Plugging into HR central

What’s best? A central HR function where all HR-related matters can be addressed by a group of experts? Or making HR the responsibility of line managers? Kate Gibbs looks at centralised, decentralised and hybrid HR models

How far does a company’s decision to choose one model over the other relate to the economy, to organisational trends, and to the way HR is viewed by a businesses year in and year out?

Some see the economy as having a significant impact on matters – cutting out a central HR core in a business and handing line managers some HR capabilities to help cut costs.

But as the economic outlook in 2008 leads many organisations to look inwards, experts say HR is unlikely to be serially restructured. “When the economy is declining and we’re going through a recessionary period, we tend to find central HR is pared back quite significantly – to the bare bones,” says Dr Carol Royal, director of Masters of Technology Management at the AustralianSchool of Business.

A bad outlook for central HR then, but no complete overhaul of the HR function.

While many organisations will implement a decentralised HR model, or a hybrid model, to cut costs, this has traditionally had little to do with economic cycles and more to do with cutting costs, says Royal. Decentralising involves much long-term planning, often outlasting an economic downturn.

What to choose?

If the economy has little to do with a company’s choice to choose one system over another, how do organisations choose between the two?

The idea of having a policy and process person in every part of the business is way too messy for many organisations to consider, while others swear by the hands-on capabilities of a human resources-cum-line manager. The question of centralised versus decentralised HR is an elusive and potentially fiery issue for many of Australia’s HR professionals.

Whether it is better to centralise HR – creating a single port of call for all HR-related matters – or for HR managers to have hands-on access to individual departments varies depending on who you ask.

A survey conducted by this magazine last year found that 52 per cent of Australian companies have a centralised HR function, with only 16 per cent choosing the decentralised HR option. Another 28 per cent have a hybrid operation that, like the decentralised function, tends to be more popular in industries in which their various departments are not necessarily related.

According to Royal, many large organisations have gone the decentralised HR route so line management could take responsibility for some of the HR functions. This gives line managers the chance to get involved in recruiting, training and developing their staff. But, she says, the jury is still out on how effective the decentralised model really is.

What’s more effective?

Done properly, both the centralised and decentralised models can be effective. For many, the decentralised option allows for added flexibility – with more fluid systems and practices, says Royal.

Lend Lease Corporation, for example, was “very big” on decentralised HR, says Royal. She recalls that Lend Lease saw itself as a project-based business and believed that a project manager on building sites would be best placed to deal with a lot of the HR components of a traditional centralised HR person. “Now that wouldn’t necessarily work for one of the main banks. It’s about the nature of the business, the size of the business,” she says.

A decentralised model enables an organisation to handle all the generalised HR skills across an entire business.

Having HR-skilled professionals getting “caught up in the nitty gritty, in dealing with particular personal issues, processing things, and deciding how the system should work or what the policy is”, is a hands-on approach that works where there are many different elements or businesses within one organisation, says Robert Marriott, general manager of human resources at St.George.

This model is very attractive to many organisations for this reason.

A word of warning, though, for organisations hoping to save costs by cutting out a central HR function. Royal says many fall into the trap of moving towards a decentralised HR function without offering proper training to the line managers who will be handed the HR gong on top of what they already do.

Destined to fail are those organisations that hope to fob off the HR responsibilities onto under-prepared managers without effective training. “Lend Lease, for example, had internal HR consultants running around to help those line managers with their staff from an HR point of view,” says Royal. “The idea that anyone can take up HR as a manager and run with it is incorrect.”

Seeing the benefits in a decentralised HR capability – with its added flexibility and the ability of those at the coal-face of a business to make strategic decisions and appropriate policy around the needs of the individual departments – has driven many larger organisations to move away from the safer centralised HR model.

A hybrid of the two

Larger, multinational and trans-national organisations often opt for a hybrid model. Huge, centralised HR departments in the parent company will be supported by a hybrid decentralised model in the regions, where HR is brought down to the various sites, often across various countries.

In an organisation made up of a diverse group of businesses, as an example, people management tends to be determined by the businesses themselves rather than a head office housing a centralised HR function.

Using Coca-Cola as an example, Royal says many larger organisations have adopted a hybrid model to adopt some of the positives of decentralised HR without completely abandoning a central HR department.

Many organisations’ increasing size also drives them to adopt the hands-on elements of decentralised HR. Coca Cola, as an example, needed a centralised HR function, but allowed its various regions to have some decentralised capabilities within their sites, says Royal.

Also choosing a hybrid alternative is St.George Bank, where general managers located in each division of the business back a central HR core. A central HR hub looks after the HR operation and processing matters, says St.George’s Marriott.

St.George’s hybrid system includes HR general managers located in each division of the business. They become part of the business operation, says Marriot, and draw on the central resources to deliver programs as required by each division. But group-wide process and policies are adhered to, and the skill of the line managers is in understanding how they may be applied or, if necessary, adapted to meet specific needs.

“So while we have a broad employment value proposition, for example, and a program around that, we can segment it to reflect the needs of a particular part of the organisation,” he says.

St.George’s hybrid model is backed by an online HR system it calls HR Express. Whether managers want to promote someone, create a new position or refer to a company policy for a particular situation, it is done through this system and then processed through the central HR service centre, says Marriott.

For St.George, the success of its HR hybrid is in having someone who gets to know the business matters of the area they’re working in, and who becomes a go-to person for questions, queries, and advice that individuals have.

“So you’re not dealing with someone in a central function who you may or may not see very often. You’re dealing with someone who is out and about and part of the day-to-day business,” says Marriott.

Others say the adoption of this decentralised characteristic can have downsides and Deloitte, for one, shies away from such a model. Deloitte has adopted a simple centralised model for its ability to keep consistency across the organisation.

A consistent approach

“The worst thing an organisation can do is have a different format of induction, for example, for different business units or various regions,” says Alex Bashinsky, national partner of people and performance at Deloitte.

“For example, if they tailor it to their way, it may be inconsistent with the overall firm. If we’re developing people skills, and we have a people management program, the last thing you want to do is have different versions of that and different emphasis on it in various states and businesses,” he says.

“Imagine having a policy and process person in every part of your business. There is an economy of scale in having one centralised resource, coupled with some technology, to deliver the same information,” Bashinsky says.

He argues that a decentralised model lowers productivity: “Each business unit has a recruiter, then each recruiter has to generate a letter of offer, and then letter has to go through the mail. The productivity goes down dramatically.”

While the firm has a centralised HR function, Bashinsky endorses a system in which the HR people can work with business leaders on “meaningful stuff”, and not get caught up in the day-to-day spreadsheet, paperwork and authorisation often handed to HR. “This is a real bugbear of mine, because a lot of organisations leave the HR individual manager to play a policeperson role. And that to me is absolutely not the function of strategic HR,” he says.

The firm uses technology to alleviate the day-to-day HR issues, automating everything from a “new hire onboard starting process”, and reporting. “So we e-HR orient a lot of our processes,” Bashinsky says.

An HR-skilled team can provide a lot of the centralised information, giving HR managers a chance to work with business leaders on issues such as performance culture, business strategy, coaching and workforce planning –“more strategic elements,rather than transactions,” he says.

As the economy drives many organisations to reflect on cost-saving and new methods of strategic restructuring, HR’s role within businesses looks far from insecure. Far from being receptive to the economy’s peaks and troughs, HR’s position within organisations is set very much by the nature of the business.