HR Ready: Creating Competitive Advantage Through Human Resource Management

HR Ready

Creating Competitive Advantage Through Human Resource Management

Steve Foster

HR Ready: Creating Competitive Advantage Through Human Resource Management

© 2013 Steve Foster

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher Steve Foster has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.

ISBN 9781301571505

Smashwords Edition

Foreword

The title of Marshall Goldsmith’s 2012 book 'What got you here won’t get you there’ is as true for the HR function as it is for any other area of business - possibly more so. While it’s a cliché to talk about change being the ‘new normal’, the last few years have seen the old Western economies face the combined challenges of low growth, austerity and difficult trading conditions, while new economies from the East and South America snap at their heels and force dramatic changes in the structure of the global economy. There is no going back; these new challenges bring about new ways of working, so that doing what always worked in the past is simply not a viable way forward.

In a rapidly changing world, every business function must find new ways to manage its costs and improve productivity, enabling the organisation to compete more effectively in its chosen market. HR functions are at the centre of these changes and must become more responsive and more adaptable to whatever happens in their business environment. For those prepared to rise to the challenge, it’s an enormous opportunity to support and drive change, through a range of tools including leading-edge technology and service delivery options that contribute to achieving competitive advantage.

HR Ready organisations are well positioned to make their contribution.

Introduction

Textbooks in the HR or Payroll field tend to fall into two categories; the first type is aimed at the deep specialist, concentrating on ‘how to...’ (…design a job evaluation scheme, manage an employee disciplinary, define a competency model etc. etc.). These books often contain too much detail for a general audience and can be a difficult, ‘dry’ read. Others are aimed at explaining basic HR concepts to students but can be too simplistic and of little interest to the well informed reader. This book is boldly aimed at the middle ground – it deals with basic ideas for those that work in or around HR and need to demystify unfamiliar topics, as well as those interested in taking a more evidence-based, academic view of each subject. Its primary job is to provoke the reader into new ways of thinking about HR without getting too caught up in the mechanics of each topic. It also opens the Pandora’s Box of some thorny HR issues – should Payroll be part of Finance or HR? ERP or Best of Breed? Should companies try to make people happy? Are highly talented people just smart people overloaded with confidence?

Shortly after writing my first book (The Big Book of HR), I (finally) completed a Professional Doctorate, based around HR’s complex relationship with technology and how, in particular, HR makes sense of and justifies its investment in IT. The experience of several years spent studying the dark corners of academic HR research set my HR practitioner and consultancy experience in context and gave me a framework for exploration, removing a nagging suspicion that somebody out there had all the answers (it seems that nobody does and most of the time there is precious little agreement as to what even the most basic concepts mean!). It also highlighted to me that HR professionals and HR academics operate in quite different worlds and that they really ought to find some common language to enable them to communicate better with each other. After reading countless obscure, dull and often impenetrable HR articles, I came to the conclusion that much of what is published in academic journals is generally inaccessible to HR practitioners, despite some of the incredible value it contains. I’m convinced that HR people would benefit enormously from exploring and applying academic research as part of an evidence-based approach to Human Resource Management; it’s not enough to base strategies on what comes out of conferences, internet searches and personal networks. Equally, academics need to work harder to make their research more open and practical. I have tried to straddle both worlds by providing as much theory as possible (based on almost three hundred research references) in special 'Theory Zones', so readers that just want the key points can easily skip those sections.

The Big Book of HR was essentially a compilation of various articles and ideas that had been developed over a period of several years. This current book began life as a straightforward update of The Big Book of HR, an opportunity to improve on some sections I no longer liked or necessarily agreed with. Missing from the first book was a central defining idea to provide a framework for its content, which has now been addressed, with the central theme running through the book being the idea of competitive advantage (hence its subtitle), a concept often missing from academic and practitioner accounts of HR. The primary thesis is that this should be the ultimate objective of everything HR does; the simple question "How does this help our business compete better in its market?" should be asked regularly. HR Ready also raises questions about what HR organisations need to do to be fully prepared for a post-recessionary world that is unpredictable and uncertain. Like the ‘HD Ready’ theme from which it borrows (relating to future-proof televisions!), it alludes to future-proofing the HR function, being resilient, adaptable and helping organisations to compete better in their chosen markets. Because it draws heavily on academic material, the book is also a thesis, proposing and defending the HR Ready theme; like any good academic, I’m prepared to accept I may be wrong and may have missed something, so it’s also the basis for a research model.

