Over the past 20 years, HR executives have contended that, given their portfolio and their opportunity to influence change, they deserve a seat at the strategic table.
Over the past 20 years, HR executives have contended that, given their portfolio and their opportunity to influence change, they deserve a seat at the strategic table. The good news is that business executives in organisations around the world agree. Research on the state of HR transformation around the world recently found that HR transformation has momentum. The function is increasingly recognised as an important factor in overall organisational performance.
Of the nearly 1,100 companies Mercer surveyed worldwide, at least 75 per cent have already completed, are planning to complete, or are in the process of transformation. In many regions, the figure is as high as 90 per cent. Everywhere, the foremost objective for HR transformation is to align the function with the organisation’s goals – making it a strategic contributor, responsive to today’s dynamic business climate.
Why, then, does growing evidence suggest that something is amiss? Increasingly, signs point to a significant gap between what is expected of HR leaders and what they deliver. Could it be that HR departments are putting too much into becoming strategic? On the surface, this may sound like heresy. But it may not be far from the truth. There is a clear gap between the demonstrated strategic excellence of the few HR exemplars and the perceived shortfalls of most HR departments.
HR executives who deliver exceptional performance do so by operating at the organisation and business level and translating actions into three critical outcomes: strategic contribution, operational superiority, and administrative excellence. In other words, the successful HR function is one that has found the appropriate balance between strategic alignment with the business (understanding what the business needs) and seamless operational execution (delivering it).
The HR functions that have been most successful have defined a business model that focuses on four broad and interrelated dimensions that, when properly aligned, provide the opportunity to deliver the kind of results HR executives know are possible. The model focuses on: business strategy (what the business must accomplish); human capital strategy (how the workforce will be selected, managed and developed to execute the business strategy); HR value proposition (how HR will contribute to the execution of the business and human capital strategies), and HR operational model (what must be in place in HR to ensure that it can deliver on its strategy.)
The third and fourth dimensions of HR business design represent the greatest opportunity for HR to address its unfinished business and fulfil its strategic promise.
An effective HR value proposition is the unambiguous definition of services, performance standards, specific outcomes, and expected impact on business results. As it essentially defines the contract between HR and its sponsoring organisation, it can only be developed through intensive collaboration with HR’s key internal customers - the business leaders. Too often, the ‘HR strategy’ is a vision statement that sounds lofty but, because it has been developed in isolation, it falls woefully short of clearly defining what the real drivers of workforce and business performance are and how HR will contribute to their achievement. The contract is void before it starts.
The HR operational model is essential to getting things done. It is what puts strategy – the value proposition – into action and enables HR to complete the job. The three elements of the operational model that we have found to be critical are: infrastructure (the capabilities HR must have to fulfil its strategy); sourcing (the ‘provider of choice’ of selected HR services – internal, external, or a combination thereof), and governance (the philosophy and operating principles behind effective leadership of the function and HR risk management.)
In all the geographies in which Mercer studied HR transformation, it became clear that each of these elements operated to a greater or lesser extent in defining the success of the transformation. So whilst the core business design could be transported around the world, the actual execution depended on local circumstances. And in that local execution there were significant differences in such areas as leadership’s willingness to address governance issues, use of technology, inherent workforce characteristics or expectations, and the viability of outsourcing.
The analysis of the quantitative and qualitative responses to Mercer’s regional HR transformation studies should be viewed as indicative of trends, not as conclusive blueprints for the HR business design. If they provoke vigorous debate in your organisation, they will have fulfilled their purpose.
by Marsha Sussman, principal, Mercer Australia & New Zealand. Tel: (02) 8272 6800
