Point of ViewHR Transformation : It’s all about the business
2
HRTransformation :It’s all about the businessThe definition of HR transformation has evolved out of a number of perceived and real“pressures on the HR function. The function is expected to support the business, provide the rightdirection for the people management strategy and then execute the strategy. It also has todemonstrate an improvement in value, yet at the same time carry out cost-heavy administration. In response to these challenges, the transformation process that many companies haveembarked on involves examining the HR strategy and how it supports the business strategy, and then changing the HR operating model to achieve optimum delivery.”Delivering on the promise of HR transformationMercer Human Resource Consulting2004When these words were written,Mercer HumanBut the picture had a few HR leadersResource Consulting had completed its first globalincreasingly viewed their function as strategic,theirsurvey of HR than 1,100 respon-staffs often lacked the skills to carry out this changingdents shared their experiences in 2003,painting arole or to make substantive business of HR functions around the world enthusiasti-leaders and teams alike still spent considerable timecally transforming to become more active strategicon transactional activities – not the high-level strate-contributors and business to 86 percent ofgic partnering work that their leaders aimed ,by region,reported HR transformationsmetrics focused on “satisfaction,”which does noteither currently in process or planned for the nextmeasure business value or while a low of 7 percent in Asia to a high of organizations had developed a human capital strategy,25 percent in the US,other companies indicated theythey stopped short of operationalizing that strategyhad already completed transformation across the could point to significant theThree years later,it was time to refresh the view US,for instance,more than half of the respondents of conducted the 2006 Global HR(54 percent) had assessed the needs of HR customers,Transformation Study,which garnered nearly 1,400and nearly as many had implemented a new HR orga-responses across Asia,Australia,Europe,Latinnizational structure (46 percent),audited their HRIS America,New Zealand and North (46 percent) and implemented a new HR serviceportrait of HR would dominate in 2006?delivery strategy (42 percent).A majority of respon-dents said their firms had developed human capitalHR transformation definedstrategies linked to their business inmany parts of the world,HR leaders were becomingFor purposes of our study, HR transformation ismore involved in strategic business discussions defined as the process of recreating or reinventingand HR function – such as re-engineering, restructur-ing, implementing new systems or a new HR servicedelivery model, outsourcing or co-sourcing – withthe specific intent of enhancing HR’s contribution tothe
Mercer’s study confirms,unequivocally,that HR trans-One question in the 2006 study neatly illustrates HR’sformation is alive and well around the ofcurrent challenge: What skill level (in each of 26 areas)the 2006 respondents (50 percent) said they are cur-will be required to meet future needs?The answer: rently in the midst of an HR transformation,while 72 percent of respondents gave the highest rating –12 percent had completed one within the past year“must have advanced skill level”– to “interpersonaland another 10 percent plan to begin a transformationskills.”Fifty-nine percent gave that rating to “businesswithin the next year.(See Exhibit 1.)understanding,”49 percent gave it to “business strategyskills”and only 19 percent gave it to “financial skills.”Exhibit 1 Would three-quarters of a group of CFOs,CIOs orThe state of HR transformation globallymarketing chiefs answer the same way? Mercer’spoint of view is that HR cannot afford to be knownWe have no current plans to transform HRprimarily for its interpersonal skills if it wants to sit 18%at the strategy must be all about plan to begin a transformation within the next year10%Through this paper,Mercer will examine both ver-We are currently in the midst of a transformation processsions of HR transformation and answer some critical50%questions:We completed an HR transformation more than 12 months ago11% Is HR making progress – and in the right direction?We have completed an HR transformation in the past 12 months12% Where hasn’t HR made progress and why?However,based on the 2006 study findings as well as How is HR transformation similar and differentMercer’s work with leading organizations globally,it around the world?is clear that a second wave of transformation is nowunder new wave – let’s call it Transformation How can organizations position themselves – differs significantly from the initial in the next wave of HR transformation?Transformation ,which started about 10 years ago,focused largely on operational excellence and What will the successful HR function of the futureimproved HR service delivery through process andlook like?technological the same time,it opened the door to a moreHuman capital strategy definedstrategic role for HR – one that has not yet fully Transformation ,HR is challenged toHuman capital strategy is a set of managementdeliver on those strategic expectations – to make thepractices – a “system” – thathuman capital strategies a can do so produces the right workforce for the business, andthrough a disciplined focus on business. manages it in ways that optimize overall
