Is HR a Strategic Partner?

What the Data Say

John Boudreau
Edward E. Lawler III

Center for Effective Organizations

Marshall School of Business March 21, 2005
University of Southern California

© 2005 Center for Effective Organizations, University of Southern California

 Agenda
„ Welcome

„ History of the HRPS Survey

„ 2004 Data – New Features

„ Publication Plans

© 2005 Center for Effective Organizations, University of Southern California

HR As a Business With 3 Product Lines

I. Basic Administrative Services and Transactions involved with

compensating, hiring, training and staffing
--- Emphasis on resource efficiency and service quality

II. Business Partner Services involved with developing effective HR

systems and helping implement business plans, talent management
--- Emphasis on knowing the business and exercising influence--solving problems,
designing effective HR systems to ensure needed competencies and talent.

III. Strategic Partner Role contributing to business strategy development

and implementation based on considerations of human capital,
organizational capabilities, and readiness. Developing HR practices
as strategic differentiators
--- Emphasis on deep and broad knowledge of HR and of the business, competition,
and market of business strategies

© 2005 Center for Effective Organizations, University of Southern California EL86N(1)

 Business Partner

Business Strategy

HR Org. Change
Practices Design Management

HR Services Execution Implement

Change

© 2005 Center for Effective Organizations, University of Southern California EL67M

 Strategic Partner
Human Capital
and Business Data

Business Strategy

HR Change
Org.
Practices Management
Design

© 2005 Center for Effective Organizations, University of Southern California EL68M

 HR Pyramid

Organizational
Effectiveness

re Organizational Capabilities

St
Core Competencies
ctu

ra
te
ru

Talent Deployment

gy
St

Talent Management

HR Practices

© 2005 Center for Effective Organizations, University of Southern California EL18O

 Percentage of Time Spent
on Various HR Roles (2004)
MEANS
5–7
Years Current Difference
Ago
Maintaining Records Significant
25.9 13.2 Decrease
Collect, track, and maintain data on employees
Auditing/Controlling
Significant
Ensure compliance to internal operations, regulations, 14.8 13.3 Decrease
and legal and union requirements
Human Resources Service Provider
Significant
Assist with implementation and administration of HR 36.4 32.0 Decrease
practices

Development of HR Systems and Practices Significant

12.6 18.1 Increase
Develop new HR systems and practices

Strategic Business Partner

Member of the management team. Involved with Significant
9.6 23.5 Increase
strategic HR planning, organizational design, and
strategic change

© 2005 Center for Effective Organizations, University of Southern California EL26P

 Percentage of Time Spent
on Various HR Roles (2001)
MEANS
5–7
Years Current Difference
Ago
Maintaining Records Significant
26.8 14.9 Decrease
Collect, track, and maintain data on employees
Auditing/Controlling
Significant
Ensure compliance to internal operations, regulations, and 17.1 11.4 Decrease
legal and union requirements
Human Resources Service Provider No
Assist with implementation and administration of HR 33.1 31.3 Significant
practices Change

Development of HR Systems and Practices Significant

13.9 19.3 Increase
Develop new HR systems and practices

Strategic Business Partner

Significant
Member of the management team. Involved with strategic 9.1 23.2 Increase
HR planning, organizational design, and strategic change

© 2005 Center for Effective Organizations, University of Southern California EL29P

 Human Resource Roles
Current 1995 1998 2001 2004
ƒ Maintaining Records
Collect, track and maintain data on 15.4 16.1 14.9 13.2
employees
ƒ Auditing/Controlling
Insure compliance to internal operations,
regulations, legal, and union 12.2 11.2 11.4 13.3
requirements
ƒ HR Service Provider
Assist with implementation and
administration of 31.3 35.0 31.3 32.0
HR practices

ƒ Practice Development
Develop new HR systems and practices
18.6 19.2 19.3 18.1
ƒ Strategic Business Partner
Member of the management team.
Involved with strategic HR planning,
21.9 20.3 23.2 23.5
organization design, and strategic change

© 2005 Center for Effective Organizations, University of Southern California EL3P

 HR and Business Strategy
1998 2001 2004
HR Managers
Managers
No Role in Business 4.2% 3.4% 2.0% 5.3%
Strategy

