Unfinished Business: Mastering HR Business Design
By Mercer Consulting who can be contacted at www.mecer.com
Over the past 10 years, the HR function has made significant progress in gaining a strategic voice. Today, the most respected HR leaders are business executives first and HR specialists second. These executives – from BP Amoco, DuPont, Home Depot, Pfizer, Siemens, and many more – are partners with and confidants of their CEOs and leadership teams. They often find themselves at the epicenter of corporate change, and many of them get credit for enabling the toughest of business transformations. It is a remarkable feat given today’s volatile markets and the maelstrom of increasing global competition.
These premier HR leaders not only occupy coveted seats next to their CEOs, but they are also being recruited by progressive domestic and global boards of directors. Responding both to the intense focus on complying with new cor-porate governance legislation and increased investor scrutiny, boards are retooling to ensure they have the right mix of highly qualified specialists – including human resource experts. The growing interest in HR’s con-tribution to business performance is also evident in the prevalence of transformation efforts and companies’ increased investment in them.
Mercer recently released its suite of regional research on the state of HR transformation around the world. The findings are clear: HR transformation has momentum. And it is increasingly recognized as an important factor in overall organizational performance.
2. Current state of HR transformation
Of the nearly 1,100 companies Mercer surveyed worldwide, at least 75 percent have already com-pleted, are planning to complete, or are in the process of an HR transformation..In many regions, the figure is as high as 90 percent. Everywhere, the foremost objective for HR transfor-mation is to align the function with the organization’s goals – making it a strategic contributor and more responsive to today’s dynamic business climate. Despite this promising picture, there is evidence that key challenges still face the HR function in its quest to be aligned integrally with the organization’s strategic plan-ning and leadership. Increasingly, signs point to a significant gap between what is expected of HR leaders and what they deliver. In a recent CFO Research Services/ Mercer report, only 16 percent of 180 senior finance executives said they have anything more than a moderate understanding of the return they are getting on human capital expenditures. The same body of research also suggests that, while some progress has been made, nearly 60 percent of finance executives still view HR as more of a cost center than a strategic partner. Interestingly, though, data from many of Mercer’s regional HR transformation studies reveals that HR has a much different view.
The CFO report also found that 38 percent of finance executives say they now have an "important" or a "leadership" role in human capital decisions, but 62 percent think they should have one in the future. While HR executives may perceive that they are spending more time on strategic partnering activities, the incremental gains – and de-monstrated impact on business performance – do not reflect two decades of effort. Despite all efforts, nearly 30 percent of the HR func-tion’s time is currently spent on administrative activities. Compliance and administration absorb nearly half of the function’s available time. Meanwhile, HR specialists are striving to invert time spent on administration and increase time spent on strategic activities from about 13 percent to nearly 30 per-cent globally. The function remains driven to achieve a strategic focus, but our evidence suggests this has not yet been achieved. What has caused the apparent dis-connect? Why have at least four out of five HR functions globally embarked on some form of transformation but have yet to be credited with driving business outcomes?
The HR function cannot continue as it is. Until HR leaders complete he unfinished business of execut-ing the strategic demands of the business, the function will continue to underdeliver. A few true HR pio-neers have shown that execution is the true performance differential.
3. Connecting strategy to execution
Dennis Donovan describes effective HR execution this way: "It is the difference between plans that become reality and those that go nowhere." We couldn’t agree more. Donovan is Home Depot’s HR chief and HR Executive magazine’s 2003 Executive of the Year. He and a coterie of other HR leaders have mastered how to connect HR strategy and execution. Donovan main-tains that the "value added of any HR initiative is the result of the quality of the effort, the acceptance of stakeholders, and its execution."
This paper sets forth Mercer’s point of view on how to accomplish the level of business contribution that leading executives like Donovan have mastered. It reflects our expe-riences worldwide and describes an HR function business design. Our regional transformational sur-veys demonstrate progress made and challenges ahead for the function around the world. Yet for each global conclusion we draw, there are corresponding issues of cultural fit, organizational context, and speed of change that factor significantly into the successful design and implementation of transformation efforts. Our model for HR business design comprises four broad, yet interre-lated, dimensions. When properly aligned, each dimension flows predictably to the next. More importantly, each dimension plays a critical role in formulating a comprehensive strategy – and by extension, in maximizing the function’s contri-bution to business performance.
4. First, it’s always a matter of context
Around the world, businesses must contend with vastly different social, political, and economic climates – from one region’s financial stability and local culture to another’s volatile politics and state of tech-nological sophistication. Yet while operating within their unique regional environments, HR executives the world over face some common challenges:
>> Globalization’s unrelenting pace has widespread impact on economic activity and labor markets. Ever-stronger shareholder demands for increasing returns on investment have placed sustainable growth – and the human capital strategies needed to drive it – on the top of corporate agendas.
>> Given the rapid pace of change, companies must shift focus from delivering current products and services with specific technologies, processes, and people skills to building capabilities to deliver new value to customers.
>> Technology will continue to affect dramatically how and where work is done through teleconferencing, telecommuting, expert databases, and other shared data sources.
>> Demand for leadership at all levels continues to increase – particularly as supplies of top talent dwindle.
We have found that managing through these challenges – particularly while accommodating regional differences – is made easier by adopting an explicit framework for evaluating strategic context. We believe it is the third and fourth dimensions of HR business design (see Exhibit 4) that represent the greatest opportunity for HR to address its unfinished business and fulfill its strategic promise.
The third dimension, the HR function strategy, includes defining which overarching effectiveness and efficiency objectives must be met – and within what period – in order to deliver required business performance. Connecting this strategy to the HR operating model requires engaging busi-ness leaders in the development of an explicitly defined value proposition that clearly defines HR’s future priorities, roles, and deliverables.
The fourth dimension, the HR operating model, articulates what is required to "finish the business" and deliver exceptional performance by translating strategy into actions.
5. HR function strategy
The development of an effective HR strategy is accomplished by engaging business partners early in the process to collect and validate strategic business context. These discussions often unearth opportunities for developing a richer, more nuanced human capital strategy that integrates the real drivers of workforce and economic performance – ultimately a critical component in shaping what the HR function should be doing. Most organizations believe they have established an HR strategy once they have created a "mission" or "vision" statement. These statements – often ambiguous and lofty, and sometimes empty – fall woe-fully short of specifying clearly what value the function will deliver and how it will deliver it. As we view HR business design, strategic context leads to the development of an explicit HR strategy – an unambiguous definition of functional priorities, the services that will be provided, key changes to be made or initiatives to be carried out to improve the
6. Finishing the business: inside the details of execution
Change occurs at the point of execution. So say former AlliedSignal CEO Larry Bossidy and management consultant Ram Charan in their popular book, Execution: The Discipline of Getting Things Done. In Mercer’s view, the fourth dimension of HR business design, the HR operating model, is what puts strategy into action and
enables HR to complete the job. The HR operating model includes three interrelated components. Sourcing, Infrastructure, and Governance.
The remainder of this paper explores each of these components in detail. The full PDF text of this important paper by Mercer Consulting cab be downloaded below
*Reprinted by permission