Transformation : A look back to the beginning3
4
n the early to mid-1990s,USCompanies emerging fromfirms entered the first wave ofTransformation pointed toIHR progress in a number of essentialon the nuts and bolts of HR, respondents in 2003swept away musty ideas abouthad focused on the HR infrastruc-how to carry out HR ,comprising talent,technology,Innovative companies re-engi-processes and HR processes,introducedthan three-quarters of organiza-new service delivery models suchtions globally had deployed anas self-service,took automation tointranet to support program andnew levels,outsourced non-coreprocess -thirds hadactivities and streamlined their integrated processes with changingHR ,and 50 percent hadcompleted some form of organiza-This first wave of change reverber-tional ,the reorgan-ated around the or redesign of the HRof all sizes,across all regions andfunction was the number oneindustries,focused on HR andtransformation activity,with three-invested in Transformation –quarters having completed workand many of these earlier develop-over the past year or planning toments were captured in Mercer’sdo so in the coming also gained traction inHR transformation initiatives ,especially in the US,as organi-were driven by broader organiza-zations sought more efficient andtional 2003,US respon-cost-effective ways to handle vari-dents cited two primary drivers in ous HR virtual tie: leadership changes inworldwide in 2003 most frequentlythe HR organization (30 percent)outsourced training (ranging fromand changes in the business-wide29 percent to 58 percent by region),organization (29 percent).European,relocation services (14 percent to Asian,Australian and Canadian 48 percent by region) and benefitsHR executives identified “aligningadministration (13 percent to HR with corporate objectives,”48 percent by region).About one-“making HR a strategic function”quarter of all respondents acrossand “responding to changes in theregions outsourced context”as the key cata-despite these growing numbers,lysts behind their transformationthose outsourcing few respon-seemed more opportunistic dents – only 10 percent in the USthan 26 percent in Asia,for example– linked HR transformation to Against this backdrop of accom-cost-reduction ,respondents sawoptimization of HR technology and the effective development anddeployment of HR skills as boththe greatest enablers of HR trans-formation and the greatest barriers to successful HR transformation inthe
Changes at the topThe shift begins: What’sExhibit 3 Many HR leaders today are rela-changing and whyTime in job for today’s tively new to their current the past few years a shift HR leadersfact,more than two-thirds of thehas many organiza-respondents have been in theirTotal HR experienceCurrent roletions are still in some stage ofcurrent role for four years or less,10+ yearsTransformation ,others haveand more than a third have been61%moved on to address new HRin the role for less than two %challenges and prepare for theWhile many of these HR leaders8–10 years“next generation”of have significant experience in14%of this shift emerged in the 2006functions or roles outside HR –6%study notably customer service,5–7 yearslegal,finance,general manage-14%ment and HR consulting – 61 per-18%cent have spent 10 years or more2–4 yearsin the HR function.(See Exhibits 28%and 3.)33%Less than 2 years3%Exhibit 2 36%Work experiences of today’s HR leadersNo experience< 2 years2–4 years5–7 years8–10 years10+ yearsThis suggests two things: First,organizations are actively makingGeneral management37%16%13%6%14%13%changes at the top of HR,searchingfor leaders who can meet today’sHR consulting21%23%18%13%18%7%new demands and ,while diverse businessCustomer service39%23%12%5%15%6%experience can contribute to theManufacredibility and success of HR exec-cturing57%13%14%4%8%5%utives,the length of time most HRleaders have spent in HR suggestsOperations management47%17%13%11%8%4%that they view HR as a true profes-sion and have dedicated theirLegal51%13%14%4%15%3%careers to systems56%14%12%5%9%3%In addition,67 percent of HR leaders now report to the CEO,Public relations/communications41%23%18%5%9%3%compared to 54 percent in 2003,signaling the growing importanceFinance55%14%15%5%10%2%of HR within evolving prioritiesOne of the clearest signs of a shiftcame in response to a questionabout HR’s principal functions orareas of 40 percentof respondents listed human capi-tal strategy as a principal functiontoday,64 percent expect it tobecome a principal function withintwo to three years.(See Exhibit 4.)6
