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Edward E. Lawler III
It is nearly unanimous that HR can and should add more value to corporations. The best way to do this is by being a business partner—by directly improving the performance of the business. This can be accomplished by effective talent management, helping with change management, influencing strategy, and a host of other value-added activities that impact effectiveness. But HR does not seem able to position itself as a business partner in many cases. To analyze the problem HR has in transitioning to a new role, think of HR as a business and what products it should offer. © 2005 Wiley Periodicals, Inc.
For at least the last decade, virtually every book, article, and speech on the future of the human resources function in corporations has emphasized the need for change. It is nearly unanimous that HR can and should add more value to corporations. The best way to do this is by being a business partner. In other words, it needs to move beyond performing the many administrative and legally mandated tasks that traditional personnel functions have performed to adding value through directly improving the performance of the business. There also is agreement that it can do this by effective talent management, helping with change management, influencing business strategy, and a host of other high-value-added activities that impact organizational effectiveness (OE).
Several strong arguments suggest this is a particularly favorable time for HR to become more of a business partner in large organizations. Many firms are highly dependent on their human capital for their competitive advantage. Their market value increasingly depends on their intangible assets, such as their knowledge, core competencies, and organizational capabilities (Ulrich & Smallwood, 2003). In addition, change seems to be almost a constant today, so that organizations have an increased level of need for expertise in change management and the implementation of new business policies, practices, and strategies. Thus, there is a clear need for the kind of business partner services HR could deliver.
Correspondence to: Edward E. Lawler III, Center for Effective Organizations, University of Southern California, Marshall School of Business, Bridge Hall 204, 3670 Trousdale Parkway, Los Angeles, CA 900890806, (213) 740-9814, email@example.com
Human Resource Management, Summer 2005, Vol. 44, No. 2, Pp. 165–169 © 2005 Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hrm.20059
but are less important for this role. are newer.166 • HUMAN RESOURCE MANAGEMENT. it must be structured to do this. organizational capabilities. It has customers who need a variety of services and who have feelings of satisfaction and dissatisfaction with the services offered. it has products. The HR function in most large corporations has many of the characteristics of a business. finance and marketing. they are able to decline to use the services HR offers. and it has costs. It shows they have some of the same deliverables. HR Product Lines. 2003). These. both internally and externally. Figure 3. Organization Design If HR is to deliver the three identified product lines. A useful way to analyze the problem HR has in transitioning to a new role is to think of it as a business. both of which play key strategic roles. Summer 2005 The problem is that HR does not seem to be able to position itself as a business partner. but rarely does it deliver on the strategic partner role. Research on organization design suggests that in Figure 1. In order to be able to deliver on this part of the product line. It provides strong input and direction to the formation of business strategy. Thinking of HR as a business leads immediately to the critical question: What products should it offer? Figure 1 characterizes three potential product lines the HR function can offer. . but that the strategic partner role does more. HR must have good metrics and analytic data about human capital. of course. Most HR functions are designed to deliver a single product line—HR administrative services. Figure 2. something that does not happen with the business partner role. it clearly does deliver on the business partner role. and core competencies. It has competitors. The first is the traditional one that it has offered for decades. rather than as a value-added strategic function (Lawler & Mohrman. In some corporations. Even the most recent studies of its position in major corporations suggest that it is struggling to be more than an administrative function that is viewed as a cost center. are also useful in delivering on the business partner role. This is in contrast to some of the other staff functions of large corporations—most notably. business partner and strategic partner. The other two. and the ones HR seems to have the most trouble delivering. Business Partner. Strategic Partner. In some cases. It is the reason the function was created in the first place. Figures 2 and 3 amplify the distinction between the business and strategic partner roles.
