Nearly 80 per cent of companies globally have completed or are in the process of, HR transformation, but many HR departments have yet to deliver improvements from the transformation process, and there remains a significant gap between what is expected of HR leaders and what they deliver
Nearly 80 per cent of companies globally have completed or are in the process of, HR transformation, but many HR departments have yet to deliver improvements from the transformation process, and there remains a significant gap between what is expected of HR leaders and what they deliver.
An 18-month Mercer Human Resource Consulting study involving 1,100 organisations found that companies are being driven by the need to align the HR function more closely with business objectives and by the desire to offer more strategic support to the organisation.
However HR functions are yet to be credited with driving business outcomes. A recent CFO Research Services/Mercer report suggests that nearly 60 per cent of finance executives still view HR as more of a cost centre than a strategic partner. Data from Mercer’s regional HR transformation studies reveal that HR has a very different view and some executives perceive that they are spending more time on strategic activities. Nonetheless, there is no escaping the fact that the incremental gains and demonstrable impact on business performance do not reflect two decades worth of effort. HR is still primarily an administrative and compliance-based function with almost 50 per cent of its time being spent in these areas. Less than 15 per cent of its time is spent on strategic, value-based interventions.
The 18-month study shows that although the HR function has strong competence in professional knowledge, team, interpersonal and leadership skills, it lacks competence in financial management, data management and technology. In short, it lacks the skills that are required to deliver the business credibility that HR transformation is seeking to address.
Indeed, the skills of the HR function are seen as one of the major barriers to effective HR transformation. Together with inappropriate skills, the inability of the function to use technology effectively has often meant that significant business investments have been under-utilised.
The function has also observed a general lack of business commitment for HR transformation both in terms of the need for HR to play a more strategic role and the confidence in its capacity to do so. In short, the function has neither the skills nor the infrastructure to deliver effective transformation and the business leadership is not always convinced of the need.
In filling the gap between traditional and strategic skills, the primary solution adopted by 95 per cent of organisations is to train and develop existing employees. Less than half would rely on new hires or transferring skills, while around 40 per cent would depend on outsourcing to close the gap.
Training is of major importance and has a big part to play in transformation, but it’s unlikely to be the only action that a function needs to take. The links between traditional skills and the knowledge now required are being stretched. Administrators may not be effective at planning, strategy and design, while HR generalists are not always the best strategic business partners. The increasing complexity and scope of today’s functional strategies demand skills and competencies which that not needed 10 or 15 years ago and are not available through traditional training. Effective transformation has often resulted in a 35–50 per cent turnover of existing staff to obtain the requisite skills and competencies to drive business performance.
In organisations globally the most respected HR leaders are business executives first and HR specialists second. They partner with and are confidants of their CEOs and leadership teams and often find themselves at the epicentre of corporate change, being given credit for bringing about the toughest of business transformations.
These HR leaders are also being recruited by progressive domestic and global boards. Responding to the intense focus on complying with new corporate governance legislation and increasing investor scrutiny, boards are retooling to ensure they have the right mix of highly qualified specialists, including HR experts. The price of failing to make the connection between overall business strategy and HR strategy is high. There will be a temptation for the organisation to hand over the HR services to an outsourcing organisation who will claim to transform the function and make it work at considerably less cost.
But HR functions that grab the nettle – those that convince the business of the value of transformation, can recognise that skills and capabilities in HR can change if needed and can harness technology – will become effective strategic partners and make a positive contribution to the continuing success of the organisation.
by Philip Vernon, a European partner at Mercer Human Resource Consulting. Originally published in Strategic HR Review,Volume 3 Issue 6, Sept/Oct 2004. www.melcrum.com/link/shrr
