Réncái – Future of HR The pendulum needs to swing back · (Ulrich, 1998). This was the starting...

Réncái – Future of HR The pendulum needs to swing backAuthor – Volker Schrank, PhD – HR professional, HR consultant

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Abstract:

The following white paper discusses the current situation as well as challenges HR functions are facing after almost two decades of continuous HR transformation based on the Ulrich model. It provides an overview of today’s state of HR followed by a rational of why it is time for a change. It further elaborates on how a future, talent-based HR function could look like. In 1998 Dave Ulrich asked a very provocative question in his Harvard Business Review article “A new mandate for Human Resources”: “Should we do away with HR?” (Ulrich, 1998). This was the starting point for almost two decades of HR transformation, based on the Ulrich model. Today, it is almost impossible to find any global cooperation, any multi-national that did not either start an HR transformation towards the Ulrich model or has not implemented it. It is the most utilized HR architecture globally. No real competing or alternative model, nor new development happened in the world of HR. At the same time though the economy as a whole as well as each and every function of a company are evolving faster and faster. And this in turn demands a reaction of the HR function.

Unsuccessful HR Transformations – HR hasn’t delivered on its promises.

Within the world of (applied) HR, Dave Ulrich’s model and approach is the most spread and most widely accepted – globally! And all HR practitioners today are requesting “a seat at the table” (a metaphor for being an integral part of strategy development and implementation). But what they should do with this seat and how to actually get there is till today not really clear for many HR practitioners – or at least there are multiple different views on what HR’s role in strategy development and execution is.

A closer look at Ulrich’s model shows that there are some inherent weaknesses, based on the fact that Ulrich did not specifically grounded his ideas in theory. Previous research found that the model itself has a built-in weakness at the interfaces between the Business Partner and the CoE and the SSC. The three pillars are built for almost perfect performance, however, the integration of these is the weak link (see Schrank, 2015, pp. 104sqq), making it hard for the model to work successfully.

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Réncái – Future of HR

The pendulum needs to swing back

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Réncái – Future of HR The pendulum needs to swing back

In addition, if empirical surveys are any indication, the Ulrich model is very often unsuccessfully implemented. Ulrich’s goals of re-orienting HR (Ulrich, 1997, p. 124) are often not realized: the “strategic orientation” can be viewed as an example. A study of companies in 2010 showed that in more than 60% of surveyed companies no or only an ad-hoc HR strategy process exists (CapGemini, 2011). The further reaching question if HR is accepted as a “business partner” is negated in 57% of the surveyed companies (CapGemini, 2011). Now it could be said that these are figures from the beginning of implementing Ulrich’s ideas into reality – but (a) the Ulrich model is around since the mid 1990ies and (b) the numbers are not improving (see for example Kienbaum, 2012). In addition to this, HR is facing new challenges that Ulrich has never thought of when developing his model (see further d own “New Challenges widen the Gap”).

Of course, there are multiple (and often very specific) reasons for the poor track record and the unsuccessful transformations, however there are a few common factors:

• Focus on efficiency, as well as cost pressure within the HR function, and therefore losing sight of effectiveness and quality.

• Exclusive transformation of the administrative areas of HR, and at the same time losing sight of Business Partners and Centers of Expertise/ Excellence/ Competence.

• HRIT as a starting point for a transformation, while losing sight of a new governance for HR as well as conversations around what HR should really be about. • A centralization mindset rather than a shared services approach.

• Keeping the HR Transformation within HR, losing sight of the changing roles and responsibilities of managers and employees as well as the business model and demands.

The majority of Ulrich-based HR transformations in the recent years were mostly efficiency focused. It was about down-scaling of the HR organization, automation, transfer of service delivery to low-cost centers and/ or towards the employee and manager (self-services). Effectiveness was often not considered at all, just a by product, or handled as necessary addition. Investments in the effectiveness of HR (notably HR Business Partners or HR Centers of Expertize) did not really happen – the business case was already hardly at break-even with all the HRIT (new systems) and infrastructure (new Shared Service Center) costs. Additional investments were difficult to argue for.

The HR Competence Gap.

Not surprisingly this has led to a competence-decrease among HR professionals, especially in the HR Business Partner and Centers of Expertise roles.

The Ulrich model requires a certain set of competencies to enable professional and successful HR services, and deliver on its promises of strategy focus and business orientation. Empirical findings suggest that the actual HR professionals are far from that required level (see Figure 1) .

