An early commitment to tactical transaction is the surest path to strategic transcendence.
By Erik Van Slyke
After more than 20 years of initiatives designed to improve operational effectiveness, most HR functions have achieved neither the value promised by strategic HR, nor the operational efficiency expected of new technologies, Six Sigma, shared services, or outsourcing.
Nothing has revealed this challenge more dramatically than the implementation of HR outsourcing. Even single process outsourcing has exposed the extent to which HR functions have tailored data, process, and HR governance to meet the specific requirements of countries, divisions, functions, and individual managers. This decentralized complexity has made it tricky to achieve efficiency and quality goals because of technical constraints and—more painfully—organizational resistance to any amount of standardization.
More than ever, organizations must rethink their approaches to HR. They must redefine the underlying assumptions that guide transformation initiatives so that HR can achieve a higher level of operational effectiveness, and as a result, shape practices that drive organization financial performance.
Consider the situation faced by the senior vice president of HR for a Fortune 500 global manufacturing company. After two years of being challenged by her CEO to streamline the operations of her organization, she put forward a plan that promised not only to reduce the cost of HR, but also to deliver “higher-value” services that would enhance the decision-making of business executives. The core of the rather aggressive initiative was to outsource the North American HR operation in order to reduce costs and provide scalable technology and service center platforms to roll out to other regions.
Three years into the initiative, the SVP publicly declared the effort a success as they achieved short-term cost reductions and delivered new technologies to the organization. Privately, she confessed the function was still “an operational mess” because the department remained far from achieving the transformation required for sustainable gains to efficiency. Because process and roles had not yet been redesigned to fully integrate outsourcing capability, work took longer, or was duplicated, and time was wasted resolving problems.
Some technologies, such as the compensation, learning, and performance management systems, also were not accepted fully across the organization. Executives and HR generalists still preferred their homegrown spreadsheets and database tools, creating additional workload as corporate HR staff “normalized” ratings and other data and consolidated information in primary systems used for reporting and analysis. The result? It still took three months to get a basic headcount report despite new technologies, lower cost HR process, and the supposed increase in capacity of staff to handle more “strategic” HR work.
The SVP also admitted that she gave up trying to push for more rapid operational transformation. “We’re destined to manage with Band-Aids,” she said regretfully. “The organization is unwilling to commit the money and resources required to undo many years of patchwork solutions. And we can’t disrupt the service we do provide to address it with internal resources. My people are already stretched beyond capacity.”
The Origins of the Challenge
Unfortunately, this is an all too common story. Challenged by executives to improve the effectiveness of its operations, HR typically lays out a bold plan for change and fails to deliver the full promise of the effort. In many cases, the change initiative produces nothing but turmoil and new challenges to delivering service that still fails to meet the expectations of managers and employees.
To be fair, despite the multitudes of executives pointing fingers, the operational and transformational failure of HR is not solely the fault of the function or its people. It has much to do with the origins of a back-office function that was never designed, nor funded, for efficiency. HR was built largely to administer programs customized for specific employee groups, managers, functions, business units, and legal requirements.
As we approached the 21st century, however, three technology and management trends converged to launch the modern era of HR. That involves propelling the broader application of outsourcing and other efficiency tools, and establishing the cornerstones of HR operational transformation:
TREND 1. In the late 1980s, HR technology progressed from cumbersome data repositories to powerful engines for holding, accessing, and reporting HR data and information. No longer was HRIS a glorified filing cabinet, but rather user-friendly and supported by relational databases that made it easier to manage and manipulate data with greater flexibility.
TREND 2. The 1993 publication Reengineering the Corporation by Michael Hammer and James Champy launched the process improvement revolution, creating efficiency efforts within corporations that eventually made their way to the HR department. More importantly, HRIS vendors integrated the capability into their tools, so HRIS did more than manage data: it helped manage HR process.
TREND 3. With the addition of Web technology, data entry tasks and other transactions could be pushed to managers, employees, or lower-cost HR staff without having to train them how to operate HRIS software.
These enablers drove efficiency and made it possible for businesses to restructure and, ultimately, to outsource. Now HR could bundle all of the data-entry tasks for recruiting or learning management, for example, and move them from a $40-per-hour generalist to a $7-per-hour clerk. The notion of shared services was born and organizations evaluated which HR processes could be moved to lower-cost internal or external providers.
