A Different Future for HR

The HR function has come a long way. The business skills and acumen of HR leaders have increased, and their strategic importance continues to ascend with the increasing importance of human capital to business success. Organizations now look to HR to deliver the right human assets and to cultivate and manage those assets in ways that demonstrably return value to the enterprise. HR is no longer simply leading a war to acquire talent or handle back-office tasks.

Although HR is rising in the corporate pecking order, it still has a long way to go. It remains outside the strategic circle of many organizations, where it is perceived as a collection of programs or as a cost center absorbed with keeping payroll and personnel records, assuring compliance with hiring and firing rules, handling benefit programs, and doing other transactional activities. None of those very necessary activities, however, provide competitive differentiation for the organization. The result is that the head of HR is not at the table when new strategy is developed.

This situation is changing. We see a different future for HR as corporations start taking human capital strategy seriously. That future probably will coincide with structural changes within the HR function.

One significant change has been under way for some time, in fact. The transactional activities that currently dominate so much of HR management and are at the heart of the ubiquitous HR-as-cost-center perception are being moved out of the HR function in many cases. Those transactions are being given over to outside vendors or, as a result of new technology, being given to the employees to manage. This already is happening with payroll and benefits administration at many firms, and why not? Those activities are not the ones that create shareholder value or competitive advantage. Delegating them to vendors or employees may free up the resources and attention required to advance the strategic agenda. When it is implemented properly, employee self-service reduces costs, and outside vendors can realize economies of scale better than the HR function can. Further, vendors serving many companies are likely to attain efficiencies that are not possible within the firm and pass them along as savings to their customers.

Work by the Society for Human Resource Management (SHRM) points to a possible bifurcation of the HR function as it evolves.^[3] Administrative functions such as technology, call centers, and outside partner management will be run by core HR functional specialists, while thought leadership and strategic direction of human capital management will rest with a smaller group of professionals. The core HR departments are likely to be smaller in the future, and increasingly more decisions about human capital will move to line managers. This will be accomplished only by the smaller and more impactful strategic group providing the information directly to managers.

Whether or not the transactional parts of the job stays under the HR roof, the HR function almost certainly will take on greater strategic responsibility than has been the case historically. In some organizations a strong centralized HR function may emerge that oversees and coordinates human capital strategy across all parts of the enterprise. However, centralization is not a prerequisite for being strategic. The HR function in other organizations may be strategic yet decentralized. For example, each business unit in an enterprise may have a strong HR function that serves its strategic interests without reliance on a central HR office. That type of decentralized arrangement is most likely to appear in organizations with diverse business units that have distinctive strategies.

Whether decentralized or not, the HR function will take on more strategic responsibility. However, we also believe that with regard to human capital the “strategy pie” will expand. That is, human capital will take up an increasingly larger share of the strategic agenda of a firm. HR’s slice of that pie will grow, but so will the slices claimed by the CEO, the CFO, and business unit leaders. Simply put, human capital strategy will become a shared responsibility of organizational leaders as attention to it expands.

The changing agenda for the HR function that is elevating its strategic role is being signaled by a small number of U.S. corporations that have repositioned titles and renamed positions. This is analogous to what has happened with many information technology managers, who now find the title “chief information officer” on their business cards. On the HR side of the house, typical titles such as “vice president, human resources” are giving way to titles such as “chief human resources officer” (CHRO) and “chief human capital officer” (CHCO). Titles, of course, have to be backed up by substance, by capabilities and methods for delivering on the promise of the new titles and responsibilities. The capabilities to get the facts and focus needed to deliver as a strategic partner now exist, and there is likely to be more repositioning as those capabilities are extended. This trend will continue to the extent that HR managers do the following:

• Identify the true drivers of performance on the people side of the business

• Model the interactions between programs and employee behaviors, including unintended consequences

• Forecast the impacts of proposed people programs and investments

• Identify where cuts can be made without hurting performance

• Use analytic tools to identify optimal points of investment

^[3]Based on comments by Helen Drinan, former president and CEO, Society for Human Resource Management, February 26, 2002.