Category: HR Basics

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The "right" HR Organization

In my last post I have written about the value contribution that HR adds to the companies bottom-line. But, what I experience in my client discussions lets me ask another question: Why should we discuss bottom-line impact when this is not wanted from HR? Or when HR’s customers do not understand this? Or believe that they don’t need this?!

All three questions are important to discuss, within the HR function as well as with HR’s customers before an HR Transformation should take place.

In the recent weeks I independently met the HR Head of a German DAX daughter as well as his most important client to talk about HR business partnering. And analyzing these discussions retrospectively, I must conclude that the requirements towards HR, the expectations as well as the understanding what HR should stand for were highly different: The Head of HR is about to transform his function towards the Ulrich model to establish a more strategic, actively participating HR function. However, his main client has a very different view on what is HR’s role. For him, HR is responsible for administration first, followed by policies and works council interactions. For the most important HR client, HR is nothing more than an administrative function – strategic learning or talent management, organization development are not part of that!

This was not the first time I had this experience. And because of this it is most important and a necessity for HR to ask themselves a question before starting a transformation: “What is the right HR organization for my company?” – and answering this question is not trivial.

In his articles and books about HR Transformation, Ulrich has asked for every HR Organization to contribute to the bottom-line. Based on my experience I have to intervene. Not each and every HR Organization in every company has to do this. Why not? – well, in principle, two important aspects have to be considered:

a) is there at all a business case for the transformation? – the costs of a fully fledged HR transformation are high (direct as well as indirect costs). And in today’s economy the payback period needs to be short – we normally talk about 2-4 years.

b) an HR transformation based on Ulrich has two main goals: Efficiency gains through the shared approach as well as effectiveness through enablement of transformational HR services.

To enable the efficiency gains, a company has to have a critical mass. At least 10.000-12.000 employees in one country/ policy/ language area is necessary to build up a quality oriented, cost effective Shared Organization.

Not only the critical mass is important, but it also has to be asked, if HR needs the effectiveness gains? – does my company need a strategic, business oriented HR department which enables strategic personnel planning, total compensation, talent management, etc. ? – there are companies that do not need this. And in those cases, I would opt out of an HR transformation.

Next to these two questions, “understanding Ulrich HR” as well as “wanting Ulrich HR” are interesting questions, which I will touch in my next post.

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HR's Bottom Line contribution

In one of my last blogs, I have already mentioned that cost cutting is still one of the most prominent topics for HR departments. Cost cutting through company wide employee reductions (even when the company is doing well…), but also cost cutting through HR internal efficiency gains, automation and HR employee reduction. Ok, in many companies the HR ratio is still south of 1:100 or even 1:80, which calls for action – but this is not true for all companies.

But besides the ratio discussion, one should ask a different question: What is the effect to the companies bottom line? Too often HR departments are still and only seen as costs, but a modern HR department can (and I mean can as I haven’t seen many that perform in this way) have a positiv impact on the companies bottom line!

Within the last few weeks I had the opportunity to talk to two Bord members responsible for HR and we discussed the topic of “HR’s bottom line value contribution”. In both discussions, the value of HR was unclear. This is not only because these Bord members were not HR specialists, but also because their Business Partners were not enabled to show them the positive impact that HR can bring.

Most of today’s HR departments already contribute to the bottom line: Training for example, almost every HR department that I know does offer training to the company’s employees. And a good, target group and business focused training does have a positive impact to the companies bottom line. Why? Where? How?
This is an easy answer (however, measuring this success is a bit more tricky): each and every positive performance impact through the training is HR’s value impact.

HR’s problem though is that there is in most cases no metrics system that enables identification of bottom line contribution. HR today only measures things like training days delivered per employee or training costs per employee. These figures just show the negative contribution of HR: costs and having employees non-productive days counted. – HR of course needs to follow up on these figures, but has to market the positive figures more prominently. The occurred costs do have a positive bottom line contribution! (And if not, the wrong trainings are applied…)

And once an HR department is able to show the value and bottom line contribution, it can be much more confident when the next round of cost cuttings are coming. This is “having strategic discussions at eye level”, this is where HR should be! This is why HR should have a seat at the table and this is how HR should use it!

More about HR Analytics and HR Balanced Score Card in one of my next posts.

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Ulrich's idea of HR governance

In my last post, I have introduced “HR for HR” and completed the last of Ulrich’s roles. But to get them to cooperate and successfully deliver on HR’s agenda a governance model is needed.

The usual Governance Model that we see in companies is hierarchically driven. There is a clear top-down mechanism enforced by a clear “Head of”. Ulrich has drastically changed that classical model of hierarchy in his thoughts of how HR should be run. He doesn’t really lay out his reasoning for that change but in his model it does make sense.

