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Human Resources Transformation

Human resources transformation refers to the massive restructuring of corporate human resources (HR) departments that took place in the decade or so after 1995. Before that, the staff in HR departments had generally been seen as administrators, not as people to be involved in high-level strategic discussions. HR staff saw themselves as lifetime career specialists with little need for knowledge or experience of what the rest of the business was about.

Human resources transformation refers to the massive restructuring of corporate human resources (HR) departments that took place in the decade or so after 1995. Before that, the staff in HR departments had generally been seen as administrators, not as people to be involved in high-level strategic discussions. HR staff saw themselves as lifetime career specialists with little need for knowledge or experience of what the rest of the business was about.

But with the growing appreciation of the value of a company’s human assets, and a need to ensure that the talent that an organization requires is not just on board but also properly motivated, the role of HR has more and more come to be seen as strategic. The old-style HR that dealt with strikes, bonuses and gripes was rarely suited to this task.

So companies began to look at ways to revamp their HR departments. They were heavily influenced by the ideas of Dave Ulrich (see article ), a professor of business at the Ross School of Business at the University of Michigan and author of a 1997 bestseller, “Human Resource Champions”, the book that more than any other set the HR transformation ball rolling. Ulrich’s idea was that the HR function should be divided into three:

  • What are normally called shared service centers (SSCs), groups that deliver the traditional HR services (and do jobs that can often be easily outsourced);
  • Something described as centers of expertise (COEs), which house the designers of remuneration packages that ensure an organization can attract the people that it needs;
  • Business partners, HR people whose job it is to do high falutin’ strategic thinking.

The role of business partners has been subject to a wide range of interpretations. Some companies have chosen to appoint hundreds of them; others have appointed just a few. One large organization with 60,000 employees has 350; another, with some 50,000 employees, has just two. A 2004 study of 20 large American companies by PricewaterhouseCoopers’s Saratoga Institute found a median ratio of one HR business partner for every 1,000 employees.

HR transformation has undoubtedly been popular. A 2005 survey of American companies by Mercer, a consulting firm, found half of them “currently in the midst of a transformation process”, while another 23% had recently completed an HR transformation. A further 10% were planning to start one within the next 12 months.

The consequences of HR transformation have been dramatic, and in some cases painful. On average, it has been reckoned that around 25–30% of HR staff have lost their jobs in the transformation process, with another 20% or so following them over the next few years. A study by IBM’s Institute for Business Value estimated that some transformations eliminated up to 70% or more of the workload of the traditional HR generalist.

The great expectations that HR transformation aroused, however, were largely frustrated. After a decade, fewer than 5% of executives said they thought that their organization’s management of people was not in need of improvement. Part of the problem lay in making traditional HR people think strategically. “Don’t kid yourself”, said one senior executive, “that people who have never been strategic are suddenly going to become so.”

For some companies the answer was to look outside their own organization. Companies such as Microsoft and BT hired HR directors from outside the HR discipline, and others built in the expectation that fast-stream recruits destined for the top should spend time in HR as a matter of course along their career path. In “A Dearth of HR Talent”, a report published in McKinsey Quarterly in 2005, the authors wrote:

The troubling gulf between the needs of the business and the ability of HR to respond will force many companies to rethink their approach to the recruitment, training and development of HR employees.

Source: The Economist