Figure 1 Difference between actual and required

HR competency level Source: Schrank, 2015, p.156





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When setting this into perspective to the importance of each competence, the picture darkens further (see Figure 2). While the most important competencies of Credible Activist and Culture & Change Steward are only 5% and 9% respectively weaker than required, the Talent Manager and Strategy Architect really show the major weakness of HR Business Partners and Centers of Expertise employees as these competencies are mainly required in those functions. Another interesting finding is that although the majority of the focus of HR transformations has been on the administrative service delivery, the competency of the Operational Executor is the weakest link – HR has unlearned admin.

This surfaces as the Business Partners being removed from the actual HR admin work and Centers of Expertise working in an ivory tower, not understanding how their ideas and processes might get delivered to the end-user of the service. This creates an additional challenge for HR not functioning as one anymore, but as three separate entities, all trying to manage the customer and deliver on its needs.

New Challenges Widen the Gap.

While this competence & cooperation gap is an issue on its own, this becomes increasingly critical when companies face today’s and tomorrow’s (HR) challenges. Every angle of the (business) world is under pressure and in constant change.

The pace of the economic change is increasing. New ever faster changing business models are surfacing that are almost constantly forced to adapt because of new developments (e.g. unstable economic environment) and disruptive trends (e.g. digitalization). The society and with it the future workforce is radically changing. The world is in a state of an aging society in the western hemisphere, an increasing population in the eastern as well as (often not well educated) southern hemisphere. A major part of this increasing society is demanding access to western economies as competition but also as labor.

In addition, it is expected today that organizations are active partners of governments and NGOs in managing these and further changes within the society. In some countries (and this includes strong economic countries like Germany), companies even have to train their future workforce on basic education like literacy or math. Customers are more and more demanding, asking for more than a simple product or service, expecting excellent customer service with a superior product, produced within a sustainable environment at a very competitive price.

Figure 2 Ideal HR competency mix Source: {Ulrich et al., 2008}





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These business environment challenges quite simply but powerfully change the basic environment that HR operates in as well as what HR needs to manage. The change of the talent market from a demand to a supply market, multi-generational (today it is 5 generations and growing) and multi-cultural workforces, the necessity for real diversity & inclusion (integration beyond quotas), management of all these different talents, digitalization of HR and the workplace, neuroscience, and more – all of these are today’s realities and future opportunities (and challenges) only one function can successfully utilize and manage: HR. This is why the coming decade is often referred to as “the decade of HR”. Let’s have a look at some of these challenges in more detail:

The talent supply market – aka “the war for talent” is nothing new. Since Michaels, Handfield-Jones, & Axelrod (2001) have written about it, it is well known. However, now it has arrived and companies have to deal with it. Talents have the power on the market, they decide where they want to go to, whom they want to work for and how long. It is HR’s responsibility to get the best deals on this market – to fuel the pipeline of a company with fresh talents. Especially the tomorrow-more-than-ever-needed talents in the areas of digital/ information technology and engineering are crucial for the success of a company, but everyday harder to find. Real diversity & inclusion – today, diversity for most organizations means special programs, marketing and promoting one or the other woman or emphasizing a filled quota for various disadvantaged groups for a leading position. This won’t work in the future. First of all, due to the talent market becoming more and more a supply market, so far neglected talents (e.g. women) become increasingly important to simply fill the talent pipeline. But more importantly, research has shown that the real value of diversity comes through having true diverse teams and not alibi women or representatives of disadvantaged groups of people regardless of their skill on the board. However, to enable this, a new approach to work-life-balance and integration of various personal needs, needs to be planned and implemented – throughout the organization, across the HR value chain and hierarchical levels. Workplace design and the composition of how work gets done needs to change as it is still based on values predominantly lived by middle aged white men.

Management of talents – Once you have acquired these talents, it is imperative to not only make them stay, but to ensure that they find a work environment where they can strive, be creative AND productive. HR has to manage all of this with an intelligent talent infrastructure as well as modern organization effectiveness measures. Digitalization – It is the new era of digital. Digital is everywhere. But what does it really mean? – Facebook, Google, Uber, Workday, SuccessFactors, WhatsApp, etc. – these and many more examples are referenced in digitalization. And of course, these are (a) very successful companies and (b) offer interesting digital products and solutions to companies. But what is missing so far is a true integration into daily corporate life (and of course HR life). Using digital to truly transform how companies work and “look” is what is necessary to benefit from the technological developments. Who if not HR should promote and lead this effort? – of course after having managed its own digitalization.

