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Nigel Cassidy (NC): Are you really across the hard financial realities facing your organisation? It's time to build your commercial acumen. I'm Nigel Cassidy and this is the CIPD podcast. 

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Internal CIPD research has thrown up quite a bombshell. Many human resource professionals admit to feeling disconnected from the real business realities, the risks and choices their organisations face. Good at firefighting people problems, maybe not always so good at solving the underlying business problems. 

Like do you understand where and how your organisation creates value? What's the cost, the revenue and profit derived from your workforce? What are the business drivers and most useful metrics, the pain points and the key external trends? 

Well, it's all knowledge that builds the commercial judgement that earns HR its place at the decision-making table. 

So, we've got a dynamic duo here this month who both have a strong focus on aligning people with profit. Our first guest says the more curious you are about how your business makes money, the better you can prioritise your people strategy. She's Aly Fadil, Chief People Officer at the fashion and homeware retailer Matalan. Hi Aly.

Aly Fadil (AF): Hi Nigel.

NC: And interestingly, given we're talking about uniting HR with strategic business understanding, our second guest combines a people and an operational boardroom role at the same company. She's Director of People and Chief Commercial Officer at the FinTech payments organisation Caxton. It's Jane-Emma Peerless. Hello.

Jane-Emma Peerless (J-EP): Hello, Nigel.

NC: So, seeing as we're talking of raising HR's business credibility, I thought just for fun, I'd love to ask, each of you the most memorable example of a kind of a lack of financial awareness that you've ever come across.

J-EP: Yeah, I've got a couple actually. And the first I came across quite a few years ago when I was studying my CIPD qualifications and it was someone on the, one of my colleagues on the course who worked for a local council and we were discussing performance related pay and we were discussing whether or not whether it's a, you know, how it should be used, whether it was a good idea and this particular council had actually implemented a performance related pay structure, but what they had done is they'd made the criteria for reaching it a little bit too easy. So, everybody met their criteria to go up to the next level, the next band of pay, except that the council was actually broke and there was no money. So, no one got paid anything at all. And I thought that was a very, that was always struck me as a very good example of where reality did not meet the intentions of the HR people who put the initiative together. 

And within my own organisation, I had to really wrap my brains about this, but I had at one stage quite a junior team. And I did encourage them as I had quite a lot going on myself to speak to our employment lawyers whenever they felt the need. And as it transpired, this was all the time. So not only were they racking up a very large employment law bill, but they were taking what the lawyers were saying as absolute gospel. And of course, it's in the nature of lawyers to be very cautious and to give you the worst possible scenario. So, I found what was happening is that nothing was moving forward. We weren't able to move at all as an HR team because They basically had de-risked the entire business. And I had to kind of go back on my own advice and say, actually, we as a business take a risk-based approach and the risk has to be proportionate to the situation. And I had to kind of teach them that. So, I had to kind of reverse my own advice. A lesson learned there.

AF: Similar to Jane, actually, it's a reward-based scheme. So, I used to work, I won't mention the retailer, but it is a sofa retailer. And we used to pay commission only. The challenge with the reward structure was everybody got paid commission for everything that they sold. The challenge with it was it didn't guarantee to get the sofa in the house. So, we had people gaining commission for selling the sofa, but unfortunately customers were highly disappointed when it didn't fit in their home. 

So, what that taught me was, you know, any type of reward that drives performance needs to drive the right performance that meets what the customer actually requires rather than it just be about, driving performance for performance sake. So, for me, the ultimate upshot of that was we were paying commission and then failing to deliver on our service promise and ultimately not making any money off the back of it. 

So, I think, when we're thinking about how we link commercial and particularly reward to outcomes, we've got to make sure we are really focused on the right outcome that we're trying to deliver.

NC: Yeah, good example. So, Jane-Emma, I'm wondering why is HR or HR people seemingly getting a bit concerned about being out of the commercial loop? Is this new? How has it happened?

J-EP: I don't think it is new. I mean, if you talk to people who've been into HR a good, you know, couple of decades or so, they certainly have the impression or gave me the impression that HR is a strategic function to enable the business to perform better. And there is a strong link between the people and performance. That's one of the reasons I came into the profession. I was a sales director for many years beforehand was because, you know, the dream was as an HR leader, you are a CEO in everything other than name in terms of how you have to understand the business and understand the drivers of the business. 