Rather than continue the efficiency effort and reduce the number of $40-per-hour generalists, however, the function realized that HR staff now would have the bandwidth to do more. They could help make managers or work teams more effective. They could provide deeper support in recruiting. Or they could help identify future organization leaders. There was an abundance of opportunities, and compared to the administrative, paper-pushing side of HR, this work was fun, made an impact, and was valued by executives. HR had always provided some of this higher-level support, but now organizations realized tools existed to help them deliver more of it.
The downside, however, is that in their quest to build this capability, most organizations rushed through efforts to streamline and settled for operational effectiveness that is “good enough.” This choice not only has produced poor transformation results, but more importantly, it has perpetuated the function’s inability to provide organizations with the information and tools required to make optimal decisions about human capital.
Getting It Right
There is a significant body of research to support the connection between good HR practices and a firm’s financial performance at both the corporate and business unit levels. But to build HR functions that consistently help achieve those results and to leverage the value of tools like outsourcing, HR must start from a new set of four principles that guide the delivery of services to employees and managers.
HR is operational. No matter how unglamorous it might seem, the core work of HR is administrative and transactional. This is the work that must get done. Employees must be paid, benefits must be administered, and compliance reports must be submitted. An organization can survive without a succession plan, but it will shut down if employees go unpaid. Managers will eventually figure out how to deal with a problem employee, but operations will fall apart if they don’t have a pipeline to fill vacant positions.
Unfortunately, organizations have demonized transactional HR. Ever since David Ulrich published HR Champions, they have thought of this work as administrivia. And instead of doing it well, HR functions have gone seeking the Holy Grail of “strategic HR.”
“We get so caught up in the word ‘strategic’ that we lost site of the fact that there is a lot of value in the tasks that carry out the strategy,” says Laura Domchick, director of global HR BPO for Veyance Technologies. “To be able to do those well is critical. When Veyance decided as a company that we were going to be a lean organization, that was the strategy. Everything beyond that was task. Not to devalue the thought process that goes into developing a sound strategy, but that’s the easy part. We knew that if we were going to be successful as an HR organization we needed to succeed by executing to that plan.”
Rather than automatically offloading the dirty, “beneath-thee” transactional services to get to the nirvana of the consultative and strategic, the real value of HR lies in the maniacal, obsessive-compulsive attention to detail that is required for operational efficiency. This holds true during transformation initiatives and as an ongoing practice. Whether HR achieves operational efficiency through in-house capability, outsourcing, or a combination of both, it helps its organization to manage costs and resources that are better applied to mission-critical activities and results.
HR is a strategic enabler. Rather than vie for a seat at the strategic table, HR officers can recognize the highest and best value of HR by enabling strategic decisions through sound information and analysis. One of the significant reasons HR transformation has failed to live up to its promise is because it has been built around the notion that HR should automate and offload transactional capability to provide more capacity for HR to make strategic contributions.
The intent is not necessarily wrong, but in practice it has had the effect of shifting HR’s attention away from improving data management and optimizing processes in favor of focusing on delivering strategic capability . . . however that is defined. And when outsourcing is used, it has even handed this responsibility to someone else.
This misses the mark, because it assumes data management offers no value. It also assumes that this so-called “strategic capability” is the ultimate goal and that it should reside in the function.
The reality is that managers, and thus organizations, ultimately are accountable for those activities deemed “strategic HR.” Hiring, managing, developing, and retaining employees are the responsibilities of managers, as are planning future workforce requirements, identifying leaders, and understanding required staff capability. Depending upon organization size or preference, HR is often asked to help with components of this work or to manage steps in the process, but the responsibility of strategic HR lies inherently in the departments and functions that interact with and are responsible for the employees on a daily basis.
This does not mean that HR should not be a function of strategic thinkers. That is a core competency that defines the hallmark of organization effectiveness. It does mean, however, that the first order of business of HR is not to be a strategic function at the expense of operational effectiveness.
Which leads to the next principle . . .
The degree of HR’s operational effectiveness will determine the degree to which it enables strategy. The bottom line is that if an HR function is not operationally effective, then the organization will not be able to make analysis-driven, strategic decisions about people, no matter whether that capability is delivered by HR or enabled by HR.