Implemented Business 16.8% 11.6% 12.2% 18.4%

Strategy

Input and Helped Implement 49.6% 43.8% 45.9% 52.6%

Business Strategy

Full Partner in Development 29.4% 41.1% 39.8% 23.7%

and Implementation

© 2005 Center for Effective Organizations, University of Southern California EL5P

 How HR Operates

Percent Percent
Currently1 Future2

Drives Change Management 23 71

Support for Business Decisions 17 65
Integrated Strategy 23 82
Develops Business Strategy 23 66
Data Based Talent Strategy 15 68
1. Great extent 2. Important focus

© 2005 Center for Effective Organizations, University of Southern California EL26O

 HR Strategy Activities
HR Managers
Managers
Help identify or design strategy options 2.9 2.7
Help decide among the best strategy options 3.0 2.9
Help plan the implementation of strategy 3.6 3.4
Help design the criteria for strategic success 3.2 2.9
Help identify new business opportunities 2.0 2.0
Assess the organization’s readiness to implement 3.5 3.4
strategies
Help design the organization structure to implement 3.8 3.5
strategy
Assess possible merger, acquisition or divestiture 2.9 2.3
strategies

Work with the corporate board on business strategy 2.6 2.5

Recruit and develop talent 4.6 4.2
Scale response: 1 (little or no extent) to 5 (very great extent)
© 2005 Center for Effective Organizations, University of Southern California EL9P
Value Creation Increasingly Depends
on the “Talent” Market

Value Creation
Strategy

Product/Service Talent Financial

Value analysis
in this market is critical

© 2005 Center for Effective Organizations, University of Southern California JB5P

 The Need for a Decision Science
of HR

Product/
Talent Financial
Service

Professional
Practice Sales Human Resources Accounting

Decision
Marketing Finance
Science “Talentship”

© 2005 Center for Effective Organizations, University of Southern California JB6P

 “Talentship” Defined
To increase the success of the organization
by improving the decisions that:

z Depend upon, or
z Impact

Human Capital.

© 2005 Center for Effective Organizations, University of Southern California JB7P

 “Getting to the table”
„ Finance and marketing are at the table,
not sales and accounting.

z Implication for HR – If you want to “get to

the table,” it cannot be via the professional
practices, but by bringing a unique decision
perspective to the discussion

© 2005 Center for Effective Organizations, University of Southern California JB8P

 Further Reading
http://www.hcbridge.com
„ Boudreau, J. W. & Ramstad, P. M. (in press).
Talentship and the Evolution of Human
Resource Management: From “Professional
Practices” to “Strategic Talent Decision
Science.” Human Resource Planning Journal.
„ Preliminary version available as Working
Paper G04-06: Center for Effective
Organizations, University of Southern
California, Los Angeles, CA.
© 2005 Center for Effective Organizations, University of Southern California JB9P
 The Question Not Asked of
Business Leaders

Do you make decisions

about your people
with the same rigor,
logic and confidence
as your decisions
about money,
customers, products
and technology?

© 2005 Center for Effective Organizations, University of Southern California JB10P

 CEO-HRPS Survey 2005
Status of Talentship
To what extent are these statements true Average Average Strategic Strategic
about your organization? (HR (Non-HR Role Role
(1=little or no extent; 5=very great extent) Sample) Sample) (HR Sample) (Non-HR
Sample)

Business leaders’ decisions that depend 3.1 3.5* .40*** .23

upon or affect human capital (e.g., layoffs,
rewards, etc.) are as rigorous, logical and
strategically relevant as their decisions
about resources such as money,
technology and customers
HR leaders identify unique strategy 3.1 3.1 .44*** .47***
insights by connecting human capital
issues to business strategy

HR leaders rate business leaders significantly lower on Talentship than

business leaders rate themselves.
HR leaders relate business-leader talentship to HR’s strategic role more
significantly than do business leaders.
© 2005 Center for Effective Organizations, University of Southern California JB11P
 CEO-HRPS Survey 2005
Business Leader Talent Principles
To what extent are these statements Average Average Strategic Strategic
true about your organization? (HR (Non-HR Role Role
(1=little or no extent; 5=very great Sample) Sample) (HR (Non-HR
extent) Sample) Sample)