Ok, so what is different in Ulrich’s Model? – the absence of any hierarchy! For Ulrich the different roles (CoE, BP, Shared Service Center, etc.) are all on one level, working in a horizontal set-up. This means that there is no hierarchical escalation or decision making process. Ulrich has based his model implicitly on the ideas of the internal market. Meaning the usual exchange between supply and demand. This is true for all of the HR roles.

The demand is personalised through the HR Business Partners. They are the one’s presenting the demand as a stand in for the real HR customers. Supply is realised by the Centers of Expertise as well as the Shared Service Center. In this hierarchy-less set-up these roles have to align themselves to each other to ensure that a) the demand is met and b) also new, innovative ideas to bring forward the whole of the company are presented to the customers.

This set up is very fragile and it is often not implemented in its pure way. This is due to the fact that most companies cannot execute a clean and clear internal market model when it comes to HR. I talk more about that in my PhD, but I don’t want to bore you with theory. Often the set-up is either that a hierarchy instance is institutionalised by a clear HR Leadership Team overseeing and guiding the three Ulrich roles, or even that the HR Business Partners are placed on top of the pyramide.

There is no right or wrong, it all comes with advantages and disadvantages. However, it is important to understand how Ulrich wanted his roles to interact to enable the full power of his model.

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Professionalizing HR – HR for HR

Alright, so Ulrich got the Business Partner, the Centers of Expertise as well as the Shared Service Center. But these three roles are not sufficient for his model to work in real life. So he introduced in the early 2000 two additional roles to support his model: The Operational Implementers and the HR Leadership Team. Why are these so important?

Well, I guess many of us who have seen Business Partners have seen that still a lot of operational (or high-touch) tasks remain in the organization on the ground – things that cannot be executed from a shared service center due to distance. Without the Operational Implementers the Business Partner would be stuck with them. But Ulrich wants the Business Partner to be freed up for strategic tasks. And to enable this, Ulrich introduced the Operational Implementers – they are sitting in the BU, local, wherever the on-the-ground work needs to be executed. In addition to that they support in implementing the strategic agenda – meaning executing the Change Management, the local implementation of new processes – that is why Ulrich has called them Operational Implementers.

The 2nd additional role is the HR leadership Team or HR for HR. Ulrich said that to make his model work in real life, there needs to be a functional oversight, a body that steers the overall direction of HR within the company as well as an HR body that executes the CEOs agenda. This is the HR leadership team. It sits where the CEO sits and is responsible for  a) executing the CEOs agenda b) ensuring alignment of all HR people to the overall strategic direction of the company c) solving internal issues between CoEs, BPs and SSCs and d) ensuring continuous improvement and learning of the whole HR organization.

These are now all roles that Ulrich has envisioned. Now what it needs is a governance model to link these roles and ensure cooperation – this is quite  interesting in the Ulrich Model, and highly controversial, but I will get into it in my next blog.

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Professionalizing HR – Business Partners

In the last post I have talked about the Shared Service Center as well as the Centers of expertise – one very important role, actually a completely new role for HR at the time Ulrich hast started his ideas, is the HR Business Partner. The Business Partner are in their job pretty close to consultants.

They are analyzing and diagnosing the organization of their clients (may it be a function or a business unit) and (a) brokering services from the SSCs and CoEs to the line as well as (b) supporting the CoEs and SSCs to design the right (meaning fitting) HR products. HR Business Partner have to first understand their clients business: How does it work? What are key trends? Where does this organization want to go in the next year, 2-3 and 5 years? – this is essential knowledge to diagnose and consult effectively. This is very easy to understand for consultants – they do that every day!

But for HR professionals, which are often heart & soul HR people, this is a 180 degree different understanding from what they have learned and executed for most of their HR life.

These three roles are the core roles of Ulrich’s model. However, there are two more to understand Ulrich’s concept. He himself only got to them later, but they are essential for the model to work. I will talk about these roles in my next post.

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Professionalizing HR – starting with Shared Service Centers

Ulrich very often is utilized to legitimate cost cuttings in HR but that is not what Ulrich meant. I have written already in my last post that Ulrichs foundation is in the resource-based view. The 2nd misinterpretationis to reduce Ulrich down to Shared Service Center only.

Concentrating only on Shared Service Centers in HR is a big mistake if not to say the worst you can do. And why? Easy answer: HR work does not only consist of transactional/ administrative tasks, but also (to use Ulrichs language) transformational tasks. And on a continuum of tasks, these are on the opposites. It is not possible to treat both in the same way.

