06 Sep. 2012 | Comments (0)
USC Marshall School of Business professor, John Boudreau, and I recently published the results of our most recent study, which focused on how HR functions are performing in corporations. We have performed this study every three years since 1995, making this our 6th survey on this topic (See Lawler and Boudreau, Effective Human Resources Management: A Global Analysis, Stanford University Press, 2012).
Once again, the results of our study indicate that HR is not acting as a key player in business strategy development and implementation, despite many changes in the business environment, such as the growing importance of talent and an increase in HR knowledge (e.g., metrics and analytics), that should have raised the role of HR in these areas. HR seems to be in a rut that it cannot or will not get out of. What can be done to change how organization design, talent management, and business strategy are integrated? Maybe the best way to bring them together is to change the structure of HR in corporations. In short, radical surgery may be needed, not just more exercise and a better diet!
How then should HR be organized? Should it be a large function, employing approximately one out of every one hundred employees, and organized primarily upon a service-delivery paradigm focused on activities such as compensation, training, and staffing? There is good reason to believe that this type of HR organization is ineffective. Strategic influence, business decision support, organizational agility, and sustainability need to define the HR value proposition, and that means that providing low-cost, high quality services is not sufficient.
An increasingly common feature of HR organizations, particularly in companies with multiple business units, is to place HR executives who are generalists in each business unit. This business-unit role involves contributing to business unit plans and managing the delivery of corporate HR services. Instead of locating many of the HR services in the business unit, multi-division corporations are creating shared-service units and corporate centers of excellence for business units to draw on, or they are outsourcing HR transactional services, requiring business units to use them.
In essence, the HR organization appears to be becoming a type of front-back organization where the business-unit HR leader or “generalist” is the customer-focused, forward-facing component. The back, in this case, is composed of the vendors, shared services units, and centers of excellence that are available to the business units. Our results show that this front-back approach to the HR function has increased in popularity since 1995, and is worth considering as an alternative design for the HR function.
Currently, HR “houses” three businesses which are related, but require different competencies and capabilities. One comparison here is sales and marketing; another is accounting and finance. They are related, but require different competencies and capabilities. Because of this, these divisions are split and operate at different levels in an organization’s hierarchy. Applying this logic to HR would mean creating an HR function that exclusively handles administration and business partnering with respect to strategy implementation and HR service delivery to the organization, while another HR division would manage organizational effectiveness.
The organizational effectiveness corporate staff function would combine business strategy and planning, human capital management, organization development, and organization design. It would be headed by a Chief Organizational Effectiveness Officer (COEO), who would have responsibility for strategy formulation, implementation, and talent management.
Having an organizational effectiveness function is a good fit for many of today’s knowledge work organizations because it integrates expertise in business strategy and talent management. It is unlike the typical organization design of most large organizations as it recognizes and creates a function charged with managing the fit between talent and strategy. All too often, this strategy is not considered because no one, except perhaps the CEO, is responsible for the fit.
HR should be the administrative and transactional piece, while the organizational effectiveness unit should be the strategy and design piece. In this design, there would be an HR function responsible for transactional HR and for working with managers on business support issues.
Another approach to HR organization design may also accomplish the goal of creating a more strategic HR function. HR organizations might centralize operations and infrastructure within a Chief Operating Officer (COO) function for HR. Such a function would span both the business partner and the administrative components of the HR function, providing specialized support in areas such as compensation, development, and performance management. This structure frees the Chief HR Officer (CHRO) of many of the ongoing tasks associated with running the HR department, and allows the CHRO to focus on the strategic role of human capital in the organization, as well as on being a member of the executive team.
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