Human Resources magazine’s comprehensive study of HR in the S&P/ASX 100 has shed new light on the business of people management in Australia. In the first of a three part series, Melinda Finch considers whether the days of centralised HR functions are numbered and examines the credentials of the country’s leading HR professionals
Human Resources magazine’s comprehensive study of HR in the S&P/ASX 100 has shed new light on the business of people management in Australia. In the first of a three part series, Melinda Finch considers whether the days of centralised HR functions are numbered and examines the credentials of the country’s leading HR professionals
Perhaps it’s not surprising that nearly half (46 per cent) of the companies in Australia’s S&P/ASX 100 involved in our study describe their HR function as centralised. For a start this structure can offer greater HR expertise and has the potential to be more efficient through economies of scale.
Nor is it surprising that companies with centralised HR functions mostly came from defensive stock market sectors such as financials and information technology. Companies in these groups, like AXA Asia Pacific, Macquarie Bank and Computershare, are relatively unaffected by general fluctuations in the economy. And their tightly packed HR functions are often indicative of their slow, steady, strategic business growth approach.
But there is more to it, of course.
“It’s got to with the extent to which the businesses are or are not related,” says Roger Collins, professor of management at The Australian Graduate School of Management. “For example, a company like Wesfarmers has a lot of businesses that are unrelated such as Bunnings and Lumley’s [Insurance]. So with such a diverse group of companies people management practices are largely best determined by the businesses themselves not by head office.
“Whereas in a company like ANZ, which is trying to build synergy between similar products, their business units have to work together to cross sell their products. As a result the whole is greater than the sum of the parts.” And the centralised HR function rules. Faced with both bear and bull markets, companies find they have to reduce costs and increase the contributions HR makes to the bottom line. A centralised system can allow for its smoother integration into the business as a unit, like any other.
All mixed up and everywhere to go
One of the most surprising findings of our study is that as HR continues to shift from a more administrative function to a strategic operation, a lot of S&P/ASX 100 companies are redesigning their HR structures as well. When combined, the group operating either a decentralised or hybrid HR system accounted for 52 per cent of respondents.
For the 26 per cent of organisations describing their HR functions as decentralised this structure probably offers one very big benefit: speed. “Some senior managers and boards believe that decentralised HR functions are more adaptive and responsive than centralised models because they’re closer to their customers, clients and staff,” Collins says.
But wider distribution of decision-making to bring it closer to the point of service or action is not without problems. In a decentralised model like this there can be inconsistencies and inertia in people management across a company in everything from remuneration to industrial relations and career development. “For example, you can’t build up an employer brand if everyone is doing their own thing,” warns Collins. A coordinated, common message (and messenger) has to come from the top so some form of head office HR is necessary. However, Collins still believes that decentralisation is ultimately more productive.
Meanwhile, combining the centralised and decentralised models must also have its merits because 26 per cent of respondents described their HR functions as hybrids. For obvious reasons, this is the most flexible model and so it remains popular with companies in some of the more volatile stock market sectors such as materials and energy. When material sector firms, like BHP Billiton and Rinker, for example, start to show weak earnings, it can often signal a weakening economy. In such an environment a hybrid model can enable faster more proactive responses to those costly people management issues. The result? HR continues to operate strategically as a business unit in itself and doesn’t generate overheads.
Of course this is becoming increasingly important, even when times aren’t lean. “HR needs to be pragmatic in its response to the demands of the business which it seeks to support and develop,” says Keith Wilkinson, general manager of HR for Oil Search. “There are always alternative models so it is a question of using the right one at the right time.” One hybrid fits all, it could be argued.
The financials sector, so dominant on the S&P/ASX 100 (companies in this sector account for 32 per cent), also has its growing share of hybrid HR converts. Companies like AMP and Insurance Australia Group (IAG) have centralised corporate HR responsible for strategic policy and program development. They also operate a decentralised line function that provides HR services and advice within the business. In most cases managers are required to take more responsibility for operational HR activities as part of their role.
The growing empire that is Babcock & Brown, with its globally decentralised HR function (coordinated from the Australian headquarters) is a good example of the brave new world of hybrids. “In building the HR framework and structure, it was expected that HR would function as a central group in each region, with global co-ordination from Australia,” says Michelle Seddon, global head of HR. “This works for legal, finance, compliance and other functional areas and from my perspective, so long as HR works hard at establishing relationships with all parts of the business, builds credibility through their actions and remains visible, any form of model can work effectively.
