21st Century HR by Dave Olrich

HR departments are increasingly ex-pected to operate as a businesswithin a business rather than as adisconnected and isolated set of HRpractices. As such, like any business,

HR departments (and other staff groups)must have a vision or strategy that defineswhere they are headed, a set of goals (objec-tives, outcomes, or deliverables) that focusthe priorities for the work and investmentsessential to carrying out this vision, and anorganization structure that allows HR to ac-complish these goals. We have discussedelsewhere that the emerging vision of an HRdepartment is, simply stated, to create value(Ulrich & Brockbank, 2005) for key stake-holders as follows:

• Employees have the right set of compe-tencies and are committed to the organ-ization and its goals.

• Line managers have increased confidencethat business strategies will be executed.

• External customers buy more productsor services resulting in greater loyaltyand customer share.

• Investor confidence leads to increases inmarket value through recognition of thecompany’s growth prospects as meas-ured by intangible shareholder value (Ul-rich & Smallwood, 2004).

• Communities in which organizationsparticipate have more confidence in theorganization’s ability to deliver on its so-cial responsibilities.

THE TWENTY-FIRST-CENTURY

HR ORGANIZATION

D A V E U L R I C H , J O N Y O U N G E R , A N D W A Y N E B R O C K B A N K

Like any value-creating staff function, HR departments should operate as abusiness within a business. Others have focused on the strategy and direc-tion of HR departments. This article examines the next evolution for how HRdepartment organization structure can deliver value based on two premises:(1) HR organization should be structurally aligned with the organizationstructure of the business and (2) because diversified/allied business modelsprevail, it is important to lay out the five roles and responsibilities of HR thatrespond to this organization model: service centers, corporate, centers of ex-pertise, embedded HR, and operational HR. The article lays out the duties ofeach role, the relationship among these roles, and suggestions for imple-menting this new HR structure. © 2008 Wiley Periodicals, Inc.

Correspondence to: Dave Ulrich, Partner, The RBL Group and professor of business, the Ross School of Business atthe University of Michigan, 1030 East 300 North, Alpine, UT 84004, Phone: (801) 756-3240, E-mail: [email protected].

Human Resource Management, Winter 2008, Vol. 47, No. 4, Pp. 829–850

© 2008 Wiley Periodicals, Inc.

Published online in Wiley InterScience (www.interscience.wiley.com).

DOI: 10.1002/hrm.20247

830 HUMAN RESOURCE MANAGEMENT, Winter 2008

The goals and outcomes of the HR de-partment have also been well documented.The value of HR’s contributions has tradi-tionally been measured by the quantity orcost of activities (e.g., how many people werehired in a given time period), the percentageof employees who annually received 40 hoursof training, or the financial cost of deliveringemployee benefits. Instead of focusing on therelatively easy-to-measure activities ofstaffing, training, or other functional opera-tions, HR departments are better assessed bythe outcomes created that support the com-

pany’s objectives. These outcomesgenerally may be defined as thecapabilities an organization re-quires for its strategy to succeedon a sustained basis (Ulrich &Smallwood, 2004). For example,organizations may require com-petitive superiority in speed tomarket (a consumer products firmbringing new products to market);collaboration (a firm growingthrough mergers and acquisi-tions); culture change (a firm try-ing to shift its firm brand to bemore connected with new cus-tomer expectations); efficiency (afirm competing on price); service(a firm working to deepen rela-tionships with key customers orgrow position in a new customersegment); innovation (a firmcompeting based on the creationof new products and services); ac-countability (a firm dedicated tomeeting deadlines); or leadershipbrand (a firm focused on building

confidence in the quality of its leaders andleadership as a competitive tool). These andother capabilities represent what the organi-zation is known for, and this identity may beenhanced because the HR practices arealigned with the desired capability. For exam-ple, alignment enables an organization’s ef-forts in recruitment, development, commu-nication, compensation, and work design tobe more effectively integrated around the ca-pabilities they are trying to deliver. Trackingand measuring an organization’s capabilities

shift the focus of HR from activities to out-comes. Capabilities become the HR deliver-ables that show up in employee value propo-sitions, investor intangibles, and firm brand.

With an HR vision of value and outcomesof capabilities, an HR department can nowturn its attention to how it can and shouldbe organized to deliver on this vision andreach these outcomes (Christensen, 2005).This article proposes alternatives for how toorganize an HR department so that the vi-sion of value and the outcomes of capabili-ties occur. To create an HR organization, wesuggest two basic premises. First, it should beorganized to mimic the business organiza-tion in which HR operates. Second, since theprevailing business organization for larger,multibusiness, and multigeographic compa-nies is what we term “Allied/Diversified,” anHR department operating within this formatshould reflect this business organizationstructure by adapting five roles and responsi-bilities. We conclude with implications forhow to manage the transition to implementthis next evolution in HR organization.

Premise 1 of the HR Organization:The HR Structure Should Reflect theBusiness Organization

As a business within a business, the HR or-ganization should be structured to reflect thestructure of the larger business. Business or-ganizations align with the strategies of thebusiness they support, and HR should followsuit.1 Companies typically organize along agrid of centralization-decentralization, whichleads to three basic ways in which a companyoperates (see Figure 1): holding company, al-lied/diversified organization, or single/func-tional business (Lawler & Galbraith, 1995).

Single/Functional Business

When the company is a single business, itcompetes by gaining leverage and focus.HR’s role in the single/functional business isto support that business focus in its peoplepractices. Generally, start-ups and smallcompanies have little or no HR staff. Until acompany has 50 to 75 employees, it hardly

Human Resource Management DOI: 10.1002/hrm

Instead of focusing

on the relatively

easy-to-measure

activities of staffing,

training, or other

functional

operations, HR

departments are

better assessed by

the outcomes they

create in support of

the company’s

objectives.

The Twenty-First-Century HR Organization 831

needs a full-time HR professional; a linemanager can usually handle required basicHR activities. As the business grows, so doesthe HR workload. The business eventuallyhires someone to oversee HR; set basic poli-cies and practices for hiring, training, andpaying employees; and perhaps also run theoffice and administrative side of the busi-ness. This HR generalist will normally be partof the management team and will be con-sulted on organization needs and changes.

As companies grow, HR departments andstaffs grow as well. But as long as the organ-ization remains primarily a single line ofbusiness, HR expertise most logically residesat corporate, establishing companywide poli-cies, with HR generalists implementing thesepolicies in the plants or divisions since thereis no meaningful differentiation between thebusiness and the corporation.

Herman Miller, for example, wasfounded in 1923 as a home furniture manu-

facturer and branched out into office furni-ture and ergonomics to become the world’ssecond-largest company in the field (Her-man Miller, 2007). It now employs morethan 6,000 people worldwide who work infunctional departments. Its HR departmenthas corporate specialists in recruitment, de-velopment, and compensation who designpolicies and practices that apply throughoutthe company. While leadership in definingHR policies comes from corporate special-ists, the responsibility for employee engage-ment rests with line managers, and local HRgeneralists tailor corporate policies to plantconditions and participate in employee-re-lated decisions.

Herman Miller is by no means the largestcompany to use this format. McDonald’s hasmore than 13,000 outlets in the UnitedStates alone and employs more than half amillion people. Most of its employees receivesimilar treatment because they are in rela-


FIGURE 1. Alignment of Business Organization and HR Organization


tively similar operations. The standardiza-tion and integration of services ensure effi-ciency, low cost, and consistency across thecompany, while the corporate HR specialistscreate policies that will work across the Mc-Donald’s enterprise to deliver the company’soverall strategic agenda.

