ARE WE THERE YET? What’s Next For HR

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Executive EducationEXECUTIVE WHITE PAPER SERIESARE WE THERE YET?What’s Next for HRDave Ulrich Professor, Stephen M. Ross School of Business, University of Michiganand Partner, the RBL GroupCopyright 2010 the RBL Group. Reprinted with permission.

Executive EducationEXECUTIVE WHITE PAPER SERIESARE WE THERE YET?What’s Next for HRDave Ulrich - Professor, Stephen M. Ross School of Business, University of Michigan, and Partner, the RBL GroupAnyone who has been on a trip with a child has heard the endlessquestion “Are we there yet?” At first, the question captures theexcitement of the child anticipating a new place. After awhile, thequestioning becomes exasperating and only adds to the length ofthe journey.Many in HR seem to be asking the same question, “Are wethere yet?” Too often, many in HR seek but never seem to arriveat their destination. Professional conferences continue to lamentHR more as an administrative service or compliance function thana business partner. Sometimes these lamentations only lengthenthe journey to HR credibility. Maybe HR’s aspiration for thefuture is less a specific destination that pinpoints when we havearrived and more a direction for aspiring HR professionals to helptheir organizations succeed. Most HR professionals have madeenormous progress in the last few decades in their professionalstature and contribution to business success. But the journeyahead should focus on the intent to deliver ongoing and increasing value, rather than striving for an end point when that value willbe realized. In the spirit of simplicity, let me suggest steps in thejourney ahead and discuss them accordingly:i1. One mega-message for HR’s direction:The creation of value.2: Two components of HR’s relationship to the business: Context: Understanding the changing business settingwhich redefines work. Stakeholders: Recognizing and serving both internal andexternal stakeholders who are the recipients of HR work.3: Three targets or outcomes of HR work: Individuals as evidenced through a formula for productivitywhich is competence * commitment * contribution. Organizations as defined by their capabilities more thantheir structures. Leaders whose thoughts and actions embody thefirm’s brand.4: Four domains of HR investments: HR departments where strategies and structures needto be designed to deliver value. HR practices which need to be aligned, integrated,and innovative. HR professionals who must have the competenciesto respond to future demands. HR analytics where HR investments can be trackedand monitored.The logic for HR’s future is simple. We begin with a direction: HRshould add value. This direction needs to be connected to thebusiness, both the business context which shapes decision makingand specific stakeholders around whom business strategies arecreated. Out of this context, HR defines targets for HR work:individual abilities (talent), organization capabilities (culture), andleadership. Finally, HR budget and people investments redefinethe HR organization that makes the above happen. But he simplelogic requires more detailed assessment to accomplish the journey. In this article, I want to propose “what’s next” in each of thesefour areas (see summary in Figure 1).1. One Mega-Message for HR’s Direction:The Creation of ValueIn seminars with HR professionals, I often start with a simplequestion, “What is the greatest challenge you face in your jobtoday?” Inevitably, the answers are around things like buildingcredibility with my line managers, managing the flow of talent(bringing in new people, matching people to jobs, or removingpeople), handling employee grievances, managing HR costsefficiently, and so forth.My sense is that many of these appropriate responses need tomove forward. I suggest that the HR profession has been throughthree general waves (see Figure 2). Wave 1 was the administrativework of HR, where HR focused on terms and conditions of work,delivering HR services, and working on regulatory compliance.i The frameworks and ideas in this monograph represent my view of the future of HR but are drawn from collaborations and conversations with my partners at theUniversity of Michigan and in the RBL Group (, Wayne Brockbank, Norm Smallwood, and Jon Younger. In addition, I have drawn extensively on ideasfrom consulting and academic thought leaders as summarized in the Appendix.

