HUMAN RESOURCE MANAGEMENT TO ORGANIZATIONAL EFFEOTIVENESS

FROM HUMAN RESOURCE MANAGEMENT TO ORGANIZATIONAL EFFEOTIVENESS Edward E. Lawler It is nearly unanimous that HR can and should add more valiie to corporations. Tlie best way to do this is hy heing a business partner—hy directly improving the performance of the business. This can he accomplished h)' effective talent management, helping with change -management, infiuencing strategy, and a host of other value-added activities that impact effectiveness. But HR does not seem ahle to position itself as a business partner in -many cases. To analyze the problem HR has in transitioning to a new role, think of HR as a business and what products it should offer. © 2005 Wiley Periodicals, Inc. For at least the last decade, virtually every book, article, and speech on the future of the human resources function in corporations has emphasized the need for change. It is nearly unanimous that HR can and should add more value to corporations. The best way to do this is hy being a business partner. In other words, it needs to move beyond performing the many administrative and legally mandated tasks that traditional personnel functions have performed to adding value through directly improving the performance of the husiness. There also is agreement that it can do this by effective talent management, helping with change management, influencing business strategy, and a bost of other high-value-added activities that impact organizational effectiveness (OE). Several strong arguments suggest this is a particularly favorable time for HR to become more of a business partner in large organizations. Many firms are highly dependent on their human capital for their competitive advantage. Their market value increasingly depends on their intangihie assets, such as their knowledge, core competencies, and organizational capabilities (Ulrich & Smallwood, 2003). In addition, change seems to be almost a constant today, so that organizations have an increased level of need for expertise in change management and the implementation of new husiness policies, practices, and strategies. Thus, there is a clear need for the kind of husiness partner services HR could deliver. Correspondence to: Edward E. Lawler III, Center for Effective Organizations, University of Southern California, Marshall School of Business, Bridge Hall 204, 3670 Trousdale Parkway, Los Angeles, CA 90089- 0806, (213) 740-9814, [email protected] Human Resource Management, Summer 2005, Vol. 44, No. 2, Pp. 165-169 © 2005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20059 166 HUMAN RESOURCE MANAGEMENT, Summer 2005 The prohlem is that HR does not seem to he ahle to position itself as a husiness partner. Even the most recent studies of its position in major corporations suggest that it is strugghng to he more than an administrative function that is viewed as a cost center, rather than as a value-added strategic function (Lawler & Mohrman, 2003). This is in contrast to some of the other staff functions of large corporations—most notahly, finance and marketing, hoth of which play key strategic roles. A useful way to analyze the prohlem HR has in transitioning to a new role is to think of it as a husiness. The HR function in most large corporations has many of the characteristics of a husiness. It has competitors, hoth internally and externally, it has products, and it has costs. It has customers who need a variety of services and who have feelings of satisfaction and dissatisfaction with the services offered. In some cases, they are ahle to decline to use the services HR offers. Thinking of HR as a husiness leads immediately to the critical question: What products should it offer? Figure 1 characterizes three potential product lines the HR function can offer. The first is the traditional one that it has offered for decades. It is the reason the function was created in the first place. The other two, husiness partner and strategic partner, are newer, and the ones HR seems to have the most trouhle delivering. In some corporations, it clearly does deliver on the husiness partner role, hut rarely does it deliver on the strategic partner role. I. Basic administrative services and transactions involved with compensating, hiring, training, and staffing — Emphasis on resource efflcieney ana service quality II. Business partner services involved with developing effective HR systems and helping implement business plans, talent management — Emphasis on knowing the business and exercising infiuence— solving probiems, designing effective systems to ensure needed competencies III. Strategic partner role contributing to business strategy based on considerations of human capital, organizational capabilities, readiness, and developing HR practices as strategic differentiators — Emphasis on deep and broad knowledge ofHR and of the business, competition, the market, and business strategies / HR Practices 1 HR Services Business Strategy i Org. Design 1 Execution \ Change Management 1 Implement Change Figure 2. Business Partner. Figures 2 and 3 amplify the distinction hetween the husiness and strategic partner roles. It shows they have some of the same deliverahles, hut that the strategic partner role does more. It provides strong input and direction to the formation of husiness strategy, something that does not happen with the husiness partner role. In order to he able to deliver on this part of the product line, HR must have good metrics and analytic data ahout human capital, organizational capahilities, and core competencies. These, of course, are also useful in delivering on the husiness partner role, hut are less important for this role. Organization Design If HR is to deliver the three identified product lines, it must he structured to do this. Most HR functions are designed to deliver a single product line—HR administrative services. Research on organization design suggests that in Human Capital and Business Data i Business Strategy HR Practices I Org. Design Change Management Figure 1. HR Product Lines. Figure 3. Strategic Partner. From Human Resource Management to Organizational Effectiveness ¡67 order to deliver three related, but different, product lines, an organization must be structured differently