And so, it's an interesting concept that we're now discussing the fact that, you know, business acumen is needed. And I just wonder if you look around, if HR has become, it has grown as a function hugely. And I just wonder if it's a bit more driven by societal expectations than business reality.

AF: Yeah, I mean, I've been in the profession quite a long time and seen many changes over that time. I too started in commercial, so I was the general manager within health clubs before I made the transition to HR as a profession. 

For me, I think the conversation has changed somewhat over time. And I think that's because businesses are changing all the time. I think the environment in which we operate in is now more complex than it's ever been. I think consumers and businesses are more volatile than they've ever been. And I think there's a real focus on people costs are going up, as we well know. And I think business models are changing, which means that we need to be prepared for those changes. And therefore, the conversation is changing around what is expected as a chief people officer or any HR team member, to be honest. The conversations I had 20 years are completely different to the conversations I now have every single day. So, I think it's the business world that's changed that's put more demand on how we show up as HR professionals and business leaders.

J-EP: I don't think it's just business though. I think it's also society because, you know, without question, employees, investors and even consumers do expect businesses to be ethical, inclusive and sustainable now in a way that maybe they didn't 20 years ago. And so, I think this has kind of driven the agenda for HR to a point where it's become its own entity in its own right. And that, if we're not careful, they will uncouple from the business reality and clarity over what they're there to do, and or what we are there to do, and how the organisation meets its goals. 

And I think that can result in a couple of things. I think they can either come into conflict with the business in some way or the business just kind of waves its hands in the air and just say, well, just let them get on with it. I don't really understand. And it doesn't have any real commitment to what is trying to be achieved because it's lost its anchor with the purpose about what the success and the growth of the organisation really is.

NC: So, I wonder, Aly, before we get into the sort of nuts and bolts of how you kind of grow this commercial acumen, are we actually saying here that there are aspects of HR to do with being an advocate for people and being concerned about diversity and inclusion and all that maybe you don't have room for once you have a hard commercial head on?

AF: No, I think there's room for both. We call it high care, high performance. You know, we need to have the right, you've still got to do business in the right way and treat people in the right way to get the best out of them to drive commercial performance. It's all driven through people. It's not one for the other. 

I think, you know, when I look at how we think about performance, you know, inclusion and diversity are key, are key to us driving a better output and performance for our business. I mean, I'm in retail, which is probably one of the easiest sectors, if I'm honest, to drive out commercial performance because you see it every day. But for us, it's how those colleagues engage with customers, how they show up. And that comes from being feeling safe in work in an environment that's very challenging at the moment. They're faced with a lot of challenges actually in retail, but making our colleagues feel safe, secure, belonging included, all helps to drive commercial performance. The balance to that is also being really clear with what's expected from our colleagues in order for them to be able to deliver on their goals and the business goals every day.

NC: But Jane-Emma, you can, if you follow that through to its logical conclusion, if you drive the business forward in order to get that maximum output from people, and we know, I mean, retail, particular example, times are very tough now, then, over time, you're going to overwork people, you're going to make them miserable. You can't always have it all, can you?

J-EP: No, and it's the business I work in is small by comparison, in terms of we have about just under 100 employees. Now, in an organisation like that, every role matters. And what people do matters and how that role is important matters. So, I think that you're absolutely right. There's a lot of pressure on people. But I think that's also where AI can come in and help, bizarrely. 

So, an example recently, we challenged, certainly the people team challenged the notion, the business in whether or not we actually needed a product function anymore. And the reason I say that is because AI, which had been utilised by the developers, they were utilising this a lot to create the tickets that they needed. So, the old fashioned, the function that we had it as, where someone was kind of sitting as the middleman between the business and the developers, creating the tickets, was sort of disappearing. But rather than just saying, well, let's just remove it, we had to work out what our desired future state would be for the developers. So that's working with the CTO, the COO and going, well, what is it? Where are we trying to get to? AI is coming in. All the kind of grunt work that was being done is now being done by AI very well. Some of the kind of basic code is being written. So actually, so where is the future for those developers? 

