HR locked in transactional mode

HR practitioners spend less than 20 per cent of time being strategic: report

HR leaders must transform themselves and the function to become vital to the business, or else they will be relegated to an organizational backwater, according to a new report from the Conference Board of Canada.

“If HR is to survive as a function within organizations it really has to become relevant to the senior leadership,” said Owen Parker, senior research associate with the board and author of the 2005 Strategic HR Transformation Study Tour.

Despite a lot of buzz around the idea of human resources taking on a more strategic role and becoming a business partner, in many organizations HR remains locked in a transactional mode, performing the very tasks that are being outsourced or automated, said Parker.

A 2004 report from Mercer Human Resource Consulting, Unfinished Business: Mastering HR Business Design, found 75 per cent of the 1,100 companies surveyed in industrialized countries have completed, are completing or are planning to complete an HR transformation. But respondents said they spend less than 20 per cent of their time in strategic partnering activities. Canadian HR Reporter’s own 2001 study of 539 Canadian organizations, HR’s Quest for Status: Fantasy or Emerging Reality?, found that HR departments spend less than one-third of their time engaged in strategic activities.

Not only is a transformation imperative for HR’s survival, said Parker, but organizations that wish to succeed must change the activities and roles of HR to get the most of their most valuable asset — employees.

“The successful organizations in the future are the ones that will differentiate themselves with respect to their people,” he said.

Parker quoted David Vance, president of Caterpillar University, the Preoria, Ill.-based construction equipment manufacturer’s centre for learning and development, in the report, saying people are the only asset that appreciate as they come into the organization. “The buildings, machines and IT equipment that we buy all depreciate on day two of entering the building.”

Unfortunately HR, training and other functions that relate to increasing the value of people tend to be among the first functions to get cut when organizations are trying to save money, said Parker.

“For most companies, the investment they make in their employees will far exceed any other cost, with the possible exception of manufacturing, where raw material costs may be higher,” said Matt Hemmingsen, vice-president HR at Marnlen Management and a strategic capability expert with HR association Strategic Capability Network.

HR must become more strategic to help businesses get the best rate of return on what’s been invested in the company’s human capital, he said. The role of strategic HR is to find where it makes the most sense to invest to get the most of employees.

Parker’s report summarized what four different North American companies learned by successfully undergoing an HR transformation. These companies were Caterpillar, Telus, Scotiabank and Weyerhaeuser, the Federal Way, Wash.-based lumber products producer.

While there were organizational differences, HR’s new business role looked similar at all four companies. The senior leader of HR is responsible for HR throughout the organization, is the chief advisor to the senior executive team and is often part of that team.

Different HR managers then serve as business partners to line managers of various business units. In some of the companies, the HR business partner also has a team working with her.

“All the efforts of that group are devoted to helping the line manager improve the performance of the overall line unit,” said Parker.

Each organization also centralized people with expertise in specific HR activities, such as learning, talent management, compensation and benefits at the corporate level. These centres of expertise advise the business units and senior management.

All four organizations also implemented a shared services structure, consolidating comparable services, such as payroll and benefits, from across the business. Internally automating or outsourcing these activities shifts the transactional elements out of HR’s purview.

While the change in the HR function at each of the organizations followed an overall change in the companies’ strategic focus, Parker said a new organizational strategy isn’t essential to HR becoming more strategic.

“It just means much more of an uphill effort on the part of HR,” he said. However, to make the transition a success, the HR leader must have the support of senior management and especially the CEO or president.

“If those things aren’t there, it’s almost a foregone failure,” said Parker.

Before the HR leader even contemplates a strategic shift, she must first learn the business, said Hemmingsen.

“If you don’t understand the business context, how can you realistically propose changes to improve the business?” he said.

Gaining this understanding begins by sitting down with the senior executives and talking to them about what’s important to the business. HR leaders must then begin to look at what they can do to help the business achieve these objectives that may be three or five years down the line, said Hemmingsen. Unfortunately, most HR leaders aren’t able to shift their focus to the longer term, he said.

“What I see in organizations now is (HR) managers more involved in the day-to-day transactions and compliance issues,” he said. “And because of this, line management just doesn’t have the trust that the strategic value add initiatives are going to get done.”

Not all organizations can feasibly transform the HR function. Some are too small and don’t have the resources. But if larger organizations begin the transformation, others will follow, said Parker.

“It will have a trickle down effect as other organizations see the value,” he said. “And then it will gain greater acceptance and be copied by mid-sized and small organizations.”

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