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:
1. Build strong functional/product expertise while aligning around
customer segments
2. Design in flexibility without adding cost
3. Connect the front and back of the organization and have them
work together seamlessly
4. Deliver complex solutions through the formation and dissolution
of teams
5. Get the benefits of both centralized infrastructure and decentralized
decision-making
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.