And it was really, we then created this forward deployment model where developers were having to engage with the business more to understand the needs of the business to then take that back into their own work. And so that's what we're trialling successfully at the moment. So actually, it's working people hard, but also showing them what the future state could be like.

NC: Okay, I'd like to explore a bit more now with Aly, the practical steps that you suggest people might need to take in order to build this commercial understanding, because some of that we heard from Jane-Emma, let's face it, could be a little bit scary for people who are maybe comfortable with the people side of HR, but not with the sort of some of the harder understanding and judgement. 

I know you do sort of embedding and shadowing. Do you want to just talk a bit about how you build commercial knowledge?

AF: So personally, for me, I think, you know, my finance partners that I've worked with day in, day out are my go to. So, I really encourage all my team to be really, really curious in all their meetings to understand what the playback comes to with the work that they're working on. 

So, when we're in any type of meeting, and I find finance really interesting anyway, and I think I've never met a finance partner yet that isn't happy to tell me about finance. So, you've just got to extract like a sponge as much knowledge as they can give you to support your own curiosity and knowledge. It comes over time, doesn't it? 

I don't think we set taught ourselves very well as HR professionals. You know, we walk out of HR school, and we're not actually addressed for commerciality. We're just not ready for it. And every business has slightly different levers, slightly different challenges. But ultimately, I think, you know, what drives me to be more commercial every day is the curiosity to learn. So, I go out there and I sit in meetings. If I don't understand, I will have one-to-one meetings off the back of it and make sure my knowledge is understood in what the business challenge is. 

Now for retail, that's probably a little bit easier because we have quite clear KPIs that we need to achieve, quite good measures. But when we really start talking about financial health of the business, so I make sure with the CFO in whatever business I'm in, I really do understand the makeup of our financial structures. What's our cash flow? What's our management accounts? How much capital have we got? How do we make free cash in order to release that capital? How much interest do we pay on our debt? All the questions that make up really our financial model. 

So almost leaning into finance first, then understanding, okay, so what are the drivers that make up that financial model? So, it's the stock we buy, it's our gross margin, it's our EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortisation] it's in our P&L structure. And then I think, right, okay, so how do I do anything with that within my people function? 

So, I really encourage my business partners and the people team to get out and really understand the metrics of our business in order for us to be able to prioritise and plan better. Because I truly believe if I know what is keeping my CFO awake at night, I've got a better chance of trying to help him resolve it than I have just going, well, that's not my problem. That's the finance problem. You know, I think the world has changed a little bit more now. The expectation is that we lean in together and try and solve some of these really, really complex challenges. So, understanding the makeup of your business definitely helps. And then the real key drivers that create value in your organisation. Yeah.

NC: Well, Aly, that's brilliant, but it's a lot. And I just wonder from your own experience, Jane-Emma, if you could just talk a bit particularly as you work on both sides, both the HR and the hard commercial side, how you actually discover which of those many metrics and numbers that Aly’s talked about are the ones that you need to inform your people practice and to make more efficient use of that people resource that you've got.

J-EP: I think if you're starting afresh from scratch, I'd say play to your strengths. So, if you are a very analytical person and understand finance, then actually go the finance route. And as Aly says, I agree with that. I've never met a finance person who isn't delighted to talk about the numbers. And actually, if you can have the option of having a management accountant work with you, even better. 

But actually, if you're much more of a people orientated person and you'll build rapport easily and you understand commercial from a kind of consumer point of view, then I would start with understanding who our customers are. Why do they stay? Maybe why do they leave? And that's working with the marketing team or sitting down with someone in marketing or sitting down with someone in sales and understand why they do buy from us. And actually, what is the problem with our customers that we are attempting to solve, that our products or services are attempting to solve? Where do we get our money from? You know, is it through sales? Is it through grants? Is it through, we're given it by the government, whatever, you know, what are the dependencies on that? 

And I think, you know, Aly’s mentioned profitability. It's very, very important at the moment. Cash and profit are probably the two biggest, most important things in the company. So, we are on a constant drive to drive profit. And I think that does affect everything else that we do. 