In a single/functional business organiza-tion, a strong HR functional organizationusually makes the most sense. This meansidentifying staff specialists who can designHR practices that match the needs of thebusiness and deliver them to all corners of

the company. Employees whomove from site to site want tofind familiar terms and work con-ditions. Managers want to knowwhat is expected of them regard-less of where they work. HR pro-fessionals in local plants or opera-tions need a solid line to their HRhierarchy while supporting thebusiness leaders in these localplants or operation.

HR departments in single/functional business companiesare susceptible to the followingcommon mistakes:

• Hyperflexibility. Many HR professionalswant their work to be flexible, withunique HR systems and practices for theirunit rather than standardized, eventhough flexibility can do more harmthan good when the basic business issimilar across the organization. Flexibil-ity in HR should match diversity of busi-ness operations.

• Separating corporate and operating-unit HR.As single businesses expand, the increasingworkforce seems to generate a need for op-erating-unit HR specialists. Both corporateand operating units add HR staff, creatinga financial and administrative burden andleading to unnecessary proliferation andredundancy of HR practices.

• Isolation. Corporate staff specialists whodistance themselves from business real-ities respond slowly to businesschanges. Barricaded in corporate of-fices, they are at risk of designing HR

practices that worked in the past butnot for the future.

• Disintegration. Functional HR specialistsoften settle into silos that separate themfrom one another. When recommenda-tions for new HR policies and/or proce-dures come from separate specialties, itmay become difficult to weave the result-ing practices into a unified whole. Toomany companies hire based on one set ofcriteria, train based on a different set, andevaluate performance on yet a third. Then,their leaders wonder why employees lack acommon set of goals and objectives.

The HR functional organization suits asingle business strategy. It should not beabandoned in favor of the more popularshared service organization unless the struc-ture and strategy of the business mandatethe choice. We see only about 10% of largeorganizations following this functional or-ganization alignment.

Holding Company

A company composed of multiple, unre-lated, independently managed businesses isbest described as a holding company. Pureholding companies are rare (probably about10% of overall businesses), although we seesome resurgence of holding company struc-ture associated with the rise of large andwell-capitalized private equity and invest-ment firms such as Berkshire Hathaway andBlackstone. For example, Berkshire Hath-away owns or controls Dairy Queen, NetJets,GEICO Insurance, and Fruit of the Loom.Blackstone has such varied companies asCelanese, Houghton Mifflin, SouthernCross/NHP, SunGard Systems, TRW Automo-tive, and Vanguard Health Systems.

In a holding company, there is often lit-tle or no HR at a corporate level and little im-petus to implement HR. Each business is ex-pected to create and manage its ownautonomous HR practices based on the spe-cific needs of the business. Therefore, HR isembedded within the businesses. GEICO,Dairy Queen, and NetJets have HR depart-ments, but Berkshire Hathaway has no cor-

In a single/

functional business

organization, a

strong HR functional

organization usually

makes the most

sense.



porate HR. Realistically, as long as the corpo-ration is managed as a group of independentbusinesses tied together only by a commontreasury function (how investment fundingis raised) and perhaps investor relations (ifthe company is publicly traded), HR require-ments and the benefits of interaction amongsubsidiary HR groups are minimal. Even inthose cases where there is a corporate HRfunction, it is likely to be small and focusedprimarily on executive talent recruiting andmanaging executive compensation.

While each independent organizationmay work well, the corporate value is by def-inition no more (and often less) than thesum of the independent parts. If organizingHR for a holding company, the requirementis to embed dedicated HR departmentswithin business units and ensure they are ap-propriately focused and well led. Here aresome of the common mistakes to avoid:

• Corporate interference. A true holdingcompany should have limited corporateinvolvement in the HR work done at thebusiness-unit level. Corporate should setgeneral directions and philosophy, butHR policies, practices, and priorities be-long to the business units.

• Lack of sharing. Diverse business unitsfind it easy to slide from autonomy intoisolation. In the absence of a business im-perative for coordination, HR leaders andprofessionals need to make extra effortsto stay in touch with one another, shar-ing lessons through learning communi-ties, technology, or other forums. With-out a corporate HR function to host andsponsor such meetings, HR departmentswithin independent businesses need totake extra efforts to avoid the “out ofsight, out of mind” trap.

• Repatenting the wheel. Even when busi-ness-unit HR departments are in touchwith one another, they often prefer to de-velop programs on their own. In theholding company context, the “not in-vented here” syndrome is especially aliveand well, and many professionals are re-luctant to utilize programs they did notcreate. Business HR units in holding

companies should consider some form ofregular communication that facilitatescoordination in areas when unique busi-ness solutions are not needed.

• Linearity. We strongly advocate HR focus-ing on the needs of the business. A dangerfor HR professionals in holding companiesis that they may become overly focused onthe short-term needs of the business andmay overlook long-term business implica-tions of HR’s involvement and potentialfor contribution. HR must notonly focus on those issues cen-tral to market share growthand short-term profitability,but must also ensure that thebusiness is operating within along-term vision and strategyand is complying with regula-tory mandates such as affirma-tive action, disability issues,Sarbanes-Oxley, and labor law.

While relatively few trueholding companies exist, thecloser a firm comes to that model,the more its HR work needs to belocated in dedicated business-unitoperations.

Allied/DiversifiedBusinesses

The choice between functionaland dedicated HR is often put asan either/or question: HR existseither at corporate or business-unit levels; iscentralized or decentralized; efficient or ef-fective; standardized or flexible. Businessunits have similar or dissimilar HR practices:the flow of decision making and operationalinfluence is top-down or bottom-up, and soforth. In the kind of reorganization that onlylooks like progress in aligning the structurewith business requirements, companiesoften shift from one extreme structural con-figuration to another, not realizing that thekey requirement is not the appearance ofstructural improvement per se but, rather, or-ganizing to reflect the requirements of thebusiness organization.

In a holding

company, there is

often little or no HR

at a corporate level

and little impetus to

implement HR. Each

business is

expected to create

and manage its own

autonomous HR

practices based on

the specific needs

of the business.



Most large companies are not pure andsingle businesses and do not operate as hold-ing companies. They lie somewhere in be-tween, either in related or unrelated spectraof diversification. They create operatingunits or business units to compete in differ-ent markets yet try to find and exploit thesynergies among them. The best of these or-ganizations align their portfolio of busi-nesses around a core set of strategic capabili-ties that are leveraged across operations.General Electric is an exemplar of the diver-sified/allied model. For these business organ-izations, a relatively new way to organize HRresources has emerged called shared services(Bergeron, 2003; Ulrich, 1995). From a dis-

tance, shared services looks a lot like central-ization, but it is not. Table I points out someof the ways functional HR, shared services,and dedicated HR differ from one another.

