October 17 , 2017

“The Future of HR” From a Shareholders Perspective (Part 2 of 6)

CLEARLY DEFINING HR’S PURPOSE AND PRIMARY CUSTOMER

In part one of this series I outlined why I believe public companies are about to experience a significant uptick in shareholder interest/involvement in talent management practices.  Large investors interested in protecting their investments are paying more attention to how the companies they invest in are run.  The factors driving their interest are those seen almost daily on news broadcasts around the world, namely: unrelenting focus on market performance, increased role of “talent” in organizational success, increasing regulatory pressure following scandal after scandal and mounting efforts to hold corporate boards accountable for corporate negligence.

While the uptick in attention could most certainly be seen as an opportunity for many truly strategic leaders in HR to step up and challenge age old barriers to HR playing a truly strategic role, many see it more as yet another opportunity to bash HR.  Regardless of whether it’s shareholder attention or other forces that influence you to reconsider the design of the HR function in your organization, there are some fundamental decisions that should shape your thinking at the outset. These decisions include:

  1. Clarifying “who” is considered HR’s primary customer
  2. Establishing “the purpose” or reason why an HR function is even needed in your organization
  3. Deciding what service delivery model should be leveraged to balance functional efficiency, effectiveness and compliance

These three factors need to be addressed whether you’re starting a new HR function or modernizing an existing function.  By clearly defining your primary customer, your purpose and service delivery model, you will design out a great deal of the confusion and misdirection that occurs in most of today’s corporate HR functions.

Decision #1 – Clarifying HR’s Primary Customer

It’s a well known business axiom that in order to be successful in business, you must focus on the customer. Front office function professionals know that understanding a customer’s needs, honestly articulating how the products and services being sold can address those needs, providing those goods and services at a price point that creates value, and servicing the customer prior to, during, and post sale lead to loyal customers.  But when it comes to a back office function, one that doesn’t directly produce revenue by selling goods and services externally, who is the customer? For years HR functions have skirted around answering this age old question by allowing every department to adopt their own perspective.  Some trainers for example believe that training participants are the customer, while others may believe the organizational unit that will benefit from the application of the training is the customer.

Overall, some functions adopt the view that employees are the customer of HR and as a result, design a function that operates more as an employee advocate (a role which labor unions and government agencies exist to play). A second overarching perspective positions line managers as the ultimate customer of HR, which is troubling, considering that most if not all talent management issues are the result of line manager action.

Rather than arbitrarily picking a customer, a superior approach is to utilize a set of criteria vetted with senior business leadership to guide the decision. Consulting firms for example often consider factors beyond who will pay the invoice in determining the primary customer on an engagement.  Those factors include who sets strategic organizational priorities, who makes strategic business decisions, who controls the resources, who generates the largest percentage of business results, who has the ultimate veto power (owner), and who influences others.

I recommend that shareholder aligned HR leaders utilize a similar set of criteria. Most that do select the senior management team as their primary customers, assuming as most do that senior corporate managers are acting as agents of shareholders.  Unfortunately, as almost any professional with several years of experience can attest, senior leaders do not always surrender their own views and adopt those of shareholders uniformly.  As a result, I recommend that HR leaders go the next step and also designate shareholders as a primary customer.

Decision #2 – Define the Purpose of HR

While the term “human resources” has been widely adopted for some time, there is still no universally accepted mandate for the function.  If you stopped individuals roaming the halls of the modern day enterprise and asked them why HR exists, you would likely get a dozen or more different answers, even if you limited the scope of your journey to the HR related office areas.

Second only to defining your primary customer, defining why you exist is essential when it comes to being successful. Without doing so, there is little to align independent actions and nothing to prevent staff from going off on tangents and misdirecting their efforts and your resources.

Moving forward, there can be no ambiguity about the purpose of the function. Strategic HR leaders need to determine what strategic functional results are expected by the primary customer and how they will assess your success or failure in relation to each. Once clarified, the mandate must be clearly documented, communicated, and used as a decision filter when evaluating every action, process, policy, procedure and communication. While many talk about “alignment,” the only way to truly deliver it is to leverage aligned criteria as a filter in every decision made.

Sample Definition

A functional purpose statement always contains two elements.  The first element defines the role of the function, while the second element outlines the expectations around deliverables for the function.  The following sample positions the HR function as the productivity function:

Role of Human Resource Management Function

The human resource function exists to design, develop, and influence the execution of people management systems (methodologies, processes, procedures, etc.) aimed at maximizing the capability and capacity of the enterprise to perform beyond levels that could be achieved without greater workforce coordination i.e. no function.

