effectiveness, and compensation & incentives. When considering revenue and growth transformation, this begs question: “shouldn't the CHRO be at the forefront, helping lead the charge?”
Organic revenue growth is achieved as a result of increasing sales volume through running the business more efficiently and effectively. It excludes growth generated by takeovers, mergers, acquisitions, and short-term spikes and long-term boosts in the economy.
Aon's Organic Revenue Growth Approach
Establishing a clear talent baseline
Growth strategies are only as good as the organization's ability to embrace the required changes and implement them into the reality of day-to-day business operations. An organic revenue growth strategy made up of programs that are quantified to improve a company's revenue by 10% may appear attractive, but what if the organization's talent lacks the skills and capabilities required for carrying out the changes?
The best laid plans and carefully plotted growth strategies can leave sales flat or falling further without the right talent in place to lead the way. Assigning blame to talent gaps as a primary reason for transformation failure may sound too simple and perhaps overplayed – however, our experience is that talent limitations are still overlooked or de-emphasized in transformation planning, and time and again this oversight will result in substantial implementation hang-ups.
Many companies rely on last year's performance ratings and reports as the baseline for future talent expectations. While this is preferable to using nothing at all, the development of a more meaningful talent baseline requires that the organization's people be assessed in the context of new revenue and growth strategies and the increasing expectations that come with them. Last year's performance will not accurately reflect an individual's ability to perform new “transformational” responsibilities and break through the business model of yesterday and achieve new levels of performance. For example, a print advertising company recently shaped its growth transformation strategy around beginning to compete in the digital marketing and advertising space. In this scenario, prior year performance couldn't work as a baseline for how their talent might fare in the new model. Instead, a talent baseline reflecting how their staff would likely perform in a fundamentally different digital marketplace was required.
Establishing a clear talent baseline is a natural part of the transformation and change evaluation process where CHRO and broader HR ownership makes sense. This baseline is a necessary component in the execution of both individual change programs and overall growth transformations. Given the complexity of establishing a talent baseline in the context of a transformation strategy that remains to be executed, a cookie-cutter approach with limited HR insight simply won't get the job done.
In one financial services company, for example, managers had to develop a customized skills and capabilities rubric to evaluate current, modified, and newly created positions. From here, the organization needed to then work through the incredibly time-consuming (and politically delicate) approach of ensuring all managers were “on the same page” with respect to applying the rubric to evaluate their staff. Increased involvement, and perhaps even ownership, from the HR function would have had a material impact on the execution of this process. To aid in the success of effective change programs, CHROs and their strategic-minded HR staff must employ their technical skills and judgment to define the right methodology and approach for evaluating leaders and staff.
Assessing how people are likely to perform in a new model that doesn't yet exist is understandably challenging. Even so, the alternative is far less palatable. Running “new plays” with the same old team in place and simply waiting to see how many games are won or lost is a trap that too many failed transformations have fallen into. For most companies embarking on a growth transformation, there is too little time and too much at stake to risk getting the talent baseline wrong.
Clarifying which human capital initiatives matter the most
Given the volumes of initiatives and the limited time and resources available in a revenue and growth transformation, leaders often find it challenging to define a short-list of the change programs that will deliver the greatest return. When an organization attempts to take on too much at once, we often see good ideas go under-invested, both in terms of investment capital and organizational commitment.
Often, it is the talent and human capital initiatives that fail to receive the attention they deserve, even though these programs can often deliver the greatest value to the organization. This is in part due to the nature of people-based change programs – many of these changes require tough decision-making that can have real (and sometimes adverse) human impact, This makes people-impacting actions difficult to execute and therefore easy to ignore.
A CHRO might need to redefine the role that they play in organizational change depending on the context they find themselves in. Our 2015 CHRO study explored various organizational contexts (see Exhibit 3). Take, for example, the experience of leaders at one financial services company that closely ties with the “Transformers” context. Senior leaders in the organization were convinced that the company's lagging revenue performance was due to sales leaders (across all levels) lacking the requisite skills and capabilities needed to perform their jobs in a marketplace with new competitive challenges. At the onset of their transformation efforts, assessment and likely replacement of as many as 50% of the sales leaders was identified as a key program initiative. As the transformation progressed, however, commercial executives procrastinated in completing the assessment of its sales team, and instead focused on addressing initiatives including training, investing in new selling tools, and implementing new sales processes to improve the effectiveness of the sales team.
In this case, the transformation progressed without assessing and placing the right sales leadership. The result was lackluster performance improvement results from the change programs overall. Two years later – after much time had been lost, significant expense incurred, and substantial growth opportunity wasted – the need for more talented leaders with the skills required to drive results in the sales organization resurfaced. The truth is that the HR function was likely better positioned to be an unbiased, independent, decision influencer to guide where the business should have focused its change efforts at the onset. In this case, focusing on the right human capital initiatives and ensuring that the company had the right talent in the right roles from the start of the transformation would have had the company on the path towards growth several years in advance. Had a strategic change-oriented CHRO been at the helm of the transformation, costly procrastination and wasted efforts could have been avoided.
Making tough people decisions often requires hard decision making. While it is true that some revenue and growth transformations will be driven more by strategy, product, process, or technology changes, opportunities in these areas will continue to become more limited as these opportunities are exhausted. Future change programs will need to focus on the final and more challenging frontiers of change – leaders, staff, organizational structure & effectiveness, and compensation & incentives. Changes aimed at addressing questions like the following will increasingly become the key drivers of improved revenue performance and growth:
Are we organized and mobilized in a way that best serves our customers?