I would say also to form strategic relationships. So, people in different departments get those relationships going. I don't know who we're talking to here, whether we're talking about HR leaders or people who are just starting out in the profession or a first time HR business partner, but whatever the equivalent is, make a strategic relationship with that individual and learn. You can't influence what you don't understand. And actually, I think then the more you understand, the more it's going to become obvious how you can link people to performance. I also hold a regular weekly meeting with the commercial heads of the company and HR and the CEO just to talk through opportunities and the commercial realities of the business.

NC: And of course, Aly, all this is changing over time, isn't it? The financial questions, the people questions will alter quite quickly. So, I was just thinking, I mean, Matalan, obviously you're an organisation that's, like most retailers, been through tough times. I know you've had a debt restructuring, reorganisation, you've started new things online, you've had to close some branches. Can you just tell us a little bit more without giving away any company secrets, how this financial information informs your decisions and how you work with people?

AF: Yeah, it's interesting as well, just a point when we talk about HR and commercial as being two separate things. I actually think they're the same thing. I think I lead as a commercial leader and I'm a HR professional who kind of use my people skills to be able to build those relationships and develop whatever it is the business kind of require rather than the old kind of style where HR sit as a support function. Those days are gone in my view. We've got to lead from the front. We've got to help businesses to move forward and transform. 

So, in terms of how do we go about that, obviously you'll have a financial plan, and you'll also have a strategy that the business wants to achieve. We class ourselves as an enabler in that. And to Jane-Emma's point, you know, I too have a meeting with our, I'm in most of our commercial trade meetings, understanding the levers of the business, how our customers interacting with our products and therefore what does that mean for the people on the shop floor? Do I need to do more sales training? Do we need to do more service training? Do we need to know what ‘SMILE’ means when we're doing scoring our NPS score? So, it's more, it's not necessarily about what we do. Every business I think is slightly different, but for us there was many competing priorities as a business that we were trying to turn around. You know, we didn't have a lot of investment, we had new shareholders and they wanted to see growth. So, for us, it was and again, retail is probably a little bit easier, I would say, than financial services in the fact that, we've got to buy product, show product, sell product, move product, and there'll be margins within that. 

So we went after the things that we thought would affect our customer the most. So, whether that's brilliant handwriting and great product with super quality at a low value price, great. What does that mean for the people team? Well, that means I've got to make sure all my colleagues on the shop floor understand what value is, firstly, and then understand what's in the product in order to be able to sell quality. So, we went after some really basic things, if I'm honest, but also to the customer point, our business is built on loyalty and bringing consumers back to Matalan. So how loyalty schemes work that enable us to do one more shop and customer lifetime value, how do we create that? And then what does the people team need to do to make sure that they get building those relationships with customers, so customers feel part of Matalan.

So, lots of different challenges. Ultimately, our shareholders have put money in the business and want to see a return on that money, and they constantly invest and want return in that investment. So, we've had to then take that investment and say, where would we create the greatest value? Improving our store environments is one, you know, ensuring our colleagues feel safe and productive is two. And then thirdly, you know, we put it into our customer journey and into our product, because they're the three big things that our customers want from us.

J-EP: I think what that really explains to me, what I understand from that, is that there is a very clear business imperative driven by investors, driven for what the expectations of the company are. And Aly and her team, because they are incredibly commercial HR people, have cottoned on to that and are actually working with that. You know, all the language she's using demonstrates a very good understanding of the customer journey, if you like, and the frontline support that's needed. And I'm wondering if, but I think there could be organisations out there where those conversations are happening, but actually HR is not necessarily, part of that discussion. Because…

NC: Actually, you've taken the words right off my mouth because I was thinking that because all that sounds fantastic.

J-EP: Yeah

NC: But I'm just wondering whether this reflects practice in organisations, well, both large and small. Large ones where the HR is still very much in the sort of support vein and the small ones perhaps where there just aren't enough people to organise all this once they've just carried out the necessary functions of the life cycle of employing people.

J-EP: It goes back to how I think how and understanding how HR is viewed in your organisation. I think you're right because if there's a willingness from the board and the senior leadership team to engage but you're just not picking up on it, that's one thing. If they see it purely as a support function and a cost centre because that's the background they've come from, then I think there is a job to be done to reframe their expectation about what you want to achieve from the HR function. And it will probably take a bit longer, but that is about kind of being brave enough to sit down with the senior leadership team and just say, this is what we can do for you. You know, we can bring a perspective, we can understand, once we understand the business, we can bring a perspective that maybe you haven't thought of and we can make it happen for you faster and better than trying to do it yourself.