Shared services became popular amongmost staff groups, not just HR, beginning inthe late 1990s as a response to general costpressures. Staff leaders could not simplychoose the cheapest and most efficient ap-proach—centralize and standardize allprocesses—because centralized staff workcannot keep up with the differentiated needsof units within a diversified/allied business.For example, the different businesses withinIBM gain leverage from a common approachto talent and performance management, but


Dimension Functional Shared Services Dedicated

Business • Single business • Related or unrelated • Holding companyorganization diversification

Design of HR • Performed by corporate • Alternatives created by • Designed and delivered by policies functional specialists specialists in centers of functional specialists within a

expertise business

Implementation • Governed by corporate • Governed by local HR • Governed by local HR of HR practices specialists professionals who select specialists embedded in the

options from center of businessexpertise menu

Accountability • Corporate HR • Split between operations • Local business leaderand HR

Services • Standardized services • Tailored to business needs • Unique services for each orientation across the corporation with consistency through business

learning and sharing

Flexibility • Mandates use of internal • Has flexibility as governed • Each business creates what is resources by the centers of expertise required

Chargebacks • Business units pay an • Business units pay for use • Business units fund their ownallocation of HR costs of service HR costs

Location • Strong corporate • Wherever it makes sense • Small (or no) corporate HR presence with HR office, with HR staff at the generalists on site local business level

Skill • Technically expert in • Design expertise but also • Business expertise and requirements functional design consulting and support technical specialty in businessfor HR and delivery

Wealth creation • Corporate shareholder • HR value creation for line • Business-unit growth criteria value managers, employees, and profitability

customers, and investors

T A B L E I Functional HR, Shared Services, and Dedicated HR


they require different HR solutions in areassuch as compensation where competitivepressures are distinct and different across sec-tors. Hence, in a number of areas, businessconsulting—a major and growing commer-cial focus of IBM—has very different needsfrom the company’s hardware and softwaredivisions, its IT services business, or its R&Doperations. In a world where corporategrowth and industry consolidation lead tothe increased presence of diversified/alliedorganization structures, shared services hasbecome a useful means by which organiza-tions balance the efficiencies of centraliza-tion with the flexibility required for compet-ing in different markets and/or geographies.

Premise 2 of the HR Organization:To Respond to PrevailingDiversified/Allied Business Models,HR Work Can Be Divided Into FiveRoles and Responsibilities

The HR organization is positioned to createvalue and deliver strategically relevant or-ganization capabilities when it reflects thestructure of the business. This leads to ques-

tions about how to specifically organize anHR department to fulfill these needs. Figure2 shows an overview of the HR organizationthat facilitates the achievement of these twofundamental ends: value creation and capa-bility enhancement. As the figure illustrates,the evolving HR organization has five dis-tinct and, at times, overlapping roles and re-sponsibilities. These are discussed in the sec-tions that follow.

HR Role and Responsibility 1:Service Centers

Service centers emerged in the late 1990s asHR leaders (and other functional organiza-tions such as purchasing) realized that manyadministrative tasks are more efficiently per-formed in a centralized, standardized way(Reilly, 2000; Ulrich, 1995). The maturation ofinformation technology has also contributedto the growth of service centers and the abil-ity to locate them in lower-cost geographies(e.g., India, Eastern Europe). There is no reallimit to centralization. As one HR executivesaid, “If we move the HR work 400 yards, wemight as well move it 3,000 miles.” It works


FIGURE 2. Overview of the HR Organization


because employees are increasingly willing tofind answers to routine, standard questionsthrough a service center. Technology enablesthese centers to access employees and meetbasic transactional needs as well or betterthan other methods.

Service centers enjoy economies of scale,meeting employee needs and resolving con-cerns by fewer dedicated HR resources. In ad-dition, service centers require a standardiza-

tion of HR processes, thusreducing redundancy and dupli-cation. For example, a global oilservices firm had more than tenseparate ways to register for train-ing; its new service center createda single, standard procedure thatincreased efficiency and reducedcosts. Because of technology,service centers can also be accessi-ble 24 hours a day, 7 days a week,from inside or outside the com-pany. This enhances the servicelevel to employees and retirees.

Service centers offer new ways to do tra-ditional HR work such as employee assistanceprograms, relocation administration, benefitsclaims processing, pension plan enrollmentand administration, applicant tracking, pay-roll, and learning administration. Employee-related transactional processes need to be per-formed well; performed poorly they have thepotential to damage employee morale anddestroy HR’s reputation. (As one HR execu-tive pointed out, “If we drop the ball on pay-ing people, we will have a very difficult timerecovering.”) But it is work that we think ofas “table stakes,” work that must be done tobe in the game but certainly not work that isthe basis of winning the game. HR organiza-tions are increasingly addressing their trans-actional needs primarily through technology-enabled employee self-service and throughoutsourcing. We review the trends and chal-lenges of each in turn.

Service Centers Through Technology-Enabled Employee Self-Service

Properly designed technology enables em-ployees to manage much of their own HR ad-

ministrative work. The popular emergingterm for this trend is self-service. They can ac-cess HR policy and usage, such as vacationdays allotted, and take retirement provisions,such as 401(k) status; career opportunitiesand qualifications; and their own skill levels(via self-assessment surveys). They can alsotake care of many routine transactionswhenever they wish, because automated sys-tems don’t keep office hours. For example,many consulting firms have built their busi-ness on HR shared services, designing anddelivering an array of HR technologies (De-loitte Consulting, 2006; Mercer Human Re-source Consulting, 2008).

We estimate that employees themselvescan answer 60% of their HR questions ortransactions (e.g., 401(k) investmentchoices) online. If they feel uncomfortablewith the online service or have an unusualissue, they can contact a service center. Cus-tomer service representatives at service cen-ters can usually deal with about 85% of theremaining queries. A case manager respondsto the remaining 15 percent. Some estimatesof the cost savings of these tiered solutionsare as high as 50% of HR transaction costs(McRae, 2003).

Relying on technology to perform HRtransactions offers a number of benefits.First, it requires standardized HR practices,which avoids duplication, reduces costs, andensures consistency. Since employees can ac-cess HR transactions at their convenience,their perception of service quality also in-creases. In addition, accuracy improves be-cause employees update and modify theirown records. As a result, managers have ac-cess to personnel information (such as train-ing and salary history) and are often able tomake better decisions about personnel-re-lated matters. As technology-based solutionsto routine HR administration increase, a fewtrends are worth considering—and someemerging pitfalls are well worth avoiding(Lawler, Ulrich, Fitz-Enz, & Madden, 2003).

• Building from scratch or excessive cus-tomization. Companies often regardthemselves as unique, but it is best toavoid designing and implementing a

Properly designed

technology enables

employees to

manage much of

their own HR

administrative work.



unique HR data portal and service or tosignificantly customize one. One com-pany spent thousands of hours creatingits unique human resources informationtechnology (HRIT) system only to findthat it did not match the capabilities ofavailable marketplace systems. There aremany effective HRIT products on themarket, and adapting one of them ismuch simpler and less expensive thanbuilding something new or massivelycustomizing a purchased system.

• Believing that channel is content. Occasion-ally, IT specialists become more enam-ored with the design and implementa-tion of their technology than with thebusiness success that they should be try-ing to create. This was a fundamentalcause in the dot-com boom and bust ofthe late 1990s. They fail to rememberthat information technology is a channelfor providing and disseminating infor-mation, but the information itself ulti-mately drives business performance.They need to maintain their businessfocus and not just their technologyfocus.

• Forgetting the importance of the employee re-lationship. The employee’s goal for manyHR transactions is to finish as quicklyand easily as possible. Nonetheless, HR isnot like retail banking where customershappily manage transactions by ATMand do not want a personal relationshipwith the bank. It is more like investmentbanking where relationships still offerthe best long-term approach to customershare. Relationship HR, designed to buildloyalty between individual employeesand the firm, likewise offers the bestlong-term approach to employee care.

• Data without insight. One clear benefit ofself-service is the ability to collect dataon trends and needs. For example, know-ing the differences between how manyyounger and older employees use e-learn-ing can help in planning and employeecommunication. But data does not im-prove decision making unless it is used.Data that is warehoused in files andnever fully deployed might as well not

exist. Good business decisions start withgood questions that require managerialinsight and foresight; then, data col-lected through technology-based self-service can be used to assess alternativesand test hypotheses.

• Intrusiveness. Concerns over privacy con-tinue to be a major challenge. The moredata accumulates, the more the firmknows about the employee, and theharder it is to keep the data secure. Asuseful and convenient as 24/7 access toemployee data can be, it blursthe boundaries between workand social life. While eachemployee needs to find waysto manage this balance, tech-nology may become increas-ingly intrusive and inhibitwork-life balance that helps togive employees purpose andmeaning at work and athome.

