understanding the theory and practice of hr transformation · relations labor relations ......

Confidential — All Rights Reserved — EY 2015

University of Potsdam 15 January 2016

Understanding the Theory and Practice of HR Transformation Considering theoretical advance-ments and proven practical methods to transform HR into an organizational value driver


Content 1. Introduction 2. A theoretical overview of HR Transformation 3. The changing face of HR functions 4. A real-life HR Transformation example 5. Recommended literature 6. Q&A session 7. Contact details


Introduction

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft | Understanding the Theory and Practice of HR Transformation | 15 January 2016 | Dr. Sebastian Fuchs and Carina Baumgärtner 4

Overview of key sources utilized for composition of this lecture

Academic and professional literature ▶ Journal articles ▶ Book chapters ▶ Text books ▶ Industry reports ▶ Own scientific research and publications

University lecture material ▶ Notes from The London School of Economics and Political Science ▶ Notes from Middlesex University

Real-life experience and practical application ▶ Client projects that involved HR Transformation expertise ▶ Client proposals that involved HR Transformation expertise


Rationale for studying HR Transformation

Strategic role of HR in emerging as well as advanced market economies ▶ Organizations continuously seeking to enhance strategic contribution made by HR

function ▶ Increase in demand for qualified labor in emerging and (some) advanced market

economies puts pressure on HR function to improve recruitment efforts, lower employee turnover, and augment organizational learning activities

▶ Continued cost pressure in advanced market economies and ongoing move towards HR shared services centers

Market outlook based on Kennedy report (2015) ▶ Global HR Transformation consulting spend is estimated at $5.86 billion which represents

app. 20% of the global HR consulting market ▶ Expected increase of 3.7% annual global growth rate between 2014 and 2018 which is

higher than for overall HR consulting market ▶ Key drivers are business and systems transformation initiatives which impact HR function

as well as cost reduction pressure (especially in advanced market economies)


A theoretical overview of HR Transformation

7 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft | Understanding the Theory and Practice of HR Transformation | 15 January 2016 | Dr. Sebastian Fuchs and Carina Baumgärtner

Historical overview of key developments to the management of HR and its organization

Bus

ines

s pr

iorit

ies

HR

focu

s H

R ro

le/

title

1920s – 1930s 1940s – 1970s 1970s – 1990s 2000 - 2010 2012 - 2020

Organic growth New techno-

logies

Hiring and training

Personnel

Diversification Competition

Employee productivity

Labor negotiations

Employee relations

Labor relations

International competition

Restructuring Shift to service

economy

Downsizing Employee

engagement Performance

management/ rewards

HR manager/ personnel manager

Globalization Innovation Reinvention Shift to

knowledge economy

Talent Mgnt. Employee and

leadership development

Global HR strategy

HR BP Human capital

consultant CHRO

Complexity Agility Sustainable

growth Regulatory

compliance

Strategic work-force planning

Employer brand development

Change Mgnt.

Chief Talent Officer

Chief People Officer

Chief Leader-ship Officer

Strategic impact of HR


Reasons for transforming HR functions (European perspective)

Ongoing extension of EU and with this associated opportunities to explore new markets and shift work to lower cost locations Ongoing market liberalization of

many formerly heavily regulated/closed market economies

Pol

itica

l

Continued cost pressure (especially in advanced market economies) amongst many established organizations Shift in managerial perspective on

‚driving business value‘ for all business functions (incl. HR)

Econom

ical

Demographic changes and associated need to enhance recruitment, retention, and learning activities Desire for work-life-balance of many

new recruits and employees ‚New Deal‘ of working for many

employees

Soc

iolo

gica

l

Enhanced employee and manager self-service (ESS/MSS) functionality Ease of shifting work through virtual

communication channels Real-time-information tools available

on many HR systems (e.g. abscence management, employee turnover, etc.)