employees). still manages the HR outsourcers. potentially. The structural feature that most organizations have used in order to make HR a busi- A good guess is that HR BPO will grow rapidly and ultimately provide lowercost services and. Nevertheless. capabilities. Both are viable approaches to delivering administrative services. economies of scale can be captured by having common administrative processes across an entire corporation. an organization must be structured differently than if it is delivering a single product line. while the customer for the strategic partner services is likely to be only the very senior people in the organization. In short. because the skills. A good guess is that HR BPO will grow rapidly and ultimately provide lower-cost and. and be able to negotiate service-level contracts with outsourcers. Indeed. see Lawler. Fitzenz. the work has been repetitive and high-touch. an organization must maintain expertise in the processes that are outsourced. However. and relationships required to deliver the product lines are different. Both of these are possible because of the growing capability of eHR systems. although HR BPO should lead to a much smaller HR administrative staff. The key question is not whether e-enabling HR administration is the best solution. But this is yet to be established. Administrative Services Historically. and the organization’s structure must be designed to provide these services. Favored candidates for outsourcing have been benefits administration and recruiting. more and more elements of HR administration have been done by outsourcers on a process-byprocess basis. Most HR organizations have struggled with the issue of how to organize in order to deliver three product lines. it is quite likely that their failure to organize properly is one reason why they have had trouble developing a strategic role. It is beyond the scope of this article to compare the advantages of an HR BPO approach versus an internally managed eHR system with centers of excellence (for this analysis. it is whether it should be outsourced to an HR business process outsourcer (BPO) or performed internally by corporate centers of excellence and service centers. It is worth adding that even if an HR BPO model is chosen. the customer for administrative services is the entire organization. the HR staff members who did this work were located close to the customers (that is. Organizations can increasingly create electronically enabled HR systems that are largely self-service when it comes to basic HR administration. Admittedly. and recruitment. competencies. product lines. Relatively independent units must be established in order to deliver multiple product lines. The internal HR function. For this reason. different people must be involved. Let’s examine how HR can best deliver each product line. potentially. In many cases. For decades. Over the last decade. higher-quality services. There is little doubt that when a strong Web capability is present in a company. the administrative services delivered by HR organizations have been paperand labor-intensive. It also needs the ability to analyze the effectiveness of its program. compensation. but different. this is the cheapest and fastest way to provide HR administrative services.From Human Resource Management to Organizational Effectiveness • 167 order to deliver three related. each product line must interface comfortably with and support the others. & Madden. . transfer processes from one outsourcer to another. 2004). higher-quality services. Business Partner The skills needed for HR to provide services concerning business support and execution are significantly different from those needed for personnel services and HR administration. Ulrich. In either case. they cannot be entirely independent when they go to the same customer and influence each other. benefits administration. An organizationwide human resource information system (HRIS) also has the advantage of potentially providing useful human capital data to the HR organization that can be used in its other product lines. as is the case with the HR function. HR still must have a substantial level of expertise in such processes as employee development. There are two increasingly popular alternatives to outsourcing HR administration to multiple vendors. as well as have the internal capability to evaluate the outsourcers’ performance—both financially and administratively. of course.
assess how effectively the current strategy is being implemented. leadership development. financial modeling. It should be staffed by individuals who have expertise in business strategy. and probably the . ness partner involves establishing senior HR managers. generalists) from elsewhere in the organization to help with strategy development and implementation. They also often find it difficult to report to both the HR VP and a business unit head. organization capability development. and the other HR and organizational effectiveness issues that come up as line managers try to implement strategy and effectively manage their business units. In order to execute this role effectively. In order to deliver this product line. full-time staff. in effect..168 • HUMAN RESOURCE MANAGEMENT. They are. the generalists have not been able to deliver their product line. It also is the one that has the potential to add the most value. This unit also must be chartered to draw on HR resources (e. generally. What should an organizational effectiveness unit look like? It needs to be a multidisciplinary center of excellence that focuses on business strategy. HR generalists need considerable support. and. Summer 2005 The strategic partner product line is the newest and least developed in most corporations. advising on talent development and deployment. and the strategy implementation process begins there. Organizational Effectiveness Now that we have identified the organizational units responsible for delivering the product lines that should be in the HR function. Often. it must include input to business strategy. establishing eHR-based systems can help the HR function deliver its business support product line. One alternative. This suggests there must be staff at the corporate level who are focused on strategy analysis and development. and utility analysis. as well as