HR Is Dead … Long Live HR

The future of human resources has perhaps no greater champion than KathleenS. Barclay, vice president of global human resources for General Motors. Whenasked if the function is becoming obsolete, Barclay is adamant. “I don’tagree with that,” she says. “I suppose it depends on the company that you’redealing with, but my view is that there has never been a more important time inany company to have a very strong, active HR organization. HR can have so muchimpact on the way the company works, how the culture feels, and the type oftalent you have both now and in the future.”

In companies where HR has taken the reins and moved the function in a newdirection, the financial results have been impressive. Research from WatsonWyatt’s WorkUSA 2002 study indicates that companies with effective HRpractices deliver shareholder returns that are three times higher than those ofcompanies without such practices.

Despite the evidence and the firm belief in HR’s potential among executivessuch as Barclay, the profession’s rosy future is far from certain. In fact,the number of available HR jobs has dwindled significantly in recent years, andopportunities are not likely to increase anytime soon, says Frank Allen,president of Frank E. Allen and Associates in Florham Park, New Jersey. Allen,who has been in the HR recruitment field for more than 17 years, has placedthousands of HR professionals in jobs ranging from benefits manager to seniorvice president. And right now, he’s drowning in résumés. “I’ve got adatabase listing 18,000 HR professionals and out of that, somewhere around 7,000active résumés,” he says. “I’m also getting 200 to 300 résumés a week.”The likelihood that Allen will be able to place all these people is pretty slim.

With the unemployment rate hovering around 6 percent, the same thing can besaid of many jobs, including information technology, telecommunications, andmarketing. But when the economy turns around, people in those positions arelikely to find work again. That’s not necessarily true for HR professionals,because the profession is enduring a wave of changes that by all accounts arelikely to significantly reduce the number of people needed. David Ulrich,co-author of The HR Scorecard: Linking People, Strategy, and Performance(Harvard Business School Press, 2001), believes that the head count in HR willeventually plummet 25 percent–or more.But wait. People like Barclay believe that HR is primed to leadknowledge-intensive companies into the future. Is she right? Is it an HR realityto become indispensable and more vital than ever? Or do the job losses signify adifferent trend? Could HR be on its way toward obsolescence?

First, the bad news
    If you are a pessimist who thinks that HR’s cup is slowly draining, you’llfind a lot of support for your position. The primary evidence comes in the formof outsourcing. Today, there are vendors available and champing at the bit tohelp with every single product and service offered by HR, including staffing,payroll, benefits administration, training, employee relations, andcompensation. According to research by Gartner, Inc., 80 percent of companiesnow outsource at least one HR activity, and the number is swiftly growing.

Consequently, what started in the 1980s as simple payroll outsourcing hasexploded into a $32 billion a year business involving all facets of HR. In thelast two years alone, the value of the business-process outsourcing industry hasgrown 20 percent, and analysts from Gartner estimate that it will become a $55billion worldwide industry by 2005. In just four years, one outsourceprovider–Exult–has grown from a start-up with a handful of people to anestablished company with 1,500 employees and more than $400 million in annualrevenues. Other big players include Accenture HR Services, ADP, Fidelity,Hewitt, and Convergys.

“Right now, it is primarily large companies that outsource their HRactivities,” says Rebecca Scholl, senior analyst with Gartner. “But we’redefinitely seeing an uptick in the number of medium-sized companies that arelooking for providers to take on more HR processes.”

Outsourcing has become popular because companies are finding that externalvendors–through technology and economies of scale–can provide more efficientand cost-effective HR services than in-house departments. In 1999, BP (formerlyBritish Petroleum) contracted with Exult to take over all of its transactionalactivities in the United States and United Kingdom, including all payroll,recruiting, expatriation, records management, vendor management, and relocationservices for its 63,000 employees. The only function that remains in-house is BP’slearning and development program in the United States.

Over the last two years, the company has reaped many benefits from thearrangement. Payroll processing is more timely and accurate. Employees get theirbenefits questions answered sooner. HR processes have been standardized acrossthe company. And for the first time, BP has measurable data on which HRactivities are effective.

Because BP is no longer handling routine transactional work in-house, a lotof its HR employees were deemed unnecessary. As a result, its core HR staff hasbeen slashed 65 percent–from 100 to 35 people.