Neuroscience – we are learning more and more about how the brain works and how it can be “manipulated”. These findings will revolutionize how talent processes like Performance Management, like Compensation & Benefits, like Succession Management function. It will revolutionize how we treat talent. Of course, the research on neuroscience and its application to HR is still in its beginnings – but this is the “next big thing” to revolutionize HR and people processes, and therefore, how companies work (see Martindale, 2014). Is the Ulrich-transformed HR function ready for that? – the above mentioned empirical findings do not suggest readiness, and companies will miserably fail, as these (HR) opportunities and challenges will be the most prominent to influence a company’s ability to stay competitive in today’s fast changing markets. Dynamic competitive advantages are the only remaining advantage of tomorrow. It is no longer about having superior supply chains or exclusive access to natural resources – it is about having superior access to talent and dynamic intellectual capital (IC), as well as managing this in a superior fashion. The coming decade is the decade of HR.





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Future of HR – What Needs to Change.

The beginning of such a change, as discussed, needs to be ground in theory. The same theory that Ulrich implicitly used to guide his ideas should be at the core of the change: the resource-based view (RBV). The RBV in short says that the reasons for the competitive advantage of an organization can be found within an organization – it is the resource pool and how the resources within this pool are combined to form an organization that is more successful than the competition. These resources encompass various things, including the human resources, the competencies and skills of these human resources, the organization structure, etc. A superior combination and management of these resources will bring superior results.

The early days of the RBV are based on (Penrose, 1959), who firstly argued that internal factors are more important than external factors. These ideas were further elaborated by Wernerfelt (1984) who says that resources are „[…] meant anything which could be thought of as a strength or weakness of a given firm. More formally, a firm’s resources at a given time could be defined as those (tangible and intangible) assets, which are tied semi permanently to the firm. Examples of resources are: brand names, in-house knowledge of technology, employment of skilled personnel, trade contacts, machinery, efficient procedures, capital etc.“ (Wernerfelt, 1984, p. 172).

Until today, the RBV can be seen as the guiding principle and founding theory of most Strategic HR Management ideas and practices – and should guide the following ideas as well. Its practical value and real world success is undisputed until today. For HR it means that at the center of any considerations, the resources of talent and organization must be found. Now, if this is the premise, the question arises how best to serve these resources. And again, the answer can be found in theory. This time its on HR to turn to marketing theory and no longer call these resources “Human Resources” but “customers”.

Customer (and therefore market) orientation has proven to be successful, showing that organizations with a stronger market orientation improve their business results (see Slater, 1997). Utilizing this approach and translating it into HR could lead to similar superior results. Customer orientation “is the culture that (1) places the highest priority on the profitable creation and maintenance of superior customer value while considering the interests of other stakeholders; and (2) provides norms for behavior regarding the organizational development of and responsiveness to market information” (Slater, 1997). In combining these foundational elements, a superior HR architecture needs to enable and focus on the creation of competitive advantage based on a firm’s Human Resources and organizational system through placing these Human Resources as (internal) customers as well as the system that supports them at the forefront of each and every (HR) behavior.

NEW HR – The Building Blocks.

The objective and scope of this whitepaper is not to present a fully fledged new HR architecture, and this is neither the claim of this paper. It aims at laying out the general building blocks which will be presented in more detail in “NEW HR: The Performance Function” (Schrank et al., in press). These building blocks find their foundation in the trends identified as well as in the theories discussed above. HR’s customers and the system that supports them are placed at the forefront of NEW HR.





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Again, these pillars consist of long-term functional experts (w/o specific end date), long-term delivery experts and fluid resources that are based within the customer interface layer. Figure 3 shows a graphical representation of the basic NEW HR architecture.

These basic architecture considerations already surface a major difference to Ulrich and today’s HR functions. There is no longer a single HR function. Rather, there remains a foundational HR function (consisting of the HR infrastructure layer as well as the vertical pillar, whereof the majority of the HR infrastructure layer should be managed by and be part of a company wide Integrated Business Services function) and a new function that could be called “Performance Function” as at its core it is about enabling all employees to bring their best possible performance for the company every day. This Performance Function focuses solely on the customer (market orientation) and the organizational system (Talent & Organization infrastructure) these customers work in.

