HR - Boom or Bust - Four Groups

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Commentators are currently polarised around the future of the HR function. Some suggest that the function is about to enter a boom period as after several years of cajoling, organisations are placing …

Commentators are currently polarised around the future of the HR function. Some suggest that the function is about to enter a boom period as after several years of cajoling, organisations are placing far greater emphasis on talent management and putting strategic HR activities at the heart of the business. On the other hand, others believe that HR is still struggling to rise to the challenge and is destined to remain a transaction based cost centre for the foreseeable future. As with most things, the truth probably lies somewhere in the middle. This article explores the evidence for both perspectives and suggests that solving apparently intangible human capital problems is the best way for HR to profit given current circumstances.

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  • 1. HR - Boom or Bust? Linking Behaviour to Bottom Line Performance HR - Boom or Bust? Commentators are currently polarised around the future of the HR function. Some suggest that the function is about to enter a boom period as after several years of cajoling, organisations are placing far greater emphasis on talent management and putting strategic HR activities at the heart of the business. On the other hand, others believe that HR is still struggling to rise to the challenge and is destined to remain a transaction based cost centre for the fore- seeable future. As with most things, the truth probably lies somewhere in the middle. This article explores the evi- dence for both perspectives and suggests that solving apparently intangible human capital problems is the best way for HR to profit given current circumstances. The Case for Boom picture that executives are now firmly ment software this year compared to focused on talent management as a last, along with a record growth rate In examining the factors contributing to key, if not the top priority. for 2007 of 20%7. the possible ‘boom’ scenario, there are at least four underlying developments The Growth of Talent Management Rising HR Salaries which contribute to this1. Software Likely to be of greatest interest to prac- The Talent Management Agenda The second development is the growth titioners is the increase in salary and of the talent management software interim rates for HR professionals. Reed The most significant development is market, suggesting that leaders are Human Resources reports an 11% rise recent research conducted by Price paying more than lip service to the in salaries during 2007 and a 30% Waterhouse Coopers (PwC) and “our people are our greatest asset” increase in the size of the interim mar- McKinsey which suggests that talent mantra. Gartner defines such software ket. In similar fashion, agency Josline management is now a major priority by saying that “most large companies Rowe reports a rise in interim day rates for business leaders. PwC report that have implemented an integrated set of from £350 to £500. As with the soft- 89% of 1,150 CEOs agree that the peo- administrative human capital manage- ware market, such growth rates sug- ple agenda is a top priority and a fur- ment applications. Now, these compa- gest that the intentions reported by ther 67% believe this is where their nies are turning their attention to PwC and McKinsey are being translated time is best spent2. Meanwhile, strategic talent management applica- into the market and show a genuine McKinsey state that “By far the most tions to get more value from their commitment to act and recognition of significant trend - cited by 47 percent investments in people.”4 As reported the value that HR can contribute8. of the executives - is the intensifying by the Yankee Group, this market has a battle for talented people. Shifting cen- CAGR5 of 26%, making the market The State of the Profession tres of economic activity and increasing worth $4.0bn by 20096. The forecast technological connectivity were the also seems to be holding good with There are a number of other trends that next most important trends, each with Gartner analyst Jim Holincheck report- also suggest a positive future ahead for 34 percent.”3 Such data paints a clear ing more enquiries for talent manage- HR. The launch of the Human Capital
