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Dear Workforce How Should HR Be Structured Today

"Distributed HR" is emerging as a trend.
August 29, 2001
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Q

Dear Workforce:

How should HR be structured today? Are there advantages and disadvantages toone organizational structure over another?

-- Wondering HR Rep, Software/Systems, Murray, Utah.

A Dear Wondering:

Trends in HR structure -- a brief history
HR functions developed in most large organizations as centralized stafffunctions, divided into specialty areas (e.g., compensation, benefits, staffing,etc.). There were representatives of HR (at the time usually called"personnel representatives") who were responsible for informingmanagers and employees about HR policies and programs, handling employeerelations issues and serving as a conduit to HR and line management for employeeviews and concerns.

As businesses began to realize that different businesses needed and couldafford different types of HR programs and benefits, even within the samecorporation, HR began to decentralize, replicating the centralized HR structureat division and even SBU levels. This had the advantage of supportingdifferentiated HR for each business, but its redundancies cost a lot of moneyand the specialist jobs got smaller (i.e., they supported smaller groups ofemployees) and thus attracted less capable or experienced people.

Two trends then emerged that drove HR toward the structure that is mosttypical today:

  • Companies became more cost conscious, especially about staff functions.

  • Senior executives began to realize that people really are a strategicasset, and that people strategy had to be linked to business strategy.

The resulting structure has three components to it:

  1. Shared HR services for administrative and transactional functions, tocreate efficiencies and save money. This component reduced the redundancies ofthe previous, decentralized structure and focused on operational excellence.

  2. Centers of Excellence (CoE), which are centralized units responsible forprogram development and consulting to businesses in highly specialized areas(compensation, OD, benefits planning, etc.). This component leads to criticalmass in specialized areas, which attracts better people. The challenge is toensure that the CoE doesn't become an "ivory tower" disconnected frombusiness realities.

  3. Decentralized HR business partners, transformed personnel reps, whoseresponsibility is to understand the business issues and, as a member of abusiness management team, to identify the HR implications and coordinate helpfrom the appropriate CoE(s) or outside vendors to deal with those implications.This new role, when played properly, enhances the strategic value of abusiness's people.

HR today -- and future directions
This structure remains the paradigm for most large, sophisticated HRfunctions today. Compared to its predecessors, it is relatively efficient, andmore business-focused. But most line managers, and even senior HR execs, willconfess that their HR function is still too administrative, too expensive andnot able to deal with strategic people issues.

So there is a new trend in HR -- what I will call "distributed HR."That is, the design and delivery of HR functions is now done through multiplechannels, the criterion being that it be done through the channel which deliversthe HR service in a way that yields the greatest return (benefit andquality/cost) and/or has the most direct accountability for that HR activity.

What does this concept mean in practical terms? Several things:

  • Outsourcing of all administrative activities, removing them entirely fromthe internal HR organization and shifting them to an outside vendor who can takeadvantage of greater economies of scale, more ability to invest in newtechnologies, and more focus on best practices. This has the advantages ofreducing cost and allowing the internal HR function to move away from itstransactional focus. It has the disadvantage of providing less internal controland locking the company into a long-term commitment to one vendor.

  • Returning key elements of people-management back to the line, eliminatingthem from the HR function entirely. For example, while compensation programdesign remains a specialized activity that only HR, or outside consultants cando, salary administration can be managed by line managers themselves, with thehelp of computer technology to provide these managers with data and analyticsthat they need.

    This not only reduces HR function cost, but it also gets the line to takeresponsibility for decisions that only they should make, since managing theirpeople should be their accountability, not HR's. It has the disadvantage oftaking up more line management time and, without proper advice and controls fromthe HR function, allowing inexpert managers to make inappropriate decisions.

  • Expecting employees to take more responsibility for their own HR management; for example for planning for their own development and careerprogression, and for managing their health care expenditures. This empowersemployees and makes them feel that the programs they have a hand in shapingbetter fit their needs. The challenge is to ensure that employee empowerment islinked to business needs.

  • Reducing the number of "HR business partners," but ensuringthat, freed from the administrative work they did in the past, these partnersare truly strategic thinkers in both HR and business arenas -- and are regardedby the line in that way. The advantage is that businesses can finally begin touse their people as a source of competitive advantage. The challenge is to getthe right HR people for these roles. Although the title business partner hasbeen around for a while, there are few practitioners who really fit the mold.

  • Developing small teams of specialists, who function like SWAT teams tosolve specialized HR problems. They resemble the CoE of old, with twoexceptions:

    1. They are smaller and in many cases contain few permanent members, butrecruit other internal or external consulting resources as a project requires.

    2. They are not oriented to developing corporate-wide programs, but moretoward solving business-specific needs.

In summary, an organization with dispersed HR has a relatively small HRfunction. Although it may be organized along traditional lines (businesspartners, specialists, etc.) it works quite differently, playing a much moreconsultative role with its line clients. And much of the HR work gets doneoutside of HR entirely -- by employees themselves, by managers, by outsourcers.

SOURCE: Andrew Geller, Principal, Organizational Development, Unifi Network,a subsidiary of PricewaterhouseCoopers, Teaneck, NJ, April 26, 2001.

LEARN MORE: See "Where's HR Headed?"

The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.

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