In part, this is because they will not have access to the data required for analysis. More importantly, this is because without executing operationally, HR will not have the credibility required to advise.
Operational efficiency in HR is always accompanied by improved data management and analysis. It is only when HR demonstrates this capability—to effectively store and process human capital data, and to retrieve it easily and quickly for analysis—that organizations will be able to make effective strategic decisions regarding their human resources.
John W. Boudreau, a professor at the University of Southern California’s Center for Effective Organizations suggests that HR’s challenges stem from not yet having a solid approach to the logical analysis of people or talent. As a result, he says, “decisions that get made about that resource are far less sophisticated, reliable, and consistent.”
Operational and cost efficiency are the table stakes. Data-based analysis and insight is the goal.
Innovation requires transformation. There is no escaping it. All events that bring step-level change require some amount of transformation. These events include outsourcing, offshoring, shared services, new technologies, and mergers or acquisitions.
Even when the events are initiated primarily to rapidly reduce operating cost, transformation must be part of the process. These initiatives present changes to HR’s operating model and are catalysts for altering the way the function delivers required services. They affect process, roles, structure, and functional governance. As a result, they must be supported by well-designed change management processes that are focused on these components of the HR organization,while simultaneously addressing the same components for the customers of HR—executives, managers, and employees.
Skip a step, and the system has a gap that prevents effective integration of the innovation. That’s when well-intentioned employees fill that gap by devising individual work-arounds that create potential barriers to cost and operational efficiency.
Okay, so it’s not essential that HR includes transformation management alongside these innovation events. The organization will eventually adapt. The question is how much the organization wants to influence the way in which it adapts.
According to Towers Perrin’s 2008 study, “Progress and Performance: The Continuing Evolution of HR Outsourcing Effectiveness,” buyers who invested the greatest effort in transforming HR before outsourcing achieved the greatest total satisfaction with the outsourcing process. Other studies report the same results with new technology tools and merger integration. This does not mean that HR transforms completely before implementation, rather that it transforms just enough to take advantage of the new capability.
Says Veyance Technologies’ Domchick, “One of the things we did that helped us achieve greater success implementing our outsourcing solution is that we invested a lot of time upfront to show HR staff how to do their work differently—the administrative and transactional work. They helped create the new process and saw how their roles would change, specifically what work they would not have to do anymore. That helped us integrate and learn to trust the outsourcing capability.
“We fell short, however, helping our HR team understand what new work they should be delivering. So, many struggled to give up the transactional work, like making changes to benefits status, because they saw it as their point of connection to employees and managers. Now we’re starting to shape better ways of connecting, such as helping to improve job performance. We couldn’t help our team with this transition, though, if the administrative work wasn’t getting completed so well.”
The starting point for transformation is with the very gears of HR operational effectiveness: data, process, and technology. Data must be accurate, accessible, and standardized enough for administrators to conduct analysis across regions and business units. Processes must be standardized to create efficiencies of time and cost. And technology must be integrated, intuitive, and a catalyst for process.
With an eye toward continuous improvement, these three gears provide the torque required to execute transactional HR and manage HR information. In other words, the more effective HR’s configuration of data, process, and technology, the better it can leverage the powerful capability of outsourcing and the greater its ability to enable strategic analysis and decision-making.
Being a strategic enabler may not get HR that coveted seat at the table, true; but, it is also true that, without operationally effective HR, those at the seat will not create organizations that thrive.
• A 2006 global study by Mercer consulting reported 50 percent of HR functions were undergoing some form of transformation, and another 33 percent had just completed or were planning to start a transformation effort.
• In a 2007 study by ADP, 85 percent of global companies surveyed were undergoing some form of HR transformation.
• 66 percent of the respondents in the ADP study say cost reduction is the primary reason for transforming.
• 62 percent of the respondents say the primary reason for transforming is to improve strategic capability.
• IBM’s Institute for Business value reports that fewer than 5 percent of executives said they thought their organization’s management of people was not in need of improvement and suggested a key component of this was poor HR support.
Erik Van Slyke is the founding partner of Solleva Group. He can be reached at 609-460-4102 or email@example.com.