Restructuring HR opens strategic doors

The case for splitting the HR department into two or, even better, three distinct functions

Most HR executives, managers and professionals are struggling to shift their daily activities from transactional and traditional to transformational and strategic. But these individual attempts will not succeed because the urgent and necessary will always take priority over the important.

In the real world, meeting payroll demands and dealing with a violent employee will derail any thoughtful exercise on creating a new culture of performance management.

Adding to this pressure are the twin demands of chief executive officers: Cut costs and add value. The traditional response has been to cut costs by outsourcing HR, downsizing the HR department and using technology to replace HR administrators. Rarely is the response to invest more in HR practices and identify the value chain to demonstrate this investment does indeed affect organizational performance.

How can HR be aligned to meet the multiple demands? There are two possibilities, both requiring changes in how the HR department is structured.

The accounting/finance model

One of the more interesting concepts in academic HR literature was posited by authors John Boudreau and Peter Ramstad in 2005. They suggested HR divide the responsibilities into two areas, much like the accounting and finance model.

Accounting is a necessary but overwhelmingly transactional and repetitive activity. There is work that has to be done for compliance reasons and to meet the basic information needs of the organization. Accountants are not asked to prove their value or to become more strategic. Instead, the finance department is asked to do that. The role of the finance department is to focus long-term, to assess the impact of investments, be strategic and provide information that proves the value of resource-allocation options.

So why not split HR into two similar roles? Call one department “personnel,” and place record-keeping, benefits administration and employee services into this function, which could be easily outsourced or transformed by technology. Put the other activities that are future-oriented and more strategic, such as organizational development and strategic compensation, into a new department called “HR.” Thus, freed from daily transactional requirements, the HR professional could focus on becoming a business partner. It’s a great concept, but I must admit I like the next one even better.

Services, solutions and capabilities

The HR department is typically organized by function. To ensure HR policies and practices are aligned with the organization, a new vision of HR, proposed by author Jeffrey Mello in 2006, would be structured as follows: Services, solutions and capabilities.

Services Inc. The part of HR that is administrative, estimated to be about 60 per cent to 70 per cent of HR work, could be located in a separate unit called Services Inc. The administrative burden would be reduced through call centres and use of the Internet and intranet.

The types of HR work done in Services Inc. would include compensation and benefits administration, training and education administration, staffing administration and records management. There would be three levels of service:

• Tier one would be accessed through the computer or telephone and deal with things such as changes in addresses — everything is processed without human intervention.

• Tier two directs HR requests for information not listed on tier-one sites — such as a question about retirement eligibility or finding a course on innovation — to a call centre that can provide a quick response or explanation.

• Tier three would consist of case workers — highly skilled professionals — who provide extensive and comprehensive assistance to complex issues such as employee relations or employee assistance.

Services Inc. is driven by cost reduction — it has to be the cheapest and most efficient provider of service, which may be outsourced or dealt with in-house. It may be located in information services or anywhere that makes it part of an organization-wide effort to provide services through the centralization of technology and call centres. In this way, HR cuts and controls costs.

Solutions Inc. The Solutions Inc. branch of corporate HR would be composed of HR subject-matter experts — all of whom possess professional credentials acquired through advanced study and extensive experience. Their role would be to transform the organization through training and development, labour relations, compensation design, strategic staffing and organizational development. They would be responsible for creating solutions to organizational problems and preparing the organization to achieve its strategic intents.

These experts would act as consultants to the organization and operate on a for-profit basis — that is, their efforts would be measurable and must result in an increase in performance measures. The consultants would, of course, be on the cutting edge of research and put innovative, state-of-the-art theories into practice. In this way, HR adds value.

Organization capability consultants. Operating as the third branch of corporate HR, the HR professionals in the organization capability unit would be dispersed throughout the organization, providing guidance and assistance to operating units, with the goal of improving the effectiveness of the organization. If asked questions about changing benefits or dealing with a potential unionization threat, they would hand out cards with the contact numbers for Services Inc. or Solutions Inc.

This unit would build organizational capabilities by aligning HR strategies, processes and practices with the needs of the business. Their HR solutions should change existing processes to create “better-faster-cheaper” approaches. This is the business partner role and in this way HR becomes strategic.

Monica Belcourt is a professor of human resources management at York University in Toronto, founding director of the Masters in Human Resource Management program, editor of the Thomson Nelson series in human resource management and past-president of the Human Resources Professionals Association of Ontario.

Latest stories