In "The ROI of Human Capital" (AMACOM, 2000) author Jac Fitz-enzdiscusses HR’s impact on enterprise goals and other processes. In the chapter"How to Value Improvement Initiative Results," Fitz-enz walks youthrough what you need to keep track of when your HR department goes through arestructuring. So put your tool belt on -- and let’s start calculating thevalue of your restructuring efforts.
Restructuring: Back to the Beginning
Call it what you will, restructuring is one of the oldest management gambits.I remember a quotation from a famous Roman general who said, in effect,"Every time we are finally prepared to act, we reorganize." Asorganizations have come under the gun to restructure themselves for greatercompetitiveness, all units inside have had to do the same. Typically,restructuring in manufacturing companies starts with production processes. Quiteoften the marketing and sales functions come along shortly thereafter and bringthe customer service departments into the game. Eventually the principal staffunits -- finance, information technology, and human resources -- join in.
Usually the first question in restructuring is, What should be redesigned? Isubmit that the first question should be, Why are we considering redesigninganything? In this, all studies tend to find the same rationale. Restructuring isundertaken to gain competitiveness by:
- Lowering cost structures
- Improving service
- Taking advantage of technology advances
In the course of doing this, companies typically:
- Reengineer processes
- Shift controls by centralizing or decentralizing
- Outsource some noncore functions
On the surface, this is what happens to HR departments as well. However,underlying those activities is a more deep-rooted issue. It’s the basicquestion of human resources’ raison d’être.
The Lost Profession
For more than three decades, the question has been, What is HR’s role inthe organization? If we don’t know the purpose of the HR function, maybe itshouldn’t exist. HR is the only function that has been asking this question.All other units seem to know why they exist. But since this is the case, itseems imperative that we ask why human resources exists before we talk aboutrestructuring it.
The basic reason that any function exists is to add value. That isunequivocal. No one opens a department simply to spend money. Since we have anHR function, there are two basic questions for starters:
- Do we need one at all?
- If we do, what value can it add?
The answer to the first question is up to you. If you can run your enterprisejust as well by assigning all human capital management work to line managers oroutside vendors, then I say, dissolve HR. It is HR’s first imperative todemonstrate that it can do the work better, faster, and cheaper than any othersource. If it can’t, dump it!
It is not my responsibility to make the case for HR in this book. I believethat it has a valid role when it shows that it adds value. I also believe, basedon more than 500 presentations to HR groups in 25 countries from 1978 to date,that well over 50 percent of the HR departments in the world don’t come nearto fulfilling their potential. But hold on! Before we dump them, let’sremember who hired them and gave them their marching orders: the CEO. I estimatethat only 20 percent of HR managers take hold of the job and proactively showtop management how they can add tangible value. I will focus on how these 20percent go about restructuring their departments to meet changing circumstances.
There are critical issues that are central to any restructuring plan:
- Service expectations: What are we supposed to accomplish?
- Control: Where will control and accountability reside?
- Competencies: Are we prepared to deliver?
All other questions and answers, problems and solutions, devolve from thesethree.
To make good decisions, it helps to know the landscape. Externally andinternally, what are the forces at play? In short, what happened or will happenthat has caused someone to launch this restructuring drive? Starting on theoutside, there are several marketplace factors and forces that have driven us tobelieve that we need to change our organizations. In no particular order, theyinclude the availability of talent, the productivity of our workforce, advancesin technology, plans and actions of our competitors, mergers and acquisitions,entry into new markets, and, in some cases, the state of the national orregional economy. Each of these can be a complex issue with many ramifications.Suffice it to say that some combination of them is the most common externalfactor driving restructuring.
Internally, our studies uncovered that service improvement, cost reduction,and the vision of the HR director were the main drivers. Quite often, we foundthat CEOs decided that HR needed to be run differently. Those executives hirednew HR directors with the charter to change HR into a value-adding function.