that HR has been focused on “get-HR customers’ needs and require-Exhibit 4 ting its house in order”in the earlyments,assessment of the HR func-Principal HR functionsstages of HR transformation andtion’s effectiveness,design of anow plans to focus more time andnew strategy for delivering HRNow2–3 yearsresources on strategy-related mat-services,and audits of currentHuman capital strategyters,including putting the humanHRIS most com-40%capital strategy into initiatives to be launched in64%the next 12 months include talentTalent managementTransformation initiatives development strategy for improv-49%are differenting HR skills,redesign of HR work55%The transformation initiativesprocesses,design of new strategiesLeadership developmentundertaken to date appear to befor delivering HR services,and49%quite different from those plannedevaluation/implementation of new52%for the most commonHRIS findingsOrganization developmenttransformation initiatives com-are consistent with the notion that35%pleted by respondents includeorganizations have made progress40%implementation of a new HR orga-and are moving on to the nextChange managementnizational structure,assessment of wave of HR %(See Exhibit 5.)38%Operational excellence within the HR functionExhibit 5 46%Shifts in HR transformation initiatives32%CompletedPlanning to complete in Not under consideration Succession planningthe next 12 monthsfor the next 12 months24%27%Talent development strategy for improving skills within HRWorkforce planning18%66%16%31%Redesign of HR work processes24%30%60%10%Industrial relations32%Design of a new strategy for delivering HR services19%38%51%11%Organization designEvaluation/implementation of new HRIS technology21%24%50%26%18%Strategy for attraction/retention of the HR staffRisk management23%47%30%18%17%Assessment of HR functions? effectiveness38%44%18%Respondents said that talent man-Assessment of HR customers’ needs/requirementsagement and leadership develop-44%42%14%ment ranked as principal functionsImplementation of a new HR organizational structureof HR today,followed closely by45%41%13%operational excellence and changeAudit of current HRIS capital strat-35%39%26%egy ranked fifth on this of selected programs to the businessRespondents then we27%37%36%re asked toidentify the principal functions Changes in reward strategy for HR staffof HR over the next two to three19%35%46% this time frame,humanOutsource any part of the HR functioncapital strategy jumped to the top24%28%48%of the list while HR operationalexcellence fell to the sixth findings support the idea 7
Different challengesstages of HR transformation,whenOn a positive note,for instance,Changing demands on HR give the focus was on process andthe drivers of HR transformationrise to new toptechnological much the same as seen inchallenges cited by HR leaders(See Exhibit 6.)the 2003 transforma-today revolve around attractingtion efforts are driven byand retaining key talent,drivingStill the status quoorganization-wide transformationcultural and behavioral change Not everything has changed,andprocesses or changes in the broaderin the organization,and buildingwhat remains the same is as are driven byleadership ,thisnificant as what is -wide cost a shift from the earlier (See Exhibit 7.)Exhibit 6Top HR challengesAustralia/LatinNorthGlobalAsiaNew ZealandEuropeAmericaAmericaAcquiring key talent/lack of available talent11221Retaining key talent 23Increasing workforce productivityConstraints on headcount (“making do with less”)Resourcing and managing HR issues in “new geographies” for the company Driving cultural and behavioral change in the organization23113Implementing people changes resulting from changes due to operational performanceLack of consensus around the organization’s strategy/directionCoping with an aging workforceWorkforce planningSuccession planningBuilding leadership capability331322Encouraging organizational innovationIncreasing line manager capability to handle people management responsibilitiesIncreasing the return on investment in remunerationMeasuring the contribution of human capital to business performanceManaging human capital during and after an acquisition or merger Reducing overall human capital costs8
transaction/recordkeeping time inWhat’s driving the change?Exhibit 7 half,from 27 percent to 14 percent,These developments are notDrivers of HR transformationand increase strategic partneringhappening in a con-It was part of a broader time accordingly,from 15 percentfluence of forces in the broaderorganization-wide at present to 27 percent.(Seebusiness world – and indeed,thetransformation processExhibit 8.)39%broader world – is paving the wayfor these changes in to changes in the organizationExhibit 8 26%Talent is more critical than ever toHow HR spends its timebusiness success ,Leadership changes in the HR functionCurrent (%)Desired (%)12%competitive advantage could beDelivering HR servicesgained by access to financial orCEO/business leader mandate for change 29%physical capital,technologicalin the HR and/or other staff functions25%10%prowess,operational efficiencies orTransacting/recordkeepingmarketing ,a compa-HR was not adding value in its 27%existing roleny’s competitive advantage resides14%6%in its an organizationStrategic partneringCompany-wide attracts,retains,rewards,motivatescost reduction mandate15%5%and develops its people can become27%an enduring source of competitiveChange in domestic market environment