  • 2. HR - Boom or Bust? Management Institute along with believe the CIPD is relevant to modern only 25% of HR practitioners hold the Jackie Orme, CEO of the CIPD speaking business leaders while Barry Hoffman, same view13. Also, in a similar vein to of “the headroom to grow our role as a branch secretary for central London the thoughts above, 60% of managers function” and that “this gives us said “The structure, constitution and and 51% of practitioners view HR as an tremendous opportunity” suggests the operation of the institute should be administrative department. profession is looking to develop itself. reviewed, there can be no sacred Meanwhile, PwC report on the top 10 Further to the rhetoric, PwC’s research cows.” barriers to change, of which 6 (as indi- shows that between 2002 and 2006, cated by the *) are arguably the remit the HR function has increased its HR The Verdict on Business Partnering of HR. staff to FTE ratio from 105 to 90, while raising the number of managers and While Dave Ulrich’s work on Business Table 1 - Top Barriers to Change14 Top Ten Barriers % of professionals as a proportion of total Partnering has been historically well Firms staff in the department by 5.9% to received within HR, more recent opin- Competing resources 48% 65.7%9. Such improvements have ion suggests a questionable legacy. Functional boundaries * 44% been realised alongside an increasingly Research from Roffey Park has found Change skills * 42% efficient HR department. HR depart- that half of 479 mangers found that Middle management 38% ments are now 14.8% more efficient, business partnering was less than suc- Long IT lead times 35% costing £1,110 to run per FTE in 2006 as cessful in their organisations12. Communication * 34% against £1,275 in 2002. Opinion on the practice ranges from “if Employee opposition * 33% you re-badge people without giving People issues * 32% The Case for Bust them training and awareness, you are Initiative fatigue * 32% setting them up for failure” to “I con- Unrealistic timetables 31% While there are four factors that con- sider my role to be about adding value tribute to the ‘boom’ of HR, there are to the business and understanding the What is the cause? three factors that point towards the business model”. While the debate ‘bust’ side of the equation. about business partnering goes on, While people may debate the merits Ulrich defended his work by saying “HR and likely outcome of the ‘Boom’ or HR’s opinion of HR has been woeful at knowing the busi- ‘Bust’ scenarios, it is useful to under- ness well enough. We still have people stand some of the causes and con- Both formally and informally, there are in HR that cannot talk to board mem- tributing factors. a number of diverging opinions as to bers when they start talking about the current state of HR. While the CIPD cashflow or numbers. Equally, partner- A Macro Perspective speak of “opportunity” and “headroom ing was not about how HR can get into to grow”, PwC suggests that “the the boardroom, but what it does once There are a number of macro factors future of the profession remains a mat- it's there.” that go towards creating today’s cir- ter for speculation”10. Perhaps the cumstances and these are most simply most telling comment comes from the HR’s Capabilities distilled via the PESTLE framework. CIPD website where someone asks “I would so dearly love to work for an With opinion divided about the state of • Political factors, similar to legal, out- organisation that can see the connec- the profession and (arguably) its line the political will of the state that tion between HR and day to day busi- modus operani suffering from a lack of has seen the championing of individual ness running. Do these organisations wholesale acceptance, it is worth turn- rights. For example, the human rights exist?”11 Such opinions become more ing our attention back to the research. act, corporate manslaughter legislation stark when seen in light of practitioners McKinsey report that 58% of line man- and reaction to migrant workers. views of the CIPD. An August 2008 sur- agers agree that HR lacks the capabili- • Economic influences include compen- vey found that 61% of people don’t ty to develop talent strategies, while sation and benefits strategy, costs of
