Category: Human Resources

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New HR: Understanding HR’s Customers – Shareholder

In my last post I started introducing New HR with discussing HR’s customers: Management, Shareholder, Customers, Employees as well as Unions/ Works Councils to better understand the requirements and environment HR faces in today’s world. Having discussed Management last time, today I will discuss Shareholders.

Shareholder

Before Ulrich introduced Shareholder as an important customer for HR, no external group (or semi-external) was really considered a customer of HR. Ulrich has changed that – and this was an important step for HR. Why? – Well, of course one can have different opinions on the importance of satisfying Shareholder’s expectations, but no one can neglect that a company without Shareholders would go cease to exist.
However, during my visits to different HR functions of different german, european or global companies I have not found more than a small trace that these HR functions take shareholders serious and really understand their expectations and work accordingly. So there is still quite a room for improvement. But before going into this topic, let’s start with why Shareholders are important customers for HR.

The connection is a fairly easy one. Shareholders have in general one or two main targets why they invest in a company. The first and in most cases only goal is to generate a good ROI, may it be through dividends or a rising share price. Sometimes an additional, sustainability focused goal is added and also actively promoted by the company. (just listen in to Apples last analysts call…). And HR is one of the functions to have an impact on these goals. Not a direct one, but an indirect impact. How?

Well, when it comes to the company’s external representation, HR plays a big role – through Recruiting and how HR is representing the company in building an outside view of the EVP (Employee Value Proposition). In addition, as already discussed in one of my earlier posts, HR should not be a backoffice function, but a performance support for the business functions. And the business functions in turn should generate a good margin to satisfy the Shareholders.

Ok, but why does HR then need to treat Shareholders as customers? – because Shareholders do not just by chance invest in a company. They do this because the believe in this company and its ability to generate an ROI. And HR needs to understand this “believe” what is it the Shareholders believe in? Is it quality? innovation? size? – whatever it is, this is what the company needs to deliver on and what HR a) needs to support and enable through processes and products as well as b) also shape and emphasize in its external recruiting market approach.

Sharholder’s reasons to invest in companies have changed over the period of the last 15 or so years – meaning since Ulrich discussed them. But, their importantce and how to treat them in general did not change.

This discussion has hopefully shown why Shareholders are important for HR and why HR needs to treat them as customers. In my next post I will highlight external Customers as customers of HR. Another group which was neglected pre-Ulrich.

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New HR: Understanding HR's Customers – Management

In my recent post I already mentioned that for me the next evolution of HR is outstanding. I am deliberatly speaking of HR and not the HR function or department. From my perspective, just taking the HR department into account when speaking about HR tasks and responsibilities is short-sighted and no longer viable. In addition, I believe that the HR departments as they exist today need to split into separate, specialized departments.

But step by step: Before thinking about New HR, the requirements and challenges today as well as tomorrow need to be explicitly debated – New HR should be applicable at least for a decade to really offer sustainable value for todays businesses. And debating starts with understanding who are the customers of New HR?

Basically, since Ulrich has performed his evaluation of HR’s customers, not much has changed – however, the importance of the different customers has changed. Therefore, examining the different customers, their requirements and challenges builds the starting point for New HR.

Back in Ulrich’s times and the same is true for today, HR’s customers are:
– Management
– Shareholder
– Customer
– Employees
– and in many countries and many industries: works councils and unions.

1. Management

Let’s start with Management, starting with the Board, down to Teamleads. Each employee with leadership responsibility has to be counted into this category. But of course, this makes the diversity in this group big and of course the different levels of leadership positions have different requirements for HR, need different HR services.

Top Management requires strategic as well as operational HR support. It needs a true and capable HR player, not only partner (like Ulrich used to say), who is capable of advising across the complete menu of HR. This advisor role is of course future focussed (strategy) as well as based in today’s business (operations) – but in any case beyond a company’s workforce.

Just below the top management level, the mid-level leadership team also requires HR support. This is less strategic and more operations focussed – but still not to be mixed up with transactional. This is the layer that puts strategy into practice – and this requires people. Typical HR support here is Change Management or Journey Management or Organization/ Workplace Design.

