HR Transformation Turns 21
HR Transformation Turns 21 | Human Resource Executive Online
About 20 years ago, "HR transformation" was a grass-roots movement focused on shifting HR from a largely administrative organization to a more strategic organization. That new work quickly evolved into a broad initiative to transform all HR services. Now, as it has become a standard way of doing business in HR, human resource leaders need to ask themselves what more can be done to help their organizations achieve their strategic goals.
By Robin Lissak
Just over 20 years ago a new generation of HR practitioners started to think about new and innovative ways of delivering HR services. That new work initially focused on improving benefits service delivery and quickly evolved into a new, broader initiative to transform all HR services. The first "HR Transformation" project I was involved in was in 1988.
Now that HR Transformation is turning 21, I thought it would be interesting to look at how far we've come and where the journey might take us in the future.
The Early Days
In the beginning, HR Transformation was a grass-roots movement driven by a loose confederation of HR leaders, academics, consultants and software-technology companies focused on shifting HR from a largely administrative organization to a more strategic organization.
As early adventurers, we were on a journey without an exact destination or travel itinerary. However, we sensed HR was ripe for change and that there was an extraordinary amount of value just waiting to be tapped as we charted our
plan to move HR from "administrative" to "strategic."
At first, CEOs and CFOs were understandably hesitant to spend millions of dollars on HR Transformation projects. After all, most organizations had never really invested in large HR projects. Business leaders wanted proof and some kind of guarantee that an investment in HR would yield substantial returns.
One of the only ways for HR Transformation teams to get the critical information they needed for their business cases was to talk to colleagues working on other projects to understand what they had done, what worked and what didn't.
HR events and HR conferences became meeting places that gave people an opportunity to exchange information on the latest developments, methods, tools and case studies. People talked excitedly about their experiences and results, and began to invent the language, methods and tools needed to make progress in this new and emerging field. It was a time of information sharing and open dialogue.
From the beginning, there was a lot of confusion about what the term "HR Transformation" really meant. I remember many of us became frustrated when listening to presentations about projects that we did not consider to be true HR Transformation.
In order to communicate effectively and share information, we needed a clear definition. Here's what eventually emerged: "HR Transformation is the design, development and implementation of a new HR service-delivery model to deliver HR services in a more efficient, effective and compliant manner."
In the early days,
HR Transformation had four principal building blocks
:
1. Implementing a new way of delivering HR services.
The new HR service-delivery model was based on the seminal work of Professor David Ulrich at the University of Michigan and was based on three key components:
* Centers of Excellence as a means of organizing HR professionals who worked on HR policies and programs;
* Shared Services as HR operations centers that leveraged scale; and
* Embedded HR resources (HR professionals and technology) within the business.
Ulrich was one of our spiritual leaders and our first guru. People flocked to hear him at HR conferences and to read his articles and books.
2. Using technology to provide employees with direct access to HR information.
In the early 1990s, computing was undergoing a revolution and personal computers and computer networking began to change the landscape.
At the time, in most organizations, employees had to walk over to the HR department just to ask a simple question or update some basic information. We believed that employees could use a phone or computer to directly access their own HR information and execute their own transactions.
The idea was risky because no one knew for sure if employees would be comfortable using technology to handle HR-related issues. There were a lot of naysayers who doubted our efforts.
3. Outsourcing HR work to service providers if they could do it faster, better and cheaper.
We believed that outsourcing administrative tasks such as HR, payroll and benefits administration to specialized external providers would enable HR to focus more attention on the organization's strategic priorities.
4. Demonstrating the business value that HR provides by putting metrics in place.
Performance metrics that measured cost, quality and speed were critical to building a business case and proving the value of HR Transformation to skeptical business leaders.
The early days were very exciting.
In our book, A Thousand Tribes, George Bailey and I discuss the HR Transformation effort at Ford Motor Co. in the mid-1990s. Ford's HR organization worked hard to develop a global HR strategy and operating model that could support the company's decision to globalize the business and build "global cars in global plants with global parts."
Until then, Ford's HR function -- like the rest of the company -- was organized around individual countries.
Components of the new global HR service-delivery model included a new HR portal, a new HR shared services center and a new global HR data warehouse. It also included the first global PeopleSoft HR system. In fact, the PeopleSoft developers in Pleasanton, Calif., worked feverishly to develop new "country modules" in time to meet the project's implementation schedule.
Early HR Transformation efforts were constantly breaking new ground.
For example, at Ford we were not quite sure how to implement the operating model outside of the United States. Almost by chance, we set up separate teams in both the UK and Germany.
Eventually, the two teams found themselves engaging in a friendly competition to see who could best implement the model and make it work in their respective countries. We were stunned by the improvements and adaptations they made to support local needs, while still keeping the global model intact.
