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How to strengthen business acumen of a CHRO?

21 min read

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The Chief Operating Officer (CHRO) of a mid-sized company, Alex is well known for his impressive people management skills. They have developed a strong HR staff, implemented an optimal talent acquisition strategy and developed a comprehensive professional development program. Alex, on the other hand, doesn’t have a complete understanding of the company’s operations and finances.

The company is going through an upward spiral, with increasing competition and declining market share. In response, the management team decided to embark on a process of cutting costs to maximize profits. They see several opportunities to cut costs, such as restructuring certain departments and modifying vendor contracts.

Given the severity of this change, the management team relies on Alex to develop a new strategy that will have minimal impact on employees or their morale. However, due to Alex’s lack of clarity in business operations, the financial effects of the proposed changes could not be accurately predicted. However, the potential risk could be measured in terms of cost reduction and long-term company objectives.

Alex initiates the restructuring without thoroughly analyzing the potential impact on the company’s bottom line. Consequently, alternatives to desirable cost reductions while preserving employee engagement and productivity cannot be considered. Lacking a clear understanding of the company’s financial situation, they overlook the importance of aligning restructuring with the organization’s long-term objectives

As the restructuring progresses, the lack of business acumen becomes apparent. Alex’s inadvertent decisions have unintended consequences. Some critical departments experience severe shortages, leading to delays in service delivery and reduced customer satisfaction. Furthermore, change disrupts the productivity of teams, creating friction and hindering overall productivity.

Additionally, the cost-cutting measures Alex has implemented have not had the anticipated economic benefits. The company’s profitability continues to decline, as restructuring decisions failed to take into account the potential impact on earnings and market competitiveness. The Board of Directors and other department heads were able to notice that the CHRO’s lack of knowledge on the business front landed them into the chaos.

Recognizing the impact of their shortcomings, Alex demonstrates a desire to learn more about the financial aspects of the business. He focuses on collaborating with the CFO and participating actively in the leadership meets to develop a comprehensive understanding of the goals and financial implications of the organization.

To address the issue at hand, the crew embarks on a training program and hires a mentor to help Alex understand various business aspects. Over time, Alex was able to develop a deeper understanding of the company’s finances and business operations, enabling him to make more informed decisions aligned with organizational goals. Alex drives future strategies that integrate HR strategy with business acumen to deliver improved outcomes for the company’s overall success.

The organizations today strongly support CHROs being an active member at the business table and encourage them towards becoming a strategic business partner. And the primary step towards this is to develop a business acumen which is very instrumental to attain it.

The changing business perspective for managers and CHROs

Business acumen is a combination of valuable knowledge, skills and experience that enables a person to understand key business issues, apply that understanding effectively and make informed decisions. It involves a comprehensive and holistic view of a situation, rapid analysis, rational decision-making in line with organizational objectives. Also, it empowers individuals to influence and inspire, win over others’ ideas and support better outcomes for the organization. Hence, we can define business acumen as the ability to objectively analyze situations, make sound decisions, and influence stakeholders to achieve organizational goals.

Business skills are often associated with senior leadership, but it is important to recognize that the acquisition of these skills is a prerequisite for reaching senior leadership positions. Furthermore, in today’s fast paced and dynamic business environment, agility is essential at all levels of the organization. Therefore, having employees with strong business skills throughout the organization is a huge advantage.

This is largely due to the increasing pressures faced by organizations in various sectors – whether public or private sector. There are dynamic and unpredictable changes in the external and internal environments, requiring quick responses and decisions even at the lowest levels of the organization, often with limited information and incomplete knowledge. Moreover, organizational structures are becoming increasingly complex, with complicated outsourcing models and dangling supply chains.

In this context, companies are well aware that an individual’s success doesn’t depend on technology alone. Rather, it is more tied to the ability to understand broader organizational perspective. Thus, the need for management skills at all levels is evident, as it enables employees to capture the big picture, make informed decisions and adapt quickly to the evolving challenges facing the organization.

Becoming an impactful CHRO

Becoming an impactful Chief Human Resources Officer (CHRO) requires a deliberate approach and the development of specific competencies. Let’s explore each step in detail:

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Identify core challenges:

As a CHRO, it’s crucial to identify and understand the core challenges faced by the organization. This includes recognizing the business goals, market trends, and internal dynamics. By aligning HR strategies with these challenges, you can address critical areas such as talent acquisition, retention, performance management, and employee engagement.

Strong financial grasp:

Developing a solid understanding of financial concepts and metrics is essential for an impactful CHRO. By comprehending financial statements, key performance indicators (KPIs), and budgeting processes, you can effectively link HR initiatives to the organization’s financial goals. This enables you to make informed decisions and demonstrate the value of HR investments to the executive team and other stakeholders.