Ulrich says and in that he is right: Transactional HR tasks are standardizable, exchangeable and non-differentiating. Still, they have to be delivered (or who wants to claim that although it is a standard process, payroll can be neglected ;)). But these activities are destined to be delivered through a Shared Service Center or through outsourcing.

Differentiating are transformational activities. With and through these, companies and the entire workforce can be formed, motivated and targeted in their day-to-day work. For Ulrich, these are the most important activities for HR, these are value leavers! And for those, Ulrich has foreseen the Centers of Expertise. They are the strategic and conceptual part of HR (core HR if you want). With its knowledge about the company and its functional expertise their mandate and job is to design and develop tools (meaning processes, services, etc.) that motivate the workforce and that make the whole workforce more efficient and effective. Of course, as soon as these tools are finalized, implementation and day-to-day servicing lies with HR Business Partners and the Shared Service Center – no question on that. But the transformational part lies with the CoEs.

Sometimes I hear from our clients that CoEs belong into the Service Center, but this interpretation of Ulrichs idea is wrong and honestly, not working. Why? The goals of both are diametric. I will talk about this in the next post in more detail.

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Employees are the most critical resource of a firm

Some of you might still remember the good old days in university when the theories of the firm were introduced and discussed. But for all the others, it might be new – however, I am sure it is interesting for everyone. Why? – because it shows what Ulrich really meant by introducing a new model for HR.

The resource-based view (RBV) dates back to the 50ies of the last century. Edith Penrose (1959) was the first one to talk about resources as critical factor in competition. Before, competitive advantage had to be found only outside of a firm. She was the first one to search for differentiation within the firm. She distinguished between physical and human resources. But her ideas were quiet until the early 80ies when Birger Wernerfelt (1984) took a look at Penrose’s ideas. He further distinguished resources into „brand names, in-house knowledge of technology, employment of skilled personnel, trade contracts, machinery, efficient procedures, capital, etc.“ He also claimed that through specific, targeted usage of resources, a firm can reach competitive advantage. This competitive advantage is of strategic interest, and to create such a strategic competitive advantage through resource management, the resource has to be:

  • of strategic value
  • scarce
  • not reproducible
  • not substitutable

Both, Penrose and Wernerfelt identifed that employees of a firm are such resources – or at least the knowledge and capabilities of these employees are such strategic resources. And actually still today employees can be strategic resources – if identified and utilized like that.

However, this can be both positive and negative. If employees are not motivated, not educated or not aligned to a firm’s goals, they are still differentiating – but in a negative way. And this is where we as HR professionals come into the game – all of our ideas are based on the resource-based view of the firm and we are trying to transform employees into a positive competitive advantage.

And this is also where Ulrich sees the basis for his model: The RBV is the basis for all Strategic Human Resource Management concepts. Ulrich is one of them, and so he claims that through the “Art of right HR”, the HR department can transform all of a company’s employees into strategic competitive advantage. And the “Art of right HR” means using his model.

In his books about the new mandate for HR, and also before, Ulrich talks about “Organization Capability”, the capability of organizations to serve as competitive advantage, he writes: „Organizational Capability is more than just people. People represent a critical aspect of organizational capability, but it is the organization and people management system that focus people’s attention and shape their behavior to create an organizational capability.” For him, this is the only remaining competitive advantage – all other resources can be imitated at some point. But employees and organizations remain inimitable.

And having this thinking in mind, it is easy to understand that Ulrich’s aim was not to be more cost-effective, to scale down HR costs, but he had the aim to transform the HR department in something that can create “organization capability”. This is something we should always have in mind as HR practitioners. Yes, Ulrich is also the “father” of the HR Shared Service Centers (which are focused on cost-effectiveness), but the SSCs are only one step in creating “organization capability”. In the end, more emphasize lies on HR Business Partners and Centers of Expertise. SSCs are only the foundation for the Ulrich model – the real value comes only when utilizing BPs and CoEs.

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The beginnings of Ulrich

To understand Ulrich, we have to understand where he is coming from. This, you will see, brings light in what he wants to achieve. In his early days as a researcher, Ulrich was into competency research. Already back in the 80ies he has started an important project which a) is still going on and is quite interesting for us in HR as well as for Talent Management and b) builds the foundation for his model. This project is called “The Human Resources Competency Survey”. Some more details about it as well as the results of the latest edition can be found here. For deeper understanding I suggest to read “HR from the Outside In: Six Competencies for the Future of Human Resources” (2012) or “HR Competencies: Mastery at the Intersection of People and Business” (2008).