Finally, a couple of comments about language and terminology. I’ve always believed in the importance of plain English, despising clichés and management speak as substitutes for ‘real’ thinking by those incapable of expressing a complex idea in simple terms. A recent study (Daily Telegraph, May 14, 2013) found that expressions such as ‘Thinking outside the box’, ‘Let’s touch base’ and ’Going forward’ were the most hated examples of management speak. I have therefore tried to avoid using ‘buzz’ words and meaningless phrases, although if sometimes the odd one slips through in error, I can only apologise. I was initially concerned that in many cases, it was apparently impossible to define many of the terms in common HR usage – whether it was talent management, performance management, HR technology or even the concept of strategy, time and again I discovered a multitude of contradictory definitions and explanations. It seemed that in many cases, there was simply no commonly accepted meaning for words that were part of everyday Human Resources language. I worried whether this was symptomatic of an HR function in turmoil, lacking in science and reliant on a series of half-baked ideas. I then discovered that most other professions have similar problems – it seems that psychologists cannot agree on what ‘personality’ means and biologists cannot agree on definitions for the words ‘species’, ‘organism’ or indeed, ‘life’.

That made me feel much better.

Dr. Steve Foster

July, 2013

Special thanks to Jonathan Ellard, Julie Lock and Peter Yates for their valuable comments.

HR Ready: An Overview

HR should not be confined by what it does but by what it delivers – results that enrich the organisation’s value to customers, investors and employees

David Ulrich, A New Mandate for Human Resources, 1996

In the mid 1990’s, management guru Dave Ulrich opened his book ‘Human Resource Champions’ with a challenging question; "Should we do away with HR?. His answer was simple and unequivocal – yes, if HR fails to deliver what the business needs. However, his next question How can HR deliver results and create value?" is more useful and it is this topic that this book addresses.

Depending on your view of the economy, much of the world is currently either deep in recession, starting its recovery or on the verge of recovery; either way, changing economic conditions represent both a threat and an opportunity for HR functions. Some will emerge stronger, having helped their businesses to adapt to the challenges, introduce innovative solutions and find new ways of working. They will be leaner, fitter and ready for a period of growth. At the same time, others will revert to old ways, having abandoned their plans to be more strategic, settling into a more traditional role as an administrative support service. Tough economic times often have a Darwinian impact on business – success goes to those who can adapt in the face of new circumstances and they eventually mutate into a different kind of animal, while those that fail to adapt are marginalised and eventually become extinct. Whereas profitability in boom times often masks accounting realities, recessionary times have a way of highlighting flaws in the underlying business model at the organisational and functional levels. The past five years have seen the fortunes of some big corporate names that were once thought to be indestructible, fade away. Think Woolworths, TWA, Borders and Saab, none of which any longer survive; it seems that every day we hear of new casualties. Likewise, many HR functions that have survived previous recessions have found themselves hit hard as organisations undertake deep dives into reviews of HR efficiency and ask difficult questions about the function’s contribution. Some recent research (Roche et al., 2011) looked at how HR organisations are coping with the current recession, suggesting that there will be one of three possible outcomes for the HR profession as a result of economic turmoil:

❐ A ‘cataclysmic’ outcome for the HR function, where it fails to make any noticeable contribution to the business; organisations conclude that HR has little value and it ultimately withers and dies. In this scenario, the HR function faces a dramatic cut in numbers, while ‘transactional’ HR processes are increasingly relocated to low-cost countries.

❐ The second (which represents the dominant perspective among HR ‘commentators’) suggests that the recession will increase the stature and influence of the HR function and deepen the appeal and perceived value of HR practices. In this glorious future, HR finally proves its worth to the business and achieves the respect it craves.

❐ The third strand takes the middle ground. In this contingent scenario, changes are pragmatic, eclectic and incremental in nature, leaving continued doubts over the future of the function. Potentially, this represents failure, a kind of indecisive ‘HR purgatory’ where managers continue to lack respect and HR is rendered feeble and impotent.

