HR still has a ways to go.
By Russ Banham
What is human resources today—its role, responsibilities, and organizational clout?
For several years running, arguments have been made that HR has a high-level, strategic purpose: Maximizing human capital assets to achieve the organization’s planned goals. In this quest, the head of HR has a seat at the C-level strategy table and sits on the board of directors, influencing the company’s direction, given his or her singular knowledge of current people assets and skills, where there are gaps, and possible future needs.
Are we there yet? The answer, by and large, is no, according to several deep-thinkers on the subject. While the promise of HR outsourcing is closely aligned with this lofty ideal, by liberating HR from mundane functional tasks to focus on more strategic talent objectives, HR still has a ways to go to maximize their companies’ human capital.
“Some larger companies have gone through the transformational changes required, but there are still massive gaps between large companies that get this and genuinely believe in it, and those who have yet to scratch the surface,” says Margaret Spink, managing director, at HRO provider Xchanging HR Services in London.
This is unfortunate on several levels. In the current war for talent, companies need someone to lead the charge. This point was brought home back in 2008, when a McKinsey & Company survey indicated that 59 percent of organizations do not spend enough time on talent management. “Companies like to promote the idea that employees are the biggest source of competitive advantage,” the authors of the study stated. “Yet, the astonishing reality is that most of them are as unprepared for the challenge of finding, motivating, and retaining capable workers as they were a decade ago.”
Arguably the same still holds today. What has changed in the interim is intensifying competition for talent. According to a 2012 CareerBuilder survey of more than 3,000 hiring managers and HR professionals in diverse industries, 30 percent of employers lost their top talent to other organizations last year, and 43 percent are concerned about losing these high performers this year. “As a community, the HR sector has struggled to maximise human capital assets,” acknowledges Jill Goldstein, global offering lead of human resources BPO at consultancy Accenture.
Others agree. “We’re far away from where HR should be to create value out of human capital,” charges Jan-Pieter Janssen, director of global BPO solutions at consultancy Logica in the Netherlands. Assessing and measuring human capital outcomes is still elusive, as is the ability to understand how investments in talent will generate value, he maintains.
Steve Foster, business consultancy manager in the London office of HRO provider NorthgateArinso, posits an even more pessimistic view. “There was a time when human capital management almost became part of company lore, but it now seems to have disappeared,” Foster explains. “There was all this excitement about it, but for whatever reason people drifted away from it. That said, I do think it will make a comeback.”
Role of HR
As part of this hoped-for comeback of human capital maximization, the role of HR requires revisiting and new appreciation. There are both customers of HR and consumers of HR; understanding the differences is important to delivering on each.
The customers of HR are those purchasing goods or services from the organization—the client, in effect, “buying” the organization’s human capital to drive its objectives. The consumers of HR are anyone using the organization’s HR services, such as job candidates, employees, line managers, recruitment agencies, contingent workers, senior executives, suppliers, and so on.
The role of HR is split between serving these two constituencies. Assisting the superior performance of each duty is HRO, yet even the most robust outsourcing services will not maximize talent assets without HR itself enjoying a more strategic purpose. “I see companies talking the language of HR being a strategic partner, but not walking the walk,” says Janssen. “Many HR directors are not achieving what their organizations are promising.”
Obviously, having the right employees putting their shoulders to the right tasks is vital to winning in the marketplace. And the way towards achieving this balance is to charge line management with this responsibility, aided and abetted by HR and the technological tools at its disposal. As Spink sees it, “HR provides the information, processes and policies to enable line management to do what the business needs to do. And to have this, it requires a senior enough HR person to jointly share this responsibility with managers.”
The other experts agreed that line management has the ultimate responsibility for human capital asset management. But, since managers also are tasked with growing the business and managing operations, they must rely on specialists to advise them. Among these specialists, says Goldstein, is HR, “their business partner on human capital asset management, counseling them and influencing their thinking.”
“HR is the hub for creating a framework for the rest of the business in understanding and defining the key metrics governing talent objectives,” says Foster. “In the absence of that, line management will just do what they do–merely manage people.”
Janssen concurs: “HR must facilitate standardization across the company through the use of HR technology. Line management owns the results, but HR needs to facilitate it.”
Taking a Seat
Impeding the ability for HR to make good on this service to and relationship with line management, or at least to achieve some sort of shared approach to human capital maximization, requires a faster evolution in the role of HR within the organization.
“The HR sector has emerged from a personnel function, whose focus has historically been administrative. Asserting responsibility and swimming upstream continues as the natural progression of HR, but one met with ongoing resistance by the business,” Goldstein explains. She adds that the natural progression of HR continues to be met with ongoing resistance by the business.
Another complication is that HR has responsibility for delivering outcomes that are accomplished outside the scope of its influence. “Improvements in workforce performance and productivity are realized and measured outside of HR,” says Goldstein, pointing to the payroll expense line of the business operations as an example.
Would elevating the director of HR to C-level status and a board director position change the status quo? “It’s a raging debate that continues—whether or not HR deserves a seat on the board or at the strategy table, in a sense a right to be in the inner sanctum,” Foster comments. “My best answer is, `It depends.’ As long as human capital has a voice in one way or another, whether through HR or some other channel, to me that is more important than the medium.”
