Human Resource Planning, 2006
Many HR functions have gone through the process of transformation over the past decade. This redefinition of the work of HR is intended to allow a more strategic focus on talent management and organizational capability while systematizing and controlling the cost of transactional work. Little formal consideration has been given, however, to how these new complex HR organizations should be configured to best achieve these goals. This article highlights the operational challenges created by the most common organization design used by HR departments—the business partner model—and presents an emerging model— the solutions center—that is intended to address these flaws. Each model is described and discussed and a set of considerations for the HR leader is offered in order to maximize the effectiveness of the chosen organization design.
Over the last decade, there has been a profound shift in the work of the HR function. The publication in 1997 of David Ulrich’s Human Resource Champions spurred HR leaders across various industries to realign their organizations in order to undertake “strategic business partner” work. At the same time, a focus on cost-cutting and efficiency aimed at staff functions in general—and at HR in particular—has pushed much HR transactional work into shared services or to outsourced vendors.
For many HR departments, this process of “transformation,” as it is popularly called, has been a wrenching experience. It has required rethinking the fundamental role of the HR function and shifting the definition of the HR “customer” from the traditional focus on the employee to an almost total focus on the management ranks. The goal has been to create an organization that can deliver the necessary, daily (but low value-added) transactional work of HR consistently and efficiently while at the same time undertaking complex consulting and project-based work that is intended to further strategic business initiatives.
Many companies are still in the midst of this process, and it will be a number of years before we know if these changes will have paid off for the organizations they support. In the meantime, much attention has been paid to redefining the new work of HR. However, although most human resource departments have been through one or more major restructurings in the past 10 years, less consideration has been given to how to best configure these new HR organizations. This article highlights the challenges created by the most common organization design currently used by HR departments and presents an emerging model that is intended to address these flaws. The article concludes with a set of considerations for the human resource leader in order to make their chosen organization design model more effective.
Why a Focus on Organization Design?
The demands on the human resources function have never been greater. Since 1970, the world’s 50 biggest companies have tripled in size, and the number of consumer products introduced each year has increased 16-fold (Useem & Useem, 2005). Many firms have expanded internationally, and even those that have not face new competition from abroad as their products and services rapidly commoditize. As businesses become more complex, so must the HR organizations that support them. The design of the HR department must parallel the many dimensions of the business. If there are multiple products, customers, geographies, or service lines, then HR needs to support them all. As a result, today’s HR organizations face many of the same dilemmas as the businesses they work with, such as how to:
- Build strong functional/product expertise while aligning around customer segments
- Design in flexibility without adding cost
- Connect the front and back of the organization and have them work together seamlessly
- Deliver complex solutions through the formation and dissolution of teams
- Get the benefits of both centralized infrastructure and decentralized decision-making
deliberate about solving these quandaries themselves. For the new HR, organization design has become a core competence, and it must begin at home.
A fundamental principle of organization design is that a change in strategy requires a new set of capabilities and a realignment of the core elements of the organization (Galbraith, 2005). There are some basic choices in design, but it is not easy to say that there are “best practices.” The notion of best practice implies that there are configurations that can be copied and applied successfully in a variety of situations. However, the unique combination of strategies, market factors, and the life cycle stage of a given company and its existing capabilities will determine what type of design is appropriate. The HR department cannot guide line managers through the process of managing these organizational challenges if they have not been thoughtful and deliberate about solving these quandaries themselves. For the new HR, organization design has become a core competence, and it must begin at home.
Two Models of HR Design
The shift in the work of the HR function has been brought about by a number of factors. First, the fear of massive systems failures in the run-up to Y2K spurred the installation of enterprise technology systems such as PeopleSoft and SAP. Some organizations used this as an opportunity to take advantage of the improved operational effectiveness promised by these systems and streamlined and systematized routine work. Second, the economic downturn beginning in 2000 exposed many HR organizations as ill-prepared to help businesses through the restructurings, downsizings and mergers that many experienced during the early part of this decade. Third, HR became an easy target for cost reductions. The halcyon days of the 1990s had seen the adoption of numerous management fads and the blossoming of talent management and work/life programs that were rarely reevaluated once rolled-out. Business leaders began to ask hard questions about outcomes, metrics, and the value of all these programs. Finally, during this time businesses were beginning to outsource repetitive, transactional back-office work, and pushed HR to do the same.
Organization Model #1: Business Partner
The most common organization design employed in reaction to these external changes can be termed the business partner model. It developed in direct response to a fear that the business perceived HR as becoming too centralized and disconnected from the business and too inwardly focused on issues of little importance to managers out in the field. Its hallmark is a close alignment of HR staff to the lines of business.