One of the disappointing conclusions the study reached was that "On the whole, there is a relative absence of reports of innovative HR approaches to the economic recession" (p8). This is not good news for the HR function. It suggests that even in the face of deep recession, HR has generally continued to do what it has always done – cut training budgets, reduce bonuses, introduce pay freezes and pay cuts and take tougher negotiating positions….but not take positive steps to re-invent itself for a totally different world. Although not explicitly stated, it suggests HR is heading for the third option – hanging by a thread. HR Ready is an opportunity to prepare the function to cope with whatever is next, whether it’s boom, bust or steady state.

The Seven Pillars of HR Ready

In recent years, there’s been a debate about what constitutes ‘good’ HR. One difficulty is that the profession lacks a single, unifying theory against which to benchmark good practice. The problem is further compounded because the outcomes of HR are generally long-term and often intangible, with a multitude of economic and political factors potentially blurring the impact of HR initiatives. The result is that there’s often no straight line connection between what HR does and bottom line business outcomes. It can take several years for an HR initiative to pay back - one of the objectives of HR ready is to make HR’s contribution transparent and evidence-based so it can thrive.

The book is in three sections. Part One deals with the seven pillars of HR as shown in Figure 1, each of which is described from a practical and theoretical perspective, with appropriate evidence from the available research material and case study examples where they illustrate the key points. Why seven? Well, I have theology, history and mathematics on my side; seven is everywhere – seven hills of Rome, seven days of the week, seven wonders of the ancient world, seven deadly sins, seven ages of man, seven dwarves, seven samurai, seven brides for seven brothers, the Magnificent Seven, the Secret Seven and let’s not forget James Bond as 007. In the ancient world there were seven known ‘planetary’ bodies – the sun, moon, Mercury, Venus, Mars, Saturn and Jupiter. The Christian Bible contains many references to the number seven (such as the seven virtues and the seven sacraments). Mathematically, seven is a Mersenne prime , a Woodall prime, a factorial prime and a safe prime. Even Harry Potter thought that seven was a magical number.

Part Two describes the six tools available to organisations to become HR Ready, such as the use of e-HRM technology, creating a business case and business process improvement. If there were seven tools, it would have given the book a certain poetic symmetry, but until a seventh tool is identified, you’ll just have to live with the awkwardness. Six is much less interesting as a number and apparently in some cultures is considered unlucky, but I’ll take my chances.

The final part indulges in a little ‘futurism’, exploring where the HR function is headed and the kind of economic, demographic, political and technological environments that HR Ready organisations need to be….well, ready for.

‘HR Ready’ is a simple term that’s partly a test - ‘Are you HR Ready?’ - a benchmark against which the function can be measured. It also suggests a time context; being HR Ready goes beyond more than being able to meet the demands of today, it also stresses the importance of being prepared for what might happen tomorrow, next week, next month and beyond. If I can be allowed to indulge in just a little management speak, the essence of HR Ready is about building resilience for the future, future-proofing the function and making it infinitely adaptable. Fundamentally, it’s a set of competencies that build resilience and adaptability, ensuring HR can thrive and grow whatever happens to the economy. HR Ready businesses are not complacent – they never believe they are ready enough and are always moving, testing their defences, trying to find different ways to stay ready. When an HR function is HR Ready, HR strategy becomes more responsive and more relevant, better connected to the business and better able to become an applied business discipline, not just a service function. Being HR Ready positions the HR function as an integral part of the business, where it would be inconceivable to think about driving the business forward without its involvement and perspective. But be warned - HR Ready is not an easy fix that can be quickly applied. It’s about seeing the bigger picture and exploiting the unique insight that the HR function brings to the organisation, together with "A deep appreciation of what goes on and what really makes things happen, given its people, politics and culture" (CIPD, 2011).

Part 1: The Seven Pillars of HR Ready

1. HR Service Delivery

Why is Service Delivery Important?

In his 1997 ground-breaking book ‘Human Resource Champions’, Management Professor (and HR guru) Dave Ulrich set out a model for the operation of the Human Resource function that would influence a generation. One of the roles he defined for the HR function was the ‘Administrative Expert’, a role designed to cope with the vast range of back-office support services that ensure the business is compliant with statutory requirements and internal policy. HR typically delivers two distinct types of service:

❐ Simple transactional services: Administration arises as a direct result of employing people and covers a vast range of processes – including issuing employment contracts, managing pay and conditions and maintaining personal data, all of which require effective administrative processes. As a minimum, processes must be legally compliant, but ideally they should also be cost-effective, efficient and of good quality. These activities are generally considered to be ‘compliance’ processes – they enable the business to operate within the law and policy, although they do not in themselves provide any direct strategic capability.

