CHROs as Revenue Growth Leaders or the Next Endangered Species
Volumes have been written over the past years and decades that assert it is time for the CHRO to "claim their seat" at the table. They are wrong. To claim is to demand or request something considered one's due. To be clear, our position is that CHRO's aren't due anything. They are not owed. It is not their turn. The way to have an equal seat at the table is not to "clam it," but instead to earn it. And this must be done on a meaningful and substantive platform that has clear and direct line of sight to the company's financial Objectives. Organic revenue growth is that platform.
Relative to creating lasting business value, organic revenue growth is key. Our experience has shown that for many businesses 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 revenue growth. Given their unique position to be a meaningful leader in revenue and growth transformations, it is time for the CHRO to earn their equal seat at the table (not claim it)—or else CHROs may find themselves next on the endangered species list.
What is the role of the CHRO in helping a company grow?
- 66% of surveyed executives say determining which growth levers to pursue is harder now than it was a decade ago
- 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
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'. In 2017, analysts anticipate more of the same—earnings growth projected 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 20163, Aon found that the top two business outcomes that organizations are looking to achieve are: (1) "driving profitable growth" and (2) "increasing revenue growth." 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 for more than 500 companies over the past 15 years reveals that for all levels of revenue growth, those companies With a greater proportion of organic growth (as defined in Exhibit 2) have generated higher returns to shareholders than those companies whose revenue growth efforts have relied more heavily on growth through acquisitions. Therefore, it may be obvious where we advise companies tum their focus in achieving their growth priorities— organic revenue growths. We explored the business case for organic revenue growth in our 2015 paper "Crow, Get Acquired, or Die"—and the market landscape today continues to demand growth'.
Increasingly, CEOs are looking towards broad transformation programs to meet their organic revenue growth objectives. These efforts Often cut across nearly every business function, and are intended to challenge foundational elements around the way the business acts, operates, and behaves in the effort to fuel growth. Changes can involve a fundamental redesign 01 customer segmentation, significant resizing and redeployment of the sales force, or a complete overhaul of the company's channel and go-to-market strategy. Transformation efforts can also involve undertaking change 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 revenue and growth transformation, our experience has shown that strategy, product, process, or technology changes are often not responsible for the success of organic revenue growth efforts. If these avenues are taken off the table, what changes yield results and succeed in driving meaningful growth? In our experience serving in both operating and advisory roles to hundreds 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. This, of course, is because the CHRO has the broadest vantage point on organizational effectiveness, the deepest skill set in compensation and incentive plan design, and is likely the senior leader best structurally positioned to work across the many organizational groups involved in a transformation effort. In fact, 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 revenue & growth program design and decision-making. Sponsorship for growth transformation programs typically Stems from commercial or financial leadership (e.g. CEO, CFO, COO, Chief Revenue Officer, Business Heads, VP Sales) — and despite the structural and strategic positioning of the CHRO in the organization, it is common for the CHRO to only be included in the transformation process to coordinate specific service and support activities.
We believe that this is a missed opportunity worth addressing. Critical components of the revenue and growth change programs are likely to suffer without the CHRO's leadership and the broader involvement of the HR function. For example, change programs which inevitably impact the organization's talent will likely lack staying power, and the business cases used to justify transformation efforts will not materialize. For these reasons, is crucial that CHROs rise to the occasion and serve a more meaningful role In revenue & growth transformations efforts, as well as in strategic business planning more broadly. The actions required of a CHRO include prioritizing high impact human capital initiatives, establishing a clear talent baseline for a transformation, and modeling the behaviors they desire to see from the rest of the organization by being the first to align their own function to the new growth-focused business model.
If organic revenue growth is often not primarily driven by strategy, process or technology—the answer is that it is driven by talent, total rewards, and organizational effectiveness. When considering revenue and growth transformation, this begs the question: "shouldn't the CHRO be at the forefront, leading the charge?"
"The actions required of a CHRO include prioritizing high impact human capital initiatives, establishing a clear talent baseline for a transformation, and modeling the behaviors they desire to see from the rest of the organization by being the first to align their own function to the new growth-focused business model."
Exhibit 2: Organic Revenue Growth Approach
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.
Be the champion for valuable human capital change programs
When the high level of effort required by change programs is coupled with the pervasive resource and time constraints that exist in nearly all business transformations, it is understandable that commercial leaders are challenged to cull the universe of possible change programs down to only those that will deliver the greatest returns. 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 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 even easier 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).
Consider, for example, the experience of leaders at a financial services company which closely ties with the "Transformers" context. Senior leaders in the organization were convinced that the company's lagging revenue performance was due to the fact that sales leaders (across all levels) lacked the requisite skills and capabilities needed to perform their jobs in a marketplace with new competitive challenges. At the onset of their transformation efforts, the assessment (and likely replacement of nearly half) 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 other 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 overall. Two years later—after much time had been lost, significant expenses 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.
It goes without saying that making tough human capital decisions 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 —improving talent (leaders and staff), total rewards, and organizational structure and effectiveness. 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-t(+ 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 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 incremental results if they do not yield the human capital changes required for successful execution.
The case for a talent baseline
An organic revenue growth strategy made up of programs that are quantified to improve a company's revenue by may appear attractive, but what if the organization lacks individuals with the skills and capabilities required for executing these changes?
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 lacks individuals with the skills and capabilities required for executing these changes?
