HR taking steps to prove strategic value

But many outside HR still view it as a cost centre

Canadian HR departments are walking the walk when it comes to becoming a strategic business partner.

More than three quarters of Canadian organizations are currently taking concrete action — or they intend to in the next year — to make their HR departments more strategic and less administrative, according to a new global survey of HR professionals.

Another 13 per cent of the 115 Canadian respondents said they have already completed their transformation into a strategic business partner, leaving just 11 per cent that won’t be overhauling the HR department any time soon. In comparison, 26 per cent of American HR departments said they have already completed the transformation to being a strategic partner. (For a full global comparison see chart, page 11.)

HR departments are no longer simply trying to improve what they have always done. They are going through complete transformations to meet the needs of the business, said Susan Parsons, leader of the Canadian HR technology and operations advisory services practice for Mercer Human Resource Consulting, the firm that conducted the survey of more than 1,000 organizations worldwide.

“HR transformation is the recreation or reinvention of the HR function,” said Parsons. “It is driven by a business need rather than an HR function need.”

Mercer defined transformation as a series of activities including re-engineering, restructuring or outsourcing, or implementing technology for the purposes of automating workflow or implementing shared services models.

HR transformation is different than HR optimization, she said. “Activities associated with optimization include reductions in HR head count or investing in training on team or functional skills.” In contrast, transformation involves replacing traditional HR staff with more strategic contributors and offering training on business and financial skills.

The top driver of transformation is the desire to become a more strategic function and align HR with the organizations’ goals. Just 23 per cent of respondents said change is being driven by a need to reduce the cost of HR. “This may be due to the fact that over the past few years HR has already been cut significantly and now needs to focus on realigning itself with the business rather than further reductions,” said Anjali Coelho, consultant with Mercer.

An essential part of HR’s transformation is ensuring people within the department understand the business outside of HR. But the survey revealed many practitioners lack the important non-traditional HR skills that will be essential for a strategic HR model to succeed.

Just 14 per cent of respondents rated HR’s financial skills as strong and 34 per cent said they were weak. Business understanding was rated as weak by 22 per cent of respondents and strong by 49 per cent. Cross functional experience was considered weak by 28 per cent and strong by 33 per cent. Most plan to pay for training for existing HR staff to develop and improve these skills.

“But becoming a business partner requires an entirely different skill set than the traditional role HR has played,” said Coelho. “Some organizations might need to make the difficult decision to replace staff with new employees who have the right skill sets.”

Asked to identify top transformation priorities for the next year, 58 per cent said HR staff training and development, 55 per cent said HR business process redesign and 45 per cent said implementing new technology.

While 79 per cent of all Canadian respondents said HR reports directly to the CEO, and 83 per cent said they have made successful strategic contributions, the survey also suggests that just because HR gets a seat at the table, it isn’t necessarily being viewed as a valuable business partner. Just 43 per cent of respondents said others in the organization outside of HR view HR as mainly or somewhat a strategic partner (see chart).

A lag exists between the time HR is officially called a strategic partner and the time it is actually viewed as a strategic partner by the rest of the organization. It is a change and change takes time to be absorbed, she said.

One of the things HR needs to do to speed up that change is deliver more hard metrics instead of what they have delivered in the past. Currently the two most common metrics for measuring the success of HR are internal customer satisfaction and employee satisfaction. The least common metric is the direct impact on business outcomes. For HR to be strategic there needs to be a shift toward the use of harder metrics such as the impact on business results or the use of balance scorecard approach.

“One of the metrics HR uses a lot is turnover,” said Parsons. But HR needs to deliver more than just turnover. HR should be able to provide information on why people are leaving, how much it costs to fill a position, the number of people promoted from within the organization and what training those people received. “It is information that allows departments to enhance the way they manage people,” she said.

And while HR needs to be training and developing new skill sets and implementing new programs and policies closely tied to corporate plans, it can’t forget about the basics, said Coelho. If HR isn’t completing its basic responsibilities well, it will have a hard time getting the rest of the organization to believe it can make strategic contributions. “Organizations tend to have long memories for things that go wrong and short memories when things are done well,” she said.

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