Expectations (Primary Deliverables)

  1. HR will increase workforce productivityHR accepts accountability for improving the productivity of the workforce by taking actions that increase the total value of employee output compared to the total dollars spent on labor and workforce coordination (HR).
  2. HR will increase workforce capacityHR accepts accountability for devising systems that consistently increase the capacity of the workforce, i.e. the volume of work that can be accomplished.
  3. HR will increase workforce capabilityHR accepts accountability for devising systems that consistently increase the capability of the workforce, i.e. the ability to leverage new tools, new approaches, or innovate internally.
  4. HR will quantify its impact on business resultsHR accepts accountability for establishing a clear connection between human resource actions and business performance, demonstrating direct linkage between functional results and commonly accepted business performance measures (revenue, profit, market value, etc.)

Decision #3 – Selecting a Service Delivery Model

Having clarified your customer and defined your role, the third question that must be addressed is how you will go about delivering work within the organization to fulfill your purpose, i.e. your service delivery model.  While basic “employee management” transactions will always need to be addressed, I am hoping that your role and purpose are a bit more grand in scope and that you can break from the administrative mindset when contemplating your ideal delivery model.

Service delivery models require you to address four primary factors, including:

Functional governance

  1. How will the function contribute to broader business objectives/goals?
  2. How will necessary actions be prioritized?
  3. How will available resources be allocated?
  4. How will adherence to the stated purpose be maintained?

Organizational structure

  1. How should the necessary work be broken up in to roles and responsibilities?
  2. Where should the work take place (centralized/decentralized/hybrid)?
  3. Who should do the work (employee, contractor, outsourced service provider)?
  4. What current and emerging skill sets are needed?
  5. How will technology be leveraged?

Operational processes

  1. How will the portfolio of activities engaged in by the function be administered?
  2. How will processes be executed across the enterprise?
  3. Who and how will vendors be managed?
  4. How will projects and programs be managed?

Performance management

  1. What analytics framework will be deployed across the function to enable both diagnostic process performance evaluation and performance reporting?
  2. How will cost containment and performance optimization be balanced?
  3. How will differing service level needs across the enterprise be addressed/prioritized?
  4. What process will govern taking corrective action when a clear linkage between HR action and business performance cannot be proven?

If like many organizations you find that your emerging purpose is focused more on high priority strategic problems and opportunities rather than transactions, you will likely realize that the best service delivery model for you to pursue is one similar to that used by strategic management consultancies. Firms like McKinsey, the Boston Consulting Group and Bain are all successful in delivering well packaged systems and influencing adoption of them among their clients.

To help distance the new function from the administratively focused function of the past, it might be necessary to change the name of the function once again.  I’m quite fond of calling HR the “The Productivity Consulting Group,” but I realize that name would not work in all organizations.  Regardless of what you call your function, it needs to be clear that while the function will provide systems to govern workforce administration (hopefully leveraging tons of automation), the new function will chiefly work more like an internal management consulting organization.  Managers will be expected to manage, solving most minor talent management problems themselves leveraging tools and solutions provided by the function, while workforce consultants tackle high-priority talent management problems and organizational alignment.  Adherence to developed solutions and demand for attention by managers will not be driven by mandate, but rather by track record of delivering value.

One of the biggest changes to likely emerge as you develop your service delivery model is the need for HR to analyze business unit performance and proactively provide productivity solutions to units in need.  Delivering on this need will require that workforce consultants be business first, function second in mindset, ultimately requiring that they are as knowledgeable about business operations as functional process.

Another key change in your delivery model will most likely be an increase in the use of prioritization.  Despite a new hyper-aligned functional model, it is unlikely that the HR function will receive significantly more resources than in years past, at least initially. Advancing adoption of the new functional model will require that you stop doing many legacy activities that are done just because they have always been done and instead focus your limited resources on high value add activities and organizational units where the most ROI can be realized.  In adopting a prioritization schema, it will most likely become clear that technology is needed to automate much of the resource intensive administration that has burdened the function much longer than technically necessary.

Transitioning

One of the key things that has prevented the HR function from evolving to better support the business more quickly is an activity you either love or hate, that being ensuring compliance.  Lacking the competence to develop a business argument for executing an HR system as designed, many functions adopted fear of being sued, fined, or regulated as a driver of internal system adoption.  Such efforts position HR in conflict with the business, not in alignment with it.  Moving forward, the HR function should never inform the business that it cannot do what it wants to do, but rather adopt the practice of informing the business how it can do what it needs to do within the regulatory framework that exists.

When designed well, your new service delivery model should be able to influence managers by showing them the value of services and demonstrating the differential in unit performance between those units that executed talent management systems as defined and those that did not.

Up Next…

In the next installment of this series I’ll outline what shareholder aligned performance culture principles will guide the future of HR.

 

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.