Elevating the HR Function - Part 1 of 2

Organizational capabilities are developed primarily through the development of human resources. Despite the enormous importance of human resources, many organizations treat the HR (Human Resource) Function as just another administrative function with high overhead costs. As a result, the HR Function is often targeted for outsourcing and downsizing; crippling it from its real potential for value-creation within the organization.


Instead of viewing HR as a necessary administrative function, it's high time for all organizations to recognize that the real challenge for Human Resource Management is to lead the way on several strategic fronts - development of formal systems for creating a “learning” organization, effective deployment of human resources for maximum return to the company, and enhancing the competencies of the workforce. Senior Management should take a much broader and strategic view of the HR Function, using it to maintain or create new competitive advantages for the organization. Ultimately, the HR Function should be a major strategic player in how the organization executes its overall strategic plan.

“It has become increasingly clear that human resources (HR) in the future must operate strategically – not as the current ‘partner in business', but as a business in and of itself. There are a number of critical reasons to move in this direction, not the least of which is that it may be the only way HR can take control of its own future.”
- Tomorrow's HR Management , Edited by Dave Ulrick, Michael R. Losey, and Gerry Lake

In order for HR Management to become more strategic, it will have to reduce the administrative, paperwork that holds HR back. For example, things like virtual services - having employees doing their own training through e-learning or changing their benefits on-line will be the wave of the future, allowing HR to move away from pushing paper and doing more consultation type work.

Several factors are forcing change on the HR Function:
- New technologies (such as on-line time sheets)
- Competitive forces
- Organizational changes (such as changes in management, strategy, etc.)
- Increased pressure on HR to deliver services at lowest costs
- New challenges on HR to address strategic outcomes that impact the business

These factors and more will drive a major transformation in how HR will work. According to Ernst and Young, today's HR will contrast sharply with tomorrow's HR:

Today's HR Function = 70% transaction processing and 30% strategic initiatives.

Tomorrow's HR Function = 30% transaction processing and 70% strategic initiatives.

“The reason I think that strategic planning is important is simple. I have worked directly or through associate for more than five hundred companies in the thirty-two years that I have been a personnel consultant. Approximately two hundred of these companies were my direct accounts, so I knew them very well. Every one of these companies engaged in real strategic thinking and strategic planning as a core part of the style of managing has been successful by every measure of enterprise performance as long as they managed in that manner. Every company I have known for more than ten years that has shunned strategic activities in their management processes has failed and is no longer in business. That's pretty compelling evidence for me.”
- Strategic Planning for Human Resource Management by Robert E. Sibson

If HR is to become strategic, then senior management outside HR must become more open-minded, accepting the critical role of HR in driving organizational performance. Once this new “strategic” imperative is accepted by management, then ideas will flow from HR. For example, many people in HR have good ideas, but they are rarely given serious consideration and commitment from senior level management. Even when HR attempts to launch a major strategic program, HR must go it alone with very tepid support from outside the HR Function. Ironically, many other non-operating functions such as finance and marketing have reinvented themselves into high-level decision support centers, using technology and processes for intelligent, strategic type decision making. It seems the re-invention wave never reached the HR Function, relegating HR to its typical role of administrative tasks – compensation, benefits, pensions, and basic personnel management. Therefore, senior management and HR need to form a strong partnership in making the move to strategic HR management.

“Your firm's human capital is a form of wealth that will create more wealth. When you enhance the value of your people, you enhance the value of your firm. A person's value as a human asset stems directly from how his or her knowledge, experience, skills, and competencies match the job in which that person works.”
- Valuing People: How Human Capital Can Be Your Strongest Asset by Lisa M. Aldisert

In order to jump-start the strategic process, HR can embark on several “value-based” practices, such as team building, cross-functional development, linking pay to performance, and assessing individual performance. Even the most fundamental issues can be a good source for HR programs – things like effective communication throughout the entire organization. HR can test, monitor and improve various channels of communication, establishing standard guidelines and “best practices” for information sharing.

One compelling argument for making HR more strategic has to do with core competencies. The HR Function needs to place more emphasis on those things related to capabilities and competencies, helping the entire organization reshape itself so it can meet future expectations and demands. If HR fails to address this critical issue, then HR runs the risk of strangling and impeding the development of HR Capital.

HR will need to embrace a much deeper and broader purpose, reaching into new areas such as expanding the knowledge workers and improving the relationships between employees, managers, and customers. Part II of this article will outline more specific initiatives for making HR highly strategic.

“As more organizations have recognized the importance of human capital and knowledge management with respect to competitive success, it is reasonable to expect that HR professionals would be at the forefront of organizational leadership. Yet, to the contrary, the importance of activities performed by HRM units seems to be losing ground in a majority of organizations, while other functional areas (for example, information technology, operations, finance) gain greater and greater influence. It is essential for firms to recognize that people, rather than technologies or process, are best able to sense and make judgments that put structure around the inevitable disorder that results from these forces. Therefore, the knowledge economy, more than any previous market trend, places a premium on human talents. Consequently, the management of a firm's HR, more broadly defined than ever before, will be pivotal in determining the ultimate success or failure of the organization.”
- Human Resource Management in the Knowledge Economy by Mark L. Lengnick-Hall and Cynthia A. Lengnick-Hall