Even with these concerns andchallenges, technology will in-creasingly be used to facilitateemployee transactions. As thetechnology becomes more user-friendly and accessible, it will helpemployees manage their personalcareers and will help leaders useemployee data and resources toproduce value for the company.

Service Centers ThroughOutsourcing

As we pointed out earlier, organizations aretaking two distinct approaches to dealingwith routine transactional HR tasks. The pre-ceding section describes how organizationsinsource HR transactions through technol-ogy-enabled self-service. Other firms use out-sourcing.

Outsourcing draws on the premise thatknowledge is an asset that may be accessedwithout ownership. HR expertise can beshared across boundaries by alliances inwhich two or more firms create a commonservice or by outright purchase from vendors

As the technology

becomes more user-

friendly and

accessible, it will

help employees

manage their

personal careers

and leaders use

employee data and

resources to

produce value for

the company.



who specialize in offering services (Cook,1999; Scott-Jackson, Newham, & Gurney,2005).

Vendors take advantage of economiesof knowledge and scale. Economy ofknowledge allows them to keep up with thelatest research on HR issues and with thelatest technology to offer transaction sup-port that accesses the most recent ideas andis delivered in the most efficient way.Economies of scale make it possible to in-

vest in facilities and technolo-gies beyond what is realistic fora single company. Firms such asHewitt, Accenture, and TowersPerrin are therefore able to offerbundles of HR services with thegoal of moving client companiesaway from the traditional idea ofoutsourcing to multiple ven-dors—one for staffing, anotherfor training, another for com-pensation, and so on—all takingsomewhat different approachesto their work.

Companies using HR out-sourcing increasingly seek integrated solu-tions rather than isolated practices. For ex-ample, HR systems can identify the skillsrequired in hiring for certain jobs and thenuse these skills to source and screen talent.When considered as an integrated solution,the skill requirements can also be appliedto training, compensation, and job assign-ments. Integrated solutions require ven-dors with expertise in multiple HR practiceareas. BP, Prudential, Bank of America, andothers have pioneered the outsourcing ofHR transactions (Lawler et al., 2003).Though outsourcing on this scale is toonew for results to be definitive, these firmshave experienced several potential benefitsof outsourcing:

• Cost savings. Savings have been in the20 to 25% range—a substantial amountfor large companies, which spend anaverage of $1,600 per employee, per yearon administration. Firms with 10,000employees, for example, could estimatesaving $3,200,000 per year (20%

of $1,600 per employee × 10,000 em-ployees).

• Standardization. Outsourcing requiresconsistent HR transactions. Many largefirms have grown through mergers andacquisitions, accumulating diverse HRsystems. Simply contracting out thiswork forces a level of consistency thatmight have taken years to accomplish in-ternally.

• Increased speed and quality of service. As wementioned, outsourcing vendors gener-ally rely on technology and have theeconomies of scale to stay up to datewith new developments that continu-ously improve their services. Employeesoften perceive service as actually improv-ing with effective outsourcing.

• HR focus. Outsourcing enables HR pro-fessionals to focus on more strategicwork. Thus, outsourcing increases thelikelihood that HR professionals will be-come more strategic in thought and ac-tion.

These benefits need to be analyzed overa longer period to assure the value of out-sourcing. Nonetheless, while early indica-tors suggest that outsourcing offers positivereturns, exist risks and pitfalls as well:

• Picking the wrong vendor. As with any newbusiness, not everyone who offers theservice is really able to deliver excellentwork, keep up with the volume, and en-sure continuity of service. However, itseems likely that increasing competitionwill winnow vendors to those who canmeet these criteria.

• Unbalanced contracts. The contract be-tween the outsourcing provider and theorganization may be skewed toward oneparty or the other, and contractual termsmay make dispute resolution difficult. Itis essential to specify current and desiredservice levels in mutually agreeableterms, outline a procedure for disputeresolution that both parties find fair andequitable, and include incentives for per-formance for the vendor and cooperationfor the company.

Companies using

HR outsourcing

increasingly seek

integrated solutions

rather than isolated

practices.



• Lack of change management. The change-over from internal to external vendors isoften difficult, time-consuming, prone toearly errors, and therefore upsetting toemployees, line managers, and HR pro-fessionals. While some confusion is in-evitable, change processes that plan foralternative scenarios, engage employeesand other affected parties in the process,and learn from self-correcting systemsare important in increasing the probabil-ity of successful change.

• Sprawling efficiency. Outsourcing firmsthat want to expand their revenuessometimes do so by convincing a linemanager who has an antiquated view ofHR that the outsourcing firm should takeover all of the HR functions and designand implement them against the primarycriterion of transactional efficiency in-stead of business sensitivity. Such think-ing moves HR back a generation whenwe saw ourselves as a cost to be reducedinstead of partners who drive the busi-ness. Internal HR professionals should beon guard for this tendency among someHR outsourcing firms.

• HR role conflict. Outsourcing changesHR’s role in the company. Employeeswho used to know who to see and how toget things done now have to rewire theirexpectations and work norms. HR profes-sionals who developed an identity andreputation based on effectively servingthe transactional needs of employees andmanagers now need to reorient them-selves to higher value-added activitiesand agendas.

• Loss of control. The firm surrenders con-trol of outsourced transactions—but theneed for the transactions will not di-minish. If outsourcing vendors havebusiness problems, they will dramati-cally affect the firm’s ability to relate toits employees.

Despite these risks, we believe large firmswill continue to outsource bundles of HRtransactions to increasingly viable vendors.Smaller firms will probably outsource dis-crete HR practices such as payroll and bene-

fits administration. Both types of outsourc-ing reflect the collaborative work acrossboundaries that will characterize the organi-zations of the future.

HR Role and Responsibility 2:Corporate HR

HR professionals who perform corporate HRroles address six important areas of needwithin the emerging HR organization, whichare discussed in the sections that follow:

• They create a consistent firmwide cultureface and identity.

• They shape the programs that imple-ment the CEO’s agenda.

• They ensure that all HR work donewithin the corporation is aligned to busi-ness goals.

• They arbitrate disputes be-tween centers of expertise andembedded HR.

• They take primary responsi-bility for nurturing corporate-level employees.

• They ensure HR professionaldevelopment.

First, corporate HR profession-als create a consistent culturalface and identity for the corpora-tion. No matter how diversifiedthe business strategy, a variety ofimportant external stakeholdersform broad relationships with theentire firm. Shareholders tend to care mainlyabout overall performance, and large cus-tomers who do considerable business withthe firm tend to engage with many differentdivisions. Likewise, the image of the entirefirm is often what attracts potential employ-ees to specific divisions. Corporate HR pro-fessionals build the firm’s culture and repu-tation by focusing on values and principles.Hewlett-Packard (HP), for example, has di-versified dramatically, but the guidance ofthe HP Way continues. A similar thing couldbe said for Johnson & Johnson and its credoof business values, or Takeda PharmaceuticalCompany and its philosophy of Takeda-ism.

Such thinking moves

HR back a

generation when we

saw ourselves as a

cost to be reduced

instead of partners

who drive the

business.



Line managers own the principles, but cor-porate HR architects institutionalize them. Ittakes more than publishing a set of values tomake them real. They have to be a guidingfactor used and reinforced consistently in in-teractions with shareholders, suppliers, cus-tomers, and employees.

Second, corporate HR professionals shapethe programs that implement the CEO’sagenda. Most CEOs have a corporate strate-gic agenda—for example, globalization,product innovation, customer service, or so-cial responsibility. Corporate HR profession-als are expected to convert this agenda into aplan for investment and action and build or-ganizational readiness to deliver this agendathrough a three-step process:

1. Determine what capabilities are requiredto deliver the strategy.

2. Choose HR practices from the flows ofpeople, performance management, infor-mation, and work that would best deliverthose capabilities.

