"If you take a look at the sources of sustainable, competitive advantage during the last decade, the only one that has endured has been the quality of the people who work for you," explains Jim Alef, executive vice president and head of HR and administration for First Chicago Corp. in Chicago. "Capital, at one point, used to be a competitive advantage, but there's much more capital available and accessible now. Technology, at one point, was also a competitive advantage, but even that's become more available. And there was a time, particularly in the financial-services industry, when the half-life of products was very long. But now, you can't build a sustainable advantage on the type of products you offer. The only advantage that has endured is people."
This growing recognition that people are the greatest competitive weapon is changing dramatically the role of human resources in U.S. companies. As a result, the HR function 10 years from now is apt to be a very different animal from the one that existed a decade ago.
To get a glimpse of this future being, Personnel Journal talked to a group of upper-level HR executives in a cross-section of industries, gaining their perspective on the changing role of HR (see "Meet Personnel Journal's Panel," this page). Virtually everyone to whom we talked agreed that HR is moving away from the transactional, paper-pushing, hiring/firing support function it has been and is becoming a bottom-line business decision maker. Indeed, the catchphrase we heard most was "strategic partner."
But how does HR become more involved in business decisions? How does this affect the day-to-day role of HR staffers? And what, exactly, does being a strategic partner mean? Following is our panel's response.
"Being a strategic partner means understanding the business direction of the company, including what the product is, what it's capable of doing, who the typical customers are and how the company is positioned competitively in the marketplace," explains Tim Harris, senior vice president of HR for Novell Inc. in San Jose, California.
"In other words," adds Tim Epps, vice president of People Systems for Saturn Corp., in Troy, Michigan, "HR must become bottom-line valid. It must demonstrate its validity to the business, its ability to accomplish business objectives and its ability to speak of accomplishments in business language. The HR function must perform in a measurable and accountable way for the business to reach its objectives."
Of course, the ways in which HR becomes "bottom-line valid" vary depending on a company's strategic objectives. Generally speaking, the way this is done is by linking traditional HR responsibilities—such as training, compensation and performance management—to tangible business goals. John McMahon, corporate vice president of HR for Stride Rite Corp. in Cambridge, Massachusetts, explains that his company has gone so far as to develop an HR strategic plan that details the HR implications of each of the company's overall business goals.
L.L. Bean Inc.
"Here's an example," McMahon says. "One of our 1994 business goals was to strengthen the information-systems department by creating state-of-the-art data architecture, introducing participative management, creating more effective end-user computing environments and establishing better business partnerships between IS employees and their internal customers. What we did, from an HR standpoint, was to work with the vice president of information systems on restructuring his organization. We assessed the bench strength of current IS employees and established a developmental plan to ensure that the department has the right skill mix. Then, we provided counseling on career management and managing change, we assisted the IS management team in their transition from a non-participatory to a participative management style, and we conducted a climate survey to help managers assess the effectiveness and employee satisfaction related to these changes."
But assisting managers in the way Stride Rite does is just one way HR can demonstrate its strategic influence. HR at Saturn, for example, ties its activities to bottom-line objectives. Most notable is the company's compensation structure. It puts 10% of every employee's salary "at risk," pending accomplishment of certain objectives, including the completion of 92 hours of training every year. If any employee fails to complete the required hours, every employee loses a bit of their at-risk compensation. This is HR's way of underscoring the importance of company goals related to teamwork, leadership and continuing education, Epps says.
For HR professionals at L.L. Bean Inc., the mail-order company based in Freeport, Maine, being a strategic partner means leading the company's total quality management effort, an association that Robert Peixotto's title—vice president of total quality and human resources—makes clear. "We're helping line organizations understand and improve their various work processes through reengineering," he says. "HR no longer is sitting on the sidelines. We're trying to figure out how to put together a catalog better. We're trying to figure out how to improve the turnaround time to our customers. We're right in there with line people as opposed to playing a more secondary support role."
HR must partner with operating managers.