❐ Transformational HR services create value for the organisation through processes such as learning & development, performance management, talent management and recruitment, leading to increased employee engagement and the creation of competitive advantage. These types of services tend to be delivered in organisations where the Human Resources model is relatively mature and where adding value is more important than compliance with policies.

Providing HR and Payroll transactional services is expensive for an organisation, representing an overhead to the business both in terms of operational cost and managerial time. Anything that can be done to reduce the cost of delivering these services represents money the business could invest in other customer facing activities that can create wealth. As a result, there is often pressure on HR functions to meet the dual and sometimes conflicting requirement of reducing the cost of delivering service while at the same time improving its quality. A key decision facing organisations is how best to structure the delivery of HR and Payroll services to meet these needs, a problem that remains just as much a challenge now as it did in the mid-1990s.

The HR Service Delivery Model

Planning an overall approach to HR service delivery requires strategic choices to be made about which HR and Payroll services the business needs, how they are delivered, how delivery should be organised and what technologies need to be in place. It involves a complex series of decisions based on the following factors:

❐ Services and Processes: What services and processes does the business need to provide, what additional services is it prepared to pay for and to what level of quality should services be delivered.

❐ Organisation and Roles: How will the HR function be organised in the future (centralised, decentralised, shared services etc.), what types of job roles are needed to operate the service delivery function? How will it be managed to ensure that service quality is maintained.

❐ Governance: How will service delivery be regulated, are accountabilities clear, what form should the service level agreement take and what metrics are needed to measure performance? Service contracts are often regulated through the use of Service Level Agreements that define expectations and Key performance indicators that monitor the quality and volumes of the service. This is less common in in-house services.

❐ Location: Where will service delivery be located – locally, nationally, internationally, multi-site, offshore, onshore? Organisations will need to assess the implications of moving certain processes away from the point where they are ultimately delivered.

❐ HR/Payroll Technology: How should the primary HR technology be aligned to HR and business objectives, services and processes, how should the underlying HR system be set up to ensure the most efficient services and the provision of good management information.

❐ Service Technology: What supporting technologies are needed to improve service delivery, for example, self-service, case management tools, telephone communications, document management and increasingly social media technologies to support case management, recruitment and other processes.

❐ Sourcing: Will services be provided internally, through internal shared services, through a third party provider or through a mix of service channels? How will the organisation choose between these different options and will the decision be regularly re-visited to ensure I remain valid?

❐ People: What type of individuals are needed to deliver services, what skills will they need in the future and how will the organisation develop them and manage their performance? Where will the organisation obtain these skills – through a strategy of building them internally or from the open market?

Figure 2 illustrates the factors contributing to service delivery decisions.

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Theory Zone: Service Delivery

Research suggests that organisations generally lack confidence that HR and Payroll services are being provided as efficiently as possible; in one study, fewer than one third of organisations describe their internal HR function as ‘very cost effective’ (Aberdeen Group, 2009a). There is also evidence that effective service delivery remains an important organisational priority – in one study, 46% identified economic uncertainty as a driver of cost reduction, to a point where it will force the organisation to operate more efficient ‘back-office’ functions (Aberdeen Group, 2012). Research has increasingly recognised that HR needs to improve its customer orientation (Bacon, 1999; Becker & Huselid, 1999).

Assessments regarding HR service delivery differ for transactional and transformational HR; the delivery of transactional HR services meet the administrative needs of end-users and business units, including timely and consistent HR service delivery, faultless HR administration and a standardised provision of transactional HR services (Buyens & De Vos, 2001; Lepak, Bartol, & Erhardt, 2005). Transactional HR services are viewed as a hygiene factor, that is, they do not increase end-user satisfaction once their quality exceeds a certain threshold, but may lower satisfaction if delivered poorly. Transformational HR services involve higher level value creation, based on the client’s Overall assessment of the utility of a service based on the perceptions of what is received and what is given (Meijerink et al., 2013). Perceived value reflects the extent to which a service meets the needs of those who use it (Priem, 2007).