Technological


Key theoretical advancements made by Ulrich (1997) and Ulrich et al (2009)

Ulrich (and colleagues) key arguments and insights developed over 25 years of research and consultancy with global organizations: ▶ In theory, all sources of an organization’s competitive advantage (e.g. finances,

technology, production, marketing) can be copied by another organization, only ‘Human Resources’ cannot be copied by other players

▶ This is reflected in the notion ‘Organizational Capability’ and is the ‘real source’ of an organization’s competitive advantage

▶ HR is mainly in charge of fostering ‘Organizational Capability’ and based on this logic requires different skills and a different structure than typically found in the past in HR

▶ HR operates in this logic in ‘internal markets’ and ought to divide its activities into transactional and transformational tasks which can be delivered via the front-office, the back-office, and/or external vendors

▶ 5 key HR roles are needed for this to work out in practice ▶ Corporate HR, HR Business Partners, and Local HR (responsible for demand side) ▶ Centers of Expertise and HR Shared Service Center (responsible for supply side)


Meaning of theoretical advancements for HR functions

Translation of key advancements into mainstream HR ▶ Ideas can be seen as evolutionary (and not revolutionary) even though some

organizations may perceive it as a revolutionary approach to the management of an HR function

▶ HR ought to move away from delivering mainly transactional tasks for the business as this adds little value* and does not support the development and enhancement of ‘Organizational Capability’

▶ HR instead ought to deliver real value which enhances the competitive advantage of the overall organization

▶ This requires a different skill set from HR staff which may or may not be readily available on internal/external labor markets

▶ It also requires a specific structure and governance approach to the HR function and its staff

*Please note that the term ‚value‘ is not always neatly defined and aligned upon in organizational life.


The changing face of HR functions


Typical organization of HR function before widespread launch of Ulrich (1997) model

Board of Management

Head of Personnel Research &

Development Procurement Manufacturing & Operations Sales Marketing &

Communication

Recruiting & Selection

Learning & Development

Reward Management

Labor Relations

Pension Management

Performance Management



Reward Management

Labor Relations

Pension Management




Reward Management

Labor Relations

Pension Management




Reward Management

Labor Relations

Pension Management




Reward Management

Labor Relations

Pension Management



Organization of HR function based on Ulrich (1997) and Ulrich et al (2009) approach

Center of Expertise

HR Shared Service Center

HR Business Partner

(Embedded HR)

HR Leadership (Corporate HR)

Local HR (Operational Executer)

Line Management

HR Information System

ESS: Employee

Self-service

MSS: Manager Self-

service

NB: Labels displayed in parentheses refer to the terms suggested by Ulrich et al (2009).


Key responsibilities of Ulrich (1997) and Ulrich et al (2009) approach

Establish new HR TOM Set objectives for entire HR function Direct and coordinate work activities of the CoEs,

the HR SSC, the HR BPs, and the self-service function

HR Leadership & Corporate HR Establish new HR TOM Develop HR policies, practices, and procedures for

specific subject area and subsequently steer their implementation

Provide subject matter expertise for HR BPs and HR SSC upon request

Center of Excellence

Establish new HR TOM Liaise directly with top management of the

business Support strategic activities (e.g. talent agenda,

change management, etc.) Translate business demands into HR initiatives

HR Business Partner Establish new HR TOM Act as a first point of contact for Tier 1 requests Process all low-value-add, recurring, and high

volume enquiries which cannot be completed via self-service

HR Shared Service Center

Establish new HR TOM Serve as face of HR in situations where face-to-

face interaction on transactional tasks is needed Provide on-site administrative support to implement