What makes this strategic HR role possible in many of these companies is the HR department's shift from being a doer to an enabler; from being a staff function that delivers prepackaged HR services to the rest of the company, to being a service that helps line managers create and manage their own customized HR policies. In fact, the effort to push HR responsibilities down to line managers—or over or up, as the case may be—is one of the most significant changes cited by the HR executives to whom we talked.
Texas Instruments Inc.
That's what has taken place at Dallas-based Texas Instruments Inc. "My job early on was to make people happy...to worry about training, pay and benefits, communication and employee satisfaction," says Chuck Nielson, vice president of HR, who has been with TI since 1965. "But when we viewed our role in HR as keeping people happy, we found ourselves on a separate track from operating managers, who were concerned with such things as yield, billing, scrap and other hard business issues. Operating people weren't supposed to spend any time on personnel—it detracted from their 'real' jobs.
"Today, one of the most dramatic changes in our company is that HR folks are in partnership with the operating managers. We both recognize that people are the only thing that differentiates us from the competition, so we're both concerned with how to effectively provide an environment in which people can do what they're capable of doing. Here in HR, we spend more time understanding the managers' business needs, and managers have become more concerned with such things as training and communication. In fact, line people are involved in setting companywide HR policy."
Theresa Dadone, director of compensation and benefits for Novell, says her department also has encompassed the partner philosophy. "We have come to recognize that the value we bring to our company and our employees isn't being paper pushers but being consultants and facilitators of decisions," she says. "Our goal in HR is to create a partnership between the company and employees and recognize the sophistication and intelligence of people we bring into the company. We're taking ourselves out of the paternalistic era and putting ourselves into the partnering era."
Another key way that our panel indicated for human resources to become a more strategic partner—at least in international companies—is by helping organizations evaluate global-expansion activities. "One of the most strategic, value-added things HR can do is become involved in global expansion, because international acquisitions touch on everything we do in HR," says Marc Saperstein, manager of global human resources for GE Medical Systems in Milwaukee.
"Here at GE, for example, the human resources department inextricably was involved in the acquisition of a French medical imaging company. We participated in early reviews of the business, including assessing the key talent, reviewing the benefits structure and understanding the differences between the French business culture and the culture that existed in our company. We took a look at such things as how to create a global culture through our reward system, how our leadership values could be communicated cross-culturally, and how we could begin to create a truly global organizational structure."
HR executives say that their function's contribution to a company's globalization efforts also involves an understanding of employment laws, local customs, appropriate benefits levels and the overall "friendliness" of a country to a proposed corporate venture.
Novell's HR staffers, for instance, were instrumental in the company's recent decision to establish a technical support center in Australia. "We were debating between establishing the center in Australia or Singapore," Harris explains. "We had to evaluate local employment laws, the cost and availability of housing and what it would cost to recruit and relocate the multilingual employees needed to staff the center. We also researched tax issues, the competitive salary structure, medical facilities and the health-care system. There's a myriad of decisions in which HR must participate to go back to the business unit and say: 'This is what you should do, this is what it will cost, and this is how long it will take to get the new business or division up and running.' "
Information technology makes strategic HR changes possible.
Advances in information technology are a primary reason HR is able to take on this new role of organizational partner, regardless of whether it's for global or domestic business decisions. Why? Because technology takes away the burden of having to manage routine, paper-shuffling tasks, giving HR professionals the necessary time to think about larger, more strategic business issues.
"Information technology has revolutionized the way we do business in HR," says Jim Perkins, senior vice president of personnel for Memphis, Tennessee-based Federal Express Corp. "We can put employee data into the hands of managers almost immediately." On April 1, for example, Federal Express distributed an online climate survey to its entire work force of 88,000 domestic employees. By April 17, 97% of employees had completed the computerized survey. Less than two weeks later, results were distributed to managers at their desktops. Without automation, this process would have taken months and results probably would have been less accurate.