Studies of over 75 restructurings in the United States and England uncovereda set of six factors that separated the successful from the unsuccessful. Themagic six are as follows:
- Business focus. First, and most importantly, there must be acompelling business reason for the change. This requires an awareness of thevision, values, and mission of the organization. Along with that is implied adetailed knowledge of the workings of the organization. HR needs to befamiliar with the operating processes of its internal clients. This leads toan understanding of the needs of the clients -- both employees and management.
- Planning. An effective plan includes several components. Thisgenerates a clear strategy for carrying out the change, along with an explicitset of goals and performance targets. A communication plan must be in place toarticulate the reasons for the change and the values to be obtained. An oftenneglected point is how the change will be phased in. In addition, there shouldbe a program for dealing with the effects restructuring will have on the HRdepartment and its corporate customers. Finally, there needs to be a methodfor assessing and evaluating the outcomes.
- Communication. This is so essential that it cannot be overemphasized.The best companies believe that you cannot communicate too much. This isdoubly true in the time of upset, which is what a restructuring is. Powershifts, control changes, processes are redesigned. Almost nothing isuntouched. People must continually be kept up-to-date about what is happening.Failure to communicate breeds fear, and fear leads to dysfunctional behavior.
- Teamwork. Large-scale change requires involvement. Very feworganizational projects are done by individuals. Teams make most of therestructuring happen. Since restructuring affects everyone who is served byHR, as well as everyone who inputs data to HR, there must be a great deal ofteamwork. Collaboration with persons outside the department builds support forthe change, a sense of shared ownership, and perseverance through thedifficult days of implementation.
- Commitment. Top management must actively and visibly show supportfor and personal commitment to the change. When it doesn’t, people believethe restructuring to be just another management game. Project leadership isabsolutely critical. The organization must commit a superior individual tolead the project. This is someone who is respected, wants the job, and iscreative, hard-driving, and influential with others.
- Benchmarking. Three out of four companies reported that they engagedin some amount of external benchmarking before launching their projects.Ideas, cautions, and effective methodology come from a sound benchmarkingexercise. Both practices and metrics can be studied and incorporated asappropriate. The caution is to make certain that whatever learning you adoptyou adapt to your circumstances.
When all is said and done, we need to know whether we have achieved ourrestructuring goals. Obviously, in order to assess that and measure the ROI ofthe project, we have to have clear objectives at the outset. The basic questionthat assessment answers is, What did we set out to improve: service, quality,productivity, ease of administration, cross-functional processes andrelationships, or what? Quantitative data can be obtained before and after therestructuring to determine whether we achieved those objectives. The key pointsare:
- Baseline performance at the time the restructuring started
- Target performance level
- Quarterly progress points
Plotting the results of the restructuring stimulates people to persevere.People need feedback on their efforts. They need reinforcement that says,"You’re making it," or, You need to do better. With this method,they can see how fast and how far they have gone. Some changes will occurquickly; others will take time. For example, requisitions per recruiter will notchange until you have had time to reengineer the recruiting process and perhapsinstall an automated applicant tracking system. As you see the changes fromquarter to quarter, you can calculate the values. In the case of therecruiter-to-requisition ratio, if you reduce the number of recruiters neededfor a given requisition load, you are saving staff time to apply toward morevalue-adding work in HR; you can transfer the recruiters to other jobs ordownsize the function. With cost issues, it is easier to see value added,because there is a direct reduction in the targeted hiring costs.
Improvements in service to employees obviously helps morale, which in turnshould positively affect productivity and turnover. It may take six months ormore for the effect to be felt and acknowledged by the employees. So long as youhave a tracking system to monitor your progress, you will be able to show thereturn on time and money invested in restructuring. By studying restructuringprojects, we can clearly see the focus shifting from HR specialties tobusiness-centric services, from HR department management to human capitalmanagement, and from process and policy activities to planning and operatingmanagement.
Workforce, May 2000, Vol. 79, No. 5, pp. 82-89-- Subscribenow!