or regulationDesigning HR programs or systemsadvantage because it is so difficult2%15%to %Compliance/auditingAnd human capital strategies areHowever,the time spent performing14%moving to the forefront of corpo-various HR activities has remained12%rate percentmuch the same,and so have HRof 2006 survey respondents saidskill sets,despite expressed inten-But how realistic are these goals?that their organizations havetions to change both of these capital strategies linked Just as HR activities remain tradi-This is not as their long-term ,so do its askedFurthermore,organizational lead-to rate their staff’s skills in 26 areas,This study and its predecessorsership increasingly views humanthe strongest were soft skills andhave reported that HR leaderscapital as a source of value ratherthose related to routine HR are increasinglyThe weakest skills wethan as an operational precisely viewed as strategic the areas in which HR needs toSixty-seven percent of 2006contribute more effectiveIn addition,a variety of key said that HR is seenhuman capital challenges loomsas a strategic partner and partici-HR leaders are aware of this prob-on the in strategy decisions and/ asked to identify thestrategy the over- Aging workforce– At manythree most significant barriers andall HR function still spends overareas of opportunity to enhancefirms,especially those in indus-half of its time on traditional HRHR’s future roletries that rely on a tenured,leaders identifiedactivities: transactions,record-workforce,a large portion of thethe skills/competencies of HR staffkeeping and delivering a leading barrier but the topworkforce is approaching retire-Participants in both the 2003 andopportunity for improvement toment or is already eligible to2006 studies reported their wish develop a more problem varies byic HR pro-to change these ,but industries significant barrier was2006 respondents would like to cut affected by aging workforcethe inability of line managers tomanageissues include utilities, their people within thehuman capital context of the nearoil and gas,chemicals,aero-space/defense,insurance with skill gaps,thehealth mustlack of a human capital focusamong line managers affects HR’stransfer the skills and knowl-ability to execute its carefullyedge of these retiring workers honed talent strategyto those who replace them..9
Skill shortages– In part due toAll of these factors present risks to Most organizations today haveaging workforce issues,manythe effectivean articulated human capitalindustries face acute shortagesmanagement of an organization’sstrategy,but they cannot deliverof mission-critical workers,suchtalent,HR can help mitigate theseon it due to shortcomings withas nuclear and petroleum engi-people risks and maintain compet-HR structure,staff,processesneers in the energy industry anditive in the health care some locations,decliningTransformation was a mix ofConclusions and birth rates are shrinking theundoubted accomplishments the US,for exam-“cleaning house”and improving HRSeveral contradictions are evidentple,the number of available jobsefficiency and cost-effectiveness,in the 2006 study findings and inis predicted to outpace the num-along with some ’s work with organizationsber of available civilian workersOrganizations have addressed theworldwide:beginning in the pop-basics,picked the low-hanging ulous economic powerhouses offruit and taken as far as it can The lack of business-focusedChina and India are doing so,they’ve prepared skills in HR is widely cited as China,multilingualthe ground for the next wave barrier,but there are no aggres-and culturally flexible profes-of plans to “skill up”or other-sionals and managers are eagerlywise implement staffing planssought by both local and inter-The remaining gap is not in theto address this fact,national demand hasmechanics of HR or in the develop-HR leaders seem particularlyled to double-digit wage infla-ment of human capital to replace HR stafftion and an 87 percent turnoverThe ultimate challenge ofwho do not possess the neces-rate for India,Transformation is translatingsary skill sets for the demand for engineers andthat strategy into day-to-dayother accomplished graduatesactivities and HR wants to be a strategic player,has produced a quality shortfall:developing a human capital strate-but beyond the top HR executive,Of the 3 million graduates eachgy is not thatthe function remains largelyyear,75 percent have receivedstrategy is how HR will make afocused on transactional preparation and aresignificant and noticeable to the business. HR wants to deliver more valueto the organization,but it is not Generational issues– There areusing metrics that documentat least four generations ofand demonstrate the value workers currently in the work-it younger workerswant from the employmentrelationship is distinctly differ-ent from what older must be able to understand these newgenerations of workers if theywant to attract,motivate andretain
Transformation : Moving HR forward11
12