ARE WE THERE YET? What’s Next for HREXECUTIVE WHITE PAPER SERIESFigure 1: Overview of What’s Next for HRIssueWhere We’ve BeenWhere We Are Going1: HR megamessageHR from the inside/out:Administer HR;Redesign HR practices;Link HR to strategyHR from the outside/in:Use HR to create value inside with employees and organizations and outsidewith customers, investors, and communities2: HR’s relationship to thebusinessUse HR to drive internal efficiencyUnderstand business context;Define HR value outside/in, through eyes of customers and investors3: HR’s targetsor outcomesHR builds talent and improvesemployee resultsIncrease employee productivity (competence * commitment * contribution);Improve organization capabilities (culture or processes);Ensure leadership as a brand throughout the organization4: Domains forHR investmentsRestructure HR departments:Seek the latest HR structural fadBuild HR departments as if they are a professional service organization withintheir organizationReengineer HR practices:Seek best practices;Offer piecemeal HR solutionsOffer aligned, integrated, and innovate HR practices around people, performance, information, and workUpgrade HR professionals:Ad hoc investment in HR careersEnsure that HR professionals have the right competencies to deliver value andbuild HR careerTrack or measure HR progress:Measure what is easy and oftenactivity-basedCreate HR analytics focused on the right issuesWave 2 was the design of innovative HR practices in sourcing,compensation or rewards, learning, communication, and so forth.Wave 3 has been the connection of these practices to businesssuccess through strategic HR. Wave 4, which is emerging, is usingHR practices to respond to and create value based on externalbusiness conditions.I also like to pose a second “so that” question that moves us fromconnecting HR to the business (Wave 3 in Figure 2) to connecting HR to the broader business context in which business operates: My challenge is to build credibility with my line managers sothat we can make better investments that help the business reachits goals so that we can anticipate and respond to external business conditions and deliver value to customers and investors.Many of the responses I get to my query, “What is your biggestchallenge?” target Waves 1 and 2. HR professionals are consumedwith the hurdles they immediately face in doing the HR workitself. These are legitimate and relevant concerns. In recent conversations, a number of senior HR executives have shared with methat HR has forgotten these basics, and without doing the basicswell, the aspirations of business contribution remain unrealizeddreams.By doing the two “so that” queries, HR professionals shift froman inside/out to an outside/in approach to HR work. In a recentseminar, a participant said the “outside/in” approach is new, butnot really a dramatic shift in HR thinking. I believe she missed thepoint. HR from the outside/in is a seismic shift in how HR thinksand acts. We no longer create value just by serving employees;we must also make sure that services we offer inside the companyalign to expectations outside the company. For example, we wantto be the employer of choice of employees our customers wouldchoose. We want to build on our strengths that will strengthen others. Every HR practice can be transformed by seeing thevalue that it creates for those outside the company. This positionsHR not just to respond to strategy, but also to help shape andcreate it.I advocate a simple two-word question that moves HR forward:“so that.” My challenge is to build credibility with my line managers so that we can make better investments that help the businessreach its goals. The “so that” question pushes HR professionalsto see the outcome of their work, not just the work itself, movingfrom waves 1 and 2 to 3 and eventually 4. 3 Stephen M. Ross School of BusinessExecutive Education

ARE WE THERE YET? What’s Next for HREXECUTIVE WHITE PAPER SERIESFigure 2: HR evolution and mega messageWave 4HR and ContextHR EvolutionWave 3HR StrategyWave 2HR PracticesWave 1HR AdministrationTimeDefining value with an outside/in approach starts when HR professionals understand their business context and key stakeholders.He knew that local leaders had both insights and accountabilityfor work in their country, but he felt a responsibility to help themby understanding the context in which they did business.We developed a STEPED framework which captures the businesscontext that he could pay attention to in each country(see Figure 3). It includes:2. Two Components of HR’s Relationship to theBusiness: Context and StakeholdersA number of entrepreneurs have asked my opinion about theirbusiness. Inevitably, they are excited about their new product orservice. They often have invested much of their personal wealthand energy to design and deliver their product. I almost alwaysrespond with two simple questions: [1] What are the generalproblems you are trying to solve, and [2] Who are your targetedcustomers who will buy your products or services? Too oftenentrepreneurs cannot completely answer these questions becausethey are so excited by their product that they are blinded toexternal realities. Likewise, HR professionals need to approachtheir work from the outside/in and deliver value by understandingthe business context for their organization and by identifying andserving specific stakeholders. Social Trends: health care, lifestyle, and family patterns Technological Trends: access to and use of the intern Economic Trends: inflation, recession, and key industries Political Trends: elections, regulatory requirements,and political stability Environmental Trends: issues around sustainability Demographic Trends: age, education, race,gender, income issuesWhen leaders have a working knowledge of these STEPEDissues, they can oversee and guide decisions that affect thatmarket. These STEPED issues redefine the nature of what workwill be and how work will be done.1Business ContextA senior business leader with responsibility for over 100 countriesasked me in a coaching session how to better understand thecontext for how his business operated in each of these countries.Likewise, HR professionals should be aware of how these externalbusiness factors impact their organizations and the work of HR. 4 Stephen M. Ross School of BusinessExecutive Education