In those days, we were still feeling our way through the process. With each experience, we were exploring and discovering the best ways to achieve the objectives, and gradually defining the building blocks of HR Transformation.
HR Transformation at 21
HR Transformation has become a standard way of doing business in HR. It has its own language, methodology, tools, software, service providers and consultants. In fact, people in the business often don't even bother to use the term "HR Transformation" anymore -- they just say "HRT."
These days, the vast majority of organizations are involved with HRT. In a recent
Deloitte survey
of more than 150 global companies, each with more than $2 billion in revenue, we learned that more than eight in 10 (84 percent) of the surveyed HR organizations are either currently transforming HR -- or planning to do so.
And among those, about 85 percent view HRT as an ongoing initiative to drive change in cost structure or efficiency in HR.
Also, HRT is now global. When HRT began, it primarily focused on the United States, Canada and a handful of large countries in Western Europe, because the HR software did not support the rest of the world. Today, many large companies have implemented HR service-delivery models on a global basis.
In addition, the scope of HRT has expanded significantly from an initial focus on core HR administrative operations to all HR services including talent, learning and development, and recruiting and staffing.
Today, CHROs are expected to have an HRT agenda that describes the top issues they are going to tackle. They are also expected to communicate their HRT agenda to the board, executive committee and HR leadership team.
In fact, it is now common to see candidates for top HR roles position themselves as HRT experts that know how to drive change in HR.
Making the Grade?
Over the past two decades, HR Transformation has delivered significant improvements in all aspects of HR. Of course, some areas have improved more than others. Here is my assessment of the progress on each of the four HRT building blocks:
1. Service-delivery model: B
In general, HR leaders have been very successful at implementing centers of excellence for the HR areas that focus on HR policy and programs. They have also had much success building shared-services organizations to manage HR operations (although they still struggle with service delivery in small countries).
My main concern is that most HR organizations have yet to establish themselves as true strategic partners to the businesses that help their organizations achieve their overall strategic objectives.
HRT implementation plans typically left this challenge for last because it was the most difficult and hardest to define -- and because it enabled organizations to skirt the issue that many HR staff would not fit the new role. Clearly, more work needs to be done in this area.
2. Technology: A
I recently sat through a series of executive presentations by outsourcing vendors on HR outsourcing services. One number that really grabbed my attention was that adoption rates for self-service technology now exceed 80 percent.
Twenty years ago we conjured up a lofty 80 percent target for HR self-service, and now we've achieved that goal -- and more.
Another technology development we did not anticipate 20 years ago was the enormous and positive impact of the HR application-software vendors. Their platforms make it possible for businesses and private-sector organizations of every shape and size to have world-class HR systems and data.
3. Sourcing strategy: A
In the early days, sourcing activities generally focused on specialized providers that offered a narrow range of services. About 10 years ago, the industry began to explore general HR business-process outsourcing to a single provider -- with mixed results.
Now the pendulum appears to be swinging back in the other direction. Today, the leading practice seems to be to transform the work and then outsource it to specialized providers and build a strong vendor-management capability.
4. Using performance metrics to run HR like a business: B or B-
The good news is that most HR organizations now have a much better understanding of their costs and service-delivery standards. Many also have a very good understanding of their customers and have established sophisticated methods for staying in touch with customer needs.
My concern is that many companies haven't paid enough attention to compliance. This is likely to become an increasingly important and complex problem as companies globalize and market conditions improve.
Although many people don't think of HR as innovative, HR Transformation drove innovation in a wide range of areas such as self-service, portal technology, HR services, HR software and HR outsourcing. In fact, if you compare HR service delivery to other corporate functions, you may be surprised to find that HR has progressed further than many other parts of the organization.
What's Next? "Next Gen" HRT
I've done a lot of thinking over the past five years about the future of HRT and I keep coming back to the term "next gen" HRT. Since we began the HR Transformation journey, HR's priorities have changed.
HR operations are no longer the primary focus, partly because many companies have succeeded at improving their HR operations, and partly because the cost of HR operations generally represents less than 1 percent of a company's revenue.
Although HR efficiency is important, in the grand scheme of things it is a relatively small issue.
Through my work with senior HR leaders around the world, I've come to appreciate how much time they spend worrying about business strategy -- and how to support it though HR.
These days, I am mostly working with HR leaders in the financial-services industry, helping them in their efforts to hold their companies together in the most serious economic crisis since the Great Depression. Without HR, most large financial institutions could not recover from the massive body blows they took in the Fall of 2008.
Although some financial institutions are doomed by their business models, most have sound models and are on the road to recovery. Organizations that can hold their talent together -- and keep them engaged and focused -- have a much better chance for a faster recovery.