than if it is delivering a single product line. Relatively independent units must be established in order to deliver multiple product lines, because the skills, competencies, capabilities, and relationships required to deliver the product lines are different. However, they cannot be entirely independent when they go to the same customer and influence each other, as is the case with the HR function. Admittedly, the customer for administrative services is the entire organization, while the customer for the strategic partner services is likely to be only the very senior people in the organization. Nevertheless, each product line must interface comfortably with and support the others. Most HR organizations have struggled with the issue of how to organize in order to deliver three product lines. Indeed, it is quite likely that their failure to organize properly is one reason why they have had trouble developing a strategic role. Let's examine how HR can best deliver each product line. Administrative Services Historically, the administrative services delivered by HR organizations have been paperand labor-intensive. In many cases, the work has been repetitive and high-touch. For decades, the HR staff members who did this work were located close to the customers (that is, employees). Over the last decade, more and more elements of HR administration have been done by outsourcers on a process-byprocess basis. The internal HR function, of course, still manages the HR outsourcers. Favored candidates for outsourcing have been benefits administration and recruiting. There are two increasingly popular alternatives to outsourcing HR administration to multiple vendors. Roth of these are possible because of the growing capability of eHR systems. Organizations can increasingly create electronically enabled HR systems that are largely self-service when it comes to basic HR administration. There is little doubt that when a strong Web capability is present in a company, this is the cheapest and fastest way to provide HR administrative services. The key question is not whether e-enabling HR administration is the best solution, it is whether it should be outsourced to an HR business process outsourcer (BPO) or performed internally by corporate centers of excellence and service centers. In either case, economies of scale can be captured by having common administrative processes across an entire corporation. An organizationwide human resource information system (HRIS) also has the advantage of potentially providing useful human capital data to the HR organization that can be used in its other product lines. It is beyond the scope of this article to compare the advantages of an HR BPO approach versus an internally managed eHR system with centers of excellence (for this analysis, see Lawler, Ulrich, Fitzenz, & Madden, 2004). Both are viable approaches to delivering administrative services. A good guess is that HR BPO will grow rapidly and ultimately provide lower-cost and, potentially, higher-quality services. But this is yet to be established. It is worth adding that even if an HR BPO model is chosen, an organization must maintain expertise in the processes that are outsourced, as well as have the internal capability to evaluate the outsourcers' performance—both financially and administratively. In short, although HR BPO should lead to a much smaller HR administrative staff, HR still must have a substantial level of expertise in such processes as employee development, benefits administration, compensation, and recruitment. It also needs the ability to analyze the effectiveness of its program, transfer processes from one outsourcer to another, and be able to negotiate service-level contracts with outsourcers. Business Partner The skills needed for HR to provide services concerning business support and execution are significantly different from those needed for personnel services and HR administration. For this reason, different people must be involved, and the organization's structure must be designed to provide these services. The structural feature that most organizations have used in order to make HR a busiA good guess is that HR BPO will grow rapidly and ultimately provide lowercost services and, potentially, higher-qtuility 168 • HUMAN RESOURCE MANAGEMENT, Sumvter 2005 TIte strategic partner product line is the newest and least developed in inost corporations. It also is the one that has the potential to acid the most value. ness partner involves establishing senior HR managers, often referred to as generalists, in most of the key husiness units of the organization. The HR generalist is the major interface hetween the HR organization and the husiness unit. The generalist is availahle to help with picking the right HR practices, developing change management strategies, advising on talent development and deployment, and the other HR and organizational effectiveness issues that come up as line managers try to implement strategy and effectively manage their husiness units. Typically, the generalists who are in this role report to the husiness unit manager, as well as to the HR VP. They are, in effect, the part of the HR function that is responsihle for the second HR product line. In order to execute this role effectively, HR generalists need considerahle support. First and foremost, they must he ahle to draw on depth expertise. This expertise can come from corporate centers of expertise in areas such as change management, leadership development, staffing, and metrics and analytics, or it can come from external consultants. In many cases where the generalist role has heen established, the generalists have not heen ahle to deliver their product line. Often, it is hecause of their lack of in-depth knowledge of the husiness. In some cases, it has to do vvath the resources availahle to them. They simply do not have the ahility to access either the internal resources or the external resources they need in order to deliver on some of the complex issues that they face. They also often find it difficult to report to hoth the HR VP and a husiness unit head. Finally, although much of what they need to accomplish cannot he delivered hy an eHR system, increasingly some of it can. Some new products can help coach