I spent a fascinating couple of hours yesterday with two innovators in the Talentism space (they may not describe the space that way, but I would): John and Steve Chaisson. They are the founders of Prophet Group, an organization that has the opportunity and the talent to really impact our industry and help HR along the strategic path.
Our conversation covered a wide range of topics, but eventually focused on ways to elevate HR to the status of strategic asset. The methods that Steve and John discussed are some of the deepest and well reasoned concepts I have ever heard spoken on the topic. The Prophet Guys are very impressive.
Through this discussion I discovered that I am wrong (what a surprise). HR and recruiting should not be evaluated as P&L functions. They should be assessed as wealth creation functions. Steve pointed out to me that “P&L” is an accounting concept, not an economic model. Many accounting tricks can be played to arrive at a predetermined profit target. Profit is therefore a temporary lagging indicator of an organization’s ability to manage its finances in such a way as to record the highest possible number for the quarter. Many organizations record profits but don’t return value above their cost of capital.
More importantly, the concept of profit does not adequately indicate the long-term ability of an organization to generate value that can result in repeated profitability over a long period of time. Only the concept of wealth (the total asset base of the organization) measured as a leading indicator of the possibility of future profits makes sense when you are talking about the potential long-term return to investors. And HR is a critical component of realizing the EVA opportunity of an organization, since getting more out of the business than the cost of capital is usually a function of innovation, process excellence and learning capabilities: all of which should be HR centers of excellence.
In the future I will try to separate the operational concept of running the talent or HR organization closer to customer needs and the ability of HR to extend strategic capability. I will stand by the idea that running your talent organization like a P&L function gets you closer to thinking like a business person than running it as a corporate entitlement program. But Steve reminded me that finance is rarely good at its job. When they can’t get the basic concepts of risk management and cost benefit analysis right, it is no wonder the finance organization is so slow to pick up on something as nuanced as wealth creation. I don’t think I am letting the cat out of the bag here to say that Steve and John are focusing on the concept of EVA (Economic Value Add) as a leading indicator of the success of the HR department in delivering strategic value. Given their intelligence, drive and resources, it should be really fun to see what they come up with.
Please contact John if you are interested in contributing to this topic. His email address is jmchaisson@yahoo.com.
Tomorrow I am going to start responding to the incredible comments that I have been getting on the strategic posts. Thanks to everyone for your great input.
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