Every facet of your business, every aspect of change you manage, every objective you execute has one thing in common. People. As a result, there is only one group within your four walls that has the depth of knowledge and breadth of understanding to ensure that employees are connected, aligned and collaborating. Surprise, it’s HR.

In this interview with Wayne Brockbank, Clinical Professor of Business at Ross School of Business, University of Michigan shares how HR can succeed the ongoing business disruption and chaos and seek stability.

Q. What do you think are some chaos and disruptions which they are failing to acknowledge.

A very smart and influential colleague recently wrote a paper in which he posited that internal complexity is a problem but that external complexity can be both a problem and an opportunity.  He argued that complexity must be viewed across two dimensions.  The first dimension of complexity is the intersection of industrial sectors. We have seen that many of the traditional boundaries between industries are breaking down.  We see Google competing with General Motors, Amazon competing with Wal-Mart, and Disney competing with mainstream television and radio.  We see similar morphing across geographical segments.  Some countries are collapsing into themselves such as the United States and England.  Other countries are expanding out of their traditional borders.  We see that with China with its aspirations for its vaunted silk road.  We see that happening in India as perhaps the world’s greatest net exporter of executive talent. 

The intersection of morphing industrial sectors with morphing geographies results in an increasingly complex world of business opportunities.  That’s the good news.  The problem is that these pockets of opportunities emerge and disappear at increasingly faster rates.  As a result companies must be able to function with greater speed and agility than ever before.  The problem is, of course, that what has made companies traditionally successful in the past will not carry them successfully into the future.  This is true not only for product and service offerings but also for the fundamental institutional infrastructures that were designed for relatively more stable environments.  These can easily become the enemy of fast and agile adaptation.  

Q: Talking about the year ahead-2020, how do businesses find stability amidst the chaos you mentioned? How do they thrive?

In the midst of such chaotic complexity, the question is not, “How do we maintain stability”.  The question is, rather, “How do we create and sustain organizational speed and agility?”  Companies must think about this challenge at a higher level of abstraction.  Stable routines can no longer be grounded in stable products and services or stable institutional infrastructures; rather, the source of stability has to be their inherent ability to change, to adapt, and to do so with ever increasing the rates speed and agility.

This new world of fast change and increasing agility presents unique but challenging opportunities for HR professionals and HR departments.  Years ago several business outlets published articles with the same general message, “Why I hate HR”. HR was seen as a source of institutional rigidly, of being the corporate policemen, and for being rule and process focused. They were seen as obstacles to speed and agility.  

It is easy to see how that could happen.  Several years ago one of our doctoral students, Alejandro Sioli, gave us a clue as to why this is occurring.  He identified that HR professionals can have three categories of business knowledge.  They can have knowledge of HR.  They can have knowledge of internal operations such as accounting, finance, IT, supply chain management and order fulfillment cycles, etc.  They can also have knowledge of external reality: customers. competitors, capital markets, global financial Instruments, etc.  Alejandro then asked two questions, “To what extent do HR professionals have knowledge in each of these three categories and to what extent do each of these knowledge categories differentiate HR professionals in high performing firms from those in low performing firms?”  As you might guess, HR professionals have high levels of knowledge about HR.  They have medium levels of knowledge about internal operations.  They tend to have low levels of knowledge about external reality. Furthermore, HR professionals in the high performing firms have the same level of HR knowledge as their counterparts in low performing firms.  Knowledge of HR does not differentiate performance.  Knowledge of internal operations has medium differentiating potential.  On the other hand, HR professionals in high performing firms have substantially greater knowledge of external reality than their counterparts in low performing firms.  Therefore the knowledge that HR professionals know best differentiates business performance least and business knowledge that HR professionals know least differentiates performance most. 

Q: You mentioned during one of your sessions, “The best way to do business today is by starting to think about HR?” What differently organizations can do in 2020?

As mentioned above the core deliverables for HR are individual talent and organization capability.  In today’s fast moving environment, HR must be in the business of identifying talent and organization that will take their organizations into the future.  HR professionals must continually ask themselves, “Do we have the technical talent and organization culture that are required to meet customer and market demands now and in the future?”  Over the last decade or so.  HR has seen the emergence of talent has a major framing for the HR agenda.  Companies have created directors of talent and vice presidents of talent. We have even renamed entire HR departments to be Talent Departments. Such a focus will add value.  However there is a clear and distinct limitation to talent as a competitive advantage.  

Research in labor economics indicates that over time the major competitors in the same industry will have about the same raw talent.  I frequently ask HR audiences, “How much time and effort do you spend trying to hire really good talent?”  Response is usually, “Quite a bit.”  My next question is, “How good of a job do you do?”  “Reasonably okay” is the general response.  Then I say to the HR audience, “All of you leave the room and have your exact counterpart in your most aggressive competitor come in and sit in your chair. Now I ask your direct counterpart in your most aggressive competitor the same two questions, ‘How much time and effort do you spend trying to hire the best talent and how good a job do you do?’”  The audience will almost always respond with the same answers.  The point is that over time the same competitors in the same industry will have about the same raw talent.  Thus, the critical issue is not the talent you have, rather, the critical issue is what do we with that talent after you have it.  And that is an organisation question issue; it is not an individual talent issue.

Q: How can HR take charge of driving business through chaos in 2020?