Perkins' example is just one of many cited by HR executives on how technology has changed, and will continue to change, the role of HR professionals. Novell, being a high-tech company to begin with, is embracing fully the capabilities offered by human resources information systems. Employees can access information on the company's benefits program 24 hours a day via their desktop computer or through an automated phone system. In addition, the company has plans to install a multi-media system that will turn every computer into a mini-television. "This will make it capable, through technology, for the president to address the whole employee population without leaving his office," Dadone says, "and for HR to conduct employee orientations and training in a more efficient way." Novell also foresees a time in the near future when employee evaluations will be done online, eliminating the need for managers in different locations to mail forms back and forth for input and processing. "We envision a completely paperless environment," Dadone says.
"It's funny though," she adds. "You ask about the impact of technology on HR. I would turn that around and talk about the impact of the modern HR function on technology. If HR is thinking outside the boundaries, they're pushing the limits of technology; they're helping technology grow. In these days of tightened headcounts and longer hours, we have to find ways of making technology respond to us so that employees continue to be happy and motivated."
But don't we run the risk of losing valuable personal contact if technology takes over? "I don't think so," Dadone answers, "because technology will free up our time so that we can be true consultants and have better working relationships with employees. The HR of the past was busy talking at people to get things done. Technology gives us the time to talk with people to better understand the needs of the work force."
Or, as Saperstein says: "Technology allows us to eliminate some of the non-value-added work that takes place in an organization, allowing HR to use its resources in other, more valuable ways."
Outsourcing non-value-added work frees HR to be a strategic partner.
Along with technology, a growing tendency to outsource routine administrative tasks is creating what's likely to be a permanent change in the primary responsibilities of the HR professional. According to a recent survey by The Wyatt Company in Washington, D.C., 32% of employers already outsource some or all of the administration of their HR and benefits programs. Among the activities most likely to be outsourced are insurance-claims administration, outplacement services, employee assistance programs, 401(k) plan administration and dependent-care assistance.
According to Saperstein, HR activities that best lend themselves to outsourcing are those that are necessary but don't add value to the business. "We outsource some of our communications work, for example, including editing, layout and photography. We still control the writing and editorial content, but work that's less value-added can be done by outside experts, allowing us to provide resources in other kinds of ways."
One area that Novell outsources is its pension-plan administration. "It wasn't long ago that employees had to come to HR and request a loan from their 401(k) plan," Dadone says. "They had to talk to an HR person and fill out papers. A committee then had to review the request and decide whether or not to grant the loan. Well, that's not in keeping with customer service. That's treating our employees like children. So, we outsourced that responsibility. There's now a toll-free number for employees to call so they don't have to involve HR in their personal finances. We're out of the loop that isn't where our value is. Our value is in helping employees understand the plan.
Federal Express Corp.
"Educational assistance is another responsibility that's been outsourced. Employees used to have to come to HR and request approval of a course and receive reimbursement. Today, an outside agency takes care of it. Employees don't have to come begging to HR, hat in hand, to process something. We now spend our time helping employees understand the benefits of educational assistance and how it can serve them in their personal and professional lives."
Some prognosticators will tell you the increasing popularity of outsourcing signals the demise of the HR function as we know it. After all, if you outsource routine tasks, automate others and shift responsibility for personnel planning to line managers, what's left for HR professionals?
Stride Rite Corp.
Our panel believes a lot is left. "Looking out 10 years from now, the possibility certainly exists to outsource almost the entire HR function," says Stride Rite's McMahon. "But I'm not sure I feel that way. There's a need for an internal presence from an HR perspective. A core HR group will always be necessary to provide, if nothing else, the references for outsourcing and the human element that's so important to getting employee buy-in for corporate initiatives."
Epps agrees. "Over time, people will recognize that all this outsourcing isn't an effective way to do business. Here at Saturn, for example, part of the responsibility we put on leaders is to teach others in the organization. In many cases, the subjects our leaders teach could be taught from outside. But there's a tremendous synergy and leverage that comes from the fact that our own leaders teach the fundamental principles we want to have in place. It legitimizes what we're saying, and it has the interesting repercussion of holding leaders accountable to the very things that they stand up in front of team members and teach.
"I'm not saying nothing should ever be outsourced. A lot of custodial, 'process maintenance' activities can be subcontracted easily. But we have to make a distinction between those activities and ones that offer tremendous upside potential."
