The HR Transformation Continuum

No longer just focusing on cutting costs and improving employee services, HR organizations are reinventing themselves to improve their business impact. But transforming the way HR delivers services is no small task and the challenges can be long-lasting.

Monday, March 1, 2010
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In his 30 years at paper and packaging giant International Paper, Scott Lacy has seen it all. The manager of HR operations for the Memphis, Tenn.-based multinational has witnessed acquisitions, followed by divestitures, and then acquisitions again. At the same time, the company has blossomed from a mostly North American business to a mostly global entity. This constant cycle has not only morphed the company's core businesses, but also the way HR supports them.

So when the company embraced the idea of transforming HR in the 1990s, it was a big step for Lacy and his colleagues in the back office. They knew that to make IP a global leader, they needed to make some fundamental changes in how HR services were being delivered.

What they didn't realize, however, was how challenging it would be to make those changes, even more than a decade after the journey began.

"One of the things that didn't get anticipated is that it's a lot more work and it's harder work than anyone realized. The devil is in the details, and there is much more work than imagined," says Lacy, a pioneer in the use of outsourced HR services.

Lacy's experience is not unlike those of other HR leaders who have shepherded transformational efforts. Whether conducted internally or externally, these initiatives have exacted a toll on their sponsors, customers and business leaders. Over the years, these companies have displaced entrenched practices, fired HR veterans who didn't fit in these plans, outsourced a broad array of services and generally reinvented the way employees interact with HR.

While some projects have proven too much for their owners -- a few abandoned HR transformations before completing their goals for lack of resources or commitment -- those who succeeded can boast that HR is now more strategic and will continue to be, even in the face of monumental change.

To be sure, HR transformation is no small task, especially for companies made up of many businesses that operate disparately. But for those who persevere, the payoff is immeasurable and far-reaching, experts say. Business leaders get better support, employees are more engaged and company executives have an HR partner that offers critical insight on talent management and human capital spend.

In fact, most HR executives these days recognize that transformation should be more about having a business impact than anything else. So, does this represent a shift in the movement or has HR simply fulfilled its initial goals of improving payroll accuracy and simplifying retirement plans, and is now moving on to tackle meatier issues? And, if so, what were the keys to successes -- and the lessons learned from setbacks -- to enable it to strategize at a higher level?

"We are on the journey, and we certainly have not completed it, but we are continually progressing," says Tim Reynolds, vice president of talent and organizational effectiveness for the Whirlpool Corp., the Benton Harbor, Mich.-based appliance giant.

It was back in 2000 that the company put its arms around HR transformation, which it saw as a necessity to becoming more competitive, intelligent and responsive to the market. To keep up, Reynolds says, the emphasis in HR has been on talent.

"Certainly, what we have been going through has been a fierce competition for talent, particularly in the last five years," he says. "So we've had to really change our goals and structures around what we do in talent [and] how we attract in the marketplace with these global complexities. [The transformation effort] has been in areas such as workforce planning and analytics."

Whirlpool's transformational plan, while still ongoing, began with HR leaders defining what constituted value-adding activities. It hired human resource-outsourcing service provider Convergys to incrementally roll out a global HRIS platform and provide transactional services such as payroll, benefits administration and self-service. By offloading work that's "not high-value," Reynolds says, the company was able to focus on activities that would give it a competitive advantage.

In tackling this, one of the biggest challenges Whirlpool experienced was finding time for its HR professionals to implement changes that would make the department more strategic. Even as they took on the transformation, Reynolds says, those professionals still had to handle day-to-day administrative chores.

To address this, the company focused on three areas for change: offloading tactical work to the service provider, transferring some responsibilities to front-line managers from HR generalists and implementing a robust HRIS to more efficiently address functions such as talent management.

Sharing Lessons

Certainly, many other companies are also undergoing their transformational journeys, with some achieving their expected results and others struggling with aspects of their efforts. While no HR leaders would concede that their plans have been total failures, some do acknowledge difficulties along the way. Yet, they, say these lessons learned have made their organizations wiser.

Cynthia DeFidelto, principal and leader of HR transformation at consultancy Towers Watson in New York, says a common mistake companies make is failing to realize how far-reaching transformation efforts can be. Some organizations simply have not put an adequate change-management plan in place. They also have trouble managing expectations, which could lead to an organization-wide misperception of failure.

Additional problems can occur when one goal is achieved through the sacrifice of another, especially among early transformation programs.

"For some of them, they did make the business case, but the organization is not happy with the change in service. Every single company has had difficulty reaching all of their objectives, but they have reached some of them," DeFidelto says, adding that the first generation of HRO buyers had trouble getting vendors to meet all of their needs.