Janssen doesn’t couch his response to the question. “The head of HR should sit on the board—yes,” he says. “Most companies spend roughly half their expenses on labor, depending on the industry, with some more and some less. Obviously, human capital is such an important component of the P&L [profit and loss] that someone on the board must own it. I’ve seen the CEO, the COO, and the CFO have pieces of this ownership, but no one with sole responsibility.”
He finds this shared responsibility to be wanting. “I’ve always felt it is strange that here we have one of the biggest components of the P&L, and no one in the organization is solely on the hook for it,” says Jannsen. “I can’t get my head around why companies feel it is not necessary to have someone lead, manage, and maximise their people assets. Someone on the board should be in charge, and that someone should be [the head of] HR.”
Spink unequivocally agrees. “The HR director absolutely should be a board director,” she says. “They need to have equal weight and to be seen as a strategic partner. They’re not just an administrator sitting on the other side of the fence, they’re enablers of strategy. How can you influence strategy if you’re out of the room?”
She maintains that the HR director at Xchanging has this strategic purpose and role. “She comes to the board meetings, which are all about strategy and what we’re trying to achieve as a business, and how she can help this,” Spink says. “Can we enable it with a series of people activities? Are there cost-reduction elements to the strategy, such as achieving lower headcount numbers while maintaining the quality of service? Or what are the human capital aspects of achieving entry into a new area of business? This is what an HR director should be doing.”
Unfortunately, she adds, “They’re a very rare breed, indeed. You need to kiss a frog before you can find someone with the capabilities to deliver.”
Spink blames this difficulty on the still-fresh evolution of HR. “If you roll back 10 years, companies were taking HR out of the functional tasks and putting them into the business units to become HR/business partners, but at the time they just didn’t have the skills,” she explains. “You can’t take someone who has been trained entirely in terms of a particular function and then expect them to develop by osmosis. Now we’re in the second cycle of this, getting HR into the strategic position, one step ahead of where they were as business partners. Many are still used to being policemen of the services, rather than managers of information to run the business.”
Getting There Slowly
On the bright side, more companies now perceive the HR function as increasingly strategic, according to the PwC/Saratoga 2012/2013 US Human Capital Effectiveness Report. “As the HR function grows more global and strategic, it must add not only people with new and more advanced skill sets, but also technology to enable the transformation,” the report states.
Despite the relatively slow economic recovery, the report’s authors note that per-employee investment in HR increased nearly 8 percent, from $1,495 in 2010 to $1,610 in 2011. “We expect this increased investment in the HR function to continue in the foreseeable future as HR moves up the maturity scale,” the report states. “A higher-functioning HR organization requires more investment, but is expected to deliver a greater long-term return.”
What will it take to reach this long-term goal of HR as a transformational engine of the business? The experts believe that the standardization of HR processes need to become looser, while the measurements of outcomes need to tighten.
The big push toward process standardization five years ago was focused on creating consistency and eliminating non-value added variations, Goldstein notes, and in response many HRO providers created standard global processes accommodating local variances like regulatory requirements. “Deploying standard processes did achieve the desired short-terms goals, such as a reduction in variation, an increase in operational efficiency and a reduction in cost per transaction,” she explains. “The shortcomings were that the standard processes may not have reflected the way that consumers wanted to access services, and the specific requirements they had.”
As a result, Goldstein says the pendulum that once swung far to the right around standardization is now moving in the other direction—in effect, loosening. “Where it makes sense, we now see variations around location, level in the organization, and workforce segment,” she says.
Spink has a similar perspective. “There was this huge rush for standardization and the one-to-many model, but I just didn’t buy it,” she says. “A business needs to be focussed on transformational change and efficiency—to understand the many things they need to do differently for a reason and the catalysts of that. The one-to-many model or standardized processes run into different terms, conditions, regulations, and legislation in different districts, which is then complicated by acquisitions and mergers in different parts of the world. It’s an ill-fated quest.”
Spink doesn’t dispute that there are benefits to streamlining, “but a single global policy for recruitment or maternity leave is not real for everyone,” she says. “There are reasons to do it this way or that way, and the goal should be to understand the variation. Standards by countries and divisions make sense, but by location and department not necessarily.”
In short, standards will remain bespoke for the time being. As Foster says, “We have a better sense of good practices and bad practices, but we still have a long way to go. It’s just natural for organizations to slip into non-standardization when confronted with chaos.”
Better metrics, on the other hand, will help HR walk the walk to the boardroom. The experts weighed in on a variety of efficiency measurements, including administrative time, accuracy, and cost per transaction and/or per employee, but as Janssen points out, “We are all still in the process of inventing how best to measure the effectiveness of HR processes.”
Goldstein has another view. “As we’ve grown and matured as an industry we’ve realized that efficiency measures mean nothing if they don’t accomplish the intended business objective,” she says. “Therefore, metrics must be gated around a parameter that says it must first meet a business objective. For instance, hiring someone in record time and for a low cost means nothing if the new hire doesn’t meet the broader business objective of obtaining a specific skill.”
It is this skill, of course, where the rubber meets the road—human capital squarely aligned with strategy.
Russ Banham is a writer for HRO today. He can be reached at