3. Build an action plan for designing anddelivering those HR practicesthroughout the organization.

This action plan does not in-volve corporate HR in doing allthe work or even in refining allthe details. Instead, it will callon centers of expertise to createmenus of specific choices, em-bedded HR professionals to ap-propriately tailor solutions toeach business, and line man-agers to accomplish strategicgoals through the HR service.However, corporate HR ensuresthat the work is done well and co-ordinated effectively to achievethe goals.

Third, corporate HR has responsibility tomake sure that all HR work done within thecorporation is aligned with business goals.This means that corporate HR should notmandate business-unit initiatives since theyprobably do not understand the business-unitrealities as well as the embedded HR profes-sionals. But they should mandate a clear and

definitive linkage between business strategyand HR within the business units. Onemetaphor we have found helpful is to describecorporate HR as playing the role of devil’s ad-vocate for strategic HR, challenging the needfor both sameness and difference in HR prac-tices across operations and specific businesses.In addition, corporate HR should ensure thatbusiness-unit HR is involved in setting meas-urable objectives. They should also be activelyinvolved in facilitating the measurementprocess to eliminate the conflict-of-interestproblems that would occur in business-unitHR doing its own measurements.

Fourth, corporate HR professionals arbi-trate disputes between centers of expertiseand embedded HR (HR professionals withinthe businesses or operations). The formernaturally lean toward consistency; the latterprefer flexibility and choice. Corporate HRwill not have a magic answer or uniform for-mula for deciding when to standardize prac-tices and when to vary them, but it can focuson value creation for multiple stakeholdersand shift HR practices to create that value ineach specific instance. We call this managingthe push (centers of expertise) and pull (em-bedded HR) that requires conversation and,at times, arbitration.

Fifth, corporate HR professionals take pri-mary responsibility for nurturing corporate-level employees—a role both like and unlikethat found elsewhere in the firm. Like all em-ployees, corporate employees should per-form their transaction HR work throughservice centers or technology. However,some corporate employees are unique in thattheir relationship with the firm is visible andsymbolic. Public reports of executive com-pensation, for example, require extra care toensure the right messages are communicatedto all internal and external stakeholders. Se-nior HR professionals also frequently playsignificant roles in coaching senior execu-tives, offering advice ranging from personalleadership style to dealing with key em-ployee transitions and succession issues toobservations and assistance in evolving thecorporate culture.

Finally, corporate HR is responsible forHR professional development. Too often, HR

…corporate HR has

responsibility to

make sure that all

HR work done

within the

corporation is

aligned with

business goals.



professionals are the cobbler’s barefoot chil-dren—designing learning experiences forothers, for example, while going without asimilar investment in their own develop-ment. HR corporate staff should help HRprofessionals grow, unlearn their old roles,and learn new ones. This may require hiringa new type of HR professional with newknowledge, skills, agendas, and aspirations.This may require moving established HR pro-fessionals to different roles and increasinginvestment in HR development and training.

HR Role and Responsibility 3:Embedded HR

In shared service organizations, some HRprofessionals work in organization units de-fined by geography, product line, or func-tions such as research and development orengineering. These HR professionals, whomwe call “embedded HR,” go by many titles:relationship managers, HR business partners,or HR generalists. Whatever their specifictitle, they work directly with line managersand each organizational unit leadershipteam to clarify strategy, perform organiza-tion audits, manage talent and organization,deliver supportive HR strategies, and leadtheir HR function (Brown et al., 2004). Em-bedded HR professionals play a number ofimportant roles that include the following:

• They engage in and support businessstrategy discussion.

• They represent employee interests andimplications of change.

• They define requirements to reach busi-ness goals and identify where problemsmay exist.

• They select and implement the HR prac-tices that are most appropriate to the de-livery of the business strategy.

• They measure and track performance tosee whether the HR investments made bythe business deliver the intended value.

In the first role, embedded HR profes-sionals engage in and support business strat-egy discussions, offering insights and help-ing leaders to identify where their

organization can and should invest resourcesto win new business ventures or increase ex-isting investments’ performance. Theyshould help to frame the process of businessstrategy development, should be proactive inproviding insights into business issues, andshould facilitate effective strategy develop-ment discussions within the man-agement team. From the resultsof the most recent HR compe-tency survey, this role reflects acompetency we have elsewherecalled the “strategic architect”(Ulrich, Brockbank, Johnson, &Younger, 2007).

In supporting strategic deci-sion making, HR professionalsalso represent employee interestsand highlight implications thatfollow from the inevitablechanges or developments as a re-sult of strategy decisions andchanges. For example, how muchof the workforce needs to be re-trained, reorganized, or resized?HR professionals help develop aclear strategic message that can becommunicated to employees andtranslated into action. In theprocess, they watch out for thetendency to groupthink, encour-aging everyone to participate andclearly valuing dissent while seek-ing consensus (Chartered Insti-tute of Personnel and Develop-ment [CIPD], 2005).

As strategies are being set, andonce they are established, embed-ded HR professionals are to auditthe organization to define what isrequired to reach the goals and where prob-lems may exist. Sometimes this is an infor-mal process whereby HR professionals reflecton and raise concerns about strategy deliv-ery. Other audits may involve a formal 360°to determine what capabilities are requiredand available given the strategy (Ulrich &Smallwood, 2004). These audits will help toidentify if the corporate culture on the insideis consistent with the culture required tomake customers happy on the outside. In

Embedded HR

professionals

engage in and

support business

strategy

discussions,

offering insights and

helping leaders to

identify where their

organization can

and should invest

resources to win

new business

ventures or increase

existing

investments’

performance.



doing these organization audits, embeddedHR professionals partner with line managersand collect data that lead to focused action.

Based on organization audit information,embedded HR professionals select and im-plement the HR practices most appropriateto delivering business strategy. In doing so,they are expected to bring their uniqueknowledge of the business and its people inselecting practices that add value, integrat-ing them to deliver capabilities, and se-quencing them to ensure implementation.Embedded HR professionals acquire guidance

and support from HR specialistswho reside in centers of expertiseand adapt both to the require-ments of the business. Thisprocess of accessing rather thanowning resources means that em-bedded HR professionals must beadept at influencing and workingcollaboratively with colleagues,because centers of expertise havecorporate agendas. They must beeffective at managing temporaryteams, and often multiple teams.

Finally, embedded HR profes-sionals measure and track per-formance to see whether the HRinvestments made by the busi-ness deliver their intended value.In essence, embedded HR profes-sionals diagnose what needs to bedone; broker resources to getthese things done; and monitorprogress to ensure things are ac-

complished.

HR Role and Responsibility 4:Centers of Expertise

Centers of expertise operate as specializedconsulting firms inside the organization. De-pending on the size of the enterprise, theymay be corporatewide or regional (e.g., Eu-rope) or country-based (e.g., Germany). Theyoften act like businesses that have multipleclients (business units) using their services.In some cases, a fee for use or a “chargeback”formula plus an overhead charge for basicservices may fund them. The financing of

centers of expertise is sometimes set to re-cover costs and, in other cases, is comparableto market pricing. Typically, businesses—through their embedded HR units—are di-rected to go to the center before contractingfor independent work from external ven-dors. If, in working with the center experts,the business decides to go to outside ven-dors, the new knowledge the vendors pro-vide is then added to the current menu foruse throughout the enterprise. Centers aredemand-pull operations—if businesses donot value their services, they will not con-tinue. Center of expertise HR professionalsplay a number of important roles:

• They create service menus aligned withthe capabilities driving business strategy.