iven both the specific pres-Along with HR experience,thesesures on HR from externalleaders are bringing varied workGforces and greater expecta-backgrounds to the -tions from internal stakeholders,nine percent have had HR consult-Mercer believes that Transformationing experience; 63 percent, should focus on these areas:management; 61 percent,customerservice; and 59 percent,public rela- Upgrading HR skills broadly totions and the function’s strategicmandateIn addition,67 percent of HR lead-ers now report directly to the CEO Operationalizing the humanand 59 percent have significantcapital strategy throughout contact with the board on issuesthe organizationbeyond remuneration,such astalent management; succession Considering the bifurcation ofplanning; and the human capitalHR into two critical roles implications of mergers,acquisi-tions and other leaders Developing and using betterreport that they are increasinglymetrics to evaluate HR’s per-seen as strategic partners and par-formance and its impact on ticipate fully in strategic businessYet when these leaders were asked Gaining a truly global perspectiveto assess the skills of their staffs,a very different picture emerged. Establishing effective governanceThey rated their staffs weakest onthe following skill sets:Ability to walk the Financial skillsstrategy talk Business strategy skillsAs mentioned earlier,HR leadersappear to have made solid strides Organizational assessment/in becoming strategic designToday’s HR leaders have broaderexperience and greater comfort Cross-functional expertisewith the CEO and board than in Cost analysis and managementthe HR leaders are newto their job,suggesting that organi-Where did they think their staffszations are looking for a new kindwere strongest?of HR -thirds of 2006respondents have held their cur- Interpersonal skillsrent position for four years or less,though three-quarters have been Recordkeeping/data maintenancein HR for over eight years. Team skills Functional HR experience Customer service13
When these skill rankings areExhibit 9 compared to HR leaders’ top chal-Current skills of HR professionalslenges,the disconnect example,leadersWeakSufficientStrongexpect change management andFinancial skillscultural change transformation to51%40%9%be major undertakings in the yearsBusiness strategy the relevant skills are50%37%13%largely missing or inadequate toOrganizational assessment/organizational designbring this lacking48%38%14%are “must have”skills for con-Cross-functional expertisetributing to the business,which47%41%11%include at least basic financialCost analysis and measurementskills (66 percent),and advanced47%39%14%skills in consultation/negotiationCultural change/transformation skills(65 percent),business understand-44%39%17%ing (59 percent),organizationalChange managementassessment/organizational design44%39%17%(51 percent),and business strategyProject management(49 percent).(See Exhibits 9 and 10.)40%45%15%HRIS data analysis and reporting%18%37%44Process management/process improvement36%45%19%Business understanding35%45%20%Coaching/facilitation34%43%23%Conflict management34%44%22%Vendor management34%52%14%Counseling33%43%24%Technology understanding31%52%17%Consultation/negotiation skills30%48%23%Leadership28%48%23%Client relationship management26%49%26%Knowledge of compliance/corporate governance25%50%25%Interviewing and assessment19%44%37%Customer service15%47%39%Functional HR experience team skills15%45%40%Team skills12%44%45%Recordkeeping/data maintenance10%48%43%Interpersonal skills9%43%48%14
Given the clear recognition of theExhibit 10 skills shortfall,we would expect Future skill requirements for HR professionalsto see rapid and innovative actionto fill the ,two-thirdsDesirable but not requiredMust have basic skill levelMust have advanced skill levelof respondents have put on theirInterpersonal skillsto-do lists for next year a talent1%26%72%development strategy for improv-Team skillsing skills within HR,and 18 per-1%31%67%cent have already completed suchInterviewing and assessmenta only 23 percent3%31%66%have a strategy to attract andFunctional HR experience team skillsretain HR staff,47 percent plan 1%34%65%to create one within the skills4%31%65%Yet two-thirds of respondentsLeadershippreferred to invest in skill develop-4%32%64%ment for existing staff rather thanChange managementtake more aggressive steps,such 5%32%62%as replacing current staff with newCultural change/transformation skillshires or even making rotational5%35%60%assignments (HR staff to line rolesBusiness understandingor line staff to HR roles).Skill2%39%59%development for existing staff Conflict managementwas the same approach strongly4%40%56%favored in 2003’s survey,but theCoaching/facilitation2006 skill assessment does not5%39%56%indicate much success in improv-Customer serviceing skills.(See Exhibit 11.)5%40%54%Counseling6%41%53%Exhibit 11 HRIS data analysis and reportingPlans to enhance HR skills5%44%51%Little or no intentOrganizational assessment/organizational designModerate intent7%42%51%Major intentBusiness strategy skillsInvest in skill development for 7%44%49%existing staffClient relationship management2%32%66%9%44%46%Use outsourcing/external suppliers to Process management/process improvementsupplement internal capability7%51%43%36%47%17%Project managementRotate HR staff to line roles9%55%36%50%38%11%Knowledge of compliance/corporate governanceRotate line staff to HR roles7%57%36%54%36%10%Cost analysis and measurementReplace current staff with new hires9%59%32%60%35%6%Technology understanding11%60%29%Cross-functional expertiseThe HR function cannot move16%55%29%ahead and further transform itselfRecordkeeping/data maintenancewithout the upgrading of HR staff14%62%25% leaders must confrontFinancial skillsthis challenge directly and imme-15%66%19%diately in Transformation management22%61%17%15