Adds Saperstein: "I don't think you'd ever want to outsource the organizational design, the higher-level staffing and the assessment and development of your critical talent."
But even if the trend towards outsourcing won't eliminate HR departments completely, executives on our panel agree it will impact on the size and makeup of the HR staff. However, they don't necessarily agree as to what that impact will be. Epps, for example, believes the size of HR departments will increase as more HR professionals are needed to provide organizational consulting. But most of the executives to whom we spoke felt otherwise.
Nielson says that HR staffs definitely will become smaller. But, "it won't affect our organization because we were considerably smaller than many other HR organizations to begin with."
GE Medical Systems
The same is true at Novell. Harris explains: "The size of some HR departments will be affected, especially because of technology. But we're small already because we've been using that technology."
Adds Alef: "As HR becomes more strategic, you'll see smaller staffs, and you'll see a different kind of person in the function. Ten years ago, virtually everyone in the HR department was a career HR professional. They moved from training to development to compensation, but they tended to be functional experts. You're going to see more people coming into the function from other staff or line positions.
"For example, one of the most successful heads of training we've ever had here came out of the marketing department. He had an understanding of what it was that would enable managers to do their jobs more effectively. It isn't because our other trainers weren't qualified. It's just that once you've walked in the sandals of someone who actually has to be in the customer's office, you develop a different feel for the kinds of training and development needed in order to make you effective."
HR's past serves as a barrier to its future effectiveness, but there's hope.
So if all of our sources agree that the role of the profession is changing, and that to survive, HR is going to have to become a more strategic partner in major business decisions, is there any agreement on what barriers stand in the way? Yes.
"We're still breaking down the old stereotype of the function, which is that we're an ancillary type of function and not knowledgeable in the business aspects of the organization," says McMahon. Harris agrees. "The traditional mindset of some managers that HR doesn't belong in the business—that we're there as administrators—is the first obstacle to overcome."
Ed Dunn, corporate vice president of HR for Benton Harbor, Michigan-based Whirlpool Corp., believes some of these stereotypes may be perpetuated by HR professionals themselves. "Yes, the role of HR is changing," he says. "But so too is the role of finance or marketing or anything else. The world is changing, and successful businesses are changing right along with it. A rising tide lifts all boats.
"Too often," he adds, "HR people excessively are mournful about their changing role, and spend too much time complaining about how no one gives them respect. It perpetuates the little black cloud that HR professionals see hanging over their heads. There's nothing remarkable about HR having to be more strategic and more aligned with the business. Hell, that's what we're supposed to be doing."
Adds Saperstein: "If people perceive that they have an image problem, it's probably because they're not connected with the business strategy, and they're still perceived as being tacticians."
The only way HR professionals can overcome this negative image is by getting involved in business meetings and providing input on business decisions. "So much of how your function evolves is going to be incumbent upon the person leading that function. The more we demonstrate that we have the capabilities and the business acumen to be involved, the more receptive the CEOs and presidents and chairmen of our companies will be," says McMahon.
So, are the executives to whom we spoke optimistic about the future of the HR function? Do they feel that HR professionals are up to the challenges ahead?
"I'm optimistic," Alef says. "Having quality people is the one competitive advantage that hasn't only endured, but increasingly will determine the success of a business. HR has a leading role to play in guiding companies in this new direction. As that becomes more widely recognized, HR people who can make a difference with that element of competitive advantage will be sought after. The HR professionals I know are up to the challenge."
TI's Nielson agrees. "I've been involved in the people business in one way or another for 35 years, and I'm having more fun today than I've ever had," he says. "In the past, the HR function has been like a spare tire kept in the trunk: In an emergency, it's taken out, but as soon as the emergency's over, it's put away. Now I feel that we're a wheel running on the ground. We're not the HR we used to be, but in terms of partnering and helping our companies become competitive, we've only just begun. There are fun times ahead."
Personnel Journal, August 1994, Vol.73, No. 8, pp. 54-61.