Develop a business mindset:

A CHRO with a business mindset understands the organization’s overall strategy, industry dynamics, and competitive landscape. This perspective allows you to align HR initiatives with business goals, anticipate future challenges, and contribute to decision-making processes. By thinking strategically and connecting HR strategies to the broader business context, you can position HR as a strategic partner.

Build strategic partnerships:

Developing strong relationships with senior leaders, department heads, and key stakeholders is vital for an impactful CHRO. Collaborate closely with these individuals to understand their needs, challenges, and priorities. By forging strategic partnerships, you can influence decision-making, gain support for HR initiatives, and ensure alignment between HR and other functional areas.

Embrace technology:

In today’s digital age, embracing technology is essential for HR leaders. Leverage HR technology solutions to streamline processes, automate administrative tasks, and enhance employee experience. Additionally, leverage data analytics to gain insights into HR metrics, trends, and patterns, enabling data-driven decision-making and the identification of areas for improvement.

Measure and track results:

An impactful CHRO consistently measures and tracks the impact of HR initiatives. Establish relevant metrics and KPIs to assess the effectiveness of talent management, employee engagement, diversity and inclusion, and other HR programs. Regularly evaluate progress against these metrics and adjust strategies as needed. By demonstrating the value and impact of HR initiatives, you can gain credibility and support from stakeholders.

Invest in learning and development (L&D):

Continuous learning and development are crucial for a CHRO’s professional growth and impact. Stay updated on the latest HR trends, best practices, and industry developments through conferences, workshops, webinars, and networking opportunities. Invest in building your own skills as well as creating a culture of learning within the organization. Provide opportunities for employees to enhance their skills, knowledge, and capabilities through training programs, mentorship, and career development initiatives.

The new dynamic: CEOs backed by CHROs

In recent years, the role of the chief human resources officer (CHRO) in corporate organizations has changed dramatically. Gone are the days when HR was considered an out-of-office function focused solely on operational tasks. The changing perspective has increased the importance of the CHRO role, establishing it as a game changer and key enabler of business strategy.

Ellie Filler, Senior Client Partner at renowned recruitment firm Korn Ferry has experienced this significant shift firsthand. He specializes in forming CHROs with global companies and has witnessed dramatic changes in their reporting style and impact. In the past, many CHROs reported to the chief operating officer (COO) or chief financial officer (CFO) and felt their influence in the C-suite was limited but today CHROs often report directly to the CEO, acting as them trusted advisors and presentations to the permanent board.

According to Filler, the growth of the CHRO role is unparalleled in its growing importance. It has moved beyond its traditional support role and now includes a high level of leadership ability and program implementation skills. Organizations recognize the strategic value of HR in achieving business success, which has led to the elevation of the CHRO role to a more influential position.

To gain deeper insight into the changing dynamics of the CHRO role, Filler teamed up with Dave Ulrich, a distinguished University of Michigan professor and seasoned strategy and talent consultant.

One key factor that Filler-Ulrich examined was the relative importance of the CHRO position compared to other C-suite roles such as CEO, COO, CFO, CMO, and CIO. Compensation data were analyzed to measure the importance of each role is important. The top ten earners for each position were identified, and annual base salaries were calculated for each group. While not surprisingly, CEOs and COOs are the highest-paid executives, the survey revealed that CHROs are next, with an average base salary of $574,000 in cash more than CMOs found that low-income earners get it on the list. Ulrich explains that the high compensation for high-performing CHROs reflects the rarity of exceptional individuals for this important role.

These findings provide compelling evidence of the growing acceptance and value of the CHRO role in organizations. This indicates a shift in mindset, where the CHRO is viewed not only as a business function but as a strategic partner that drives organizational success The demand for exceptional CHROs continues to grow, and organizations invest largely is closing in on finding top talent for this critical position. As the business landscape evolves, the CHRO’s ability to plan, lead change, and align talent with business objectives is more important than ever.

An analysis of leadership styles

In a landmark study featured in the HBR article, researchers delved into a 360-degree survey of thousands of leaders across the C-suite, including CEOs, CFOs, COOs, CIOs , CHROs and CMOs. The aim was to identify these employees with respect to key leadership dimensions classified into three key categories: Leadership style, Thinking style, and Emotional competence. A notable finding was that the characteristics displayed by CHROs were similar to those of CEOs.

This intriguing discovery led the researchers, Ellie Filler and Dave Ulrich, to make the bold proposition that companies should seriously consider CHROs as potential candidates for the CEO role. They also emphasized cultural and organizational aspects to be the key drivers of business strategy. Given their experience as a CHRO, these individuals are likely to excel in these priorities.