Alleyne, Kakabadse, & Kakabadse (2007) and Buyens & De Vos (2001), found that managerial satisfaction with HR processes and tools had an influence on satisfaction with the overall HR function. HR services are also thought to have an important influence on employee attitudes, so service quality is an important factor in employee and manager satisfaction. Studies have shown that satisfying the needs of managers and employee affects employee attitudes positively, such as increasing organisational commitment.

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HR Delivery Structures

Once HR functions have reached a certain level of maturity (see Chapter 10 on HR Transformation), they have a wide range of options available for structuring service delivery. The following summarises the main types:

a. Service Centre

The starting point for many organisations is the introduction of a service centre (although at this point, it need not necessarily be a shared service model). A service centre treats employee issues as business problems and manages them through formal business processes. Work is divided into routine administration and specialist activity, with HR professionals often employed to deal with areas such as employment law, recruitment and payroll. Likewise, administrators are often professionally qualified in administration, rather than being general clerical staff. The term ‘service centre’ is potentially misleading in this context, with connotations of a call centred filled with operators dealing with enquiries from distant employees. In practice, a service centre relates more to the philosophy of the operation than anything to do with size, location or even technology.

For multi-site or multi-divisional organisations, a key question is whether HR services should be delivered centrally or on a decentralised basis to create economies of scale and improve quality:

❐ Decentralised: Each business unit has full business control over HR activities and provides the services needed for each business unit. Because of its proximity to the point of delivery, the decentralised model is potentially more responsive to customer needs and is able to provide better support for local variations in processes. However, there is a risk that certain specialist activities and processes will be duplicated by each business unit.

❐ Decentralised: In this model, business units join together for some or all services, creating economies of scale for delivery. Again, the service need not be provided from the same location, as centralisation refers to the underlying service philosophy – centralisation can be virtual. Most Payroll and Pensions functions have traditionally operated in this way, providing a common service to multiple business units. The full centralised model simply extends this to include other transactional business processes such as recruitment, training and policy development.

In practice, multi-site or multi-divisional organisations operate a hybrid of centralised/decentralised models, where specific local processes are operated under a de-centralised model and common services are provided centrally.

b. Corporate HR

In addition to a service centre, shared services or outsourcing delivery unit, larger organisations typically operate a Corporate HR function that provides support and governance across multiple business units. Corporate HR tends to provide value-adding processes (as opposed to transactional services), centred around creating an identity and culture for the business, shaping HR programmes linked to the CEO’s agenda, designing processes that link HR to common goals and being a hub for the movement of global talent. Corporate HR functions also frequently provide HR services to corporate level staff.

Corporate HR, like many corporate functions, is often viewed with disdain by the rest of the organisation. One reason for this is that they are perceived to have a ‘policing’ role and being overly bureaucratic. There can sometimes be great tension between Corporate and Business Unit HR – Corporate sees the Business Unit HR as reluctant to comply with corporate policy, while Business Units see Corporate as interfering with local affairs, with no understanding of real-life issues. Of course, individuals that transfer between the two tiers find it very easy to adopt the opposite position!

c. Shared Services

HR Shared Service Centres (HR SSCs) have become widespread in response to a belief that they offer the best combination of centralised and decentralised models. While there may be some truth to this, a shared services operation is not necessarily the same as centralisation – in fact, it’s possible to create a shared services model based on multiple locations, with specialist groups operating from different centres. Likewise, shared services are not the same as outsourcing, although an outsourcing arrangement is typically based around a shared service centre. There are two distinctive features of HR shared services:

They are based on a common, i.e. shared provision of routine HR administration

They are service-focused, enabling the customers of the service to specify the level and nature of what is delivered.

Rather than duplicating activities within each business unit, a Shared Service Centre provides services to all business unit customers. Potentially, a Service Centre can serve many business units, taking into account variations in policy and process across each of its customers. In a true shared services model, the service centre is operated as a separate business unit, with the aim of providing services at the cost and quality levels required by its clients. The customers of shared services choose the type, level and quality of services they want from the centre, at a price they are willing to pay. In principle, a centre could be operated on a ‘menu’ basis, where each customer defines the mix of services they want, although this is less common as the operation of multi-tiered processes