We in the Human Resources profession often have a bit of an inferiority complex, and Ram Charan’s recent blog in Harvard Business Review “It’s Time to Split HR” really struck a nerve.
(Articles about “getting rid of HR” appear regularly. The most famous was “Why I Hate HR” published in 2005 in Fast Company, and recently the Wall Street Journal published a story on the topic.)
In Charan’s article, he states “it’s time for the department to go” and proposes to split the HR function into two parts: the “administration” part (ie. compensation and benefits), which would report to the CFO, and the “leadership and organization” part, which would report to the CEO.
His argument is that:
“Most HR leaders are process-oriented generalists who have expertise in personnel benefits, compensation, and labor relations. They are focused on internal matters such as engagement, empowerment, and managing cultural issues. What they can’t do very well is relate HR to real-world business needs. They don’t know how key decisions are made, and they have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals.”
Wow.
I really have to respectfully disagree… on many points.
First, the people. I spend most of my day talking with HR leaders around the world and on the whole they are among the most committed, passionate, business-oriented people I’ve met in my career. (Many are much more “business-oriented” than the CIO types I used to work with.)
Yes, they are mired in a lot of complicated, often old-fashioned, and sometimes seemingly-silly HR practices. But they are also dealing with old-fashioned software, teams that receive very little professional development, and constant blame from everyone in the company. Every time there’s a business performance problem someone says “we should be doing more training” or “why don’t we have better people” and blame often shifts to HR.
Remember, HR doesn’t run the company, business people do. HR’s job is to be the “architect” or “craftsman” of the people strategy, and support line leaders and staff to be effective. Most HR people are filled with good ideas and strong expertise, but just don’t always feel comfortable pushing back on management.
One HR team I met with recently spent an entire day working on the process of “making HR change agents” – essentially teaching their team how to make a business case and push back on leadership when they felt it was needed.
So the problem is not that people are “process-oriented generalists” but rather that they do not always feel empowered (or skilled enough) to push back and really take on a role as consultants.
Second, the organization. Many people find their HR department to be slow, bureaucratic, or behind the times. Well try running a global HR function and you’ll see how hard it is.
The problem is one of structure and roles, and today there is a new way to optimize HR. We’ve been doing research on this topic for 3+ years and discovered that we are in the early stages of an epic transformation of the function.
Traditionally HR has set itself up as an organization focused on “service-delivery,” with a focus on optimizing service, reducing cost and headcount, staying efficient. Our research shows that this mentality has to change.
Today organizations suffer from a myriad of talent, leadership, alignment, and engagement issues. While efficiency, service-delivery, and process rationalization is important, our research shows that HR organizations provide nearly four times greater impact by focusing on leadership skills, management practices, and hiring and developing great people. So the function has to think of itself as “talent consultants” not “service deliverers.”
HR itself is not that big an expense (typically 1-3% of payroll) and while it’s tempting to spend time on efficiency, it’s far better to focus on optimizing talent. Many companies do have a lot of duplicated, uncoordinated HR activity and that needs to be rationalized. One company we recently met has more than 100 business units, each with its own independent recruiters, HR managers, and HR generalists, none of whom talked with each other.
(And relative to process, yes, HR has to make things more simple: far too many HR programs are just too time consuming and complex. Only 8% of companies believe their performance management process, for example, is worth the time they put into it. Read “Why Simplicity is The Next Big Thing in HR” for more on that topic.)
Our research, which is briefly shown below, shows how HR has to be more “distributed” and “embedded” in the business. We need HR advisors and business partners to function as senior consultants, and we need specialists in HR to be deeply trained and connected with each other.
Our research shows that High-Impact HR teams are externally focused (they do research and benchmark themselves) outperform. And it also found that they must understand how to use data. One CHRO I met with recently told me “I am not hiring any more HR people that don’t have some background in statistics!”
Figure: Bersin by Deloitte High-Impact HR Principles
Unfortunately we find that fewer than 10% are operating at this high-impact level today, because many are still using an old service delivery model. And in many ways it is the old mindset, that of a “service center,” that gets in the way of HR being the valued and confident consultant you need.
(By the way, one of the reasons this is all happening is that we now have integrated, easy to use HR technology, turning HR systems into “systems of engagement” for all employees.)
Third, the structure. Ram Charan advises putting the compensation function under the CFO, separated from HR. This is not a very good idea at all.
The way people are paid, what they’re paid, how they are evaluated (performance management), what incentives we use, and how we decide who moves into what role next are all among the most business-critical issues in employees’ lives. They are not “administrative” at all. Just like everything else in HR, they have administrative constraints – but we have to think about them strategically and as part of the entire “talent culture” of the organization.
In fact if anything the opposite is happening. Every people practice really connects to everything else, so our leadership and management philosophy and simplified processes really have to work together.
One of our clients, a global manufacturer, implemented a top-down goal alignment model (driven by the CEO, not CHRO), and forced everyone to create annual goals which directly drove compensation. Four months into the year the business had a huge problem and they needed to change thousands of people’s goals and objectives to focus on a major quality problem. The CEO-driven “goal management” and “pay for performance” model was in the way.
This stuff is not easy, and I don’t think most business leaders have the time or patience to figure it all out. We in HR worry about these issues all day.
Fourth, the team’s skills. Remember that Human Resources professionals, just like people in sales, customer service, IT, finance, and operations, need continuous training. Believe it or not, only 8% of HR organizations have any professional development for themselves. Why? They are just too busy trying to take care of everyone else. And yes HR professionals are not data-centric enough, but believe me they’re working on it. Talent Analytics is on the agenda of every major HR organization I visit.
I’m not here to say that all HR organizations are perfect, but I do know from my own experience as an analyst and consultant that top HR leaders can be among the most important people in the organization. When they know their craft well, they have a direct impact on almost every major business decision.
So Why Does HR Get So Much Grief?
We’ve all had frustrating experiences with ineffective HR managers. But I think the fundamental issue is that every business leader thinks they are somewhat of an HR expert. So by its very nature, what much of HR does is viewed as compliance, process, and “getting in the way” of what leaders want to do.
In reality, this is a tough and very important job. HR executives must deal with workforce shortages, labor relations, complex technology, diversity and women’s issues, employee engagement, management skills (or lack thereof), mergers and acquisitions, and the critical problem of senior leadership development and succession. And today, more than ever before, they are trying to monitor and improve employment brand, which is often posted publicly on the internet!
HR leaders need to be craftsmen and experts in their domain as well as good business people. CHROs should be selected carefully, groomed for the position, and they need a dose of hard nosed thinking. The most successful CHROs today are creative problem solvers and change agents: they don’t just “read the book” and implement some standard HR program. They are running what we may call the “people optimization” function.
Let’s challenge ourselves to “upgrade” or “upskill” the CHRO, just like we have upskilled the Chief Marketing Officer, Chief Information Officer, and Chief Financial Officer. The Human Resources function (albeit maybe we should name it “People Operations”) is critically important and every company has to focus on making it better every day.
Read Cathy Benko and Erica Vollini’s terrific blog “What it will Take to Fix HR” and my article “ It’s Time to Redesign HR” to inspire yourself to fix rather than take apart one of the most important parts of your company.
