Human resources is playing an increasingly important part in ensuring a company's success, writes Gabrielle Monaghan

As Ireland transforms into a service economy and people become our companies' most prized assets, the performance of human resources departments is paramount, according to a leading management guru.

"A service economy is founded around people," says Dave Ulrich, business professor at the University of Michigan's Ross School of Business. "Our findings show that the skills HR professionals have explain about 20 per cent of business performance."

Ulrich was ranked the number one management educator and guru by Business Week magazine, he was listed as one of the world's top five business coaches by Forbes magazine and has worked with more than half of the Fortune 200 companies.

Along with partner Wayne Brockbank, Ulrich is conducting the ongoing Human Resource Competency Study, which is tracking trends in HR management and investigating the major competencies needed for HR professionals. He will discuss the findings of the study at the Irish Management Institute's national management conference, which takes place later this month.

The project has collected data from more than 40,000 respondents at hundreds of companies over the past 20 years, making it the largest study of its kind. The results have helped shape the HR profession worldwide.

HR departments were few and far between in Ireland until the mid-1990s and the field was typically described as "personnel management". Nowadays, these professionals are expected to deliver well beyond hiring, firing, payroll and employee policy administration. Some companies are even appointing HR directors to their board of directors, reflecting the growing significance of the role.

"Competitors can quickly copy services and products, but what's harder to copy is the quality of an organisation and its people," Ulrich notes.

HR directors appointed to a board "become an advocate for current and future human capital", he says. "If a board member says the business needs to decide whether to grow or move into a new market such as China, the HR director can say if the company has the human capital to do this. So they become an architect of a company's strategy."

HR professionals can add value to a business by helping its employees become competent and committed and by ensuring the organisation has delivered on its promises, according to Ulrich. They can also monitor whether the company is building intimacy with its customers and clients, who are integral to an organisation's success.

Ulrich's competency study found that HR should play a "major part" in implementing an organisation's culture.

"We see HR creating a company's culture from the outside in," he says. "When a company talks about its culture, they usually talk about it from the inside out, but the strongest corporate cultures are linked to customer expectations. For instance, if Intel wants to be known for innovation, it needs to build innovation into its HR practices."

An organisation begins to have a unique identity or culture when its management approaches outlive any one executive and involve more than one management practice, fad or era, according to a paper co-written by Ulrich.

To achieve this, a company needs a shared mindset, which exists when customers, investors and employees all have a common view of the organisation's identity. Focusing only on the patterns inside an organisation ignores how customers and investors perceive the firm's culture. For example, Dell's aim to deliver a rapid service affects its customers as much as its employees, and the perceptions of its customers also affect staff.

The success of HR does not depend solely on the director in charge of HR, but on the department as a whole, Ulrich says. "Our study has found that a HR department is 20 to 25 per cent more important to business results than the director alone."

In Ireland, where a tight labour market has made retention of staff a priority, good HR practices are key, according to Ulrich.

"A good employee will have choices, so a company has to work hard to keep them," he says. "Therefore, the company needs to go to good employees and ask them what it needs to do to keep them there and let them know they are valued. If you are losing senior people, it's a reflection on the business."