How finance can help build a leadership infrastructure: enforcing quantitative rigor on human resource costs and objectives is a role suited for financial executives, and their participation in an infrastructure design and implementation can be highly valuable.

Virtually every organization spends more to acquire and retain its human capital--its employees and their skills--than any other resource. In many cases, an organization's people cost more than all other resources combined. Yet capital and expenses draw the majority of scrutiny from the finance function.

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Weekly and monthly financial spreadsheets are distributed and reviewed at every management meeting. If there is any analysis of the people resource, the tendency is to focus almost exclusively on controlling wage and benefit costs rather than enhancing the meaningful output of people.

There are many reasons for this, but the primary one is this: the infrastructure isn't in place to measure the current return on people, to determine the impact of investment in these people or to make informed decisions about how to maximize these impacts.

Frequently this is seen as HR's job, and on the surface, it seems reasonable to assume the "human resource" function is on top of maximizing return on human resources. But HR faces a mountain of tactical work every day: managing specific employee relations issues, recruiting, keeping volumes of documentation current, and on and on. Do HR managers have the time (or the inclination) to look carefully at the strategic aspects of people resource utilization, let alone to bring the kind of rigor to this analysis that would be expected in other arenas?

In reality, the duty to maximize return on the organization's assets belongs to everyone on the executive team, and enforcing quantitative rigor on these efforts falls to finance. Finance leaders are optimally suited to advocate for better monitoring and management of human resources.

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Everyone accepts that finance brings valuable discipline to the management of monetary resources, the assessment of risk and the evaluation of business cases. This same discipline applies to human resources management, and is essential to optimizing performance.

Cost Management: Low-Hanging Fruit

One way that financial executives can bring their disciplined approach to the management of human resources is to advocate for the reliable measurement of variables that impact future costs. Turnover is a familiar example, with both immediate and long-term consequences for the return on investment in people.

Traditionally, finance has focused on helping HR measure the costs of turnover. What's missed is the opportunity to advocate ongoing monitoring of the management and organizational practices that cause turnover through periodic organizational practices assessment. Unlike traditional employee surveys, an organizational practices assessment pinpoints management practices that jeopardize retention, providing actionable data regarding risk and allowing it to be mitigated or eliminated.

Finance is frequently the primary driver of risk assessment in strategic planning and of the development of contingency plans for anticipated problems. This is yet another discipline that can be applied to the company's human resources.

As previously noted, an organizational practices assessment has value for monitoring conditions that may lead to turnover, but it is also a highly sensitive early warning system for other risks--damaging and expensive diversity management issues and destructive passive/aggressive behavior, to name just two. Managing risk requires assessing changes in risk-creating factors over time, and that means measuring those factors on an ongoing basis.

Ensuring Complex Strategic Projects Get Resources

Finance usually plays an active leadership role in evaluating the business case for major projects and strategic initiatives. Tools and processes are in place to capture precise estimates of the capital and expense requirements, as well as the expected results. But the same rigor isn't normally applied to a project's human resource requirements--the need for and availability of specific competencies tends to be a cursory "tribal knowledge" discussion at best.

This is a perfect situation for finance to advocate building a leadership infrastructure that clearly defines the competencies required in key roles and routinely evaluates the competencies of incumbents. This infrastructure allows high-performance organizations to put dimensions on both their existing talent pool and the one they need to develop for the future. If people are a company's most important resource, why wouldn't it have a systematic approach to building the competencies it needs to succeed?

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What Is Leadership Infrastructure?

What exactly do we mean by infrastructure? Essentially, infrastructure refers to the roles and key processes that define needed people resources and how they are deployed to the organization's strategies--just as the right monetary resources need to be deployed in alignment with key strategies. It includes:

* the design and development of clear roles and responsibilities for both management and critical technical positions;

* techniques to ensure the engagement of employees and the development of competencies to achieve excellence; and

* alignment of HR processes with defined critical roles.

Leadership infrastructure builds on the contribution of people resource monitoring tools like organizational practices assessment. They provide information on the competencies of key people, ensure that they receive appropriate development and create a workplace in which talented people thrive, processes continually improve and the efforts of the organization's people resource are focused on strategically important goals.

Where to Begin Building An Infrastructure

While HR is traditionally the function responsible for the tactical work of building leadership infrastructure, finance often has a clearer perspective of people resource gaps--thus being in a position to advocate building such infrastructure. Let's look at the steps needed to build such an infrastructure and some perspective finance might bring to bear. The diagram above presents a high-level view of the process and the components of leadership infrastructure.

Strategic Vision

The strategic vision provides the context for the organization's resource needs--human and monetary. Developing strategic vision and translating it to the productive and rewarding work of thousands of employees is the challenge. Finance's traditional perspective of identifying resource gaps in implementing strategic vision can apply to people resources as well as financial resources.