• They diagnose needs and recommendservices most appropriate to the situa-tion.

• They collaborate with embedded HR pro-fessionals in selecting and implementingthe right services.

• They create new menu offerings if thecurrent offerings are insufficient.

• They manage the menu.• They shepherd the learning community

within the organization.

As internal design and process consult-ants, HR professionals in centers of expertisecreate menus of what can be done that arealigned with the capabilities driving busi-ness strategy. The menus are finite. Embed-ded HR professionals are expected to choosefrom these menus, which legitimizes the HRpractices in use companywide. Process ex-perts consult with embedded HR to helppick the options that best solve specific busi-ness problems.

This also points out the second role ofthe center of expertise HR professional—towork with embedded HR professionals toselect the right practice or intervention fora particular situation. For example, say anembedded HR generalist realizes the needfor a first-line supervisory training programin his/her organization. The center of ex-pertise should already have a menu ofchoices, perhaps including an in-house

As internal design

and process

consultants, HR

professionals in

centers of expertise

create menus of

what can be done

that are aligned with

the capabilities

driving business

strategy.



workshop, relationships with externallyprovided workshops (through consultantsor a local university), a video program, aself-paced computer learning exercise, a360° feedback exercise, and other develop-ment experiences. If a current menu doesn’texist, the design experts will assemble onebased on their knowledge of the field andthe company. A process expert takes thismenu to the embedded HR professional andhelps him or her diagnose the need and se-lect the services most appropriate for thebusiness and situation, offering advice onhow to implement the selected choices.

The embedded HR professional is re-sponsible for the selecting and implement-ing the right development experiences toimprove first-line supervision. However, asa third important role, the center is ex-pected to collaborate in making the selec-tion and in supporting the implementa-tion.

If the embedded HR and center expertagree that existing menu items are not suffi-cient, the design experts create new solu-tions that will then be added to the menu forthe enterprise. Hence, the fourth role is thecreation of new offerings when the currentslate is insufficient or inadequate for theneed. In many cases, the need for additionalmenu offerings will be prompted by a com-pany acquisition or decision to diversify andinvest in new businesses. For example, weearlier mentioned the growth of IBM intoglobal consulting services. As the organiza-tion shifted from products to services, newHR offerings were established to respond tothe need.

This points out the next role of the cen-ter of expertise—to manage the size andbreadth of the process or service menu. Ingeneral, the size of the menus will dependon the degree of business diversification. Inrelated diversification, the menus will besmaller, ensuring that different businessesuse similar management practices; in unre-lated diversification, the menus will belarger, allowing more flexibility. In allcases, there is an important need for thecenter of expertise to manage the bound-aries of what is helpful, acceptable, and

permitted. As a very simple example, alarge regional bank conducted an audit ofits training practices and discovered that 12distinct and different coaching programswere used in various parts of the organiza-tion. The center of expertise reduced thatnumber from 12 to one, with both a costbenefit to the organization (better con-tracting) and the creation of a commonlanguage and skill base in coaching.

Finally, centers of expertise also shepherdthe learning community within the enter-prise. They initiate learning when design ex-perts generate new ideas for themenu; then, process experts gen-eralize learning by sharing experi-ences across units. For example,they share the experiences of su-pervisory training from one unitto another so that each businessdoes not have to recreate its owntraining programs. The processexperts may transfer the learning,or they may have the requestingorganization unit communicatedirectly with those who have pre-viously done the work.

Centers of expertise provide anumber of very important bene-fits to the HR organization andcan be found in many companies.However, they also create a num-ber of risks that the HR leadershipteams need to manage:

• One size fits all. Center expertstend to fall into routines and push pro-grams that are familiar to them; left tothemselves, they may fail to adapt theirprograms to the needs of each business.It takes careful attention to the needs ofthe business and to state-of-the-art HRpractices in order to ensure that menuscontinue to evolve.

• Out of touch with reality. If center expertsisolate themselves from day-to-day busi-ness problems, their menus are apt tooffer solutions that are academically rig-orous but irrelevant to business needs.HR functional experts must bridge futureideas to present problems. They need to

If center experts

isolate themselves

from day-to-day

business problems,

their menus are apt

to offer solutions

that are

academically

rigorous but

irrelevant to

business needs.



turn theory and best practice into effec-tive action. The centers need to bringmore than a fixed menu. They need ex-pertise, knowledge base, and foresight toaddress specific issues (i.e., loss of talentin quickly and unpredictably developingmarkets such as China and India, for in-stance). Their work and contributionhave to be differentiated enough fromthe normal solution so that the “We havealready done this. What else can youbring?” syndrome does not emerge.

• Canned solutions. It is much easier to havea solution in search of a problemthan to design a solution for aproblem. Like independent con-sultants, center experts are oftentempted to craft single solutionsthat they sell to multiple busi-nesses. This is particularly truewhen centers service global oper-ations. Tailoring solutions to di-verse global markets requiresagility and thoughtfulness.• Not invented here. EmbeddedHR professionals who worry moreabout personal credibility thanimpact may be reluctant to usethe best practices proposed bycenter experts. If either center ex-perts or embedded HR profession-als declare themselves more im-portant to the business and are,therefore, now willing to learn

from each other, then the entire processfalters.

• Unquestioned authority. When businessunits are required to use the center, theexperts there find it easy to assume theunits are happy to do so. They need tomonitor their customer service scores asmeasured by embedded HR professionalsand pay attention to the response.

• Excess demand. Given that centers servemultiple businesses, demand can easilyexceed capacity, leaving neglected busi-nesses to flounder on their own or rein-vent the wheel on the fly.

• Seduction of power. In some HR functions,centers of expertise have had a tendencyto become a law unto themselves. That is,

instead of framing their role as consult-ants whose role it is to help embedded HRdrive business-unit agendas, they may beinclined to arrive in the business unitsbrandishing corporate authority and theintent to drive their functional agenda in-stead of the business units’ needs.

While none of these risks is insurmount-able, they indicate that centers will in-evitably evolve as they refine their approachto delivering HR resources.

HR Role and Responsibility 5:Operational Executors

A large number of HR departments have at-tempted to operationalize the above modelwith shared services (service centers and cen-ters of expertise) and embedded HR. Butmany of these departments are finding thatsome work continues to fall through thecracks (Reilly & Williams, 2006). In researchon the HR organization, Reilly, Tamkin, andBroughton (2007), under the auspices of theCIPD, surveyed 800 senior HR professionalsabout their experience with their HR organi-zation. Among their findings were:

The survey results bear out that intro-ducing shared services has producedboundary problems (identified by 55%of respondents), gaps in service provi-sion (42%) and communication diffi-culties (37%). Communication withthe rest of the function was a key prob-lem with centres of expertise (34%) andthe difficulty of separating out transac-tional work (45%) was even more of anissue. Similarly, “getting drawn into the‘wrong’ activities” was the number oneproblem with business partners.

While embedded HR professionals areasked and expected to be strategic and con-duct organization diagnosis, they often findthemselves overwhelmed by operational HRwork that conflicts with their main purpose.This renders them unable to make time to bestrategic. They report that they spend agrowing amount of time doing individual

Embedded HR

professionals who

worry more about

personal credibility

than impact may be

reluctant to use the

best practices

proposed by center

experts.



casework (e.g., handling disciplinary issues),performing operational tasks (e.g., setting upand attending recruiting interviews), doinganalysis and reporting (e.g., managing com-pensation reviews), delivering initiatives(e.g., creating development experiences), orimplementing business initiatives (e.g.,doing the analysis and execution for a neworganization structure). For example, Lau-rene Bentel (personal communication, No-vember 12, 2007), the VP of HR at TakedaPharmaceuticals North America points out,“The operational demands on our HR gener-alists make it extremely hard for them to re-main focused on their strategic agenda.”

