Last weekend, I attended the yearly post-doc seminar of my Ph.D.-advisor. Many of his old students attended as well and we had some very lively and interesting conversations and discussions at the intersection of people, society, and HR. We talked about Intercultural Trust (Link), Organization Effectiveness, the Future of Work, as well as how to enable innovation within companies. Very interesting topics – and all have one thing (at least for me) in common: They all need the HR function as enabler, supporter, promoter and guide. I have said it already in one of my earlier posts – I believe (and am strongly encouraged by the academic discourse) that for a company to be successful in the next decade, it needs a strong, self-confident, enabled HR department which understands the business, business- as well as mega-trends, talent and talent needs, organization and organization needs. An HR function that has talent & organization performance at the heart and center.
After our academic meeting, I met an old friend of mine who is in the HR business for more than 30 years now, being an HR Interim Manager for almost 15 years. So he sees and acts in many different organization’s HR functions. And this mainly as an interim manager rather than a consultant. He really sees both, organizations and HR functions from the inside and lives within this world for a dedicated period of time as an (HR) Line Manager. I have very engaged and lively updated him on the conversations I had earlier that weekend and for a minute or so, we were both very happy to (a) have such a fantastic future ahead of HR and (b) be part of that. But very soon, we got to one important question: Is HR, are the HR functions that we have seen, worked in, consulted ready for this future? And this is something we then got concerned about.
The first question was about the organizational structure and governance of today’s HR functions. These are mainly following the Ulrich Model. But, very often in Germany, this needs to be looked at closer. We both agreed that in many of the organizations we have seen, the “Personalreferenten-Modell” just got a minor update in centralizing the administrative services, CoEs got somehow created and the current “Referenten” (Generalists in essence) were renamed to HR Business Partners and told to be strategic now. This is not what Ulrich had in mind and of course not, what his model is about. But we both believe, and there is sufficient empirical evidence that a more traditional HR model is not ready for the realities to come. But even if a state-of-the-art Ulrich model got introduced, this does not necessarily mean that the HR function is ready to tackle the challenges and opportunities to come. First and foremost, the Ulrich model itself is already around 20 years old (with minor updates/ additions over the years) – and having it operate across the globe in many different companies, has surfaced some shortcomings. In addition, there are some systemic issues within the model (see here) that make it a bit hard to work. And last, but not least, the realities have changed and will change even more and faster since Ulrich has shaped his model of HR. A look to NEW HR (in press) is something I recommend.
But besides this organizational and structural capability gap, there is an HR professionals capability gap. A recent empirical study on the capabilities of german HR professionals has surfaced that only a minority got the right training, got a chance to acquire the necessary skills and competencies necessary to operate within a modern HR environment (see here). HR professionals in Germany (for example) were mostly still socialized and trained in a more traditional HR model with a more traditional approach and understanding of what HR is about. Capabilities necessary for the Ulrich model are often too little or absent. This is even more dramatic than the structural shortcomings. Organizational shortcomings can be compensated by highly motivated and capable professionals – professionals that lack certain key skills and competencies can not be compensated by a superior organization. However, this is nothing to blame HR professionals – even if they wanted to or even if HR leadership identified this capability gap, today, there are only very little possibilities (except a specialized, in-house program with professional instructors or going abroad) to acquire these competencies anyway.
In any case, both are highly important homework to be done as soon as possible. The mega-trends, business trends, future of work, changes in society and workforce are not waiting. They are already here or approaching fast. I encourage all HR professionals to perform a readiness check of their HR structure, governance and capabilities to see if they are ready for tomorrow. – and if you identify gaps, act now.
What to do when I am still in pre-Ulrich HR stage?
In my last post I have started to talk about companies whose HR organization is still in a pre-Ulrich stage. And again, although I was surprised to see so many of them, the reasons that I heard made total sense to me:
- Some of these companies are size-wise at the border where the full Ulrich model makes sense
- Some of these companies had major (non-HR) transformations in the recent years and HR did just not have a chance to get their own house in order
- Some companies have failed HR outsourcing deals in their history that needed to be rolled back in
- Some companies don’t think that this “Ulrich-model” is applicable for them
- Some companies have heard stories of failed implementations at competitors
- Some companies were not able to show the Business Case for a transformed HR to get the business sign off (and funding)
And for most of the reasons, companies are asking themselves what to do next? – shall they go to the Ulrich model? Shall they leapfrog and move to the next stage? Shall they just stay where they are? – Today I cannot and don’t want to provide final answers – there is no one-size-fits-all. However, there are themes that can be applied based on the specific company and HR situation.
Theme 1: Small company, predominantly present in one country, values based on tradition
If your company falls into this range, you probably think that the Ulrich model does not make any sense for you. And for the most part you are right. Specializing your small HR department into the three pillars will most likely cause more issues than it will bring you to a point where you can gain the advantages of the Ulrich-Model. However, there are certain elements you should consider: HR Business Partnering and professionalized HR Admin outsourcing.