And last but not least there is the Teamlead level. These are managers that often don’t see themselves as Management – however, they do lead teams and have to form those teams as effective as possible. In addition, this is the group that has to mainly deal with employees, their careers and demands on a daily basis.

Current HR models do not entirely answer these requests in theory, and in practice mid-level Management and Teamlead support is often non existent.

New HR has to deal with these requirements and find cost-effective, efficient answers. In my next post I will debate Sharholders as the next customer group of HR.

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Real Talent Management – from hype to necessity

HR for a long time was based only around administrative, transactional activities. Fact is that HR as we know it today originated from “personnel” which did not do anything else (at their time) than contracts and pay checks. Only over time the working field of “personnel”  has changed. From “personnel” the next evolution was to personnel administration in the 1970ies. This was also the first time that personnel was a separate department. Before, it was mainly a sub-function. From personnel management at the end of the 1070ies the next transition was to Human Resource Management in the mid 1980ies. Only in the 1990ies (although already recognized in research in the 1980ies) Ulrich with his Strategic HR function appeared. Until today though, there was no big evolutionary step afterwards. Strategic HR is still where we are today.

But the question is if the next evolutionary step is outstanding? – research as well as practice should get ready to answer this!

In recent years the term Talent Management appeared and grew big. In the beginning understood as elite coaching of high potentials, it changed to being a new hype applicable to each and every employee and applicant supported with high gloss company image pages and campaigns. But this is just marketing. In many firms Talent Management is not a lived reality. But if a firm wants to be successful or wants to remain successful, Talent Management should become lived reality pretty soon – the war for talents is on if not over, and the talent has won!

Important skills a rare!
In general, in most 1st world countries, especially in Europe, the available workforce gets smaller and smaller. On the other hand, the trend towards more complex products and services requires more and better skilled employees. In addition, today’s talent is way more flexible than ever before – but not for the good of companies: Flexibility for today’s talent means that talent is ready to switch jobs and even employers if they do not find fulfillment in what they are doing – but on the other hand are not flexible to trade work-life-balance today for more money tomorrow.
Talent Management has to step in here and offer a solution. Real Talent Management means more than single non-coordinated programs or high potential coaching. Real Talent Management is an integrated part of the complete employee life-cycle, therefore built into each HR process, but also integrated (and this is as important) into the day-to-day work environment of each and every employee. This means that all direct Talent Management processes (e.g. Performance Management, Learning, Succession Planning, etc.) are implemented – and of course aligned with the goals and strategy of the company as well as the needed employee profile. But in addition, the secondary Talent Management processes (mainly HR admin) need to be aligned with Talent Management as well. This means for example that an HR Serviceline is not only utilized to be efficient in answering employee requests, but treat employees as valuable talents – so have a kind of CRM system to better service each and every employee.

Last but not least, embedding Talent Management in the day-to-day work environment. Especially at the work place the management team/ leadership needs to live Talent Management by example and action – because this is where talents spend most of their time. And if they do not feel Real Talent Management at this place, all other initiatives and processes will not be successful.

In essence, Real Talent Management is a holistic approach to Talent Management which of course sees HR responsible for it, but which needs to be lived through each and everyone with HR responsibility – and this also means management at each level.

From my experience, today’s HR departments are not in a position to support Real Talent Management – hey need to adjust. In addition, there are external pressures for example through Integrated Business  Services that urge HR to change and adjust, too. Answers to these new challenges and requirements as well as the external pressures are so far not to be seen in theory or practice. For me, Real Talent Management is the next evolution of how HR work needs to get organized and done. But more about that in my next post.

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The HR Balanced Scorecard

Today I would like to talk about HR metrics – what is, I honestly believe, one of the most important but underdeveloped HR skills. Only very few companies, I have been consulting for in the recent years for example had an HR Balanced Scorcard. Fact is that most companies are not even in a position to measure basic HR reporting figures. Even some of the DAX companies only have a rough idea on how many people they employ. Topics like employee skills, job-profiles or similar are far off. Problem though is that if I don’t know the figure, I don’t know my performance, meaning I cannot improve it.