The HR Competency Survey is the biggest study on critical success competencies for HR professionals. The study is mainly influenced (as is Ulrich’s model) by US participants, but in its recent two episodes it was rolled out all over the world. In fact, not only Ulrich is running this, but some researches (see for example here) have used his survey to assess companies/ industries in different regions of the world.

In his study, Ulrich identified the critical competencies that an HR professional must have to be successful in todays business world. His study is based on self- and peer-rating of competencies as well as rating of company success/ business success.

After running 3 rounds of the survey (end of 80ies, beginning and mid 90ies) Ulrich used the results to propose a new model for HR based on a new purpose and backed with an organizational idea. Not the first mentioning but the most popular article about it was A new mandate for HR.

His 2nd theoretical basis, and this is an important one to understand, is the resource-based view of the firm. I will talk about that in my next posting.

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Who does really understand Ulrich's ideas?

Many of us in HR have daily interaction with the so-called Ulrich Model. Out in the HR space for more than 15 years now, it is the most popular and most implemented HR Organization-Model worldwide.

Most consulting companies are basing all of their HR Transformation related consulting on Ulrich’s model for a decade or so as well. But honestly – who has really understood this model? who knows the theoretical concepts behind? and who can based on his/ her understanding really explain in detail the functionality of this model? – my experience is that not many HR people have fully understood the model. We all talk about it and are using the fancy vocabulary of Business Partner, Centers of Expertise and Shared Service Center. But the model itself is far more complex than those roles, the meaning of the model and how it works, what it changes is not fully understood.

I am designing, implementing and stabilizing HR Organizations based on the Ulrich Model for more than 8 years now and in addition wrote my PhD about it. My knowledge both theory and reality I would like to share with all of you. This will be partly facts and figures, and partly discussion and maybe even more – like enhancing the model or growing it to a new big thing.

I think this is really important and hope you find it interesting.

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HR's Monotony

I’ve been working in HR for over 10 years now and for over ten years there is one word which is hunting me “Dave Ulrich”.  He is everywhere – sometimes literary sometimes just in his vocabularies, i.e. Business Partner, Centers of Expertise/ Excellence and Shared Service Center. I am not aware of any HR department which is not aligned to or at least utilizing the Dave Ulrich Model as basis for their HR department organization. This is also supported by popular empirical studies – mainly of the consulting industry. Ulrich is everywhere and that means monotony!

Alright, it does make sense that if something works perfectly there is no need to change it. And in those case, monotony has to be accepted. However, there are two questions two be asked, before we really accept that:

1. Is the Ulrich Model with its Business Partners, Centers of Expertise and Shared Services really a success story?

2. And can it still serve its purpose if everyone is utilizing it?

Well, answering these two questions is not easy. In fact, I have dealt with these two questions (and some more) in my dissertation. The results of my (German based) empirical study are not yet published which is why I cannot go too much into the details; but as an HR consultant I have not seen many companies that have implemented the model in all consequences and in a way intended by the creator. Therefore, the results of other popular studies are not surprisingly showing dissatisfaction with the Ulrich model (see here for example).

2. – The meaning and purpose of Ulrich’s idea is often misunderstood. It is utilized to cut costs in HR, to industrialize HR services. But Ulrich had opposite intentions: He wanted to upskill and upvalue HR and its employees. HR should be enabled to deliver value, to play its role in company success – measureable, predictable, comprehensible.

What does Ulrich mean by value proposition? – Well, for Ulrich (and the same is true for me) each and every employee of a company is a critical resource. This understanding is not really new –in fact it dates back to 1959 (Penrose). If you have a look into the recruiting brochures of your companies – almost any company, this understanding is represented there. However, when it counts respectively where it counts (meaning in the HR department), this is only a marketing story. Opposite to these glossy brochures, the main topic of HR in the recent years was cost-cutting and down-sizing, right? Sustainable resource-management (meaning employee-management) is hard to be found. And that is why Ulrich’s idea is not to be found, although his model is used.

Of course, HR departments cost money, and administrative processes like payroll, master data management, learning administration or policy administration do not have a direct positive value proposition to the companies balance sheet (probably a negative effect…). But the calculation is missing out the most important facts – identification of the real value proposition and brining those figures into the calculation is not difficult, it is just different than what HR does today.

And if I see both sides: The management/ HR customers that only see the costs and HR departments with an understanding that does not represent the real value proposition HR brings, then I have to say – sadly – that in the last 15 years no sustainable change was initiated. And as Ulrich said 15 years ago “away with HR” – I have to say “depression ahead”, but still I believe in HRs value proposition and will bring my ideas and comments to you in the coming entries here at chiefHRofficer.de