“Our size [700 employees across 18 countries] also means that a shared central group for each region makes the most sense for now… Central HR management has also meant that we can more easily maintain a big picture view across the multiple businesses in the individual locations and strive for consistency across these.
“However, I am a firm believer that the business cannot and should not be able to delegate responsibility for managing people issues back to HR. We are very clear in communicating to the business that our structure and resourcing levels mean that we will work with them and enable and assist them to manage the people aspects of their business, but will not do it for them,” Seddon says.
One could ultimately argue that for Australian companies facing skills and labour shortages as well as outsourcing and offshoring pressures and economic ups and downs, the concentration of HR functions in a particular location looks less and less attractive.
All things bright and qualified
To say that many of the HR heads in the S&P/ASX 100 group of companies are a clever, educated bunch might be a bit of an understatement. The 57 respondents in our study had between them more than 37 bachelor degrees, at least 16 masters and over 13 certificates, diplomas or graduate diplomas. One respondent alone had two masters and a doctorate.
“I think we’ll be seeing a swing towards combined degrees and qualifications among HR professionals, such as HR and employee relations, and HR and IT,”says Collins. “Hybrid degrees will be far more productive in the future. If HR wants to do better work on cost benefit analysis and metrics then disciplines such as accounting and finance will be increasingly necessary.”
The perennially popular generalist degrees like arts, commerce and economics are well represented at bachelor level, while business, law and science followed as the next most common amongst the group. There were also bachelors of applied science, engineering, technology and social sciences making for a truly diverse group of qualifications among the nation’s top HR professionals.
Lead by such an erudite bunch, no wonder a quick glance at the job ads for mid level HR positions shows that an undergraduate degree in business or human resources is a necessity. And with more Australians going to university than ever before it’s unlikely that the situation will change. If anything, HR professionals could be divided into more and more specialised groups such as employment law or industrial relations or IT and need the expertise via relevant education to match.
Already at the most senior levels of the S&P/ASX 100 group, postgraduate qualifications are the norm rather than the exception. Although a Master of Business Administration (MBA) or Master of Science (MSc) in a subject such as psychology may not always guarantee a smooth journey to the top, it can speed things up a bit. Having one of these qualifications on a CV commands the attention of the CEO.
No wonder MBAs top the list as the most common postgraduate qualification in the group, although only nine, or 16 per cent, of HR heads had them. Master of Arts was the next most common degree followed by Master of Commerce, Master of Engineering, Master of Industrial Relations and Master of Law.
Certificates, graduate diplomas and diplomas were also well represented in the group and reflected the subject mix for any kind of in depth HR study. These include career development, HR management, employment relations, industrial relations and organisational development.
However, it’s worth considering a Personnel Today report in November 2005 on the results of a UK survey of 135 senior HR practitioners, published by IRS Employment Review. Personnel Today argued that getting hands-on experience through generalist HR roles is still viewed as more important than gaining qualifications. Certainly gaining experience by working in different business environments can be far more effective than further academic study if HR professionals want to become more business-savvy. But whether it would be enough to get the aspiring HR general managers of Australia to where they want to go remains to be seen.
Decentralising HR at Oil Search
Oil and gas exploration and development company Oil Search Limited has approximately 800 full-time staff and 2,000 contractors located in Papua New Guinea (PNG), Australia, Yemen and United Arab Emirates. Keith Wilkinson, General Manager of HR tells us about plans to decentralise their HR function.
“The main reason for decentralising Oil Search’s HR function is that a significant amount of our workforce (75 per cent) is based in PNG either as local citizens or rotating ex-pats. Management of their day-to-day operational HR issues is best dealt with by experienced HR professionals on the ground.
“We have established a local citizen Head of HR in PNG (Port Moresby) and a team of local citizen HR professionals in our operations in the Southern Highlands. Strategy is developed in Sydney in consultation with local HR but PNG is responsible for day-to-day operations. Where employees are bypassing local HR they are being re-directed back to the appropriate point of contact.
“The management of local employment issues will be assisted through a decentralised HR operation; however, the strategic issues, for example, of attracting resources in a skills-short industry is being driven from Sydney to ensure that we are coordinating our global needs and requirements.
“We are still rapidly expanding so there is a need to maintain a degree of centralisation to keep stability and consistency across our operations. However, the split of our workforce and the local issues that need to be addressed is best achieved through a decentralised HR operation.”