When having HR metrics discussions, it often leads into an IT discussion. For a long time this meant big fat ugly ERP – expensive, hard to implement and not very flexible… With today’s SaaS solutions the picture paints itself already very different. Especially solutions like SuccessFactors or Workday are a gold standard. Of course, also these SaaS solutions have their issues and difficulties when to implement, especially in Germany – but more about that later.

Ok, so why is an HR Balanced Scorecard so important? – To be a really strategic HR Function with having a consequent focus towards company goals an HR Balanced Scorecard is key. A Balanced Scorecard always has to be company and (HR) strategy specific. There is not “one-size-fits-all”, however the basics can be applied to any HR function. And this Balanced Scorecard help with two things: a) measuring the “right” things and b) making sure that HR improves these things.

Like every Balanced Scorecard, the HR Balanced Scorecard has to represent the performance of the entire HR function on company level. To achieve this, four quadrants should be covered:

  • Financials
  • Customer
  • Innovation/ Learning
  • Process

These represent the four views on HR.

Financials – first the most obvious. All companies are finance-triggered, and only when assessing HR against financial performance indicators, a real bottom-line impact of HR can be measured. Potential indicators are “HR expense ratio” or “staffing efficiency ratio”.

Customer – HR has always been and will always be a service function. HR should never just by itself decide which projects should be prioritized and which shouldn’t. This always has to be executed in close cooperation with HR’s customers and customer needs. Customer is the second most critical indicator! Example indicators are “new hire quality” or “% of critical workforce with workforce and succession planning in place”.

Innovation/ learning – closely aligned with customer, the topic of learning and innovation mainly focusses on workforce effectiveness and how to improve it. And how can HR best influence it? – through targeted training measures as well as targeted performance management. Example figures here are „% of critical capabilities in place/ increased“ or very important not only by itself, but also for innovation “diversity“

Process – last but not least. Process brings the inside-out perspective for HR. How does my HR function perform? Is it efficient? How do my processes run, where do I need to get better at, etc. This category plays the basis for all other three. If this one delivers poorly, the other three cannot be good either. Example figures are “time to fill”, “new hire pipeline”, etc.

HR should measure itself and its performance according to these four quadrants. On top-level and of course broken down to each HR employee. Each and every activity or project HR does should be visible in at least one of these quadrants.

However, all performance figures cumulate in the finance quadrant: Each and every figure has a financial impact. Lets take „time to fill“ as an example. This is a classic process figure. How long does it take from identification of an open position to get it filled? – expressed as financial figure: How much does it cost me to recruit someone into this position? And, which alternative costs occur because of having an open position? – an improvement of „time to fill“ has not only an impact on HR internal financial figures, but more importantly on business figures. Positive: A manager has to interview less candidates when the candidate quality improves; negative: a new recruiting system needs to get implemented. However, if I measure both, I can easily calculate a business case for my CFO to get the new recruiting system!

However, and this is something every salesman knows: Every employee that did not quit his/ her job is more valuable and less costly as every new employee – but more about that next time.

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How to tell my CEO that HR needs funding

In my recent post I have spoken about a”value-adding, emancipated HR Function”, as well as how to reach this state and how to convince HR’s internal customers of this necessity.

From my perspective as well as from my recent client experience, the most successful way is “talking numbers”. Because regardless how many qualitative improvements a transformed HR organization might bring to the table (and as HR people we know how important those are!), in the end it is all about the bottom line – and of course the CFO that “has the money”. But how to get to those numbers?

The most important numbers are of course the bottom-line ones. So these are the ones that HR must influence! So far so easy…however, this means that each and every HR project, each operational decision of HR, the HR function as a whole must be targeting those numbers. These are the numbers which belong on an HR Balanced Scorecard. The first abstraction layer of those figures is still more a theoretical exercise than anything else, e.g. market share, revenue, customer satisfaction, etc. – but already the second abstraction is more difficult. Here it gets company and HR specific.