Local HR programs and initiatives

Local HR Establish new HR TOM Perform coaching and mentoring supported by

CoEs and HR Business Partners for team Work with HR Business Partners to identify

business and HR requirements Initiate and approve HR transactions for team

Line Management

HR

Information System


Organizational chart incl. FTE sizing for Ulrich-based (1997) approach

Recruitment Admin 2

Recruitment Admin 1

Recruitment Admin 3

Learning Admin 1

Learning Admin 2

Team Lead Talent Management

Recruitment Admin 4

Recruitment Admin 5

Performance Management Admin 1

Performance Management Admin 2

Comp. & Benefits Admin 1



Legal Support Admin 1


Team Lead Comp. & Benefits





Recruitment Admin 1

Recruitment Admin 2

Learning Admin

Legal Support Admin

Performance Management Admin

Team Lead Legal Support

SME Recruitment 1

SME Recruitment 2

SME Learning

SME Comp. & Benefit 1

SME Comp. & Benefits 2

SME Comp. & Benefits 3

SME GER 1

SME GER 2

SME US 1

SME US 2

SME SPA 1

SME SPA 2

SME CN 1

SME CN 2

SME JAP

SME RoW 1

SME RoW 2

SME RoW 3

Manager Local HR

Admin GER

Admin US

Admin SPA

Admin CN

Admin JAP

HR Business Partner Manufacturing

HR Business Partner Sales

HR Business Partner Marketing & Communications

1 FTE

0.5 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

0.5 FTE

0.5 FTE

1 FTE

1 FTE

0.5 FTE

0.5 FTE

1 FTE

1 FTE

1 FTE

0.5 FTE

0.5 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

0.5 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

0.5 FTE

1 FTE

1 FTE

1 FTE

1 FTE

1 FTE

HR CoE Comp. & Benefits

Board of Management

HR SSC Manager APAC

HR SSC Manager EMEIA and Americas HR CoE Talent Management HR Business Partner

R&D HR CoE Legal Support

Global Head of HR SSC Head of HR CoEs Senior HR Business Partner

0.5 FTE

SME Performance Management 1



1 FTE

1 FTE

0.5 FTE

HR CoE Performance Management

Corporate HR SSC

Corporate HR CoEs

Corporate HR BPs

Global Head of HR


Key considerations on Ulrich‘s (1997) model

Advantages ▶ Low-value add tasks can be delivered based out of lower cost locations ▶ HR Business Partners can both drive the overall organizational strategy and implement

HR-led strategic initiatives ▶ Centers of Excellence can keep up with recent trends in their respective functions and

the industry their organization operates in ▶ Internal HR careers are facilitated by this model ▶ HR function ‘sits on the table’ with key decision-makers while simultaneously delivering

transactional tasks for the business ▶ HR function is organized ‘in line’ with current management thinking

Disadvantages ▶ Different elements of model may have divergent goals and objectives ▶ ‘Covert packing order’ may distract from continuously delivering value to the business ▶ Key client (i.e. the business) may not perceive value delivered as most employee ‘touch

points’ are through ESS/MSS or with employees based in other locations ▶ High dependency on process efficiency and stability


A real-life HR Transformation example


Client and project context

The context ▶ The client, a global Power & Utility company, has grown in recent years

through a number of M&As, leading to a complex HR environment with minimal standardization

▶ As part of the implementation of a global HR Target Operating Model (TOM), the client was seeking to consolidate the HR administration into a Shared Service Center (SSC) structure located in Berlin, Hannover, and Cluj (Romania)

▶ The assignment was focused on implementing a new HR TOM with the pillars HR Business Partner, Centers of Excellence, and HR SSC to streamline HR and achieve significant cost savings (app. 60%)

The challenge ▶ Achieve commitment of a diverse group of stakeholders across the HR

function for a large scale transformation, impacting the entire HR organization

▶ Transform a highly complex HR function with over 100 German locations alone, a large number of works council and tariff agreements, and a complex IT infrastructure into a streamlined HR services model

Target scenario: site consolidation

HR Services are consolidated in two SSC locations in Germany as well as outsourced to an external services provider and one location in Romania.

Landshut

Munich

Nuremberg

Hemmingen Potsdam

Hannover Berlin

Romania

External Service Provider

New locations


Governance structure and HR operating model

HR ESS / MSS

Corporate HR

The CoEs provide expert knowledge on their respective fields of expertise (e.g. recruitment,

learning, labor law) and transfer

business needs and requirements into products and

processes.