AF: Yeah, I also think, there's an expectation that we also have to earn our keep, if that makes sense. So, we're competing for priorities for investment. So, we were talking earlier about, making sure we've got high care in the organisation. Wellbeing for us is really important. But I've got to bid for that investment to get that investment over something that's more customer facing. So, we've got to relate that back to what does that mean? What does that give us? How much more will colleagues be productive if we have a wellbeing offer that enables them and to interact with that when they've had a bad experience in store because they've been shouted at by a customer. How does that help the business to move forward? 

So, I think as we get in these competing priorities and the investment required, we're having to get a bit sharper with how we talk about HR now, whether you're small or large, and I've worked in all three, I've worked in really small teams, I've worked in rather large teams. But it's never gone away that we've always had to work a bit harder to get any form of investment when you're a business that is putting so much money into customer. So, and IT generally, how do we fit in with that? And I think there is an expectation for every pound we spend, we need to get some value for that pound. I'm thinking therefore about where to put it that gives us our greatest return, which is just a fundamental finance model, isn't it really, how we're thinking about that?

J-EP: Every commercial result in an organisation is driven by human behaviour of some nature. 

AF: Of course.

J-EP: And I think you're right about, wellbeing is a good example because wellbeing has become a thing in its own right as a sort of offer to look after your people beautifully and ensure that they are happy. And I think, you know, you could probably mean every word of it and still run out of money. 

AF: Correct.

J-EP: The organisation could still run out of money, and everyone loses their job. 

AF: One hundred percent.

J-EP: No one would say that's a people first strategy, would they? 

AF: No

J-EP: So, I think it's about creating the right environment of which supporting wellbeing is part of that to give agency to people to perform at their best. So, they're not mutually exclusive. And I think that might be what's happened is that it's become a sort of, right, we need a wellbeing initiative. Well, why? Oh, well, we just do.

AF: Yeah, and that's the same with leadership development, right? Or training or anything else that we decide that it has to be coupled with what the business is trying to achieve, has to be. And there are priority choices we've got to make.

NC: Jane-Emma, when we were chatting beforehand, you talked about an exercise that you went through, which I thought was quite a good example of how you use numbers to reach some conclusions, even if they can be painful, but they're good for the business longer term.

J-EP: Yeah, we have an area, a product area where we have an awful lot of clients. It's a part of our business card expense management area, and they need a lot of input and support. We work with very large businesses in a very complex way. And there's a constant cry for more resource to be able to manage those clients. And I think a typical HR response could have been, well, okay, we'll just get more people. And we'll start that recruitment journey and workforce planning. But actually, because profitability is such a key thing, and I knew that the company had to achieve greater profitability, we didn't do that. And actually, what we did was like, we approached it in a different way. 

So, I used looked at all the clients that we had, looked at the data around usage of our product and how much we were making from them, and then ran that through a profitability lens based on direct cost, but also the cost of some of the overheads, not all. I didn't throw the kitchen sink in there, but certainly the direct overheads to support that product and that service. And actually, then we gave us a very different picture or very clear picture about who was actually making money for us and who wasn't. And actually, as it turned out, we had what they call a long tail problem. We had too many clients who were not making us enough money. So, we didn't need to increase our numbers. We just needed to reduce our customer base. And we did that. 

And actually, what we did was you gave them a choice. We just said, look, we can't afford to do this anymore. We've given you this for virtually nothing. Our own costs have increased. We can't afford to do that anymore. So, you have a choice. You can pay this this subscription fee which we're going to introduce, or you can leave us and we would entirely understand if you'd like to do that. And we probably anticipated that maybe 10 per cent would stay. Actually about 25 per cent stayed and we made more money in the process, so we've actually made more money, in the current year from a vastly reduced set of clients. And that's now enabled us to refocus on, okay, so we now know more about the kind of clients that we want that will make us money. And what now, now we're turning our attention to the kind of setup, the kind of talent that we might need in order to support that really effectively and efficiently.

NC: I wonder Aly how much time you spend interpreting financial information and then turning that into people policies and how much time you spend working with senior management and leaders to decide the next things you're going to be doing.

