For almost a decade, major organisations have been restructuring their HR functions to focus on higher value activities and make HR transactional delivery as efficient and inexpensive as possible; Bettina Pickering and Neil McEwen assess whether they have succeeded.
Picture the scene. A major retailer recently reviewed their HR transformation programme. The senior HR executives were especially proud of the training initiatives they had set up, including a corporate university. Take-up among staff was strong, they said, and the businesses performance was also up as a result.
An example of successful transformation in action? Unfortunately not. Management’s claim of improved performance was based on gut feel rather than hard metrics. Our review showed that the more training that people undertook at the store level, the worse the business performance became. This came as something of a shock to the client.
A further review is currently under way to establish why this inverse relationship had developed. The upside is that the company now knows it has a problem, and is addressing it. But the fact remains that more rigorous and explicit target-setting and measurement at an earlier stage would have saved resources and produced a training programme more geared to business needs.
It’s transformation − but into what?
Sadly, this situation is not unusual. Since the mid-1990s, major organisations across all industries have been restructuring their HR functions to focus on higher value activities and make HR transactional delivery as efficient and inexpensive as possible. However, the jury is still out on whether these HR transformation efforts have succeeded.
There are several reasons for this uncertainty. Internally, HR functions have traditionally shied away from developing and applying hard performance metrics of the type used in areas such as finance. As a ‘people’ function, HR has believed that its achievements are harder to quantify and measure. Even where it has firm evidence of success in areas such as employee satisfaction and development, it has tended not to publicise its achievements across the business.
This failure feeds into a further obstacle: the way HR’s capabilities are perceived. Many board-level executives have low expectations of HR, continuing to regard it as an essentially administrative function. They fail to appreciate that HR can, and should, operate as an integral part of strategic organisational decision-making, aligning activities such as, headcount planning, talent acquisition and management, succession planning and organisation development with corporate strategy and business planning.
These external and internal pressures are now intensifying. Externally, HR is facing the impact of Corporate Performance Management and the need to take positive action to manage governance, compliance and legislative issues. Internally, cash has been spent on HR transformation initiatives without a clear or quantifiable return to the business. Both of these developments mean HR needs hard metrics and benchmarks more than ever before to demonstrate its worth.
The HR transformation road-map
So, how can HR transform itself, building value and demonstrating the resulting benefits on a continuing basis? We have identified six key building-blocks of successful HR transformations. They are:
1. New skills − Transformed HR functions need additional skills in areas such as strategy, relationship management, customer contact and communications. To get these, it should fish outside and beyond its usual pool, and attract business talent from across and outside the organisation.
2. Long term commitment − It is crucial that people across the business understand the challenges and the timescales involved in HR transformation. Half-hearted tinkering around the edges of HR will almost inevitably fail. The full benefits will take years to emerge, not months.
3. Output performance measures − HR’s performance must be measured through external metrics reflecting the real strategic needs of the business. Historically, one of the main shortcomings of HR transformation has been a failure to track value for money against factors such as business productivity, revenue per head, staff turnover, staff motivation, employee engagement and the power of the employer brand. If HR fails to put the right metrics in place, it will end up saddled with a range of inappropriate measures and restrictions imposed by external regulators and by other departments such as Finance.
4. Good HR support systems − HR functions usually have specific IT systems that work well in discrete areas such as payroll, but often lack an adequate dedicated HR support system to integrate and manage all HR activities. This does not need to be a full-blown ERP, but must be fit for purpose.
5. An open mind to new and innovative solutions − A standard HR transformation model will not necessarily deliver the benefits that HR and the business demand. So HR must take a proactive and cooperative approach to tackling and solving problems, including being creative about where HR needs to get to and what it wants to look like.
6. Get assertive − To change its role in the organisation, HR needs to change its day-to-day attitude and behaviour. HR people must establish relationships as equals with customers in the business, and articulate what the business needs to do for them in return for what it gets from HR.
First steps
All this takes time and investment. However, transformation is not a discrete process but a continuous journey, so the key is to get started. If a business has an appetite for HR transformation, then a good initial move is to take stock and introduce targeted initiatives such as business-focused measures and KPIs, skills audits and wider communication of HR’s successes. HR might also pick out those people in the function with the greatest capacity for strategic thinking, and use them to start developing that agenda.
Whatever the initial steps, the reality is that transformation is not a finite process. HR will have to keep responding to changing demands from the business, the workforce and the regulatory authorities. This is an ongoing journey, and once it has started HR will need to keep moving − and both measuring and demonstrating its progress as it does so.