To help all parties deliver on thesame ’s the basis of theBringing human capitalexpectations of Transformationargument for to ,technology will play a vitalClearly,many important need to provideAt its core,this argument calls forwere made during Transformationline managers and other directthe separation of the HR role leaders came tosupervisors (as well as employees)two roles – chief human resourceappreciate the importance ofwith well-designed programs,officer (with strategic responsibili-human capital to business success,processes,tools and information ty) and HR controller (with transac-organizations developed humanto manage human capitaltional responsibility).The financecapital strategies linked to busi-functions,including recruiting,function offers a useful strategies,and HR leadersperformance management,careerfinance,responsibilities are dividedjoined the ranks of top strategicdevelopment and succession between the chief financial officerdecision makers within theirplanning,among others.(with responsibility for the effortalignment and strategy) and thestopped short of will enable line man-controller (with responsibility foragers to assume their humanefficient and effective operations).Having a human capital strategy –capital role efficiently and helpeven one that is clearly articulatedalleviate the argument that HR isMercer’s study shows that thisand widely disseminated – issimply shifting its work to of bifurcation is already undermarkedly different from havingAt the same time,organizationsway in than 40 percent ofthat strategy implemented effec-must also provide training,com-the 2006 respondents report thattively throughout the and change manage-their organization already has anFor most organizations today,ament to support this controller HR con-human capital strategy is no longertroller is responsible for managingjust a book or a binder on a budget,costs,vendors,metricsTo bifurcate or not?But most continue to fall far shortand service positionTo bifurcate means to divide intoof translating that strategy intowould oversee global shared servic-two does this applyeffective,aligned day-to-dayes,centers of excellence,best prac-to HR? Consider that HR can beactions and decisions across alltices and outsourcing,with a strongdivided into two primary areas ofparts of the haveemphasis on quantifying and meas-responsibility,roughly described not yet been able to fully connecturing the business impact of HRas strategic and critical parties – including seniorpolicies and in recent years has beenmanagers,line managers andon HR’s growing strategic role andsupervisors,and employees – toThis definition of the HR con-responsibilities – such as develop-their appropriate roles and respon-troller’s domain also aligns withing a human capital strategy,sibilities in the process of managingthe broader trend toward multi-consulting to the business andthe organization’s human shared services centersmanaging talent across the enter-that typically handle finance,HR, much of HR’s work is andMercer’s study shows that in manyIT and,increasingly,travel andwill continue to be transactional,organizations,HR and line man-procurement operations as to smooth and efficientagers do not see eye to eye onThe existence of an HR controlleradministration and capital issues and expecta-role means that HR will be well-There may be new and better needs to work with linepositioned as a key player into manage the transactional side ofmanagers to define the respon-designing and executing theseHR – such as outsourcing – but itsibilities,accountabilities andshared-services always – as well as benefits – oftheir participation in this essentialMercer believes there is tremen-Even the names “strategic” group must under-dous value in pursuing a bifurcated“transactional”imply that one areastand what is expected of itselfapproach in division ofis more important than the the allows the chief humanBut that’s not parts areresource officer to focus on creat-essential to a high-performing HRing and implementing the ,they do notcapital strategy,while the HR con-necessarily need to be managed troller works on enhancing opera-in the same way – or even by thetions and
