Focus on HR, not stocks, to maximise profits

Former Tata Steel chief Russi Mody used to say quite often that he knew nothing about steel, but did know how to connect with workers.

Mody was among the pioneers of investment in "human resource development" when such management jargon was Greek to India Inc. But history has been unkind to Mody - many management writers have since dismissed his style of operation as being suitable only for dinosaurs.

"Soft" skills such as HR are critical, they say - but they're better left to middle-management. The CEO and the board have to be focused, laser-like, on increasing revenues, profits and the stock price, and not bother too much about the "softer" side of the game.

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That's the reason why so few HR specialists have made it to the corner offices in Indian companies. There is much rhetoric about HR becoming "strategic partners" with "a seat at the table" where the decisions that matter are made.

But the reality for HR professionals is this: the table is mostly locked inside a conference room to which they have not been given the key. That's a pity, considering the growing disconnect between the boardroom and the shop floor which has led to an increasing breakdown in industrial relations in India's manufacturing companies.

No CEO would acknowledge this openly, but the fact is most have serious doubts about the payoff from a well-oiled HR machinery.

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Their reasoning: while all other departments - from manufacturing to finance to marketing - can defend their budgets for new and existing programmes, the HR heads in most companies find it tough to show their return on investment.

To be sure, HR professionals themselves should take part of the blame. Too many have defined their jobs as merely ensuring that the forms are filled out in triplicate and pulling up people who forget to fill out some insignificant details.

In short, the credibility of HR's role in delivering real results is left to question.

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Yet recent studies have shown that it is possible to establish a clear quantitative relationship between good human capital management and enhanced financial performance.

For example, research from Hewitt has shown that stocks of the best employers outperform comparable indices and industry performance metrics by over 15 per cent.

The annual profit growth of the best employers is also 15 to 200 per cent higher than the industry average. Most CEOs make the mistake of seeing their people strategy as an end in itself, whereas in reality, the people strategy has to be driven by the overall business strategy.

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Even within HR, companies are now more focused on organisational development, strategic initiatives and leadership pipeline management and have generally taken the eye off the ball in industrial relations - as no one wants to dirty their hands on the shop floor.

It's time that the CEO or the board understands that they have to come out of their ivory towers and discuss the importance of IR as well.

Manesar was a reminder of that.