AF: So, I think, I spend time in both camps really looking at the data to come up with the right solution with the team and understanding what the business is trying to achieve. We also get asked quite regularly for more resource to throw more people at a problem. When generally the question I would ask is, is that a focus on the right priority? What's the outcome you're trying to drive before we just throw more people at it? Can the work be consumed somewhere else in the right area? Is it part of somebody else's kind of outcome as in another division another part of the team. And we need to think about, the capability that businesses need to solve an outcome because it's not always people that it needs. 

To your point, Jane-Emma, you talked about, product and data and digital and AI and automation. That's really changing the conversation for us in terms of actually, do we need more people or do we need different capability? And, you know, more people costs, you know, is an ongoing conversation because, you know, we're a value retailer. More people cost I mean, we need to sell more jeans. So, it's all about making sure the economies of scale work. 

So, I think the questions, to your point, Nigel, is twofold. There's always a commercial lever to it. But the real question that I like to ask is what is the outcome we're actually trying to achieve here? And therefore, is it a people initiative or is there a different way of doing it?

NC: Just trying to bring this together, Jane-Emma, this is all about HR earning its place at the top table. If you had to summarise, what would you say should be the hallmarks of how HR should adopt this smarter approach?

J-EP: I think it's really understanding what the kind of board priorities are. I think it has to stem from there and then how that dovetails with the HR priorities. 

So, talking their language for a start, I mean, let's give an example. Let's say that productivity is a really big, important, that's a board level topic which gets discussed. Then doing a whole lot of engagement surveys is just not going to cut it really. So, I think it's really about understanding and what the output is for every full-time employee or part-time employee, what the profit is per employee and how that relates to customer satisfaction. What is the customer satisfaction rate and what are the metrics that the business uses to judge that? 

So, having an understanding of those has to be the starting point. And I think if that is understood, everything kind of flows from there.

NC: So really, Aly, it's about outcomes, not just reporting things.

AF: 100 per cent, 100 per cent for me. It is about understanding, because our job is to enable change and deliver change to make a business perform better. So, for me, it's really understanding in that business, what do we mean by perform better? What are the real levers that are needed within that organisation? 

And I think the closer we can get to that, and that might be, I encourage again my team to go and work at stores, go and work in a store, see what it's like to be a GSA, a general sales associate. I'll go and work in our warehouse and see what our operatives actually have to do, because it'll give you a lot more knowledge and reality as to what the job actually entails versus what we think it entails, you know, from a support hub perspective. 

So, I think the closer you can get to your business model, and the closer you can get to your customers, as in your real customers, then the better. And it's an interesting conversation because I always think our colleagues are our customers, the people teams customers. But when we then call real customers, I'm talking about people actually shop in our stores. So, it's both, you know, getting really close to the customers to understand what it is that we need to do in order to enable that change and that performance move forward.

J-EP: I think our biggest gift that we can give businesses is to challenge their thinking. And actually, the more you understand the kind of things that they're going through, the more you can challenge that thinking. We are expert in human behaviour, if nothing else, and then bring that knowledge about human behaviour and how that might improve whatever needs to be improved. I think that's probably the key gift.

AF: And we also know, don't we, that high colleague engagement should reflect in higher sales, should do in most cases. And you can model that across, well we can in our stores. You know, when we've got high colleague engagement, we usually have high customer satisfaction as well. One feeds the other. But we also know therefore what's driving that and how therefore as a people function, we can really support those stores and those teams.

NC: Okay, well, a big thank you to our brilliant duo this month, Jane-Emma Peerless from Caxton and Aly Fadil from Matalan. So many strong arguments for not always staying in your HR lane. 

Just to mention before we go, some thoughtful feedback after last month's rather timely podcast about the need for sharper AI guardrails. You all seem to agree that AI governance in organisations has rather fallen behind AI adoption. We discussed how good governance can actually boost innovation rather than suppress it and stop blunders like data breaches, discrimination and hallucinations, all that. 

So, if you haven't caught it yet, that is episode 235. This is 236. Do check our back catalogue for all our useful content on the CIPD podcast page. But for now, until next month, it's goodbye from me, Nigel Cassidy and the podcast team.

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