The HR BPs focus on the strategic

business perspective. They

are the main drivers of HR

topics within a BU and are the first

point of contact for line managers, the

CoEs, and the works councils.

The HR SSC has its focus on

operational HR processes and is the first point of contact for line

managers, employees, and

other stake-holders. It

provides defined HR services and

ensures high quality service.

Local HR supports all transactional

HR activities which require on-site and

local support. It also supports the HR BPs and the

CoEs on activities which require a

strong local presence and usually last for short periods of

time.

HR CoEs HR BPs HR SSC Local HR

Employees perform a significant portion of HR process tasks and are supported by respective self-service solutions, the HR SSC, and Local HR.

Em

ploy

ees

Line Mgrs. provide leader-ship for their teams and are responsible for people management tasks. They will be supported by the HR BPs and the HR SSC.

Line

Mgr

s.

Other stakeholders are supported in all their requests by the HR SSC and the HR CoE as a final point of escalation.

Sta

keho

lder

s


Project approach and plan

2 Months 3 Months 1 Month 1 Month 1 Month

Preparation & planning

Map processes & impacts

Observe & perform work Support

Plan and prepare design of the service migration approach

Map and use Level 4 processes to create SOPs

Jointly assess impacts on processes, people, and technology to facilitate a smooth transition

BU staff to observe and perform their duties, with trainers from the new center observing, in order to assist knowledge transfer

New center increasingly starts to perform tasks, and supports to ensure requests are well under-stood and delivered

BU starts to decrease its work, as the new center picks up responsibility and stabilizes the new service

Timeline

Key activities

Ramp down

Set up People workflow

Ob-serve

Sup-port Train

Perform Service

Migration Service delivery

Go-live


HR service delivery model

Access (24/7) HR Portal for policies and procedures

Use employee and manager self service (ESS/MSS)

Provide answers to standard employee requests

Administer Tier 0 requests where needed

Set-up cases and referrals to Tier 2

Solve standard employee requests which require face-to-face on-site interaction

Set-up cases for Tier 3

Support Tier 3 requests where local knowledge/ presence is needed

Develop concepts, processes, and policies

Resolve highly complex requests and cases

Decide on exceptional requests and cases

Consult and provide specific functional and site-relevant advice

Hold deep functional expertise

Hold deep-level site-specific expertise

Tier 0 – HR Portal Tier 1 – HR SSC Tier 2 – Local HR Tier 3 – HR BP/CoE

One Global HR Information System

Employee requests

Employee requests

Employee requests

50%

35%

10%

5%

Transactional focus Value-adding focus


HR Executive Processes

Compensation & Performance Management

HR Planning & Controlling

Recruiting & Staffing

Employee Relations & Labor Law

Learning & Organizational Development

Talent Management

IT Systems

HR Cross-functional

HR Administration Services

HR processes (1/2)

Health Services

Exit Management Supervisory Recruitment

Recruitment (Non-Executives) & Onboarding Employer Branding

Travel & Expenses Pension Plan enrollment

Employee data & contract mgmt1, Org.

documentation

Maintenance of Pension Plan Records, Payroll Services, & Time & Attendance

Pensions Actuarial Calculations Expat Management

Performance Management Job Grading Individual Compensation

Individual Employment Collective Employment

Org. change/data mgt.

Talent Pool Management

Management Review Graduate Scheme

HR Mid-term Planning

HR Ad-hoc Reporting

Strategic Workforce Planning

HR Standard Reporting &

Analysis HR

Controlling HR

Forecasting Ad-hoc

Calculations

Talent Strategy Planning Talent Diagnostics

Apprenticeship Management Employee Suggestion System Global Learning

HR SSC Enabling Architecture & Infrastructure Operations & Services Governance &

Organization

Executive Exit Management

Executive Job Grading Executive Recruiting Executive

Compensation Executive Payroll

HR Function Management People Communications


HR processes (2/2)