Service centers typically do not performthese operational tasks because they requirepersonal attention; centers of expertise donot do them because they usually requiredeep and unique knowledge of the businessand strong internal business relationships.Line managers do not do them because theylack the technical expertise. Hence, embed-ded HR professionals feel drawn into this op-erational work by the volume of it, evenwhen they have the skills and self-confi-dence to be more strategic and are encour-aged to focus on their transformational role.

A second driver is the velocity of pro-gram change emanating from corporate HRor centers of expertise. Particularly in timesof corporate change and transformation, em-bedded HR professionals are expected tokeep up with a wide number of corporate ini-tiatives—from new measures and measure-ment to required corporate training andcommunication programs to new modifica-tions to the performance management anddevelopment system. As a result, many em-bedded HR people are encouraged to dostrategy by their line management but re-quired to do implementation by corporateHR. Some HR executives might be led to say,“We are asked to be business partners andstrategists, but we end up acting as ‘pairs ofhands’ for corporate HR.”

It is also the case that often these embed-ded HR professionals come from an imple-mentation background and lack the skill orself-confidence (or both) to comfortablyfunction at a more strategic level. For these

individuals, the urgency (and comfort) ofimmediate operational requirements out-weigh the importance (and developmentalinterest) of the more strategic future. Toooften HR professionals in centers of expertiseoffer insight and menus of choice, but theydo not facilitate or partner in the operationalimplementation of these ideas. Service cen-ters deal with administrative challenges, butthey, too, do not deal with implementationof new administrative systems and practicesat the business level.

What has been missing in some HR re-structurings is the capacity to de-liver and implement the ideasfrom the center, while maintain-ing focus on the business and itscustomers. While this work ide-ally occurs through an integratedteam (see Figure 2), someoneneeds to be charged with thisteam and how it works. We arefinding that companies are re-sponding to these missing imple-mentation requirements in differ-ent ways:

• One company established therole of junior business part-ners to be assigned to the HRgeneralists or business part-ners. These individuals wouldbe required to turn the strate-gic ideas into operationalpractice within the business.

• Another company created a team of HRoperational consultants who were as-signed to a business to help turn thestrategy into action. They were focusedon project work with an emphasis on im-plementing specific projects within thebusiness. The consulting pool had HRprofessionals who were gifted at makingHR initiatives happen, and it secondarilyserved as a preparatory and testingground for individuals slated as potentialincumbents for senior embedded HR pro-fessional roles.

• Another company uses a case advisorwho comes from the service center to fol-low through on employee requests.

What has been

missing in some HR

restructurings is the

capacity to deliver

and implement the

ideas from the

center, while

maintaining focus

on the business and

its customers.



The Kellogg Company offers an interest-ing example. As Kellogg transforms into atruly global foods company, there is a greaterneed for common practice in how people aredeveloped for succession management andfor the development of leadership compe-tencies. Thus, the centers of excellence de-liver a steady flow of innovative HR practiceswith the expectation that embedded HR

groups within business units willimplement them. But embeddedgroups are already extremely busymanaging the strategic and day-to-day requirements of their busi-ness units. Tensions have in-evitably arisen. At a recent offsitewith the HR leadership team, Kel-logg began to think through howit might establish an operationsHR unit that would provide sup-port to both the centers of expert-ise and to embedded HR units.

National City, a large regionalbank headquartered in Cleveland,Ohio, faced a similar challengeand has been a pioneer in the de-velopment of operational HR. Itssolution was to create a fifth legcalled the HR consulting pool.The consulting pool operates as ateam of high-performing mid-level HR professionals and ismanaged as a cohesive unit. Theunit reports to the head of re-gional (e.g., embedded) HR. Teammembers are deployed to assistjoint center and embedded HR

teams to implement solutions to importantHR projects—for example, to develop andimplement a strategy to reduce attrition incall centers run by the consumer bank. His-torically, center and embedded HR profes-sionals would have worked together to scopethe need but would not have had the re-sources to actually implement. Inevitably,the problem—while well defined—wouldnot be effectively addressed and would oftenbe delegated to line management, the worstpossible outcome. The operational HR poolsolves this problem and has been responsiblefor a number of important deliverables.

Each of these companies, and many oth-ers, are experimenting with how to solve thiscommon problem: how to make sure that HRimplements state-of-the-art strategies tailoredto the needs of the business. We call this anoperational executor role. These HR profes-sionals will be required to meld what thebusiness requires for success (driven by theembedded HR professionals) with innovativeand state-of–the-art HR practices (driven bythe centers of expertise) into an operationalplan that can be executed in a timely way.

There are some identifiable challengesfor organizations thinking of creating an op-erational HR capability that need to be ad-dressed to be successful. Our discussionswith HR leaders suggest the following factorsare particularly important.

Selecting the Right Individuals

Operational HR roles require a particular setof competencies. These roles are best for peo-ple who are execution- and implementation-oriented rather than focused on strategic re-lationships (embedded HR) or newknowledge creation (centers of expertise).However, operational HR roles can also be ex-cellent developmental opportunities for bothembedded and center professionals. In fact,HR departments with companies such as Kel-logg and National City consider success in anoperational HR role a necessary step in quali-fying for a more strategic role. We think that,over time, HR organizations will find that op-erational HR is best considered a mix of long-timers (people who like to do this work) androtational resources. The following indicatesthe skill sets that will be required of HR pro-fessionals in operational roles.

• Applying project management skills. Projectand implementation management skillsare crucial for operational HR profession-als. They will need team skills to bringtogether the relevant players to create op-erational results. They must quickly under-stand what is expected; bring together theembedded, business, and center HR profes-sionals in clarifying goals, roles, specific ac-tions, and measures; and make the

Each of these

companies, and

many others, are

experimenting with

how to solve this

common problem:

how to make sure

that HR implements

state-of-the-art

strategies tailored to

the needs of the

business. We call

this an operational

executor role.



changes happen. Some diagnostic skills arealso important; the structure of a projectplan must, for example, be cognizant ofsituational (and often political) dynamics,and mindful of other competing activities.Operational HR resources should not beseen as simply pairs of hands to imple-ment but rather as involved early in thedevelopment of solutions.

• Managing priorities and workloads.Choosing what projects are appropriatefor operational HR is an importantprocess task. HR doesn’t have infinite re-sources, and it could be easy for HR touse its precious operational resources onlower-priority work that other HR pro-fessionals do not want to do. This wouldbe a mistake and would both trivializethe operational HR work and opera-tional HR resources. As a result, these re-sources would leave. It would also be amistake to employ operational HR re-sources for implementation when theinvolvement of line leaders and employ-ees builds commitment to the goals ofthe intervention.

• Maintain business focus. In all considera-tions, operational HR must maintain anunrelenting focus on a business logicthat is consistent with the logic of thecorporate business portfolio. Regardlessof whether the corporation is a singlebusiness unit, diversified, or a holdingcompany, HR should maintain its focuson making the corporate business logicsuccessful.

• Getting the structure right. Organizationsare trying out different structures for op-erational HR. Sometimes they are a dis-tinct unit (National City), other timesthey are distributed in embedded HR asjunior professionals (Nestlé, Takeda Phar-maceutical Company) or in centers of ex-pertise (Royal Bank of Scotland). Smartorganizations have found ways to con-nect these resources to one another andprovide common training and team-building experiences.

• Measuring contribution. Because opera-tional HR is project- and implementa-tion-oriented, how performance is meas-

ured should also be project-based andimplementation-based.