Business Partnering and the area of strategic HR is an area which potentially brings value to any size of HR organizations. This does not necessarily mean that you should install dedicated HR Business Partners, but that you either have the Head of HR or another senior HR practitioner have in addition to his/ her daily role play the role of an HR Business Partner. This is not an easy one as the skills and capabilities you need for a successful HRBP are very different from traditional HR skills. But even for small firms, it is important to start thinking strategically about HR. Why? – the war for talent is everywhere, talent today is more agile and mobile than ever before, etc. Small companies play in the same arena like mid-sized or big firms and need to be able to compete on the job market. In order to do so successfully, you need to start thinking strategically about your Human Capital – what kind of needs do we have, what does the business want, where will we be in 5 years…
Outsourcing is probably anyway something that many small firms do today – they just don’t call it outsourcing. But if you let your payroll run by any tax consultancy or small service provider, you are outsourcing already. The interesting thing about outsourcing for small firms is that there is a market now for selective outsourcing – on more than just payroll. And in many cases, this offer is better than the in-house process. And sometimes even cheaper. So really think about your HR services and which could be sourced out. The typical services to outsource here are payroll, learning services, HR legal services, recruiting services, master data services.
This is what I suggest to consider and assess. Again, this does not mean to go away from your traditional HR Generalist model. In fact, I suggest to keep it – just spice it up with some targeted Ulrich elements.
Theme 2: Mid-sized multinational company with agile and change proven workforce
Many of these companies are still in a more traditional HR Generalist model. This is often due to either the “wait and see” mentality or the understanding that Ulrich is just for big companies. Well, the maturity of the HR models today do no longer limit the Ulrich model to large companies – in fact if you are sized around 10.000 employees , you should seriously consider the Ulrich model. – and let’s face it: probably your core business units/ functions are extremely agile. If it would be any different, you would probably not exist anymore. Mid-sized companies are the most agile – both through necessities, but also due to their specific set ups. HR should embrace and support this agility. This means going into the Ulrich model. And doing it fast. Due to the nature of your workforce and business, you are change ready. Of course, change from and in HR is nothing the firm is used to (or HR for that matter) – but it is used to change in the core business. This is where you as HR practitioner should take advantage of.
In essence, don’t take a long change process, do it fast, straight to the latest evolution of the Ulrich model and don’t lose money or time on the way. There is no reason to.
Theme 3: Large, complex, global company
Now, this category is a tricky one. From my perspective and in my experience, large complex global companies are not the most agile – especially not when it comes to HR. However, it is no question to me “if” such firms should transform their HR departments. They should do that for sure. And they should start today. However, they need to do this step carefully and not too fast. And especially for firms like this, a leapfrog approach is not something I would recommend for various reasons. First of all there is not yet a proven HR model out their which is “next generation” – almost everything you see and read is still based and rooted in Ulrich or just pure theory – and firms like this need a reliable HR, not a testing lab.
But also, you need to take everyone with you. Changing to the Ulrich model is a huge step – as things will change for HR, for the business leadership as well as for each and every employee. This change needs to be made – not just “decided and implemented the next day”. Such a change needs time for all parties. And just jumping from the last century to the next one without a stop in “today” will overstretch everyone.
Still, the change towards the Ulrich model is really something which is out of the question. There is not a single reason why not to do it!
Facing reality
In my recent posts, I started to elaborate and outline NEW HR – a new understanding, definition and approach to HR. It is meant as the after-Ulrich idea on what comes next for HR. While I still believe that this is needed and true for many companies out there, during the recent weeks I had the chance to talk to different clients – varying in size, home-country, industry, etc. But they all had one thing in common: Their HR organizations were in a pre-Ulrich stage. – and I believe that there are many more companies out there in a pre-Ulrich HR stage.
At first I have to admit, I was surprised, but after speaking to them, the picture got clearer:
- Some of these companies are size-wise at the border where the full Ulrich model makes sense
- Some of these companies had major (non-HR) transformations in the recent years and HR did just not have a chance to get their own house in order
- Some companies have failed HR outsourcing deals in their history that needed to be rolled back in
- Some companies don’t think that this “Ulrich-model” is applicable for them
- Some companies have heard stories of failed implementations at competitors
- Some companies were not able to show the Business Case for a transformed HR to get the business sign off (and funding)
And I am sure that there are many more reasons why companies did not yet transform their HR Organization. But what should these companies now do? – should they stay as they are? – should they leapfrog? – should they just start the transformation road with step 1?
The answer is again not one-size-fits-all. As there are different reasons why firms did not transform yet, there are different approaches that fit best. Each case should be looked at individually to find the best suitable solution. For example the “failed Business Case” issue is one that can easily be tackled. The Business Case for an HR Transformation in most cases is valid – of course, payback is not as fast as for example in Finance Transformations, but it is a positive ROI. And it is not only about the direct costs and savings, but also about business enablement. The indirect value of an HR Transformation is the real Business Case! – reduced time-to-hire, impactful training, etc.
But what to do once you have proven the value? – which route should you take? Answering this question, many consulting firms leave clients alone – their thought leadership is focused around HR of the future, the newest, latest and greatest, often not considering the whole industry, but just the spearhead.
Of course, there are companies out there with state-of-the art HR Organizations and Services and these want to and need know the way forward – and also, from the marketing perspective, it seems more relevant to sketch the colorful, imaginative future rather than the grey reality of today. So no one to blame.
However, for the companies out there in the pre-Ulrich state the question “what to do” is open – and I will try to answer this in a general fashion in my next posts. Again, there is no one-size-fits-all – but there are clear tendencies that can be identified and provide you with the general direction depending on your situation.
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.
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.
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.
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.
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.
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.
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.
Chief HR Officer 