  • 3. HR - Boom or Bust? acquiring and developing talent, busi- Diagram 1 - Micro Factors and their Relationship ness model success and the impact of Sponsorship of HR by the economic forces on an organisation’s business objectives. • Social elements include demograph- (High v. Low) ics, changes in lifestyle and living arrangements, the need to account for Perception of HR by the Type of work done business multiple generations of people in the (Strategic Problem Solving v. workforce and changes in society that (Positive v. Negative) Transactional Administration) impact the workplace. • Technological changes include greater Nature of work done availability of computing power and (Integrated and Holistic v software, the increased sophistication Siloed and Fragmented) and appetite for talent management software, greater efficiencies through systems, the relative maturity of the IT creating a resource based view of the While diagram 1 shows the relation- industry, innovations and R&D activi- organisation in the process. Diagram 1 ships between the micro factors that ties. illustrates a number of micro factors impact on HR, table 2 explores how the • Legal issues include employment law, and their impact on one another. polarity of each factor plays out. health and safety legislation, discrimi- Table 2 - Perspectives on Micro Factors nation, competition law and related High Sponsorship of HR Low Sponsorship of HR Acts of Parliament. Annual salary surveys from Robert According to the CIPD, training budgets • Environmental factors consist of sus- Walters suggest that HR salaries are have fallen 2.5 times between 2004 tainability, impact on the environment, comparable to and sometimes higher and 2008, from £756 per employee to than finance16 £297 while the number of training an organisation’s carbon footprint, cor- days has remained steady at 5 days porate social responsibility and the per- According to CEO Eric Schmidt, Google’s per employee per year18 famed 20% rule is as much about ception of the organisation in the eyes encouraging line managers to take There are just 5 HR Directors who serve of its stakeholders. ownership of talent management as it on the boards of FTSE 100 compa- is about creating new products17 nies19 Strategic Work Transactional Work While this overview is brief, it is designed to introduce some of the PwC state that “maximising the value Chris Bones, Dean of Henley Business of organisational resources has never School has argued that "many organi- external factors which have contributed been more challenging. Now, more sations have applied the business part- towards the rise of the talent manage- than ever is the time for innovation ner model to enable HR to achieve its and creativity. Keeping a watchful eye aims, when it doesn't fit them. By rele- ment agenda. For a more detailed on the turbulent world economy and gating the transactional to the back analysis and a view of long term driv- responding effectively is critical to sus- office, we have devalued the one thing ers, PwC’s report “Managing tomor- tainable business success.”20 that employees care about. HR needs to restore the value of transactions the row’s people: The future of work to personnel function.”21 2020” may be of further interest15. Integrated Work Fragmented Work HP VP of Learning and Development Dave Lefkow comments “There are so A Micro Perspective talks about the silos in HR organically many silos and disparate processes in disappearing22 HR that the sum of its parts are often greater than the whole. Which brings While macro factors impact industries, In terms of a shift towards integration, us back to at least the spirit of the economies and society in terms of rais- Systematic HR writes “I think we’ve original question - who will step up reached a point where functionality is and tie this all together?”24 ing awareness of HR and in particular becoming much less important. As the talent management agenda, micro we focus ourselves on the customer McKinsey builds on this when they factors concentrate on internal issues, rather than internally on HR, write “silo thinking - focusing on the
  • 4. HR - Boom or Bust? Table 2 - Perspectives on Micro Factors (contrinuted) games against those with much more experience who also get to set the Integrated Work Fragmented Work rules. Even if they do win, the victory the shift is going towards integration interests of one part of the organiza- may have extracted a large cost in and customer usability”23 tion rather than the whole - not only hinders the mobility of talent within a terms of losing the distinct perspective company but also undermines the and competence of human resources in sharing of knowledge and the develop- ment of interpersonal networks (or the process of becoming like other staff "social capital") across the organiza- functions… If all human resources tion.”25 becomes is finance with a different set Positive Perception of HR Negative Perception of HR of measures and topic domains, then Harvard Business School graduate Only 23% of executives believe HR cur- Daisy Wademan Dowling writes “in rently plays a crucial role in strategy its future indeed is likely to be grim.” business school, we were trained to formulation and operational results, as seek out underappreciated investment reported by Deloitte28. opportunities and to create value in Rather than trying to beat finance at surprising