This operational executor role will con-tinue to become clearer as HR professionalsensure that HR investments turn into capa-bilities that deliver on HR’s vision and goals.

Implications for HR Practice

For HR to be a successful business within thebusiness, it must have a clear strategy thatdelivers value. It must also have outcomesthat focus on the organization’stechnical and organizational ca-pability requirements. We alsopropose that it must have an or-ganization that appropriately re-flects the business model andbusiness organization. In mostcases, the HR organization will re-quire responsibilities in five areas.

As HR leaders gain commit-ment to a value proposition forHR contribution, they often real-ize the need to reshape their or-ganization to deliver value totheir multiple stakeholders. Whileeach HR reorganization is likely tocontain unique dynamics, the fol-lowing steps generally occur overa three- to five-year period:

1. Diagnose the business strategyand organization. HR leadersneed to make sure they understand themodel of the business they support(holding company, allied/diversified, orsingle business). Also, HR leaders mustunderstand how the business organiza-tion matches with its vision and strategy.

2. Align HR and business organization struc-tures. Make sure you align your HR organ-ization with your business organization.Do not fall prey to modern HR practicesjust because others are doing them.

3. Differentiate transaction and transforma-tion work. Realize that both transactionand transformation work are important,but they are two different types of work.Ensure that you appreciate that these two

As HR leaders gain

commitment to a

value proposition for

HR contribution,

they often realize

the need to reshape

their organization to

deliver value to their

multiple

stakeholders.



types of work need to be managed differ-ently. With transaction work, the goal isefficiency through standardization, au-tomation, and consolidation. In contrast,transformation work has greater per-formance impact; is likely to be nonrou-tine; needs to be focused on stakeholderrequirements; and should have the flexi-bility to meet and exceed all stakehold-ers’ expectations.

4. Create a project team. Set up a projectteam that includes key stake-holders—line managers, HR pro-fessionals from corporate, busi-ness unit, and specialist staffs—plus external consultants, ifneeded, and charge it with creat-ing the business case for HRtransformation. Once that isdone, the team needs to fully layout the road map for transfor-mation, define roles and respon-sibilities in the new organiza-tion, implement the project, andmeasure success.

5. Build transaction efficiencies. The optionsfor transaction processing includeservice centers and call centers, tech-nology that enables employees to dotheir own HR work, and outsourcingtargeted or integrated HR actions to athird party.

6. Develop transformational effectiveness.Clearly define the roles and responsibili-ties for corporate, centers of expertise,embedded HR, and operational HR.Make sure that those who staff thoseroles have the competencies and com-mitment to do so.

7. Maintain balance. Work to maintain theoptimal balance between corporate,functional, and business-unit demands.Drive business growth through strategicHR while efficiently delivering HR serv-ices. Encourage the development of HRknowledge and skill while meeting themandate for business acumen on the partof HR professionals.

8. Monitor progress. Measures of successshould include HR costs, which can betracked from HR staff ratios and HR

budgets. But measures of success shouldalso include organization capabilitiesthat are the outcomes of HR and trackhow HR delivers on its vision of addingvalue.

When these steps are followed, the HRdepartment not only has strategies andgoals that deliver value, but also an organ-ization structure that reflects the businessthat it supports. As a result, the HR busi-ness within the business is positioned todeliver value.

Implications for HR Research

The ideas we have shared in this article re-flect that state of practice in designing HR or-ganization. But we also strongly believe thatmuch additional research can and should bedone to examine and refine these ideas.Some specific questions that merit researchinclude:

• Under what business conditions do dif-ferent ways of delivering HR impact onstakeholder performance (employees,customers, and investors)?

• What is the impact of alignment of theHR structure and business structure?

• Which HR structural configuration deliv-ers the best organizational capability atthe lowest cost?

• What are the competency requirementsof HR professionals who work in each ofthe five roles and responsibilities?

• What are the ways that these five rolesand responsibilities should interact witheach other?

• Are there important differences in HR or-ganization by industry? By company orbroader national economic maturity? Bygeographic region?

• What are the important dimensions ofchange management in implementingthis model? What seems to work best andwhen?

• How are structural solutions impacted byorganizational differences in HR compe-tence? What are the fundamental com-petence requirements? For HR organiza-

As HR departments

organize resources

that align with

business strategy

and structure, value

will be created.



tions with unusually high levels of pro-fessional competency, how is structureimpacted?

• What variations in this form of structureseem to create the strongest business-HRpartnership?

We are sure that these, and other, ques-tions will help evolve the ever-changing roleand responsibilities of the HR department.

As HR departments organize resources thatalign with business strategy and structure,value will be created.

Acknowledgments

Many of the ideas in this article were developedin The HR Value Proposition (Ulrich & Brock-bank, 2005). We appreciate comments fromDennis Shuler and Peter Reilly.


DAVE ULRICH is a professor of business at the Ross School of Business at the Universityof Michigan and a partner in the RBL Group. He has written a dozen books and more than100 articles on how HR departments, practices, and professionals can deliver value. Hehas consulted with more than half of the Fortune 200 and worked to establish HR as avalue-added profession.

JON YOUNGER is a partner in the RBL Group, a director of the RBL Institute, and leadsthe firm’s strategic HR practice. He was previously chief talent and learning officer of Na-tional City Corporation, a leading financial services organization. He has published in theHuman Resource Management Journal, Human Resource Planning, the Harvard Busi-ness Review, and other publications, and is a coauthor with Professors Ulrich, Brock-bank, and others of the HR Competencies: Mastery at the Intersection of People andBusiness (www.rbl.net). He consults widely with a broad range of leading companies.His PhD is from the University of Toronto.

WAYNE BROCKBANK is a partner in the RBL Group and clinical professor of business atthe Ross School of Business at the University of Michigan where he codirects the num-ber-one-rated senior HR executive programs. His research and consulting focus on link-ages between HR and business strategy and emerging high-value-added agendas of theHR profession. He has published widely in the Human Resource Management Journal,Human Resource Planning, and Personnel Administrator and is the coauthor with DaveUlrich of The HR Value Proposition. He consults in his areas of expertise with majorclients on every populated continent.

NOTE

1. We recognize that there are generally two types of“business strategy”: (1) corporate strategy fo-cuses more on the portfolio or mix of businessesand (2) business-unit strategy focuses on how aparticular business unit anticipates and servicescustomers to make money. Each view of strategyleads to business organization choices that thenlead HR organization choices.

REFERENCES

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Chartered Institute of Personnel and Development(CIPD). (2005). Why HR must seek to become abusiness partner. CIPD Impact Report. London:Author.

Christensen, R. (2005). Roadmap to strategic HR: Turn-ing a great idea into a business reality. New York:AMACOM/American Management Association.

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Reilly, P. (2000). HR shared services and the realign-ment of HR (IES Report 368). Brighton, UK: Insti-tute for Employment Studies.

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Reilly, P., & Williams, T. (2006). Strategic HR: Buildingthe capability to deliver. London: Gower Publish-ing.

Scott-Jackson, W., Newham, T., & Gurney, M. (2005).HR outsourcing: The key decisions (Executive brief-ing). London: Chartered Institute of Personnel andDevelopment.

Ulrich, D. (1995). Shared services: From vogue tovalue. Human Resource Planning, 18(3), 12–22.

Ulrich, D., & Brockbank, W. (2005). HR value proposi-tion. Boston: Harvard Business Press.

Ulrich, D., Brockbank, W., Johnson, D., & Younger, J.(2007). Human resource competencies: Respond-ing to increased expectations. Employment Rela-tions Today, 34(3), 1–12.

Ulrich, D., & Smallwood, N. (2004, June). Capitalizingyour capabilities. Harvard Business Review, pp.119–127.


Documents

21st Century HR by Dave Olrich