And this is, where NEW HR starts. The new HR architecture has basically three horizontal layers and one vertical professional services pillar: • A Customer interface layer – interfacing with all customers of HR (management, line/ people manager, talents (past, current and potential future employees), works councils & unions, external customers, shareholders). This layer is about communicating, diagnosing, consulting, socializing, partnering with all customers in their own special way/ need in a personalized, pro-active fashion that promotes the ability to (a) support all customers in all their daily queries, as well as (b) understand and act on all future customer needs (customer/ market orientation first). This layer consists of business as well as HR people. • A Talent & Organization infrastructure layer – developing solutions for and consulting on the talent and organization effectiveness needs of the customer infrastructure layer. This layer is a small and nimble project oriented flexible team of deep experts in areas like culture & change, performance & engagement, workplace design, social collaboration & knowledge management, as well as organization effectiveness. It is a fluid structure of long-term (max. 2-3 years within role) experts, project resources from the HR infrastructure layer and the customer interface layer (including business representation), as well as external functional experts rather than a standing team like today’s CoEs. This layer is responsible for, builds and maintains the “system” that supports the customers. • An HR infrastructure layer – responsible for the delivery of all administrative activities around the Talent & Organization infrastructure layer and the Customer interface layer, as well as all “hygienic” processes like data privacy & management, payroll, mobility, etc. • A Professional Services pillar - Next to these layers, there is one vertical pillar that is end-to-end responsible for specific topics that need to or are best managed within a closed framework. This pillar consists of five service functions (Academy/ Learning, Workforce Analytics & HR Controlling, Total Rewards, Sourcing and Labor Relations & Policy Management) and one staff function (Strategic Portfolio Management).

Figure 3 NEW HR Architecture





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Volker Schrank, PhD





Literature.

• CapGemini. (2011). HR-Barometer 2011. Retrieved March 22, 2011, from

http://www.ch.capgemini.com/m/ch/tl/HR-Barometer_2011.pdf

• Kienbaum. (2012, October 29). HR Strategie & Organisation

2012/13. Retrieved September 2015, from http://www.kienbaum.de/

Portaldata/1/Resources/downloads/brochures/Kienbaumstudie_HR_

Strategie_2012_2013.pdf

• Martindale, N. (2014, April 24). How can HR use neuroscience? Retrieved

September 22, 2015, from http://www.hrmagazine.co.uk/article-details/

how-can-hr-use-neuroscience

• Michaels, E., Handfield-Jones, H., & Axelrod, B. (2001). The War for Talent.

Harvard Business Press.

• Penrose, E. (1959). The Theory of the Growth of the Firm. New York: John

Wiley & Sons.

• Schrank, V. (2015). Das Ulrich-HR-Modell in Deutschland. Springer-Verlag.

• Slater, S. F. (1997). Developing a customer value-based theory of the

firm. Journal of the Academy of Marketing Science, 25, 162–167. http://

doi.org/10.1007/BF02894352

• Ulrich, D. (1997). Human Resource Champions (1st ed.). Boston: Harvard

Business Press.

• Ulrich, D. (1998). A new mandate for human resources. Harvard Business

Review, 76, 124–135.

• Ulrich, D., Brockbank, W., & Johnson, D. (2008). HR Competencies

(1st ed.). Society For Human Resource Management.

• Wernerfelt, B. (1984). A resource‐based view of the firm. Strategic

Management Journal, 5(2), 171–180.

• Wright, P. M., Dunford, B. B., & Snell, S. A. (2001). Human resources and

the resource based view of the firm. Journal of Management, 27(6),

701–721. http://doi.org/10.1177/014920630102700607

About the author.

Volker Schrank, PhD. – main author of this whitepaper – is an HR professional and HR consultant with more than 10 years of experience. His experience is grounded in consulting on HR as well as working in HR operations and strategic positions globally. Starting working for a global Automotive OEM, he switched to HR consulting in 2005. Since then being involved in multiple regional and global projects around transforming the way HR organizations deliver. Within these projects Volker has gained:

• Multi-industry experience in HR consulting and HR transformation focus on HR diagnostics, HR strategy development and implementation, HR organization design, HR Shared Services as well as Integrated Business Services and Talent Management in German Dax 30 companies as well as further global key player; mainly in the C-suite or one level below.

• In addition to his practical experience, the author is an active HR researcher, holding a PhD in HR. However, the research is mainly focused on HR in Germany and its specialties, but is considering global trends, developments and research findings. At the core of his research is the HR model of Dave Ulrich and its future. Volker regularly offers his opinion on HR topics and trends in his blog www.chiefHROfficer.de Further information can also be found on Xing or LinkedIn.

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Réncái – Future of HR The pendulum needs to swing back · (Ulrich, 1998). This was the starting...

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