Category: Human Resources

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.

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.

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.