ARE WE THERE YET? What’s Next for HREXECUTIVE WHITE PAPER SERIESFigure 3: STEPEDCategory STEPEDQuestions to askSocial What are health patterns (physical, emotional)?What are family patterns (married, not married, divorced, # of children)?What are religious trends (heritage, activity)?What is urban/rural mix and movement?What is life style (workday, weekends, dominant hobbies)?What is home ownership (apartment, home)?What are the social problems (e.g., drugs, crime)?Who are the heroes or famous people from this area (past and present)?What are the diet and eating patterns?Technical What are their communication mechanisms (media, television) and how independent are they? What is level of technological maturity within the geography (internet use, computer access)? What is their use of social media?Economic What is the Gross Domestic Product? Relative to others, how is it doing?What economic cycle are they in (recession, growth)?What is unemployment?What are leading industries? Companies?What is economic gap of haves vs. have nots (size of middle class)?Political What is their political history?How much political stability is there?How much regulation vs. private enterprise exists? (what is the role of government in industry?)How open (vs. repressive) is their government?What is their political heritage (democracy, socialism, parliament, king or family rule)?What are the political “hot topics” that exist?What is the relationship of the military and government?How much corruption is there in decision making?Environmental What are the environmental issues that people are worried about? How does the geography participate in global conferences and trends?Demographic What is the average age?What is the birthrate?What is the education level? (public vs. private)What is the income level? (income disparity)Social trends may affect what makes an effective employee valueproposition. Technological trends may affect the extent to whichwork can be done in remote sites. Economic trends may affectopportunities for investment and growth of products and talent.Political trends may affect the regulatory and compliance obligations for a company. Environmental trends may shape the socialresponsibility initiatives that help attract talent. Demographictrends may affect where to source talent (e.g., if there are limiteddemographics, it may help to build relationships with immigrantgroups). In the future, HR professionals should be conversantwith these general business conditions in a global context so thatthey can anticipate what might happen next to their industry andorganization and prepare to respond accordingly.StakeholdersWithin a business context, stakeholders have specific relationshipswith an organization. In Figure 4, I lay out five key stakeholderswho receive value from HR work. Traditionally, HR work focusesinside a company with employees who seek to be productive andline managers who work to implement strategies. HR investmentsshould enhance both employee productivity and a line manager’sability to deliver on strategy.With the outside/in focus, HR can now also be aligned to externalstakeholders. Investments in HR should increase customer share.When HR practices are aligned around customer expectations, those practices increase customer connection to the firm. 5 Stephen M. Ross School of BusinessExecutive Education