To reach this abstraction as well as to get the best reasoning for your CFO and CEO, the next abstraction layer needs to be very close to your company’s strategy. This also defines the first step: understand the company strategy in depth. From my experience, this is already where many HR colleagues start to struggle, for various reasons. One is that for years it was not necessary for HR to understand such things as HR was an administrative back-office. Another one plays into the general skill set of HR professionals: my recent empirical analysis in Germany showed that not many HR professionals do have a business background. Most of them have studied law or psychology or similar. So it is not really HR’s fault, however, we as a function need to work on this!

Next step is to derive workforce or human capital requirements out of this business strategy: what is the skill set in need? which are the regions and/ or markets the company is going to? is the current focus on quantity or on quality? etc. – it is essential to understand those needs. Always a good idea is to check the results with the business unit head or function head.

Step three is the classical SWOT – what are the workforce requirements, which can be fulfilled, which can’t? – to do this, of course you must understand your workforce which is not too often the case. Therefore, this might be already one of the spheres of activity. But if you have those, the SWOT will provide you with your Talent fields of action.

We are not done yet. This is just the so called Human Capital Strategy. From here we need to derive the HR Strategy. HR has to ensure that all identified Talent fields of action are responded to by the HR function. And for this, you need to have the “right” HR organization in place.

And this is where the circle closes: To enable the business strategy, HR needs funding for an HR transformation as well as for the projects to enable the workforce to deliver on the business strategy. The rationale behind this is backed up with financial numbers, influencing the bottom line. These are arguments, CEO and CFO will listen to, but more importantly: will understand!

The process described to get from business strategy to HR strategy and workforce outcomes is relatively easy – execution however, is more complex and I have seen HR departments struggle.

The first tricky step is the HR Balanced Scorecard which is why I will write about that in my next post.

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The "emancipated" HR organization

The discussion about “understanding” and “wanting” a modern HR Organization which I have laid out in my last post is not a new one. Since Ulrich has first published his work on transformed HR (check out here) the discussions about what HR should be and do are going off into various directions. The extreme positions are “HR as administrative back-office” on the one end and “HR as strategic value generator” on the other. As laid out in my last post,  a transformed HR Organization based on the Ulrich model is only under specific circumstances the right thing to do. However, if those circumstances fit to your company, there is not much which speaks against such a transformation. – however, objective criteria alone are not sufficient to lead the discussion!

In my meetings on Top-Management Level in German and European  companies, the knowledge and insecurity about Ulrich’s HR Model is high – although the model is around for more than 10 years. This does not differ whether my meetings are within or outside HR. From my perspective, there is more than one reason for this. The most common are a) lack of knowledge b) knowing, but not understanding the model c) not “wanting” an emancipated HR Function. Interesting is that all of those reasons are spread similar across HR and non-HR Managers.

Many HR colleagues are actually quite happy in their back-office and making-employees-happy role. This is based on my experience neither surprising nor condemnable. But in today’s competitive environment a transformed, value-adding HR function is no longer a nice-to-have, but a must! HR has to support workforce effectiveness through targeted, strategy supporting projects and processes like Performance Management, Strategic Workforce Planning, HR Analytics, etc. As Ulrich said, the workforce is the remaining differentiating competitive advantage – and HR is in the pole position to further foster this advantage. However, to do so, the HR function needs to emancipates itself.

At HR’s customers, the picture differs a bit. The majority did not yet understand the critical factor Human Resource/ Workforce. Although today’s recruiting web-pages of each an every  company highlight the criticality of skilled and motivated employees, reality looks different. And… who really wants another player on the “big” strategy table, someone with an opinion? Someone who tells me “how I have to organize my team to be more effective?”, “how I motivate my people best?”, “isn’t all of this common sense?” – and this is where the real issue is: HR is not yet seen as a real function! But this is just normal human behavior – nothing surprising.

However, it is the priority of us HR folks, to actively promote HR as a real, differentiating function! As soon as the HR Management has identified the advantages and calculated the business case of an HR Transformation, they have to start a marketing campaign – and this not only for Shared Services, but for a “bottom-line value-adding, emancipated HR Function!”

There are sufficient reasons for it! More 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.