Take the example of Prudential, the Newark, N.J.-based insurance and investment firm. Having launched its transformational journey in 1997, the company consolidated and standardized HR practices before eventually outsourcing administrative services to Lincolnshire, Ill.-based Hewitt in 2002 in one of the first end-to-end HRO deals in the marketplace.

As a pioneer of comprehensive outsourcing, the company learned early on that operational alignment with its service provider didn't come naturally; it required a concerted effort to get the vendor to see its point of view. At the same time, Prudential came to terms with the fact that external services only improved when the provider was financially healthy.

"One of our biggest challenges in the HRO space was learning how to work with the provider. If you're not willing to do that, you will just have continuing conflicts. The quicker you call them out, the quicker you will resolve them," says Kevin Prue, vice president of planning and HR services at Prudential.

But that's the problem with being a trailblazer; you tend to get singed along the way. One of the key ways Prudential stayed on track in its HR transformation was to stop and take a progress check and make adjustments, when needed. Prue says the company realized at one point that cost-cutting efforts were resulting in underserved clients, so adjustments were quickly made. Through such vigilance, the company was able to maintain customer satisfaction, he says.

For some organizations, the difficulty with transformation wasn't so much what to do, but the time frame in which to do it. In retrospect, International Paper's Lacy says, there was so much work in standardizing and streamlining processes that the company was unable to complete this part of the journey under a four-year schedule. "We didn't think it would take the length of time it took," he says.

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In addition, IP also struggled with knowledge-transfer issues when it moved its employee-service center from Memphis, Tenn., to The Woodlands, Texas. Because some of the process knowledge didn't transfer over, the company needed more time than anticipated to train and get workers at the new facility up to speed in handling customer calls. Had the company realized beforehand the challenges involved, Lacy says, it would have made better preparations for the move.

In spite of these potholes, he says, IP's transformation has made a marked difference in the way HR supports the business; because of these changes, HR can respond more quickly to various deal-makings. For instance, it facilitated an orderly transfer of a large bloc of employees in an eight-week time frame as part of a divestiture and was able to more efficiently hand off employee data as part of the spin-off.

The "Ongoing Initiative"

As many HR executives will point out, such strategic work hasn't always been part of their initial transformation efforts. Many organizations first took on these projects because of cost pressures and mounting customer complaints, or because they needed a technology upgrade.

But after raising payroll accuracy and reducing call volumes, proactive leaders turned their attentions to making HR more strategic by focusing on filling the talent pipeline and providing insightful workforce analytics. This demonstrated that really effective transformational efforts were dynamic.

"HR transformation evolved from being a project to [being] an ongoing initiative," says Robin Lissak, a principal with the human capital practice of New York-based Deloitte Consulting. "Companies were beginning to address a whole new set of issues such as training the next generation of leaders, new-market entry, etc. What we saw in the past 20 years was that HR transformation went from [having] a rigid structure to [being more of a continuous project] sponsored by the head of HR to deal with, not only existing services, but also how to transform those services so they are delivered in an efficient manner."

In recent years, he says, business leaders have been clamoring for more HR support. Unimpressed with the progress made in the back office -- which they view as adding no value to their work -- these business partners are now demanding that HR help with their growth plans.

For instance, Lissak says, some CEOs eying the talent pool in fast-growth areas such as China or India are asking how HR can help develop these young, ambitious workers into future leaders. Also, these executives want their CHROs to help with acquisition and divestiture activities.

This trend was reported by Deloitte in 2007, when the firm polled more than 150 businesses with more than $2 billion each in annual sales. While cost savings were the biggest driver behind HR transformation efforts (reported by 84 percent of companies), new-business events usually spurred these plans into action (cited by more than 50 percent of respondents). These findings affirmed HR's sensitivity to a changing business environment.

"What I've seen, personally, is that there have been more opportunities for HR organizations to step up to the plate in the past 12 months," Lissak says. "More than ever, CEOs and executive committees are turning to HR saying, 'We need your help.' "

As C-level executives demand a more business-centric focus, HR leaders must reassess and shift their transformational efforts. This means that, instead of focusing strictly on how to make HR operate more cost-effectively, they must be prepared to serve as business consultants, says Prudential's Prue.

"Our strategic notion is for HR to be able to deploy the resources that the business needs," he says. "HR has to become more consultative side-by-side with the business and less focused on transactional support. You need to optimize transactional support engines and squeeze costs out of that to support the consulting front. The journey has not ended."

See also:

Six Steps to a More Strategic HR

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