places. Unlike our peers Fast Company writer Keith Hammonds their own game, as Pfeffer implies, searching for bargains in private equity states that “in a knowledge economy, focusing on the unique abilities of HR is or at hedge funds, though, we see the companies with the best talent win. deepest discounts in the complex task And finding, nurturing, and developing likely to progress the agenda much fur- of identifying, attracting, developing, that talent should be one of the most ther, more quickly. With this in mind, it and deploying people”26 important tasks in a corporation. So why does human resources do such a is interesting to read of the stories in IT Research from Deloitte finds that 82% bad job and how can we fix it?”29 31,32 and Marketing33,34 and their of executives believe HR will be seen chosen methods in advancing their as a strategic, value adding function within 3 – 5 years27. own agendas. It will come as no sur- prise that ‘sticking to the knitting’ and As can be seen from the information in in this particular basket exploiting your own competencies and table 2, there is a wide spread of out- skills, rather than trying to beat some- comes, opinions and research as to Human Capital efforts clearly move HR one at their own game is the key mes- what influences and impacts HR’s role forward and help with talking the lan- sage! within a business, the type of work that guage of business. While we shouldn’t is done and the level of sponsorship throw the baby out with the bathwater, In terms of adding value and making afforded the function. it is useful to recall Jeffrey Pfeffer who HR indispensable, this is no simple task. wrote the following in 199730. There are statutory and legal obliga- Human Capital Metrics tions to fulfil along with balancing “Equipping human resource managers transactional and strategic efforts. While influences on HR are many and with additional analytic tools and lan- Equally, recognising who owns and varied, making the most of the oppor- guage is all to the good, as far as it then facilitating talent management is tunity is likely to be of greatest interest goes. In the end, however, all one par for the course. Even more signifi- to practitioners. While there is no short- accomplishes is being a more skilled cant perhaps is the notion that there is age of focus in the profession on met- player at someone else’s game. By so no industry wide best practice model or rics and human capital, it is worth doing, one buys into the ultimate sen- framework to follow, each organisa- remembering that; sibility and reasonableness of the basic tion’s HR and human capital values, measures and ideas in the first place; processes and resources are likely to be • Better measurement of something this is often a mistake. Being skilled at unique. Even models such as does not necessarily improve it or solve the wrong game is not a very promis- Accenture’s Human Capital any problems ing strategy for either the company or Development Framework or Watson • While human capital efforts are to be the human resources function. It is Wyatt’s Human Capital Index are far applauded and encouraged, some have unlikely that human resources will ever from a one size fits all approach. More warned against placing too many eggs be able to win playing the number encouraging is the fact that HR and in
  • 5. HR - Boom or Bust? particular, Learning and Development Diagram 2 - A focus on high value professionals are willing to try new and work, helping line managers solve different approaches to advance their traditionally intangible problems cause. The proliferation of tools, tech- Sponsorship of HR by the niques and approaches cannot be business Focus on high value, understated, while a quick glance at traditionally intangi- ble problems such as the CIPD’s annual Learning and relationships, culture, Development survey for 2008 details a group dynamics and raising productivity list of 14 different techniques with ‘most effective’ scores ranging from 53% to 1% with an average of Perception of HR by the 20.7%35. This in itself is clear evidence Type of work done business of the fragmentation and unique needs (High value work with line (New problems solved, of organisations. managers) perception improves) Solving Problems and Leveraging Nature of work done the Opportunity (Potential to create an inte- grated approach to intangibles) While experimentation is a good thing and the apparent fragmentation of value being provided by HR and its per- and practical way. approaches arguably being evidence of ceptions amongst colleagues rising as a the silos seen in diagram 1 and table 2, result. Diagram 2 illustrates this Taking this as a starting point, it is