This kind of staff reduction is fairly typical in outsource arrangements,says Jim Madden, chairman and president of Exult. “What usually happens whencompanies outsource with us is that one-half to two-thirds of the jobs in the HRdepartment go away because the jobs are declared redundant.”

External vendors have been so successful doing routine HR work that the listof companies handing over their HR activities continues to grow. In the last fewmonths, Sony, Prudential, AT&T, and American Express have all inked dealswith outsource providers. Chances are good that in the next few months, a lot ofHR people in those companies will be looking for work.

But what about strategy?
One of the primary arguments for downloading HR activities onto an externalvendor is that getting rid of routine transactional tasks allows HRprofessionals to focus on the kind of transformational work that helps thebottom line. But despite all the talk about becoming strategic partners,research indicates that the majority of HR people still don’t have what ittakes to fulfill leadership roles.

Ed Lawler, director of the Center for Effective Organizations at theUniversity of Southern California in Los Angeles, has been gathering data on theeffectiveness of HR since 1995. In the last seven years, he’s seen very littlechange in how HR professionals are spending their time. “It seems that insteadof responding to this period of business turbulence by playing a centralstrategic business partner role,” Lawler says, “HR has responded bymaintaining the status quo.”

His findings are supported by a recent survey of HR professionals conductedby the Society for Human Resource Management. When respondents were asked toidentify two or three HR/workplace trends they believe will affect the HRprofession, only 7 percent identified “HR as a strategic business partner”as a key trend. Much higher on the list were such things as managing diversityand administering health care. Clearly, HR professionals will never be able totransform the function–and hold on to their jobs–if they cannot embrace thisnew role.

Part of the problem is that many HR people simply don’t understand what itmeans to be strategic. In a separate SHRM study entitled “The Future of the HRProfession,” eight leading consulting firms shared their thoughts on thecurrent and future state of HR. One of the themes that emerged is that few HRprofessionals possess both the business acumen and functional expertisenecessary to move their companies and the HR profession forward.

    Frank Allen, who’s frequently given the task of finding high-level HRpeople for companies, estimates that of the 18,000 people in his database, “I’dsay less than 1 percent of them are A players.” And who are those A players?They are the people who not only have a solid understanding of HR, but also areconversant in finance, sales, marketing, and manufacturing, and know how HR canhelp companies meet their goals.

The dearth of business talent within HR is causing more and more companies tolook outside the profession when seeking to fill top HR slots. Today, 75 percentof top HR executives have come up through the traditional ranks of HR. Fouryears ago, that number was 79 percent. What this means is that today, fully onequarter of the top HR jobs are going to people with backgrounds in marketing,manufacturing, finance, and other operational areas–and the number is growing.What hope does the profession have for its future if it is increasingly beingmanaged by people from the outside?

To be fair, HR isn’t solely to blame. Senior leaders have to recognize therole HR can play and give its HR team the time and resources necessary to makelasting changes. Unfortunately, not all CEOs understand that strategic workforceplanning and management is an ongoing effort. Allen knows of some companies thathave hired strategic high-level HR people only to let them go once they thinkthey’ve achieved their objectives. “Either that, or a new chair will come inwith a different idea of HR,” he says. “Instead of viewing HR as an asset,they’ll view it as an administrative function and fire the person who wastrying to make strategic changes.”

Fortunately, corporate leaders who do understand the role HR can play alsorealize that it takes time and a lot of serious effort to make changes.

Four years ago, when Barclay was promoted to vice president of global humanresources at GM, it was the first time in the company’s history that an HRperson reported directly to the CEO. Barclay launched a company-wide HRtransformation effort that involved standardizing processes, creating HR centersof excellence, and outsourcing routine activities. In a company with 362,000global workers in 58 countries, a change of this magnitude obviously takes time.Barclay has already been at it for three years and says it will take three moreyears to fully complete the process–but that the CEO is committed to thechange.

