What “understanding the business” really means for human resource professionals.

The CFO never comes in to my office and asks me to analyze our financial statements. He comes to me for HR.

A few years ago, after I realized that I didn’t want to be an anthropologist (in the traditional sense), I decided to go back to grad school. I couldn’t decide if I wanted to get an MBA or an MA in Human Resources, so I started discussing my decision with the various HR professionals I had the pleasure of networking with.

I posed a simple question: “What do you think is more valuable for an HR professional – an MBA or a master’s in HR?” After speaking with over a dozen generalists, managers and VPs, there was no clear winner – the results were split 50-50.

When the time came for me to make my decision, the quote at the top of the page stood out from all of the other advice I had gotten. It was offered to me by the VP of HR for a large toy and game manufacturer. Something about his words just resonated with me. I chose to go for the MA in human resources, and I’m glad I did.

Understanding the Business

If one common thread emerged during my networking experience, it was the need for HR professionals the “understand the business.” Among some HR people, though, there is a misconception about what that actually means.

Photo by Darren Hester

I once had a former (more senior) colleague tell me, on her first day with the company, that my lack of a finance background would “severely” hurt me in my HR career because I “need to understand the business.” She had herself been a finance major in college and pursued a relatively successful career in finance. Her HR career had started about five years earlier.

She was not a good HR manager. She could dig deep into the budget and the financial statements, analyze the impact of our sales strategy on the bottom-line, and put together a pretty spreadsheet. What she couldn’t do, though, was influence people through soft skills or align HR strategies with business strategies. And every HR persons worst nightmare – she viewed people as a cost.

You could certainly make a strong case that this manager understood the business. But she didn’t understand it in a way that was meaningful to human resources.

Human Resources 101

So what does an HR professional need to know? Four words: How you make money. Finance is part of that, but you don’t need any in-depth financial courses. A basic understand of supply and demand, supply chains and the like will suffice. You need to understand how your company competes in the marketplace. Your unique value proposition (UVP) is what you’ll be aligning your HR strategies with. You also need to understand how the group that you support fits into that UVP.

Photo by lumaxart

Where HR professionals really delivers value isn’t through a deep knowledge of the business, but through their deep knowledge of human resources. They’re called “business partners” for a reason. You should understand the basics of sourcing and selecting talent, incenting and retaining through compensation and benefits structures, strategic attrition, motivation and performance management, and training and development.

And you also need to understand how to use that knowledge to reach and surpass your organization’s business strategies. We leverage people to make companies more effective. You can’t do that if you don’t understand how the company works, but even more importantly, you need to know good HR.

My master’s program did a fantastic job of teaching me both the fundamentals of human resources and how to align those with organizational goals.

What are your thoughts? Am I spot on, or do you think I’m understating the important of business knowledge? Comment below.

If you want to learn more about this topic, here are some great places to get started:

• The HR Capitalist: What your Personal Board of Directors thinks HR should do to become rockstars
• HR Managers: Anthropologists of the Business World
• Motivating Your Employees
• Evidence-Based Management
• Building Employee Commitment
• The Renegade Resource Center