to the HR VP. and metrics and analytics. Since business strategy is typically developed at the corporate level in most organizations. increasingly some of it can. we can address the issue of how the three product lines can be integrated and managed. In many cases where the generalist role has been established. HR analytics and metrics. the part of the HR function that is responsible for the second HR product line. in most of the key business units of the organization. as well as HR generalists who can help with the development and implementation of the strategy. It is rapidly increasing in importance because of the growing importance of intangibles and human capital. they must be able to draw on depth expertise.g. developing change management strategies. and human capital development. Typically. the generalists who are in this role report to the business unit manager. and its strategy implementation. This expertise can come from corporate centers of expertise in areas such as change management. They simply do not have the ability to access either the internal resources or the external resources they need in order to deliver on some of the complex issues that they face. Basically. how to do performance management. Some new products can help coach line managers on how to handle change. this product line must be delivered to the senior executives of the corporation. In some cases. how to implement their business plans. or it can come from external consultants. it is because of their lack of in-depth knowledge of the business. an organizational effectiveness unit that has a small. First and foremost. in effect. The generalist is available to help with picking the right HR practices. Strategic Partner The strategic partner product line is the newest and least developed in most corpora- tions. analysis of the organization’s strategic readiness. It also is the one that has the potential to add the most value. often referred to as generalists. staffing. Finally. In short. Thus. it has to do with the resources available to them. it should have a broad range of analytic skills so that it can evaluate different strategic options and alternatives for the business. organization design. and develop recommendations about how to improve the strategic position of the organization. organization design. although much of what they need to accomplish cannot be delivered by an eHR system. HR needs individuals who can interact with senior executives. The HR generalist is the major interface between the HR organization and the business unit. knowledge management.
D. J. the chief organizational effectiveness officer. Following that pattern with respect to HR would suggest that HR administration activities would report in at a lower level than the organizational effectiveness activities. Palo Alto. & Mohrman. Ulrich. San Francisco: JosseyBass. Edward E. An interesting question is whether the head of the three product lines should be called the HR vice president. It seems like a much superior alternative to having a position called the chief administrative officer to which HR and “other” administrative functions report. One precedent for the latter approach is the case of marketing and finance. and organization of human capital play in determining the effectiveness of organizations. human resource management. given that it would have all three product lines. not just traditional HR administration reporting to it.From Human Resource Management to Organizational Effectiveness • 169 one most organizations will choose. The latter options might be more descriptive of what the role involves. (2003).. NJ: Wiley. III. or perhaps OE VP. E. Organizing for High Performance. changing the structure of the HR function is not enough to make it a strategic partner. Fitz-enz. development. perhaps most important. Corporate Boards: New Strategies for Adding Value at the Top. and compensation.. The transactional work in their areas is done by the accounting function and the sales function. III. This approach keeps in place the traditional position of HR VP as a senior individual who reports to the CEO or COO. C. and Human Resources Business Process Outsourcing. A. Creating a strategic human resources organization: An assessment of trends and new directions. but not sufficient. This would create a world in which HR is to organizational effectiveness as accounting is to finance and as sales is to marketing. He has been honored as a top contributor to the fields of organizational development. step. New skills and competencies must be developed. Ulrich. & Mad- den. Why the bottom line isn’t! How to build value through people and organization. An alternative to having a single head of the three product lines who reports to the CEO or COO is to have a separate head of the organizational effectiveness unit who reports directly to the CEO while having an HR VP who is responsible for the business partner relationships and HR administration. Hoboken. is to have all of them report to an HR vice president and have the HR generalists report to the head of their business unit. executives must see HR as having the capability to be a strategic partner. S. E. Depending on the situation. He is the author of more than 300 articles and 35 books. D. (2003). which have separated themselves from sales and accounting by their reporting relationships.. REFERENCES Lawler. It is a necessary. & Smallwood.. Lawler III is distinguished professor of business and the director of the Center for Effective Organizations in the Marshall School of Business at the University of Southern California. it would recognize the critical role that decisions concerning the acquisition. Treat People Right. CA: Stanford University Press. Creating a Strategic Human Resources Organization. the HR VP might report to the CEO or to the VP for organizational effectiveness. (2004). Human resources business process outsourcing: Transforming how HR gets its work done. Lawler.. By itself. His most recent books include Rewarding Excellence. The metrics and analytics that HR uses must be expanded and improved upon and. N. J. E. E. organizational behavior. Once and for all. . They are typically separate strategic units that play a major role in strategy formulation and development.
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