However, Filler and Ulrich do mention some caveats in this recommendation. Their study focused only on the best performers, representing a group of CHROs with potential to move up to the corner office. They don’t envision direct HR professionals advancing towards becoming CEO by focusing solely upon HR throughout their careers. Instead, they point towards prospects for executives with considerable profit and loss responsibility having undertaken developmental assignments that have led HR departments.

The path to become a T-shaped HR professional

We strongly believe in the value of the T-shaped profile for HR professionals, as it adds a broader understanding of core competencies and provides specialist knowledge in specific business areas. T-shaped HR professionals should know the core competencies relevant to their job, combined with a deep understanding of their department, such as learning and development, compensation and benefits, or people assessment.

In a HR competency framework, the four important core competencies that form the foundation of a T-shaped HR professional:

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Data-literacy: Being data-driven enables HR professionals to bring valuable insights to the table and make data-driven recommendations. 

Business Acumen: Also known as business acumen or business sense, these skills include understanding external factors, applying insights to business strategies, and aligning HR practices for tangible organizational impact. HR professionals with strong business acumen can actively contribute to achieving business objectives. 

Change Management: HR professionals with strong change management skills help organizations adapt to new processes, technologies, or processes to ensure a smooth transition. 

Organizational Awareness: Organizational awareness allows HR professionals to make prudent decisions and effectively contribute to the organization’s success. 

Relationship Management: Human resources professionals with good relationship management abilities can develop credibility, influence others, and collaborate effectively with employees, managers, and external partners. 

How does business acumen enable HRs?

Developing business acumen is a crucial aspect of becoming a T-shaped marketer, and it holds particular significance for HR professionals and CHROs. Acquiring business acumen is not only vital for creating a more substantial impact on the organization but also for positioning oneself as a key decision-maker when addressing business challenges and aligning goals.

Dave Ulrich, a highly esteemed figure in the field of HR, delves into this approach in his book titled “HR Outside In.” In the book, Ulrich extensively discusses the importance of HR professionals expanding their perspective beyond the traditional HR role and gaining a deeper understanding of the business as a whole. By developing a strong business acumen, HR professionals can effectively contribute to strategic decision-making and drive organizational success.

Having business acumen allows HR professionals to navigate the complexities of the business landscape, comprehend market dynamics, and anticipate future trends. This knowledge equips them to align HR strategies with broader business objectives, identify opportunities for improvement, and make informed recommendations that positively impact the bottom line.

Moreover, possessing business acumen elevates the role of HR within the organization. It positions HR professionals as valuable partners and advisors to senior leadership, enabling them to actively contribute to strategic discussions and influence business outcomes. By demonstrating a keen understanding of the business context and effectively communicating the value of HR initiatives, HR professionals and CHROs can gain credibility and earn a seat at the decision-making table.

Navigating the CHRO landscape and avoiding pitfalls

In addition to clearly defining the expectations for predicting, diagnosing problems, and prescribing beneficial actions, it is crucial to establish clear boundaries for the CHRO’s role. By clearly defining what the CHRO is not required to do, it allows them to focus their time and energy on higher-level strategic initiatives. This can be achieved by separating transactional and administrative HR tasks, such as benefits management, and assigning them to other functions within the organization. Some companies have successfully transferred these responsibilities to the CFO, while others have implemented shared service functions that combine HR, finance, and IT activities.

One emerging model that exemplifies this approach is Netflix, where HR processes are organized under the finance function, allowing HR to focus solely on talent acquisition and development. This reorganization not only streamlines operations but also empowers the CHRO to become a strategic partner, dedicating their expertise and insights to drive organizational success.

While compensation has traditionally been within the realm of the CHRO, it is essential to acknowledge the complexity of this area and the need for a comprehensive approach. Business leaders face unique challenges that may not always align with the CHRO’s expertise, just as the CFO may struggle to understand the nuanced social dynamics within the organization. To ensure effective decision-making, it is recommended that the CEO, CFO, and CHRO collaborate closely when it comes to compensation matters. This collaborative approach leverages the combined insights and perspectives of these key leaders, while also involving the board, especially considering the influence of institutional investors.

By redefining the CHRO’s role, establishing clear boundaries, and fostering collaboration with other key stakeholders, organizations can unlock the full potential of their HR function. This not only enables the CHRO to focus on strategic initiatives but also promotes greater alignment between HR and overall business objectives, driving sustainable success in the ever-evolving corporate landscape.

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    Meet the author

    Bhagyashree

    Content Writer

    Bhagyashree Shreenath is a full-time Content Writer at Keka Technologies. She is very passionate about writing and loves to write about the gaps in organization & human resource management strategies to handle the related concerns. When she isn’t writing, you will find her reading a book, or exploring new places.

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