Amy Kates, John Boudreau, Jay Galbraith
Chapter published in The Chief HR Officer, 2011
One of the most important decisions a CHRO makes is how to design the HR function. The design of the organization – structure, power, roles, decision processes, reward systems, and staffing profiles – sets the framework for what work gets done, how well the work is executed, and the satisfaction for both clients and HR staff of working with and in the function.
As strategies change, organization designs change. Leaders are always adjusting the shape of their organizations in response to their specific context. However, a number of broad trends, across industries, are influencing how HR leaders are configuring their functions. These include changes in business models that are forcing a more globally integrated HR function and rising expectations that the function can provide both higher order decision support along with flawless process and transaction execution. HR leaders are finding that the widely-used Business Partner/Center of Excellence structure is inadequate to respond to these trends. After discussing these factors, we provide some observations regarding how CHROs are responding in the design of their HR functions.
Factors forcing changes in the design of the HR function
Changing business models
Today’s corporate business models are modern implementations of some old concepts such as matrix and synergy. Previously, companies preferred to implement autonomous profit center models. If the company sold business-to-business, it used autonomous business units. If it was sold business-to-consumer, it used regions and countries as profit centers. These models continue to exist, but increasingly more companies are returning to matrix designs. Still other Western companies are learning to master synergies in order to offer solutions and leverage intellectual property.
Many companies are rediscovering the performance benefits of the matrix organization. They have replaced the myth that “Matrix doesn’t work” with the question of, “How do I make a matrix work?” The recessions of 2001 and 2009 have shown the defects of the autonomous P+L model. Whether business units or countries, the autonomous P+L model leads to duplication and silos, which lock up talent. The benefits of strong functions are that they reduce duplication and share talent across P+Ls. So those companies that have performed well in the recessions are those that have mastered the function-profit center matrix. Their profit centers have delivered new products and services while their functions have reduced costs and shared talent. The benefit of the matrix is good business performance and functional excellence.
Once a company has mastered the two-dimensional matrix of functions and P+Ls, it encounters a higher performance bar. Nestlé and Philips are now implementing three-dimensional matrix designs consisting of countries, business units and functions. The graduates of the 3D matrix can then try organizations like Procter &Gamble’s Four Pillar structure by adding a customer dimension. IBM has gone even farther in creating multi-dimensional designs, which include customer segments, channels, solutions and so on. Indeed these companies are seeing real advantages by getting good performance on all dimensions. However, the good performance comes at a price of organizational complexity. Herein lies a role for HR. Most managers have not experienced this level of complexity. Most HR departments are increasing their competence levels in organization design and development. They are helping management design and manage in this new multi-dimensional matrix environment.
The other trend is to introduce synergies across businesses. Western companies are experiencing competitive threats from companies in emerging markets. These emerging market companies are introducing lower cost products for their own countries that are being embraced by developed countries as well. So as products commoditize, Western companies are combining products into customized solutions and leveraging intellectual property across business units. IBM is the best example of a solutions provider while Disney provides the model for leverage. If the portfolios of business units for these two companies were examined, we would call them conglomerates. Yet both are able to combine disparate businesses to create value for customers and shareholders.