Do we have the right sales, service and support roles, and do we have the right people in these roles?
Do we have the right number of sales people located in the right places?
Are we structured in a way that provides the flexibility and agility needed to adjust and change with the market?
Do our supporting organizations – including Marketing, Product Development, IT, and Service – have the requisite capabilities to effectively enable the go-to-market strategy and support front-line sales?
Do our compensation, incentive, and total reward practices position us for attracting and retaining top talent, and are they aligned to business objectives?
Does our human capital strategy provide us with a sustainable competitive advantage?
Do we have the right sales, service and buying processes in place?
Comprehensively addressing the key questions above requires a keen understanding of human capital strategy and execution. Without this, leaders and managers in a revenue and growth transformation have the potential to inappropriately redirect transformation efforts to “easier” (and often less impactful) efforts in the areas of strategy, process, or technology. Transformation programs may start with leaders having identified required changes in these areas, but transformations are likely to deliver only mediocre or at best incremental results if they do not yield the human capital changes required for successful execution.
Leading by example
Helping senior commercial leaders define and follow-through with human capital, organizational effectiveness, and compensation & incentive initiatives are only the beginning of the contributions that a CHRO and the broader human resource function can provide to a revenue and growth transformation effort. It is just as important to assess how the HR function performs internally and transforms alongside the surrounding organization. When the HR function innovates and stretches toward the same level of aspirational goals as the rest of the organization, the level of credibility and influence that HR business partners can have on both day-to-day operations and change programs is significant.
Leading by example is partly about modeling desired behavior. A CHRO must take a hard look at the talent in their own function and assess if they have the right roles – and the right people in those roles – to effectively support the execution of the overall business strategy, as well as the demands involved with a revenue and growth transformation. In doing so, the CHRO can set the tone for thoughtful talent management for the rest of the company.
One example from Aon's “People Fuel Growth” study where a CHRO effectively set the tone for growth comes from an electronics company with an inordinate executive focus on finding cost efficiencies. In spite of the fiscally stringent environment, the CHRO was determined to drive change in the company's learning and development (L&D) function. Rather than look for additional HR budget for L&D, the CHRO found a way to get a subsidy from the local government that would pay for the L&D budget. This CHRO demonstrated a strategic mindset and role-modeled productive behaviors around finding outside funding versus always relying on self-funding. Another example comes from a healthcare company where the CHRO led an organizational structure and talent assessment of HR that led to the creation of new roles, reduction in over 20% of headcount, and the replacement of nearly one third of its remaining leadership team and staff. These actions made it clear to the rest of the organization that this was a HR team willing to practice as it preached – namely, that a strong foundation in the areas of (1) organizational structure & effectiveness, (2) having the right people in the right roles, and (3) alignment of compensation & incentive programs is critical and key to improved revenue performance and growth.
For a CHRO, leading by example is also about taking a strong leadership role in change programs across the business. The CHRO must be willing to identify the structure and people initiatives that their peers may be hesitant to discuss, and must do the right thing for the business by presenting all the options that human capital programs can bring to the table. Often, human capital programs have meaningful transformation benefits that product, pricing, and technology change efforts simply cannot. Serving in this role requires that the CHRO and the HR function be credible and informed about business operations to the extent they can identify strategic change opportunities across all functions. Furthermore, this opportunity requires that the CHRO be able to lead and arbitrate healthy debate with their peers, given that they will need to be able to propose and administer human capital change programs impacting any number of functions in a business.
Finally, stronger talent controls, policies, and protocols inside the HR function can help quickly strengthen and bolster human capital and organizational effectiveness company-wide. HR might, for example, (1) develop an organization-wide talent assessment methodology and cadence, (2) develop and implement a compensation philosophy that impacts how much and how people are paid, or (3) even sponsor a broader human capital strategy effort that leads to improvement and change. Such programs can be unpopular, and sales and commercial leaders can spend weeks and months debating whether these programs will improve performance or hurt productivity and employee morale. However, the outcome of doing nothing is abundantly clear – and when growth is stalled and all other paths seem to have been exhausted, the CHRO may be the senior leader with the right ideas to fuel growth.
The success of growth-oriented change programs often comes down to the ability and conviction of leaders to make and act upon tough decisions – no where are these decisions more difficult than in the areas of people, compensation, and organization. strike a balance between control and empowerment, andand the the The CHRO has the opportunity must to be the type of strategic change-oriented leader that identifies and executes meaningful and requisite change in these areas. human capital, organizational effectiveness and compensation & incentive programs that yield results. The CHRO HR function is well placed to address organizational resistance given its practical knowledge of people, organizational systems, and the company's human capital controls. HR-led change programs may just be the missing link that is holding back revenue and growth transformations from being successfully executed – and in our experience, they often are.
Claiming a seat at the table
CHROs and the HR function can help companies successfully deliver on the full potential of a revenue and growth transformation. To do so, they must be judicious about which activities truly add value and embrace their roles in leading improvements in both performance and organizational health. The CHRO is well-positioned to play a leading role in revenue & growth transformations, and the increased involvement of the human resources function will help ensure the success of revenue and growth change programs and avoid costly mistakes in the execution of new commercial business models. It's about much more than keeping “off of the endangered species list” – it is time for the CHRO to claim their seat at the table and take a lead in driving growth.
About the author(s)
Jeff Hawkins is a senior partner in Aon's Atlanta, Georgia office and Rachael Dahl is a senior consultant in the Houston, Texas office.
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