Celebrating 125 Years of Publishing
Celebrating 125 Years of Publishing
The world of work is changing rapidly and dramatically. A strong case can be made that the HR function in organizations needs to change as well. It needs to take a more strategic role and develop new talent management approaches. Although the case for change is strong, research suggests that little change is occurring. If HR doesn't change, it could end up as an administrative function that manages an information technology<->driven HR system. If it changes, it can become a driver of organizational effectiveness and business strategy.
HR has not significantly changed how it allocates its time since 1995. It remains a function that spends the majority of its time on services, controlling, and record keeping. HR executives perceive that they spend more time on strategic partnership, but the data show little change. Data on management approaches and strategy provide one likely reason why there has not been much change. Bureaucratic and low-cost organizations have HR functions that spend most of their time on services, controlling, and record keeping. Management approaches and strategies such as innovation and sustainability have a more strategic HR role, but are only now gaining market share. HR has a limited role in supporting corporate boards, typically in executive compensation and succession.
In most organizations, HR remains a limited contributor to the business strategy, development, and implementation process. Despite massive changes in the business world since 1998, the data suggest that HR has changed little. Yet the direction of business changes would seem to lead to HR being more of a strategic partner. The data show that HR executives are active in some areas that directly affect the strategic direction of organizations, such as human capital recruitment and development through organizational design and strategy development. Yet the role of HR is too often separated or subsequent to strategy formulation. The challenge for HR is to evolve toward a balance of activities that support strategies after they are developed, as well as direct involvement in strategy formulation, as a full partner in the high-value-added area of business strategy development and implementation.
Decisions about human capital are a vital outcome of HR functional leadership. HR executives rate human capital decision making in their organizations as moderately effective, both inside and outside HR. The HR decision science facility of organizations varies with the strategy HR pursues. Decision support and quality are more sophisticated in high-involvement and sustainable management approaches. More sophisticated HR decision support and quality are correlated with HR's role in strategy, suggesting the strategic value of sophisticated human capital decisions both within and outside HR functions., The average ratings of decision quality are close to the midpoint of the rating scale, so there is room for improvement. Yet survey results dating from 2007 show the positive association between an organization's decision science capacity and HR's role in strategy, particularly in organizations pursuing management approaches and strategies that are workforce intensive and high involvement.
The design of the HR organization has shown some change over time. The data show significant growth in service units and centers of excellence, design elements that are related to HR's strong strategic partner role. There is a trend toward less variation in HR practices across business units and a greater emphasis on HR self-service. Yet other elements that relate to strong strategic partnership remain stubbornly unchanged, including the career movement of individuals into and out of HR and adopting information technology. The relationships between the characteristics of the HR organization and HR's role in strategy suggest what HR needs to do to become more of a strategic partner: establish centers of excellence, use joint task forces, use information technology, and develop HR talent. HR leaders plan to use more teams and improve their efficiency, but these design elements also remain stubbornly unchanged so far.
HR metrics and analytics remain uniformly rated at or below the midpoint of use and yet are correlated with HR's strategic role. This suggests they remain underdeveloped and underused. That said, the strongest relationship with HR's strategic role is with traditional efficiency and effectiveness measures, not decision-focused impact measures. The path forward appears to be for HR to begin by enhancing traditional measurement areas and moving toward more advanced impact measures as constituents become more familiar with them and sophisticated about their use. There are also systematic variations in how HR measures are used and how they relate to HR's strategic role. Organizations that emphasize high-involvement management approaches show greater use of impact measures, suggesting an organization's management approach affects receptivity to sophisticated HR measurement.
HR measurement systems emerge as moderately effective, with slight but notable effectiveness improvement since 2007. Effective HR measurement continues to be consistently and strongly related to HR's strategic role, so improvement in measurement effectiveness is linked to a more meaningful HR role in business strategy. Yet it appears that measurement effectiveness in traditional HR functional and operational areas relates more strongly to HR's strategic role than more advanced decision support and impact measures. The findings reinforce the conclusion from prior surveys: that the potential for HR metrics and analytics to contribute to HR's strategic value is significant, while the perceived effectiveness levels remain stubbornly moderate. The findings also suggest that strategic partnership is reinforced through a balanced approach that combines effectiveness in logic, analytics, measures, and process.
Information technology is still used most effectively for the traditional purposes of providing transactional tools for HR administration. There is slow movement toward more integrated HR information systems that improve decision making, and there is an increased use of them. They are rated as only moderately effective overall. Yet the drumbeat of big data and analytics and the promise of technology-enabled efficiencies continue to raise expectations about what HR information systems (HRISs) can and should deliver. HRISs are clearly most effective when they fit the strategy of an organization. They are particularly likely to be perceived as successful in companies with knowledge- and information-based strategies. The strongest finding is that HRISs are perceived as more effective the more things they do and the more services they perform.
The HR function in organizations is rated as only moderately effective, a rating that has not changed in over a decade. HR executives continue to report that HR is most effective in traditional arenas such as delivering HR services and being an employee advocate. The data show many important areas where HR falls short. HR is not rated highly in business and strategy effectiveness. This may be due to HR's low rating on analyzing HR and business data. HR executives say that a strong emphasis needs to be placed on HR's role as a business partner and on improving decisions about human capital, areas of relatively low effectiveness for HR. There is a tremendous opportunity for HR improvement in areas that are related to the strategic involvement of the HR function. HR has not improved its effectiveness since 1995, and this potential remains untapped.
There are a number of relationships between the effectiveness of the HR function and the way it is organized, managed, and staffed. Overall, the findings tell an important story. HR effectiveness is associated with a wide array of HR activities, structures, systems, and skills that are within the control of HR. HR can do a lot to become more effective. Yes, it needs to be sure its administrative processes work well, but its best opportunities for improvement appear to be in the business partner role and in strategy—the areas that emerge as least effective and advanced in most HR organizations.
Organizational performance is related to how HR is organized, managed, and staffed and how it spends its time. The amount of time spent on strategic issues is positively related to organizational performance. Having a human capital strategy that is integrated with the business strategy is also associated with high performance. An integrated HRIS system, metrics and analytics that measure the impact and quality of HR programs, and processes and talent decisions are associated with organizational performance. High-performance organizations also have a high level of decision science sophistication with respect to talent and its impact on organizational performance. Overall, high-performing organizations have more effective, strategic, and sophisticated HR. The typically moderate levels of HR activities and effectiveness in these areas suggest significant untapped potential for HR to significantly enhance organizational performance.
HR wants to be a strategic partner, and the door is open because of the growing recognition that talent is a key determinant of an organization's effectiveness. But HR cannot get through the door in many organizations, much less get a seat at the table. The good news is that there is a pattern of HR activities, skills and relationships that are associated with HR effectiveness and a stronger strategic role. They include approaches to designing the HR function and improving the skills of HR managers and executives. But little change has taken place in HR since 1995. It still spends the same amount of time on administration and does not have the skills and structure that support a more strategic role.
The opportunity HR has to add value is great, but it remains more promise than reality. HR executives must develop new skills and knowledge while maintaining effectiveness in traditional HR management and administrative activities. Our results show that doing the basics well remains a vital platform on which the HR organization builds a greater role as a business partner and more future-focused sophistication. But basics are not enough; HR must also make strategic contributions to the organization. Organizations are adopting new definitions of sustainable effectiveness that include social and environmental impacts and the reality of constant and dynamic change. This is increasing the need for a new business model for HR, which most HR executives accept and acknowledge. However, the reality of today's human resource profession still appears to reflect only the very beginning of the necessary changes to put a now model in place.