The New HR Organization

By Dave Ulrich

Jan. 3, 2008

Governance is a hot topic. At times, it refers to government regulation of corporate affairs (e.g., Sarbanes-Oxley). More frequently, it refers to how an organization governs, or organizes, to make decisions. HR governance is about how the HR function is structured to deliver value.

    An HR structure must match the business structure. A holding company business structure would lead to a decentralized and dispersed HR organization. A single-business company would have an HR department organized by functions (staffing, training, rewards, organization design, etc.). But, since most large organizations diversify and operate with a multiple-business-unit structure, most HR departments are governed by more complex organization structures. Most large HR departments are emerging into five distinct roles and responsibilities, each with unique contributions.

Transactional work through service centers, e-HR and outsourcing
HR departments increasingly are split into transactional work and transformational work. Transactional duties are standardized, routine and administrative, and are handled through service centers, e-HR and outsourcing. Transformational work, which is differentiated and strategic, is centered in embedded HR and HR centers of expertise.

    Service centers emerged in the late 1990s as HR leaders realized that many administrative tasks are more efficiently done in a centralized, standardized way. As one HR executive said, “If we move the HR work 400 yards, we might as well move it 3,000 miles.” Employees are increasingly willing to find answers to routine, standard questions through a service center, and technology enables these centers to access employees as well or better than other ways. Service centers enjoy econo mies of scale, enabling employee needs and concerns to be resolved by fewer dedicated HR resources. In addition, service centers require a standardization of HR processes, thus reducing redundancy and duplication. Service centers offer new ways to do traditional HR work like employee assistance programs, relocation administration, benefits claims processing, pension plan enrollment and administration, applicant tracking, payroll and learning administration.

    E-HR has gained use as technology enables employees to manage much of their own HR administrative work. They can access information on HR policy and usage, such as vacation days allotted and taken, retirement provisions such as 401(k) status, job or career opportunities and qualifications needed, and their own skill levels (via self-assessment surveys). They can also take care of many routine transactions whenever they wish, because automated systems don’t keep office hours. About 60 percent of employee HR questions or transactions can be answered online by employees themselves.

    Outsourcing draws on the premise that knowledge is an asset that need not be owned to be accessed. HR expertise can be shared across boundaries by means of alliances, where two or more firms get together to create a common service, or by outright purchase from vendors who specialize in offering it. Vendors take advantage of econ o mies of both knowledge and scale. Economy of knowledge allows them to keep up with the latest research on HR issues and with the latest technology, so as to offer transaction support that accesses the most recent ideas and is delivered in the most efficient way. Economies of scale make it possible to invest in facilities and technologies beyond what is realistic for a single company. Firms like Hewitt, Accenture and Towers Perrin are therefore able to offer bundles of HR services with the goal of moving client companies away from the traditional idea of outsourcing to multiple vendors—one for staff ing, another for training, another for compensation, and so on, all taking somewhat different approaches to their work.

Corporate HR
HR professionals who perform corporate HR roles address six important areas of need within the emerging HR organization:

  • They create a consistent culture face and identity to serve external stakeholders like customers, investors and communities.

  • They shape the programs that implement the CEO’s agenda such as innovation, globalization or customization.

  • They ensure that all HR work done within the corporation is aligned to business goals.

  • They arbitrate disputes between centers of expertise and embedded HR.

  • They take primary responsibility for nurturing corporate-level employees.

  • They ensure HR professional development.

Embedded HR
    In complex organizations, some HR professionals work in organization units defined by geography, product line or function. These HR professionals, whom we call “embedded HR,” go by many titles: relationship manager, HR business partner, HR generalist. Whatever their specific title, they work directly with line managers and with the leadership team of an organizational unit to clarify strategy, perform organization audits, manage both the talent and the organization, deliver supportive HR strategies and lead their HR function.

  • They engage in business strategy discussion, represent employee interests and explore the implications of change.

  • They define requirements to reach business goals and identify where problems may exist.

  • They select and implement the HR practices that are most appropriate to the delivery of the business strategy.

  • Finally, they measure and track performance to see whether the HR investments made by the business deliver the intended value.

Centers of expertise
    The fourth HR role is the center of expertise. Centers of expertise operate as specialized consulting firms inside the organization.