Business leaders understand and use sound principles when making decisions about:

Motivation 2.9 3.1 .50*** .16

Development and Learning 2.9 3.3** .46*** .18
Labor Markets 2.9 3.2* .34*** .28*
Culture 3.1 3.4* .40*** .07
Organization Design 3.0 3.3* .41*** .17
Business Strategy 3.7 3.5 .44*** .15
HR managers rate business leader human capital decision principles
significantly lower than non-HR managers.
HR managers relate business leader human capital decision principles to
HR’s strategic role, but non-HR managers show little relationship.
© 2005 Center for Effective Organizations, University of Southern California JB12P
 HR as a Strategic Partner

Conclusion:
The HR function is not a
strategic partner in most
organizations, but it would
like to be.

© 2005 Center for Effective Organizations, University of Southern California EL25P

HR As a Business With 3 Product Lines

Conclusion:
The HR function needs to be
designed to house all three
“product lines.”

© 2005 Center for Effective Organizations, University of Southern California EL86N(2)

 Key HR Issues

Key Issue: What to outsource and what competencies

and tasks should be in-house

Key Issue: What role should technology play in each

“product line”

Key Issue: How to Measure HR

© 2005 Center for Effective Organizations, University of Southern California EL32O

Outsourcing will obliterate the HR function

© 2005 Center for Effective Organizations, University of Southern California EL31L

 Outsourcing will free up HR
to be a strategic partner

© 2005 Center for Effective Organizations, University of Southern California EL33L

 Outsourcing

We have done very little to define our strategy

for corporate staff utilization. How does staff
provide competitive advantage? Are they
offering low cost or differentiated services. If
they are offering neither, we should probably
outsource the function.

Larry D. Brady
President FMC Corporation

© 2005 Center for Effective Organizations, University of Southern California EL69L

 Outsourcing of Human Resource Activities
1995 1998 2001 2004
Benefits 71 87 81 89
Employee Education and Training 63 82 75 76

Employee Assistance n/a 80 80 88

Legal Affairs 39 60 56 57
Management Development 47 61 60 55

Recruitment 38 56 52 57
HR Information Systems 31 54 46 44

Organization Development 34 30 23 22

Strategic Planning n/a 10 7 7

HR Planning 2 7 4 4

Competency/Talent Assessment n/a n/a 32 43

Performance Appraisal 1 7 7 9
Scale Response: 1 = Not At All, 2 = Partially; 3 = Completely; n/a = Not Applicable. Percentages are based on Partially and
Completely
© 2005 Center for Effective Organizations, University of Southern California EL6P
 Outsourcing Problems
1998 2001 2004
Services not as good as promised 54 60 50
Resources to manage 51 52 56
Cost higher than promised 47 60 44
Managing contractors lack skills 42 40 38
Contractors don’t know company 39 53 44
Switch to new outsourcer difficult 38 41 49
Cannot have HR systems needed 35 31 28
Negative reaction from HR employees 32 30 30
Negative reaction from business units 30 27 27
Negative reaction from employees 30 29 32
Loss of competitive advantage 16 23 19

Scale Response: 1 = Little or No Extent, 2 = Some Extent, 3 = Moderate Extent, 4 = Great Extent, 5 = Very Great Extent
Percentages are based on Moderate to Very Great Extent

© 2005 Center for Effective Organizations, University of Southern California EL7P

 Why HR BPO

„ Cost
„ Self Service
„ Service Levels
„ Increase Strategic Role
„ Data Mining
„ Firm Scalability

© 2005 Center for Effective Organizations, University of Southern California EL9O

 Outsourcing Results
„ Cost Reductions
„ HR Moved to Web
„ Speed Increased
„ Service Quality
„ Employee Satisfaction
„ More Time for Partnership
„ HR Employees Transferred
„ Co-Dependency HR Managers
© 2005 Center for Effective Organizations, University of Southern California EL10O
 Percentage of Time Spent
on Human Resources Roles
MEANS
National Before After
Sample Exult Exult
Maintaining Records
Collect, track, and maintain data on employees
14.9 11.8 6.2

Auditing/Controlling
Ensure compliance to internal operations, regulations, 11.4 9.8 8.8
and legal and union requirements