In order for HR to take charge in driving business through chaos, it must embrace three agendas.  First it must be intimately familiar with the present and future competitive requirements.  As stated above, HR professionals must fully understand customer requirements and competitive dynamics.  Second, we must then understand the business strategy as well as the market requirements on which the strategy is based.  Since many business strategies emphasize financial, marketing, or technical logic, HR must thoroughly know the business strategy well enough to translate the strategy into talent and organizational requirements.  HR professionals must then be able to translate present and future market requirements into technical talent and organizational capability requirements.  Third, based on these levels of understanding, HR professionals may then be in a position to enhance their credibility to provide institutional leadership in framing, creating, and sustaining talent and organizational requirements.

Q: According to recent research that we did, most of the investment in HR skilling and preparedness for the future is sporadic. There are no formal or structured programs for preparing HR for the future. What can be the possible reasons for the scenario? What are some steps that organizations can take to prepare their HR teams for the future of work?

Your findings indicate that investments in HR skill development are sporadic.  I am not surprised.  My general experience is that in many cases and maybe most universities are ill prepared to teach budding HR professionals the frameworks and business focus that are required for career success in HR.  Over the last couple of decades academic HR programs have tended to emphasize the psychological aspects of HR.  The psychological paradigm emphasizes individual talent.  As discussed above individual talent over time will be equalized across the same competitors.  Competitive advantage is found in the organization focus.  There are fundamental differences in understanding how individuals function versus how organizations function.  In fact those differences are so great that someone who focuses the HR agenda on individual talent will major in psychology.  Psychology is where students find out how to optimize individuals.  But when students understand that competitive advantage is found at the organizational unit of analysis then they will emphasize the disciplines in which the theory of the firm or industrial organization are found.  Those disciplines tend to be business strategy and institutional economics (including a bit of an organizational sociology).  The question we have to ask ourselves is how many HR faculty members are deeply grounded in business strategy and institutional economics?

Q: How can organizations ensure that they have HR professionals who have the knowledge, skills and perspectives to create competitive advantage?  

First, they need to ensure that their HR professionals are deeply grounded in the fundamentals of the business.  They do not necessarily need to have deep technical expertise in every aspect of the business but they need to know the language and logic of the business well enough to meet the organization’s talent and organization capability requirements.  

Most HR professionals read and appropriately attend leading HR conferences.  That is a good thing.  The question HR professionals need to ask themselves is, “When was the last time that we went to a business conference of the core business technology?” 

Are HR professionals spending as much of their discretionary developmental time improving their business acumen as opposed to developing their HR acumen?

An additional trap that the HR Field might be falling into is as follows.  HR certification programs are springing up all over the world.  Almost every major HR Association offers some sort of HR certification program.  Such programs encourage a common set of standards. Such standards have upside benefits but they also have tremendous downside risk.  It is probably good for HR professionals to have basic knowledge of HR (as we talked about above).  However standardized certification will not create the idiosyncratic business knowledge that is requisite for competitive advantage.  Talent, culture, and organization capability requirements are not standardized.  They must be integrated fully into the fundamental business drivers.  

HR professionals need to know the business from the outside-in.  They need to know customers, competitors, capital markets, trends in globalization, and the emerging world of high tech information and how these trends are translated into talent and organizational capability requirements.  

Q:  What would be your advice to leaders in 2020 to find their way out of the chaos and make right decisions and lead business?

In the midst of a chaotic business environment, what must leaders do to make the right decisions to take the right actions and lead their organization to business success?  Might I suggest four steps that leaders might take to build business success within this business environment?

The first leaders must learn to “embrace the fog”.  The idea of “embracing the fog” comes from John Chambers, the former CEO of Cisco Systems.  Chambers posits that competitors within a given industry faced the same fog and that the fog in most industries is becoming increasingly opaque.  Therefore leaders must learn to accept that the fog, not to panic because the fog is there, and to take the necessary steps to navigate through the fog.

Second, leaders must learn to think ahead. The question is, “How can leaders think around the corner?”  Any one individual leader is unlikely to be able to accurately predict the future.  The research on forecasting is reasonably clear.  The most accurate forecasting follows three principles.  Accurate forecasting must be a collective effort.  Different competing perspectives must be legitimized, discussed and debated.  Individuals on the team must be aware of their individual and collective with fallibilities; that is, they must approach their forecasting with humility and willingness to learn.  They must also be aware of the multiple sources of bias which can impede accurate forecasting.  These include the groupthink, momentum bias, confirmation bias, recency bias, outlier bias, selection bias, hierarchical bias, and sunk cost bias.  It is up to the leader then to ensure that she or he follows these guidelines in the search for “thinking ahead”.

Third, an effective leader must also be able to make the distinction between lead indicators and lag indicators.  Too often leaders rely upon lag indicators to make decisions instead of having a clear understanding of the lead indicators that can result in positive lag indicator outcomes.  The ultimate lead-indicator in most cases is how the people in the organization think and behave.  If there’s a clear understanding of how the people need to think and behave in order to achieve outcomes then those outcomes are more likely to be achieved.  Notice that how people think and behave is an important way to define the concept of culture.  Since HR professionals should be the advocates and architects of the company’s culture, a wise and foresighted leader will partner closely with HR leaders in helping the company to create the culture that is the lead indicator of success in chaotic environments.  As an aside, research out of the University of Michigan indicates that the capability profiles of CEOs most closely mirror those of Chief Human Resource Officers when compared to any other functional head including finance, marketing, operations, and IT.

Fourth, courage becomes a key attribute of leaders in the midst of chaos.  They must have the courage to step out in front of the chaos, to make decisions and accept the consequences of positive or negative results.  It occasionally occurs that a CEO makes a bad decision that results in a large number of people being laid off.  But the CEO keeps his or her job.  Such inconsistency results in cynicism and limited legitimacy for the leader to lead.  Thus leaders must not only have the aspiration to lead but must have the courage to lead under such conditions.