Lose your people and you lose your customers, assets and intellectual property.
If people are critical to an organization's success, what can HR do to help the organization achieves its strategic objectives for performance and growth? Here are my four foundational elements for "next gen" HRT:
1. Align business strategy and HR strategy.
Most HR organizations have done a commendable job developing a new service-delivery model for existing HR services; yet some businesses are disappointed by the results of HR Transformation. Despite their big investment, they don't feel HR is providing the kinds of services the business really needs.
That's one reason we've started making sure HRT projects we support are kicked off by getting HR leaders to ask business leaders about their top HR priorities.
The conventional wisdom is that business leaders don't know what they want from HR. Our experience is different. We've found, for example, that CEOs know exactly what they want from HR and are very succinct in their requests.
One Fortune 500 CEO provided the following three priorities: (1) focus on talent and develop the next generation of leaders, which is likely to be very different from the current generation of leaders; (2) standardize HR policies, programs and operations so leaders can quickly reconfigure the company to respond to changing market conditions; and (3) focus on workforce management for new business models including M&A, divestitures, alliances and joint ventures.
Did your last HR Transformation project address these kinds of strategic issues? If it was like most HRT projects, the answer is probably no.
To address the gap, it is important to talk to business leaders and ask them what they need and want from HR. An HR strategy should be directly linked to the business strategy and long range plan.
2. Develop the capabilities to build new HR services.
If "next gen" HRT focuses on what services HR should deliver, and if HRT becomes a general mechanism for innovation and continuous improvement (rather than a project to solve specific problems), HR will need to change the way it develops new services and capabilities.
I recently worked with the CHRO of a global high-technology company who had delivered a remarkable string of HRT accomplishments over the past five years. One of his keys to success was that he had set up a team of analysts and project managers dedicated to developing new HR services.
He did not have to create proposals and wait for approval to move into action. If the company needed to do something quickly -- which is the norm in high tech -- he could simply pick up the phone and make it happen. Every HR organization needs this rapid development capability in one form or another.
3. Make talent a real priority.
A lot of businesses say people are their "most important asset," but I don't always see the management focus, commitment and money to support that assertion.
In professional services, people are the business, so Deloitte takes talent seriously and spends a lot of time and money on it. We focus on things like recruiting, skills and competencies, development, succession planning, retention, turnover and culture because it is the key to our survival.
Demographic trends tell us that the next generation of business leaders will need to focus unprecedented attention on talent. And since good talent takes a decade to develop, it's important to start now rather than wait for the future.
4. Focus on workforce effectiveness.
I often wonder if HR leaders are going to step up and capture the big prize in HR, which is managing the effectiveness of the company's workforce.
It seems most HR leaders have abdicated this responsibility, which is why HR has become a support function that is less relevant today than it was 20 years ago. Back then, many HR leaders were members of the board or executive committee.
Today, I can only think of a handful of CHROs who are on their company's board and, shockingly, many CHROs are no longer executive-committee members. That said, there are a few CHROs who got it right.
When Bob Nardelli was CEO of Home Depot a few years ago, he was asked to justify why his CHRO, Dennis Donovan, was the highest paid CHRO in America. The answer? Because
Donovan focused on workforce effectiveness
, which is what drives business results at Home Depot.
When I met Donovan last year, he was at it again, but now with a portfolio of companies.
How do you get started with such a complex challenge? At Deloitte, we have a tool called an "Enterprise Value Map" that provides an industry-specific view of all key activities within an enterprise. It's a great way to initiate a conversation between HR and the business, and can help decision-makers visualize the link between HR activities and business value.
Moving Forward
We have come a long way on the HRT journey, but the fundamentals remain the same: Deliver high quality HR service that is aligned with the needs of the business; do it in a way that most efficiently leverages your internal and external capabilities; and measure results so you know if you're moving in the right direction.
It's important to remember that HR transformation is not an end state. The destination is constantly shifting as business requirements and market conditions change, and as the expectations and capabilities for HRT continue to grow.
There is always a new set of milestones to achieve, and new tools that can help take the transformation even farther. Over the past 21 years, HR leaders have made some outstanding progress, but they cannot afford to rest on their laurels.
The focus for HR Transformation must always be on what is next, and what can be done to define the future.
Robin Lissak is a principal with Deloitte Consulting LLP in their Human Capital service area, and has more than 20 years of experience in human resources transformation for large, complex, global organizations. Robin holds a doctorate in industrial/organizational psychology from the University of Illinois, and co-authored
"A Thousand Tribes: How Technology Unites People to Create Great Companies"
with George Bailey in 2002.
October 2, 2009 Copyright 2009© LRP Publications
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