Human Resources Service Provider

Assist with implementation and administration of HR practices
31.3 24.2 22.9

Development of Human Resources Systems

and Practices 19.3 13.8 17.1
Develop new HR systems and practices
Strategic Business Partner
Member of the management team. Involved with strategic 23.2 22.9 35.8
HR planning, organizational design, and strategic change

© 2005 Center for Effective Organizations, University of Southern California EL12O

Human Resource’s Role in Strategy

National Before After

(Means are of percentages)
Sample Exult Exult

No Role 3.4 9.1 0

Implementation Role 11.6 18.2 18.2

Input Role 43.8 36.4 36.4

Full Partner 41.1 36.4 45.5

© 2005 Center for Effective Organizations, University of Southern California EL13O

 Future of Outsourcing

„ Growth Business
„ Scale Business
„ Software Key Cost
„ Organization Size
„ Data Privacy
„ Globalization

© 2005 Center for Effective Organizations, University of Southern California EL11O

 Key HR Issues

Key Issue: What to outsource and what competencies

and tasks should be in-house

Key Issue: What role should technology play in each

“product line”

Key Issue: How to Measure HR

© 2005 Center for Effective Organizations, University of Southern California EL32O

 State of Human Resources
Information Technology

Percentage of Responses 1995 1998 2001 2004

Little or No Information
Technology/Automation 6.3 8.4 8.3 6.1
Present in the HR Function
Some HR Processes Are
Information Technology 45.3 40.3 48.3 32.3
Based / Automated
Most Processes Are
Information Technology
40.6 42.9 35.9 48.5
Based / Automated But
Not Fully Integrated
Completely Integrated HR
Information Technology / 7.8 8.4 7.6 13.1
Automated System

© 2005 Center for Effective Organizations, University of Southern California EL24P

 Effectiveness of Computer Information Systems
1998 2001 2004
Post Job Openings 38 54 46
Salary Planning / Administration 30 44 37
Change Benefit Coverage 53 62 64
Change Address and/or Personal Information 56 62 72
Obtain Advice / Information on Personnel Issues 12 17 2
Performance Management 21 26 24
Career Development Planning 6 13 12
Skills Training n/a 27 28
Management Development Training n/a 10 15
New Hire Orientation n/a 18 18
Assess Skills/Competencies/Knowledge n/a n/a 9
Assess Knowledge Communities or Experts n/a n/a 13
Assess Manager’s Tool Kit n/a n/a 22
Scale Response: 1 = Not Effectively, 2 = Somewhat Effectively, 3 = Very Effectively, n/a = Not Applicable.
Percentages are based on Very Effectively
© 2005 Center for Effective Organizations, University of Southern California EL11P
 eHR Impact
2001 2004
Effective 2.6 2.9
Satisfy your employees 2.4 2.7
Improve HR services 3.0 3.0
Build employee loyalty 2.0 2.0
Reduce HR transaction costs 2.9 3.0
Alienate employees 1.4 1.7*
Provide new strategic information 2.1 2.3
Support strategic change 2.3 2.4
Speed up HR processes 3.1 3.2
Reduce the number of employees in HR processes 2.4 2.6
Integrate different HR processes (e.g. training, compensation) 2.4 2.4
Enable the analysis of HR’s impact on the business 2.1 2.1
Produce a balanced scorecard of HR’s effectiveness 1.9 2.1
Enable analysis of workforce characteristics 2.5 2.5
Provide a competitive advantage 2.2 2.2
Scale Response: 1 = Little or No Extent, 2 = Some Extent, 3 = Moderate Extent, 4 = Great Extent, 5 = Very Great Extent
*Reverse Scale
© 2005 Center for Effective Organizations, University of Southern California EL12P
 Information Technology and Human
Resource Management
Strategic Partner Business Support Personnel Services
Role and Execution Role Role
Data Analysis, HR System Administration
Modeling and
Employee and Manager
Simulation Capabilities
Tools, Information
and Advice
Transactional
Business Strategy Input Data and Analysis Tools Self-Service
Processes
HR Strategy Formulation
HR System Development,
Strategy Implementation
Learning
Change Management and Improvement
Organization Design Consultation
Talent Strategy
Help-Line Services
and Processes
Upgrading Analytic
Program and System
Capabilities Program and System
Upgrades
Upgrades