ARE WE THERE YET? What’s Next for HREXECUTIVE WHITE PAPER SERIESFigure 4: HR and Key rCustomer ShareCommunityReputationHR Stakeholders(external view)EmployeeToday/TomorrowProductivity:Competence * Commitment * ContributionCustomers can help with sourcing talent by participating insetting criteria for who is hired, by offering referrals on who mightbe interviewed, and by participating in some of the interviews.Customers may be involved in determining what training to offer,by attending training courses as participants, or by teaching someof the training sessions.Line ManagerStrategy Executionprint of the company, and by creating positive work/life balanceemployee policies. HR policies and professionals may shape anorganization’s reputation.As HR professionals understand both the business context andrelationships with key stakeholders, they change their conversations with business leaders. The conversation does not start withwhat HR is about; it starts with what the business is trying toaccomplish. An HR professional who was clamoring to be invitedto the strategic table and conversation finally got his wish, and heattended the strategic meetings. In the first meeting, the focuswas on doing business in emerging markets, and he was not surewhat HR could contribute. In the second meeting, the focus wason the economic condition of the organization and managingcosts, and again he was silent waiting for an appropriate HR topic.In the third meeting, the focus was on product innovation for thechanging societal conditions, and he still waited to comment. Hewas not invited to the fourth meeting. Knowing the business context and the key stakeholders would have enabled him to engagein strategy conversations without waiting for a more explicit HRtopic to come up.Investments in HR can also increase investor confidence in thefirm’s ability to deliver on future promises. With about 50% of apublicly traded firm’s market value tied to intangibles, HR workcan center on delivering a return on intangibles that comes whenpromises are kept, strategies are clearly articulated, organizationshave core competencies or technical ability to deliver on strategies, and organizations have capabilities that ensure long-termsuccess. HR professionals can architect the intangible value thatinvestors receive.Investments in HR also increase a firm’s reputation within thecommunity. HR can participate in social responsibility agendasby helping manage the company’s philanthropy and communityservice activities, by being disciplined about the carbon foot- 6 Stephen M. Ross School of BusinessExecutive Education

ARE WE THERE YET? What’s Next for HREXECUTIVE WHITE PAPER SERIES3. Three Targets or Outcomes of HR Work:Individuals, the Organization, and Leadershiptalent more productive: Talent Competence * Commitment *Contribution.When HR professionals participate in strategy or business conversations, what are the unique contributions they can make? Imaginethe above HR professional who sits in meetings on emerging markets, managing costs, or increasing innovation. HR contributionsin these settings are not just about the activities of HR (sourcing,compensation, training); they are also about the outcomes of HRwork. I like to think about three targets or outcomes of HR work:Individuals, the organization, and leadership (see Figure 5). Todeliver any strategy, individuals need to be more productive, organizations need to have the right capabilities, and leadership needsto be widely shared throughout the organization. With discussingemerging markets, cost, or innovation, HRprofessionals can ask:Competence means that individuals have the knowledge, skills,and values required for today’s and tomorrow’s jobs. One company clarified competence as right skills, right place, right job, righttime. For example, an emerging trend in the workforce planningdomain of competence improvement is to identify key positionsand match people to positions. Competence clearly mattersbecause incompetence leads to poor decision-making. Butwithout commitment, competence is discounted. Highly competent employees who are not committed are smart but don’t workvery hard. Committed or engaged employees work hard, put intheir time, and do what they are asked to do. Commitment trendsfocus on building an employee value proposition to ensure thatemployees who give value to their organization will in turn receivevalue back. In the last decade, commitment and competence havebeen the bailiwicks for talent. We have found, however, that whilethe next generation of employees may be competent (able to dothe work) and committed (willing to do the work), their interestand productivity wanes unless they feel they are making a realcontribution (finding meaning and purpose in the work).Contribution occurs when employees feel that their personalneeds are being met through their participation in their organization. Leaders who are meaning makers help employees find asense of contribution through the work that they do. HR professionals who architect abundant organizations embed this meaningthroughout the organization. Organizations may be a universalsetting where individuals find abundance in their lives throughtheir work, and they want this investment of their time to bemeaningful. Simply stated, competence deals with the head (being able), commitment with the hands and feet (being there), andcontribution with the heart (simply being). Individuals: What talent do we need to make this strategyhappen? The Organization: What organization capabilities do we needto make this strategy happen? Leadership: What do our leaders need to be good at to makethis strategy happen?Once these targets or outcomes have been defined, the HRpractices may be designed and delivered to accomplish these