Strategic transacting: Not Time for hard metricsExhibit 12 a contradictionLet’s return for a moment to theHow organizations measure Despite its virtues,organizationsstrategy table and the functions sit-HR effectivenessmust resist the temptation to ting around do they haveoverdo bifurcation and minimizeHR customer satisfactionin common? They are all viewed asthe importance of % know their sub-The most successful transforma-HR costjects,are expected to add value,aretions do not aim to make transac-54%viewed as a source of expertise andtions go away,but to manage themhave business manageHR program effectivenessas effectively as possible and toto numbers and are forced to be54%ensure that all transactional HR to joinImpact on business operations/outcomesis aligned with the overall humanthose ranks as an equal,it too must43%capital is why themanage to hard ofstrategic transacting is HR staff/employee ratioa useful links the43%But is it in fact managing this way?strategic and transactional sides ofLine manager effectiveness as Mercer’s study shows that HR cus-HR and ensures that the transfor-people managerstomer satisfaction remains the topmation is benefiting the %measure of the effectiveness of theHR function,used by 68 percent ofProcesses in place to lead/facilitate Consider the example of the hiringorganizational changethe cost is anotherand on-boarding strict39%common measure,used by 54 per-constructionist would equal number (54 percent)HR operational measures (for place it in the “transactional”example, transactions, error rates, considers HR program the consequences ofservice utilization)to be a measure of overall HR effec-doing it poorly become strategic37% of the reaction if thequite rapidly: Even with carefullyfinance department were to useWorkforce productivitychosen hires,inept on-boarding can33%customer satisfaction as its top per-lead to high turnover,which drainsformance measure.(See Exhibit 12.)Increased customer usage of HR staff for key talent from the company,andmore strategic interventionseventually diminishes its competi-33%’s a strategic in staff time spent to higher-value-added activitiesSo sharpening the strategic28%transaction focus helps HR leadersto recalibrate the value of transac-No specific measures12% that such work mustnecessarily be done internally –again,outsourcing is a viableoption for many organizations –but it has to be done well and in line with the human ,the strategictransaction lens provides anexcellent guiding principle foroperationalizing the HR strategy at all
So what should HR try to quantify?needs) must understand how toHR programs and service deliveryA true business partner will pro-interpret the wealth of data andmethods are mature and proven invide the organization or a businessdraw conclusions for their busi-some regions but just emerging inunit with operating statistics andness unit it ,HR programsmetrics to help run the of statistics,theand service delivery may well beFrom a people perspective,thosebusiness plan and the currentoutsourced in some areas and sup-should include the organization’ is a tall orderplied by in-house staff capital statistics andfor many organizations today,butThe global model almost certainlytrends over partners one that can be incorporate multiple have answers to the followingquestions at their fingertips andThe 2006 study results have clearlyGoing globalwill know what they mean to shown that HR issues are similarOrganizations everywhere arethe business:across the next step isstruggling with the challenges andhow to consistently address theseimplications of global business How is the organization attract-issues in both mature and same is true for talent?ing markets,and how to adapt theAs organizations expand acrossHR service delivery model to do boundaries,HR must How will turnover patterns reassess how it functions,how itand age demographics impactEstablishing effectivesupports the business and how itgrowth plans?governancedelivers all the best intentions, How well do internal staff Transformation was con-HR transformation efforts are notfit the skills profile needed incerned primarily with domesticalways as successful as anticipatedthe future?service for thoseat many theorganizations that compete – ortransformation did not produce Are the company’s developmentwant to compete – in a globalthe desired results,or the results,and succession plans working arena, must focus on the globalwhile initially positive,simplyto fill the pipeline with qualifiedservice delivery model if they aredidn’t “stick.”future candidates?to achieve the benefits of mustWhat’s missing from many of these Is the company retaining its first align their global HR strategyless-than-optimal transformationtop performers?with how the business is is the power of HR gover-truly global firm will have ,the oversight of Where inside the company canHR requirements than a firm runthe HR function was the responsi-the necessary skills and compe-as a portfolio of businesses orbility of the top HR executive alongtencies for certain jobs be found?series of multinational the HR leadership strategists must understandthe changing,expanded and vital Are certain HR policies,pro-the scale/economics,language,cul-role of HR in managing an organi-grams or practices having thetural and regulatory requirementszation’s human capital,this isdesired effect or,perhaps,unin-for regional shared services,andsimply no longer consequences?determine how centers of expert-ise look in a global model and howGovernance goes far beyond theThis information is not necessarilyHR partners are mustnotion of an HR advisory commit-easy to requires that theconsider the different modelstee,which