Shaded = IT/HR Enabled

© 2005 Center for Effective Organizations, University of Southern California SM14N
 Key HR Issues

Key Issue: What to outsource and what competencies

and tasks should be in-house

Key Issue: What role should technology play in each

“product line”

Key Issue: How to Measure HR

© 2005 Center for Effective Organizations, University of Southern California EL32O

 Hitting the “Wall”
in HR Measurement

Value

• Strategic Impact
? • Organizational Change
• Validity and Rigor
• Causation
Scorecards
Data • Leading Indicators
and drill-
Systems
downs
and
Portals
Ad hoc Bench-
HR marks
measures

Time
© 2005 Center for Effective Organizations, University of Southern California JB13P
 Lighting the “LAMP”
Valid Questions and Results
(Information, Design, Statistics)
“The Right Analytics”

Rational Talent
HR Metrics and Sufficient Data
Strategy
Analytics That (Timely, Reliable,
(Competitive
Are Available)
Advantage, Talent
“The Right
Pivot Points) A Force For
“The Right Logic” Strategic Change Measures”

Effective Knowledge Management

(Values, Culture, Influence)
“The Right Process”

© 2005 Center for Effective Organizations, University of Southern California JB14P

 Further Reading

Talentship and Human Resource Measurement

And Analysis: From ROI To Strategic
Organizational Change.
John W. Boudreau & Peter M. Ramstad
(2004). Working Paper G04-17: Center for
Effective Organizations, University of
Southern California, Los Angeles, CA.

© 2005 Center for Effective Organizations, University of Southern California JB15P

 HR Metrics & Analytics Use
and Relationship with HR Strategy Involvement
Correlation with HR
Does your organization currently… Avg. Role in Strategy (HR
Managers)
Collect metrics that measure the business impact of HR
Imp.
programs and processes?
2.7 .20*
Have metrics and analytics that reflect the effects of HR
Effect programs on the workforce (such as competence, motivation, 2.7 .29**
attitudes, behaviors, etc.)?

Have the capability to conduct cost-benefit analyses (also called

Effect
utility analyses) of HR programs?
2.5 .19t

Measure the financial efficiency of HR operations (e.g., cost-

Effic
per-hire, time-to-fill, training costs)?
3.1 .29**

Effic Collect metrics that measure the cost of providing HR services? 3.0 .24*

Use dashboards or scorecards to evaluate HR’s performance? 2.9 .31**

Use measures and analytics to evaluate and track the
performance of outsourced HR activities?
2.6 .30**

Benchmark analytics and measures against data from outside

organizations (e.g., Saratoga, Mercer, Hewitt, etc.)?
3.0 .11

Response scale is 1 = “Not Currently Being Considered” … 4 = “Yes, Have Now.” *** p ≤ .001 ** p ≤ .01 * p ≤ .05 t = p ≤ .10

© 2005 Center for Effective Organizations, University of Southern California JB16P

 HR Metrics & Analytics Effectiveness:
Strategic Contribution

Correlation with HR
How effective are the information, measurement, and
Avg. Role in Strategy (HR
analysis systems of your organization when it comes to:
Managers)
Connecting human capital practices to Organizational
2.6 .36***
Performance
Making decisions that reflect your company’s competitive
3.0 .43***
situation
Assessing the feasibility of new business strategies 2.7 .43***
Supporting organizational change efforts 3.3 .37***
Assessing and improving the human capital strategy of the
3.0 .30**
company
Contributing to decisions about business strategy and
2.9 .42***
human capital management
Identifying where talent has the greatest potential for
3.0 .37***
strategic impact
Response scale: 1 = Very Ineffective, 5=Very Effective *** p ≤ .001 ** p ≤ .01 * p ≤ .05

© 2005 Center for Effective Organizations, University of Southern California JB17P