A key part of GM’s global HR transformation involves developing HR peopleso that they understand and can take on the role of internal consultants. “Wehave a global HR curriculum that helps our people understand what we areattempting to accomplish in HR, what the transformation means to them, and wherewe’re going as an HR community,” Barclay says. “We have 15 to 20 coursesout there now, and they are mandatory for all HR professionals.” Among otherthings, these courses help HR professionals acquire business acumen,change-management skills, and the ability to forge relationships across theorganization. As a result, in the not-too-distant future when a business unit ishaving trouble achieving its goals, GM’s HR people will be able to work withthat unit to diagnose its problem. It might be because the talent makeup is notadequate, the incentives are wrong, or goals have not been properlycommunicated. By training its HR people to understand–and address–suchbusiness issues, Barclay is slowly transforming the way the function operates.

In addition to training the HR people, her team has to train line managers tounderstand that HR is now there to help with strategy, not transactional work.”We have a global HR Web site that houses materials our HR people can use withtheir operating leaders to help those leaders understand how HR is changing, whyit needs to, and why the value equation is better for the company,” she says.

As in many other companies, a key part of the HR transformation at GMinvolves transferring responsibility for HR activities to line unit managerswith the help of technology. For example, GM recently instituted a compensationplan for 40,000 employees that was implemented by managers entirely over the Webwithout any intervention from HR. “This experience helped managers understandhow HR is working differently now,” Barclay says.

However, this kind of change isn’t always easy for organizations to accept,Lawler notes. “Line managers typically like the close, hand-holding type ofrelationship they’ve always gotten from their friendly HR person,” he says.”The idea that transactional work might take place in an outsource company ordisappear entirely because of employee self-service technology is unattractiveand anxiety-producing for many managers.”

But blaming anxious line managers or noncommittal CEOs for presentingobstacles to HR’s transformation does not a strategic, fully employed HRperson make. The fact remains that the HR profession itself has a long way to goin developing the skills, competencies, and focus necessary to become internalbusiness consultants. Until that happens, the slow decline of HR jobs andstature is likely to continue.

Finally, some good news
    If you’re an optimist who sees an unlimited future for HR, there’s plentyof reason to celebrate.

Let’s revisit the idea of outsourcing. Yes, it is reducing the number of HRjobs available in companies that choose to outsource. But those jobs tend to belower-level administrative and technical positions. The good news is thatoutsourcing is finally giving higher-level HR professionals the time they needto tackle strategic workforce challenges. Even better, the demand for suchstrategists is higher than ever, for several reasons.

To begin with, demographic changes are making it harder and harder forcompanies to find and keep qualified employees. It will be up to HR to determinewhat kind of talent is needed to meet company goals and then devise recruitmentand retention programs based on that need. Second, technology is making itpossible for companies to become more and more decentralized, with employeesdistributed across wider geographic regions. HR people will be the ones whodetermine how to keep widely dispersed employees connected to corporate goals.

Third, although outsource vendors have proven their ability to handle routinetransactional work, internal HR consultants will still be needed to determinewhat combination of pay, benefits, and learning opportunities is necessary tokeep employees engaged. Finally, even if outsourcing does remove all thetransactional work, someone with a solid understanding of HR and business willbe needed to manage the multimillion-dollar vendor contracts. HR will always beresponsible for ensuring the speed and accuracy of employee transactions,regardless of who is doing the work.

“Essentially, what’s happened is that the field of HR has begun to splitinto two parts,” Ulrich says. One half consists of administrative andtransactional work, which is becoming more automated and routine and isincreasingly being turned over to employee self-service or outsource providers.The second half consists of transformational work, in which HR developsorganizational goals, determines what capabilities are needed to meet thosegoals, and then creates HR practices that make those capabilities come to life.

Put all of this together and you realize that the field is in the midst of anenormous transformation and its final form is not yet clear. However, thefunction is likely to be smaller and very different from what it is now. Andthere will be no shortage of challenging work. HR professionals can have animpact on their companies. And obviously, the need is there.

Is HR up to the task? In companies like General Motors, the answer is adefinite yes. But as research shows, there’s still a huge chasm between desireand reality when it comes to the future of HR.

Is HR becoming indispensable–or obsolete? Only the people currently workingin the profession know the answer to that. If they are able to forge a linkbetween HR initiatives and corporate goals, their indispensability is all butassured. If not, a lot more HR résumés may be circulating in the near future.

Workforce, January 2003, pp. 26-30 — Subscribe Now!