line managers on how to handle change, how to do performance management, and, generally, how to implement their husiness plans. Thus, establishing eHR-hased systems can help the HR function deliver its husiness support product line. Strategic Partner The strategic partner product line is the newest and least developed in most corporations. It also is the one that has the potential to add the most value. It is rapidly increasing in importance hecause of the growing importance of intangihles and human capital. Since husiness strategy is typically developed at the corporate level in most organizations, and the strategy implementation process hegins there, this product line must be delivered to the senior executives of the corporation. Basically, it must include input to husiness strategy, analysis of the organization's strategic readiness, and its strategy implementation. In order to deliver this product line, HR needs individuals who can interact with senior executives, as well as HR generalists who can help with the development and implementation of the strategy. This suggests there must he staff at the corporate level who are focused on strategy analysis and development; in effect, an organizational effectiveness unit that has a small, full-time staff. This unit also must he chartered to draw on HR resources (e.g., generalists) from elsewhere in the organization to help with strategy development and implementation. What should an organizational effectiveness unit look like? It needs to he a multidisciplinary center of excellence that focuses on husiness strategy, organization design, and human capital development. It should be staffed hy individuals who have expertise in husiness strategy, organization design, organization capability development, knowledge management, HR analytics and metrics, financial modeling, and utility analysis. In short, it should have a hroad range of analytic skills so that it can evaluate different strategic options and alternatives for the business, assess how effectively the current strategy is heing implemented, and develop recommendations ahout how to improve the strategic position of the organization. Organizational Effectiveness Now that we have identified the organizational units responsihle for delivering the product lines that should be in the HR function, we can address the issue of how the three product lines can he integrated and managed. One alternative, and probably the From Human Resource Management to Organizational Effectiveness 169 one most organizations will choose, is to have all of them report to an HR vice president and have the HR generalists report to the head of their business unit. Tbis approach keeps in place the traditional position of HR VP as a senior individual who reports to the GEO or GOO. An interesting question is whether the head of the three product lines should be called tbe HR vice president, tbe chief organizational effectiveness officer, or perbaps OE VP. Tbe latter options migbt be more descriptive of wbat tbe role involves, given that it would have all three product lines, not just traditional HR administration reporting to it. It seems like a much superior alternative to having a position called the chief administrative officer to which HR and "other" administrative functions report. An alternative to having a single head of the three product lines who reports to the GEO or GOO is to have a separate head of the organizational effectiveness unit who reports directly to the GEO while having an HR VP who is responsible for tbe business partner relationsbips and HR administration. Depending on tbe situation, the HR VP might report to the GEO or to the VP for organizational effectiveness. One precedent for the latter approach is the case of marketing and finance, which have separated themselves from sales and accounting by tbeir reporting relationships. They are typically separate strategic units that play a major role in strategy formulation and development. The transactional work in their areas is done by tbe accounting function and the sales function. Following that pattern with respect to HR would suggest that HR administration activities would report in at a lower level than the organizational effectiveness activities. This would create a world in which HR is to organizational effectiveness as accounting is to finance and as sales is to marketing. Once and for all, it would recognize tbe critical role that decisions concerning the acquisition, development, and organization of human capital play in determining the effectiveness of organizations. By itself, changing the structure of the HR function is not enough to make it a strategic partner. It is a necessary, but not sufficient, step. New skills and competencies must be developed. Tbe metrics and analytics tbat HR uses must be expanded and improved upon and, perbaps most important, executives must see HR as baving the capability to be a strategic partner. EDWARD E. LAWLER III is distinguished professor of business and the director of the Center for Effective Organizations in the Marshall School of Business at the University of Southern California. He has been honored as a top contributor to the fields of organizational development, human resource management, organizational behavior, and compensation. He is the author of more than 300 articles and 35 books. His most recent books include Rewarding Excellence, Corporate Boards: New Strategies for Adding Value at the Top, Organizing for High Perform,ance, Treat People Right, Creating a Strategic Human Resources Organization, and Human Resources Business Process Outsourcing. REFERENCES Lawler, E. E., Ill, & Mohrman, S.A. (2003). Creating a strategic human resources organization: An assessment of trends and new directions. Palo Alto, CA: Stanford University Press. Lawler, E. E., Ill, Ulrieh, D., Fitz-enz, J., & Madden, J. C. (2004). Human resources business process outsourcing: Transforming how HR gets its work done. San Francisco: josseyBass. Ulrieh, D., & Smallwood, N. (2003). Why the bottom line isn't! How to build value through people and organization. Hoboken, NJ: Wiley. Copyright of Human Resource Management is the property of John Wiley & Sons, Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use.