 HR Metrics and Analytics Effectiveness:
Functional and Operational Contribution

Correlation with HR
How effective are the information, measurement, and
Avg. Role in Strategy (HR
analysis systems of your organization when it comes to:
Managers)
Assessing HR programs before they are implemented – not
2.7 .18t
just after they are operational
Pinpointing HR programs that should be discontinued 2.8 .14
Evaluating the effectiveness of most HR programs and
3.0 .34***
practices
Assessing and improving the HR department operations 3.4 .16
Response scale: 1 = Very Ineffective, 5=Very Effective *** p ≤ .001 ** p ≤ .01 * p ≤ .05 t = p ≤ .10

© 2005 Center for Effective Organizations, University of Southern California JB18P

 Possible Explanations for Slow Change
in Human Resources Organization

„ Inherent Logic of HR Services – A Basic Level of Service that is

Not Optional

„ Co-dependency Between Line and HR

„ Skills Gap / Lack of Line Management Confidence

„ Preoccupation with War for Talent / Focus on Traditional Tasks

„ Failure to Accurately Define the Value-Add of HR

„ Slow to Align the Organization / Internal Change Leadership Weak

„ Slow to Take Advantage of eHR and Outsourcing

© 2005 Center for Effective Organizations, University of Southern California SM11N

 Satisfaction with Knowledge of HR Professional
HR Managers Managers
Correlation with Correlation with HR
Mean Mean
HR Role in Strategy Role in Strategy
HR Technical Skills 3.7 .47*** 3.91 .13
HR technical skills 4.0 .49*** 4.1 .08
Process execution and analysis 3.4 .30* 3.6 .13
Organizational Dynamics 3.6 .41*** 3.8 .29*
Team skills 3.7 .45*** 3.9 .20
Consultation skills 3.4 .22t 3.71 .17
Coaching and facilitation 3.5 .33** 3.6 .32*
Leadership/management skills 3.5 .34** 3.5 .32*
Interpersonal skills 4.1 .39** 4.0 .23t
Administrative Skills 3.5 .20 3.6 .17
Record keeping 3.8 .16 3.7 .25*
Managing contractors / vendors 3.3 .15 3.4 .01

Scale Response: 1 = Very Dissatisfied; 2 = Dissatisfied; 3 = Neither; 4 = Satisfied; 5 = Very Satisfied

1
Significant difference (p ≤ .05) between the two groups. Zero order correlation: t p ≤ 0.10 * p ≤ 0.05 ** p ≤ 0.01
*** p ≤ 0.001
© 2005 Center for Effective Organizations, University of Southern California EL20P(1)
 Satisfaction with Knowledge of HR Professional
(cont’d)
(cont’d)
HR Managers Managers

Correlation with HR Correlation with HR

Mean Mean
Role in Strategy Role in Strategy
Business Partner Skills 3.1 .31* 3.51 .34**
Business understanding 3.3 .07 3.5 .34**
Strategic planning 2.9 .27* 3.2 .41***
Organizational design 3.0 .36** 3.61 .25t
Change management 3.2 .48*** 3.61 .27*
Cross-functional experience 3.0 .01 3.2 .12
Global understanding 2.7 .12 3.31 .17
Communications 3.8 .31* 3.8 .33**
Metrics Skills 2.8 .22t 3.21 .19
Information technology 3.0 .07 3.1 .09
Metrics development 2.7 .18 3.31 .33**
Data analysis and mining 2.7 .30* 3.11 .02
Scale Response: 1 = Very Dissatisfied; 2 = Dissatisfied; 3 = Neither; 4 = Satisfied; 5 = Very Satisfied
1
Significant difference (p ≤ .05) between the two groups. Zero order correlation: t p ≤ 0.10 * p ≤ 0.05 ** p ≤ 0.01
*** p ≤ 0.001
© 2005 Center for Effective Organizations, University of Southern California EL20P(2)
 HR’s New Capability Requirements

„ To deliver the strategic organizational

effectiveness vision HR will need to develop a
new set of capabilities:
z Enhanced understanding of the business strategy
and processes
z ERM and branding: internal and external
z Data mining and financial analysis
z Information technology fluency
z Building and managing effective strategic supplier
relationships
z Knowledge management
© 2005 Center for Effective Organizations, University of Southern California EL99N
 Next CEO Event

Seminar:

HR’s Challenge:
Achieving Strategic Excellence

April 14-15, 2005

© 2005 Center for Effective Organizations, University of Southern California