    Depending on the size of the enterprise, they may be corporate-wide or regionally based—Europe, for example, or by country. They often act like businesses with multiple clients —the business units—using their services. In some cases, a fee for use or a “chargeback” formula plus an overhead charge for basic services may fund them. The financing of centers of expertise is sometimes set to recover costs, and in other cases is pegged at market prices. Typically, businesses are directed to go to the center by their embedded HR units before contracting for independent work from external vendors. If, in working with the center experts, the decision is made to go to outside vendors, the new knowledge provided by these vendors is then added to the menu for use throughout the enterprise. Center-of-expertise HR professionals play a number of important roles:

  • They create service menus aligned with the capabilities driving business strategy.

  • They diagnose needs and recommend services most appropriate to the situation.

  • They collaborate with embedded HR professionals in selecting and implementing the right services.

  • They create new menu offerings if the current offerings are insufficient.

  • They manage the menu.

  • They shepherd the learning community within the organization.

Operational executors
    A large number of HR departments have attempted to deliver all of the capabilities I’ve discussed here through service centers, centers of expertise and embedded HR. But many of these departments are finding that some work continues to fall through the cracks.

    While the embedded HR professionals are expected to be strategic and do organization diagnosis, they often find themselves overwhelmed by operational HR work that conflicts with their main purpose and renders them unable to make time to be strategic. They report that they spend a growing amount of time doing individual casework, such as handling disciplinary issues; performing operational tasks, such as setting up and attending recruiting interviews; doing analysis and reporting, such as managing compensation reviews; delivering initiatives, such as creating development experiences; implementing business initiatives, such as doing the analysis and execution for a new organization structure; or implementing initiatives from the centers of expertise.

    For example, Laurene Bentel, vice president of HR at Takeda Pharmaceuticals North America, points out, “The operational demands on our HR generalists make it extremely hard for them to remain focused on their strategic agenda.”

    Service centers typically do not perform these operational tasks since they require personal attention. Centers of expertise do not do them since they usually require deep and unique knowledge of the business and strong internal business relationships. Line managers do not do them since they lack the technical expertise.

    Hence, embedded HR professionals feel drawn into this operational work by the volume of it, even when they have the skills and self-confidence to be more strategic and are encouraged to focus on their transformational role. It is also the case that these embedded HR professionals often come from an implementation background and lack the self-confidence and skills to comfortably play a more strategic role. For these individuals, the urgency (and comfort) of the operational present outweighs the importance (and developmental interest) of the more strategic future.

    Too often, HR professionals in centers of expertise offer insight and menus of choice, but they do not facilitate or act as partners in the operational implementation of these ideas. Service centers deal with administrative challenges, but they do not deal with implementation of new administrative systems and practices at the business level.

    What has been lacking in some HR restructurings is the capacity to deliver and implement the ideas from the center while maintaining focus on the business and its customers. While this work ideally occurs through an integrated team, someone needs to be in charge of this team and direct how it works. We are finding that companies are responding to these missing implementation requirements in different ways.

    One company established the role of “junior business partners” assigned to the HR generalists or business partners. These individuals would be required to turn the strategic ideas into operational practice within the business.

    Another company created a team of “HR operational consultants” who were assigned to a business to help turn the strategy into action. They were focused on project work with an emphasis on implementing specific projects within the business. The “consulting pool” had HR professionals who were gifted at making HR initiatives happen, and secondarily served as a preparatory and testing ground for individuals who are slated for senior embedded HR professional roles.

    A third company uses a case advisor who comes from the service center to follow through on employee requests.

    Each of these companies—as well as others—is experimenting with how to solve a common problem: making sure that HR plays a role in implementing the state-of-the-art strategies that are tailored to the needs of the business. My colleagues and I call this an “operational executor” role. These HR professionals will be required to meld what the business requires for success (driven by the embedded HR professionals) with innovative, state-of-the-art HR practices (driven by the centers of expertise) into an operational plan that can be executed in a timely way. This operational executor role will continue to become clearer as these HR professionals make sure that HR investments turn into capabilities that deliver on the vision and goals of HR.

Workforce Management, December 10, 2007, p. 40-44Subscribe Now!

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