exists in many organi-organization actually track theserequired to serve regions ’s critical stakeholdersthings in its HR,finance and otherthousands of employees acrossshould do more than merely adviseorganizational meansnumerous countries as well asand governance refersthat the company must developthose with a few hundred employ-to the process of broadly engagingaccepted definitions of turnoverees in one or two key stakeholders – the organiza-and retention,etc.,that are usedtion’s business leaders,financialconsistently across the technology leaders,line man-means that HR partners (a partneragers and others – in the actualis an HR professional assigned to amanagement and operation of thebusiness unit in a strategic role toHR function on an ongoing its leaders in defining andmeeting the unit’s human capital18
Executed well,the concept of HR Effective councilslink stronglygovernance translates easily intoto structure and refer to the per-practical solutions,guidelines andsonal,interpersonal and governance can con-effectiveness of the council andtribute significantly to the successother involved the HR function and the is the glue that Philosophy and operating princi-holds an HR transformation effortplesdescribe,at a minimum,together,makes it work and makesthe function’s risk tolerance,it “stick.”approach to delegating authorityand expected level of manage-Simply put,HR governance is thement autonomy at business unitact of leading the HR function andor geographic related investments to: Core management activities Optimize performance of theinclude HR strategy develop-organization’s human capitalment,business planning,assetsoversight of rewards plans andprograms,HR resource alloca- Fulfill fiduciary and financialtion,and HR staff development/responsibilitiesleadership core management activi- Mitigate enterprise HR riskties,the council sets directionand priorities,ensures effective Align the function’s prioritiesexecution over time,andwith those of the businessenforces internal controls. Enable HR executive decision Performance monitoring refersmakingto the framework and metricsused to evaluate and communi-Governance is not a strategic objec-cate the function’s is a systematic approach effectiveness,compliance andto management that enables thecontribution to business to achieve strategic andoperational areAs HR continues to transform itselffive core elements in an HR func-and play a more vital role in thetion’s system of operations of the organiza-tion,effective HR governance will Structure and accountability out-become more the design of the guidinggroup (called a council) itself aswell as its relationships withinvolved charterdocument usually articulates thecouncil’s areas of focus based onstrategic,operational and func-tional may also address roles,meeting structures and
Achieving successWhat will success look like inclear metrics for evaluating itsTransformation ? Envision HR professionalsorganization in which the humancan focus on identifying and man-capital strategy is in operationaging talent to build the business,throughout its businesses and working in close partnership leaders are fullybusiness and line with fellow businessleaders in strategic discussionsMercer’s 2006 Global HRand levels of HR staffTransformation Study suggests thatunderstand business issues andgood progress has been madeneeds,and apply that knowledgetoward this vision of moreacross all aspects of their to be HR commits HR has “cleaned house”so thatto being “all about the business,”administrative and recordkeepingit will ultimately realize its goal activities are carried out efficientlyof becoming a true businessand in line with strategic,financialpartner that helps organizationsand service HR functionsuccessfully address the humanitself has clear goals and equally capital aspects of their businessstrategies and more information on Mercer’s 2006 Global HR Transformation Study,including a listing of regional study contacts, MercerMercer Human Resource Consulting is the global leader for trusted HR andrelated financial advice,products,and our work with clients,we make a positive impact on the world every do this by enhancingthe financial and retirement security,health,productivity,and employ-ment relationships of the global Human Resource Consulting has more than 15,000 employeesserving clients from more than 180 cities and 42 countries and territories a wholly owned subsidiary of Marsh & McLennan Companies,Inc.,we can also provide access to the complementary consulting services of our sibling companies,Oliver Wyman,Lippincott and NERA Economic
ArgentinaMalaysiaAustraliaMexicoAustriaNetherlandsBelgiumNew ZealandBrazilNorwayCanadaPhilippinesChilePolandChinaPortugalColombiaPuerto RicoCzech RepublicSingaporeDenmarkSouth KoreaFinlandSpainFranceSwedenFor further information,contactGermanySwitzerlandyour local Mercer Human Resource Consulting office or Hong KongTaiwanthe firm’s headquarters:HungaryThailand1166 Avenue of the AmericasNew York,NY 10036IndiaTurkey+1 212 345 7000IndonesiaUnited Arab EmiratesOr visit our website: IrelandUnited KingdomItalyUnited StatesJapanVenezuela© 2007 Mercer Human ResourceConsulting,-HC
