Is Your HR Department Leading Your Business Down The Doom Loop?

by Tom "Bald Dog" Varjan

Is your Human Resources (HR) department killing the value you could be receiving from your people in order to cut costs? The answer is almost always, yes.

One reason for this phenomenon is that HR people draw steady paycheques and are not accountable for the quality of the people they hire and the value those employees bring to the table. Here is one factor they are accountable for: Hiring people for as low compensation as possible, and in doing so preserving budget, so they look great in the eyes of their bosses. So, they create a "level playing field" which makes certain that only mediocre people with impressive resumes qualify and people with unique skills get rejected right in the first round.

The mentality reminds me of a chat I had a few years ago with a facilitator at one of the government-sponsored self-employment programmes. After taking these courses, some 75% of participants, instead of starting their businesses, get a job and live the rest of their lives as employees, just as they did before.

To my surprise the co-ordinator said, "Tom, as long as we dispense 140 hours of classroom tutelage and make sure that every participant fills in the blanks on our business plan template, we are blazingly successful regardless of the actual failure rate."

HR is usually the same. As long as they can prove that they process, let's say, 1,500 resumes oper month, they can justify their existence regardless of the quality of the people they hire. And here is the problem. The HR folks in most companies are not involved in strategy issues, so they just do their "things" regardless of how it impacts the company's future. They put in the time and "effort" but there are no results. HR is the main reason why really talented people can't get into companies.

The sad fact is that HR departments in general don't understand "talent." They only understand "worker." The way most HR departments operate reminds me of the runner complaining to his friends, " I'm the fastest runner, but I've never won one single race. I don't understand." And then his friends ask him, "Are you actually running in the right direction?" Then the runner says, "I must be because I take about the same amount of time to finish the race as the others." I dispense the same amount of time and produce the same amount of deliverables (e.g. sweat equity), so I should get the same results.

HR folks go through all those fancy resumes, and mistakenly believe that just because they dispense the same amount of time and effort, they automatically produce results that can advance the company they work for.

And the same happens in business every day. HR's mandate is to hire cost-effective workforce. There is no incentive or interest to care about whether or not newly hired people are actually assets for the company. And there is even a clash here: HR wants to remain busy, which requires a healthy employee attrition rate. Employee attrition creates client attrition. And any HR person who can't see this correlation between the two should be replaced with a pet monkey. At least employees would have entertainment.

But employee attrition also causes client attrition and margin erosion. It also undermines your brand and reputation.

So, the race is on in search of workers who are willing to sign on the bottom line for competitive(ly low) wages to earn their fair(ly discounted) shares. HR people inherently don't care about what people can bring to the table. They are trained to check resumes, references and, if the people accept offers with low enough wages, to bring them on board.

The sad fact is that we may be living in the information age, the age of unique talent and brainpower, but most HR departments are still searching for workers with brawn power.

So, since more and more companies realise that the secret is not to own workers but to have access to the best talent on an as-needed basis, they switch from hiring more full-time employees to engaging independent professionals on a project-to-project basis.

Here is one typical scenario:

Fred Cringingnuts, the principal of the Behind Nowhere Secondary School decides to offer dental care for students. Being a government-controlled state school, Fred's HR manager, Liz has to adhere to government-like bidding tactics to find the right dental clinic for the contract. That is a competitive(ly cheap) one. Liz creates clear-cut bidding guidelines, including budget, and sends it out to all the dentists in town.

Jackie is a premium dentist who offers porcelain fillings, laser drillings and other cutting-edge dental services. Her services are highly unique and valuable, thus don't fit into the stringent and stingy budgetary requirements. Yet, she decides to send in a bid. She virtually gets laughed out of the bidding war. Liz's message is, "Your prices are ridiculous."

HR selects a dentist who offers competitive prices with belt-driven drills and mercury fillings. Liz knows that mercury can cause horrendous illnesses down the road, but she is not paid to care. She is paid to acquire competitive bids and select the - almost - lowest bidder.

The fact that the mercury fillings will soon cause the kids pretty nasty illnesses which in turn will require millions of dollars worth of remedial medical treatment is irrelevant. Bidding wars don't have a long-term view. Liz's mantra is: "I want it all, here, now and cheap."

Now fast-forward five years. The kids experiencing all sorts of strange illnesses. And the root of those illnesses is mercury poisoning. Mercury leaking from their fillings they received many years before.

And now as a significant "legal force", a large group of ex-students sue the school for medical negligence. Now the school must pay all the legal fees and the ensuing mercury-related medical expenses for all the kids for the rest of their lives.

The point behind this story is that the HR person made a decision that had an impact in an area which she wasn't interested in: The school's long-term success. She wanted to be a good HR person by hiring cost-effective workers at competitive prices. Her job was to reduce costs not to acquire additional value. And she did her job very well. It's just sad that in doing so she killed both her own and the school principle's career once and for all. And now they are to pay for all the damage they caused.

The sad fact is that most HR departments hire people as though buying a pack of chewing gums. They want to reduce costs and to do that they don't mind sacrificing value.

Also, even if there is a good candidate for a position, HR starts a bidding war by advertising the position and the resumes start coming in. And when there are enough mediocre resumes, HR will get rid of this unique person, who someone initially thought of as a great candidate. HR decided to replace a talent with a worker because the worker is cheaper.

So, what can you do to improve the situation in your company? If you are planning to hire a person whom you may pay a combined amount of $500,000 or more over the years, participate actively in the hiring process. Relying on HR or hiring agencies to acquire value is as futile as relying on wolves to shepherd your flock of sheep.

HR should never make hiring decisions. HR could facilitate the hiring process, making sure that candidates' unique value is reviewed and assessed. When HR makes hiring decisions, it will favour the seemingly lowest bidder. I say "seemingly" because the lowest bidder usually costs the most. But sadly, HR departments are accountable for the cost at which they hire people, not for the value those people bring to the table.

You've probably heard the joke, about the two competing hairdressers:

Hairdresser #1: Haircut - $10

Hairdresser #2: Fixing $10 Haircuts - $50

And the good news is that as long as there are idiots who go to hairdresser #1, hairdresser #2 will be fully booked.

In his working years my dad was a painter and decorator. I can't even remember how many prospects turned him down because they thought his prices were too high. Of course, he was a Master Certified Decorator, not just some guy with a brush, so he had the right to ask for premium fees. And he did pretty damn good work. After making a mess of their homes, most prospects called him back and accepted his prices, which were much higher than before because he had to undo the mess the owners created and then start from square one.

Many companies want to be excellent, but when it comes to acquiring new talents, they automatically go to the bottom of the unemployment scum barrel, hoping they can pick up some cheap labour that way and then miracle happens. The fact is that you can never make chicken salad out of chicken shit. Although the interesting phenomenon is that there's always an endless supply of idiots who keep trying.

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