Create Job Charters

In any critical job role, there are three broad types of activities. All are important, but they have different effects on the organization's performance.

At the base are day-to-day tactical activities: responding to customer needs, or applying technical expertise to work tasks. At the next level are operational activities focused on improving processes that control tactical activity--quality improvement initiatives, cross-functional collaboration meetings and conflict management training. The third type is strategic activity, which is focused on the future: building leadership competencies, proactively managing culture and building an environment for excellence.

This distinction is useful because there is a tendency for activity to devolve to the tactical level. The crush of daily demands and well-intentioned attempts to be responsive can consume all of critical employees' time. The result is inadequate attention to operational and strategic areas that produce long-term returns and improve outcomes for customers and employees.

Moving from a tactical to an operational and strategic focus is not easy; it requires challenging basic assumptions about critical job roles. This is accomplished by creating job charters.

A job charter spells out the critical outcomes expected of the role and the ways these expectations contribute to the organization's strategic goals. In contrast to a traditional job description, a job charter provides a future-oriented, cross-functional view of the job. It defines the strategic relevance of the role, its key accountabilities and interfaces and decision-making authority.

Typically, job charters place increased emphasis on a leader's role as business manager, as opposed to functional expert. They also create accountability for human resource and customer satisfaction outcomes, in addition to business outcomes. This translates into more emphasis on creating the conditions that attract and retain top employees.

A common frustration in "dimensioning" work is that it is not clearly detailed, especially in terms of accountabilities by position. Finance's orientation to dimensioning required resources offers the best perspective for surfacing the role ambiguity that job charters address.

Identify Core Job Competencies, Conduct a Baseline Assessment

Once a job charter is established, the next step is to define the competencies required to fulfill the accountabilities. Competencies define in detail the behaviors someone must exhibit to succeed. These competencies also provide structure for a rich Individual Development Review dialogue between key employees and their managers regarding specific behaviors required to increase role effectiveness.

A baseline assessment of all employee competencies allows quantification of the scope of current development needs. This allows the organization to set development priorities, focusing resources on areas that are broadly underdeveloped, yet critical to realizing the strategy.

Ongoing competency assessments provide a metric both for individual developmental progress and the effectiveness of specific developmental programs. Again, the perspective of ensuring that required resources are defined and dimensioned is inherent in the finance function.

Align HR Systems to Support Leadership Job Charters

Having defined the accountabilities and competencies of key job roles, HR should align the hiring and selection processes, development curricula and performance management to help select, develop and reinforce the organization's human capital needs.

A curriculum architecture defines the breadth of development training required to meet the needs of key employees and maps offerings to identified required competencies. A defined architecture maximizes the return on training by providing specific development to exactly those individuals identified as requiring it. This is a financial return on investment (ROI) orientation so often missing in many companies' organizational development functions.

The performance management system benefits, too, especially in tightening the alignment of compensation with strategically important performance. Accountabilities from the job charter form the foundation for evaluating performance and ensuring that coaching, performance, compensation and strategic objectives are all aligned.

In the hiring and selection process, structured behavioral interview protocols--based on accountabilities and competencies identified in the job charter--are used to identify qualified candidates. The definitional base of job charters results in a better success rate in hiring the right people, maximizing the return of recruiting efforts.

Finally, with job charters established and hiring, competency development and performance management aligned with the strategic mission, the components are in place to create a sustainable and strategically relevant career pathing process. The ability to identify high-potential, critical role candidates, assess their readiness to take on new responsibilities and track their progress in a database is greatly enhanced. This provides insight into the availability of such candidates, and ensures a pool of optimally qualified candidates for the future.

If your organization is going to excel, investment in building leadership infrastructure for maximizing the return on people needs a champion. This champion needs to bring the same strategic resource perspective to human capital that is typically applied only to monetary resources. Financial executives have the perspective and discipline to see the need for and advocate investment in leadership infrastructure.

MICHAEL N. ABRAMS is Managing Partner and BILL OTT is a Senior Consultant at Numerof & Associates Inc. (NAI) in St. Louis, Mo. (www.nai-consulting.com). NAI is a strategic management consulting firm that works primarily with Fortune 1000 clients to increase revenues, reduce costs, enhance service delivery and sharpen strategic focus.

RELATED ARTICLE: TAKE AWAYS

** An organization's people cost more than all other resources combined. Yet capital and expenses draw the majority of scrutiny from the finance function.

** Enforcing quantitative rigor on HR efforts best falls to finance. Finance leaders are optimally suited to advocate for better monitoring and management of human resources.

** A leadership infrastructure refers to the roles and key processes that define needed people resources and how they are deployed to the organization's strategies.