IT systems

Client company has distinct HR IT systems at several locations

Bremen

Nürnberg

Essen

Cologne

Hannover

Hamburg

Berlin

Munich

Stuttgart

3

9

9

7

4

1

2

10

6

Rockstock

Potsdam

1

3

Kassel 5

Würzburg 9

Gießen 8

Heterogeneous HR IT landscape and/or insufficient IT systems

No or insufficient interfaces between systems Lack of data ownership Definition and controls were inconsistent and absent

Cur

rent

Performed GAP-analysis for current HR IT landscape Defined IT requirement profiles Developed HR data model Developed roles & access rights concept Developed data security concept

Cha

nges

One global HR IT system Integrated technology environment, workflow, and web-

enabled new digital channels utilized for HR service delivery Global data standards agreed across functions and locations HR data is converted into business insights

Futu

re

10


Challenges in transforming HR functions (adapted from Holley, 2010: 6-7) (1/2)

Model is sold as a way to improve service when real driver is cost control resulting in mismatched expectations Model is implemented as a model rather than a solution to a specific business need, resulting

in lack of buy in beyond HR and failure of model itself to address underlying issues Model is implemented either in its purest form without understanding capability of organization

to sustain it, or elements of model are implemented piecemeal without understanding important dependencies

Driv

ers

Managers often are not consulted about changes to the HR model whilst outsourcing fractures long standing relationships. As a result they may view it as a way to offload HR’s unwanted work on to them resulting in frustration that there's no longer a one-stop shop to handle all HR matters: They may exploit the existence of multiple service channels and go hunting for the

answer they want They may play HR SSC off against CoE, while also involving HR BPs Line

Man

ager

s


Challenges in transforming HR functions (adapted from Holley, 2010: 6-7) (2/2)

Splitting HR into three parts can create boundary disputes, a lack of joined up thinking and communication gaps. At best there is duplication, things fall through gaps or there is lack of coordination; at worst it can even result in open warfare between people in different parts of the model destroying the credibility of the whole especially if central staff lose their grasp of reality if they become physically and emotionally isolated from the business realities Model often fails when there is no real ‘one team’ ethos, a no-blame-culture, and effective

open communication Lines of accountability are not always clearly defined:

HR SSC may deliver the service, but the main customer interface is between HR BPs and line managers HR BPs may have little or no control over service delivery, or agreeing what it should be,

but they often face consequences if it goes wrong

Bou

ndar

ies

HR BPs are often overwhelmed by transactional work so cannot deliver on strategic element or are overwhelmed by sheer volume of initiatives from CoE who fail to prioritize effectively Model requires very different skill sets in each element but often people’s job title is simply

changed without understanding skills required and providing effective job matching, orientation, and development

Ski

lls


Recommended literature


Recommended literature

▶ Armstrong, M. (2012). Armstrong's handbook of human resource management practice (12th ed.). London: Kogan Page Limited.

▶ CIPD (2015). Changing HR operating models: A collection of thought pieces. London: Chartered Institute of Personnel and Development.

▶ Kennedy Consulting Research & Advisory (2015). HR transformation consulting. New York, NY: ALM Media Properties, LLC.

▶ Ulrich, D. (1997). Human resource champions: The next agenda for adding value and delivering results. Boston, MA: Harvard Business Review Press.

▶ Ulrich, D., Allen, J., Brockbank, W., Younger, J., & Nyman, M. (2009). HR transformation: Building human resources from the outside in. New York, NY: The RBL Institute/McGraw-Hill.


Q&A session


Contact details


Contact details of today‘s speakers

Dr. Sebastian Fuchs Manager People Advisory Services Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Phone: +49 30 25471 20390 Cellular: +49 160 939 20390 Fax: +49 181 3943 20390 E-mail: [email protected]

Carina Baumgärtner Consultant People Advisory Services Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Phone: +49 30 25471 26281 Cellular: +49 160 939 26281 Fax: +49 181 3943 26281 E-mail: [email protected]


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