focussing on solving problems that are sequence of events. intriguing to see Emily Lawson of specific to line managers and their McKinsey talk of the fact that while tal- teams is likely to yield the best results. While the focus on high value work ent management has changed much Efforts in this direction have already with line managers may need some over 10 years, there are currently no begun with attempts to develop line education time in terms of acknowl- definitive answers for organisations36. managers being reported by 72% of edging the difference between transac- Given McKinsey’s reach and resources, respondents to the CIPD L&D survey36. tions and more strategic input37, this this arguably legitimises the existence Similarly, 86% of line managers are type of work ultimately benefits both of the boom scenario while leaving involved in determining L&D activities HR and the business. By equipping line unanswered the means of fulfilling its and 49% of practitioners believe that managers with the skills and informa- potential. For those who like to rise to a line managers will have more responsi- tion to proactively manage their own challenge, has there ever been a better bility. Such an approach, while perhaps teams and reports, the HR function per- time to be a HR practitioner? in contrast to the more traditional focus meates and extends throughout the on the development of ‘management organisation in a far more meaningful populations’ is likely to see greater Four Groups Ltd 5 St. Johns Lane London EC1M 4BH, United Kingdom Tel: +44 (0) 20 7250 4779 Email: contact@fourgroups.com www.fourgroups.com © 2008 Four Groups Ltd, 5 St. Johns Lane London EC1M 4BH, United Kingdom. All rights reserved. No part of this document may be reproduced without Company Number: 4650494 express written permission from Four Groups Ltd. VAT Number: 817 7962 85 Registered in England and Wales
  • 6. HR - Boom or Bust? Footnotes and references Coopers, 2008 25. The people problem in talent man- agement, McKinsey Quarterly, May 1. At the time of writing, October 2008, 10. ibid 2006 the effects of the credit crunch, poten- tial recession and the need for govern- 11. http://tinyurl.com/4h8xzm - 26. http://tinyurl.com/3kybfv ments to provide financial support to Registration required banks makes it difficult to be optimistic 27. Aligned at the Top. How business about future economic conditions. That 12. http://tinyurl.com/442wo3 and HR executives view today’s most said, the trends and observations with- significant people challenges - and in this article are likely to endure and in 13. Making talent a strategic priority, what they’re doing about it, Deloitte some circumstances, increase in signifi- McKinsey Quarterly, January 2008 Touche Tohmatsu, May 2007 cance. 14. Managing tomorrow's people: The 28. ibid 2. Managing People in a Changing future of work to 2020. Price World, Key Trends in Human Capital, A Waterhouse Coopers, 2008 29. http://tinyurl.com/477e7a Global Perspective. Price Waterhouse Coopers, 2008 15. ibid 30. Jeffrey Pfeffer , 1997. Pitfalls on the road to measurement: The dangerous 3. The organizational challenges of 16. http://tinyurl.com/4tu2r9 liaison of human resources with the global trends: A McKinsey Global ideas of accounting and finance. Human Survey, December 2007 17. http://tinyurl.com/5g8l4e - Start Resource Management, Volume 36 the video from 47:05 for relevant seg- Issue 3, Pages 357 - 365 4. Talent Management Application ment Suites Can Enhance Workforce 31. http://tinyurl.com/4wzgn8 Effectiveness, Gartner, June 2005 18. http://tinyurl.com/3rstnn 32. http://tinyurl.com/3nzhua 5. CAGR – Compound Annual Growth 19. Managing People in a Changing Rate World, Key Trends in Human Capital, A 33. http://tinyurl.com/4rfo4r Global Perspective. Price Waterhouse 6. http://tinyurl.com/3nm2h2 Coopers, 2008 34. http://tinyurl.com/43judx 7. http://tinyurl.com/47movd 20. Managing People in a Changing 35. CIPD Learning and Development World, Key Trends in Human Capital, A Survey, April 2008 8. While salary rises and market growth Global Perspective. Price Waterhouse is undoubtedly positive, it is unknown Coopers, 2008 36. ibid how much of this for the development of HR practice and how much is due to 21. http://tinyurl.com/4bmknl 37. http://tinyurl.com/4lfl35 companies needing to reduce head- count. Given that GDP growth in 2007 22. http://tinyurl.com/3sz45b - Start was 3.1% and is currently at 1.4% for the audio from 18:19 for the relevant 2008, assuming the former would not segment be unreasonable. 23. http://tinyurl.com/3evgt8 9. Managing People in a Changing World, Key Trends in Human Capital, A 24. http://tinyurl.com/45vt2u Global Perspective. Price Waterhouse