The most 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 prominent reason for transformation failure may perhaps be overplayed and sound simplistic—however, our experience is that talent limitations are frequently overlooked or de-emphasized in transformation planning. Time and again this oversight will result in substantial implementation hang-ups.
Many companies rely on last year's organizational performance reviews as the baseline for plotting out future talent expectations. While this is preferred to blindly making projections without an historical fact base, the development of a meaningful talent base- line requires that the organization's people be assessed In the context of new revenue and growth strategies and the increasing performance expectations that come with them. Looking only to past performance will not accurately reflect an individual's ability to perform new "transformational" responsibilities required to surpass the business model of yesterday and achieve new higher levels of performance. As an example, consider a recent case where a print advertising company shaped its growth transformation strategy around competing primarily in the digital marketing and advertising space. In this scenario, prior year performance could not serve as an appropriate reference point for how the current workforce would be able to perform in the new business model. Instead, what was required was a talent baseline that takes into consideration how current staff would likely perform in a fundamentally different digital marketplace.
Creating a talent baseline a natural part of the transformation and change evaluation process where CHRO and broader HR ownership makes sense. This baseline is necessary to execute individual change programs and is often key to the success of transformations overall. Given the complexity of establishing a talent baseline in the context of a transformation strategy that is continuously evolving, a generic approach with limited HR insight will not get the job done. In one financial services company, leaders 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 functional leaders 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 core human capital management skills and best 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 under- standably challenging. Even so, the alternative IS far less palatable. Running "new plays" with the same old team in place and just 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.
Taking the lead
In many ways, effectively taking the lead means truly “walking the walk” and seizing every opportunity to model the desired future-state behaviors and talent management habits.
Helping senior commercial leaders define and follow-through with human capital, organizational effectiveness, and compensation & incentive change initiatives is only the beginning of the contributions that an empowered CHRO can provide to a revenue and growth transformation effort. It is likewise essential to evaluate how well the HR function performs internally and consider how well the function is structured to transform alongside the surrounding organization. When the HR function assumes responsibility to undertake the same degree of positive change as the surrounding organization, the CHRO and HR business partners will earn the respect and credibility required to elevate their roles in both day-to-day operations and the execution of change programs.
In many ways, effectively taking the lead means truly "walking the walk" and seizing every opportunity to model the desired future-state behaviors and talent management habits. 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 and the demands of a revenue and growth transformation. In doing so, the CHRO sets the tone for thoughtful talent management for the rest of the company.
There is an example from Aon's "People Fuel Growth" study where a CHRO effectively set the tone for growth in 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 much needed change in the company's learning and development (L&D) function. Shortcomings in this function were in part responsible for holding the company back from its full growth potential„ Rather than look for additional HR budget for L&D, the CHRO found a way to secure a subsidy from the local government that would fund the desired L&D initiatives. 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 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, playing an impactful role in a transformation effort is also about taking a strong leadership role in guiding the course of Implementing change programs across the business. The CHRO must be willing to identify the structure and human capital initiatives that their peers may be hesitant to discuss, and must do the right thing for the business by presenting all of 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 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 facilitate healthy debate with their peers, given that they will need to be able to propose and administer human capital change programs which can impact any number of functions in a business.
When the CHRO takes the lead by implementing stronger talent management practices inside the HR function, this sets the example for human capital and organizational effectiveness company-wide. Furthermore, the CHRO should take the lead in developing a broad human capital strategy that drives growth focused on areas including:
- Identify and develop the skills and behaviors that will most directly impact organic revenue growth
- Develop an organization-wide talent assessment methodology and cadence
- Develop and implement a compensation philosophy and programs that support both the behaviors and results that drive growth
These human capital-impacting change programs can be perceived as controversial, and it is not uncommon for commercial leaders to significantly delay the organization's engagement in the required growth efforts while the necessity of human capital changes are debated. However, the outcome of doing nothing is abundantly clear. When growth is stalled and all other paths seem to have been exhausted, the CHRO may be the senior leader with the ideas and expertise required to fuel growth.
The success of growth-oriented change programs is often determined by the ability of leaders to make and act upon tough decisions. There is nowhere else in the organization where these decisions are more difficult than in the area of overall human capital effectiveness. The CHRO has the opportunity to be the type of strategic change-oriented revenue growth leader that identifies and executes meaningful change in ways that their peers cannot. Given their vantage point over the organization's people, the CHRO IS aptly positioned in the organization to address the delays that impede transformation results. HR-Ied change programs may just be the missing link keeping revenue and growth transformations from successful execution—and in our experience, they often are.
Earning a seat at the table
Although CHROs are not traditionally seen as one of the "usual suspects" for leading transformation planning and execution, the empowerment of CHROs and greater involvement of the broader HR function will enable companies to unlock the full potential of the organization's human capital during times of significant change. To accomplish this, CHROs must personally be:
- Able to advocate for the change programs that will yield the greatest returns for the company
- Armed with facts and a clear talent baseline
- Rich in business acumen
- Prepared to carefully exercise judgment to appropriately influence their peers
The CHRO is well-positioned to play the leading role in revenue and growth transformations, and the increased involvement of the human resources function will help businesses avoid costly mistakes in the execution of new commercial models. It's about much more than keeping '"off of the endangered species list"—it is time for the CHRO to earn (not claim) their seat at the table and take a lead in driving growth.