[HROA Essentials] HR Transformation: Myth or Reality?
CATCH 22 FOR HR
People management failings prevent HR from
improving its own performance, reveals new report
HR departments are increasingly expected to take a more strategic role in improving staff performance but, in a cruel irony, a new report shows the physician is having considerable difficulty healing even itself. According to research undertaken by HROA Europe, SharedXpertise forums and outsourcing advisers TPI, nearly half (44%) of HR departments are failing to achieve a more strategic role - in spite of the trend to divest themselves of more administrative activities, through outsourcing and shared services, and thereby free up staff for more "value-added" activities.
Principal among the reasons for this failure are inadequacies in two of the very things in which HR should be most expert - retraining and performance measurement. Insufficient competencies and skills among HR staff emerged as the most frequently cited barrier to adopting a more strategic role. Meanwhile, over half (57%) of HR departments said they had failed to set formal goals to measure the extent of their change of focus. However, the report identified that blame did not rest entirely with the department itself, with 42% of those surveyed claiming insufficient support from the organisation's senior management.
Deborah Kops, Head, Program Planning and Development, SharedXpertise Forums commented:
"HR needs to adopt a more strategic role but the fact that HR itself lacks some of the very skills implicit in a strategic role, means they cannot successfully manage their own desired change of focus. Greater investment from the board to help manage HR's transformation seems the only solution."
Jeff Croyle, Head of TPI's HR practice in Europe, added:
"If the HR department is to be viewed as a trusted advisor working in partnership with its internal clients to improve workforce performance, it must first be able to address the deficiencies in its own skill sets. Unfortunately, many HR departments find themselves in a ‘Catch 22' situation from which they will not escape until their organisations make a much more serious commitment to supporting their change of role."
The report, entitled ‘HR Transformation - Myth or Reality?' is based on in-depth research among HR department leaders across more than 40 major, international corporations that have adopted either HR outsourcing, shared services - or both.
Its findings also highlight how HR is troubled by its perception within the organisation as a whole, with only a minority of HR senior management believing the wider business is satisfied with how HR has transformed itself. Just 42% believe employees in general are satisfied and fewer still (38 percent) believe managers are satisfied. Whilst HR outsourcing and shared services have delivered concrete benefits (the average cost saving is 20%, productivity improvement 23%, and increase quality of service 28%), the impact of these benefits is not necessarily strategic and is often little felt outside the HR department itself.
Jeff Croyle said:
"Significant benefits have been achieved through HR outsourcing and shared services but they tend to be less than anticipated and all too often make little difference to the department's ability to add value to the business. The low satisfaction with HR transformation among business managers is particularly worrying considering HR's need to work in close partnership with management across departments if they are to make a more strategic contribution. Far more effective change management is required if outsourcing and shared services are genuinely to transform HR's role within the organisation."
Paradoxically, HR's own confidence in outsourcing and shared services as facilitators of a more strategic role remains largely intact. In spite of the shortcomings of HR's transformation, 80% of survey participants said the transfer of process-driven HR activities, to an outsourcing provider or centralised in-house delivery centre, can play a key role in improving HR's strategic focus.
Part of this discrepancy can be explained by the failure to set formal goals against which to measure the extent of change. The research shows that the majority of HR departments fail to set specific metrics to assess the benefits, in spite of the fact that the use of metrics correlates strongly with success in HR adopting a more strategic role. 73% of those who put in place such metrics find outsourcing and shared services effective in driving strategic focus, compared with only 43 percent of those with no formal measures in place.
Deborah Kops, concluded:
"These findings reveal a story of missed goals and opportunities. Unfortunately, many companies still assume successful HR transformation is a simple matter of ‘lifting and shifting' certain processes out of the HR department, rather than fundamentally altering the way in which HR contributes to the business. They are simply not giving their HR departments the support they need to achieve this radical change of role."
Other major findings of the survey include:
Transactional administration remains mainstay of HR outsourcing and shared services
Payroll continues to be the function most commonly outsourced or centralised, having been moved out of the HR department by 79 percent of the firms surveyed. The next most commonly transferred processes are pensions and retirement benefits (53 percent) followed by health and welfare (42 percent).
Full-scale HR outsourcing remains a rarity
Full-scale HR outsourcing does not appear to have taken off to the extent commentors have widely predicted. 58% of the organisations surveyed are still employing a combination of outsourcing and in-house centralisation of processes in a shared services centre.
Jeff Croyle commented:
"The commonly held belief that there is an evolution from shared services, through hybrid internal and external solutions, to full-scope outsourcing is not supported by our research. It is possible that in-house delivery may be the most effective current model for many international companies until the HR outsourcing firms further develop their solutions and their global operations."
Partial outsourcing more likely to deliver suboptimal results
Organisations that employ a hybrid of outsourcing and shared services report the lowest achievement of both service quality and productivity improvement goals, perhaps because of the additional complexity of dealing with areas of cross-over.
Download Myth or Reality Report
About the HROA
HROA Europe, the European arm of the HR Outsourcing Association, is the only professional membership organisation committed to promoting the advancement of human resources transformation in complex organisations. www.hroaeurope.com
About SharedXpertise Forums
SharedXpertise Forums (formerly known as SBPOA) is a global, independent, membership-based community of professionals focused on transforming their business processes and functions via shared services and outsourcing. Through our Research, Training, Events and Forums, we arm organizations with
the knowledge, tools, expertise and insights they require for successful business process transformation. www.sharedservicesbpo.com.
About TPI
TPI offers sourcing advisory solutions that support organizational goals to create enduring value, achieve effective transformation, and meet rapidly changing market demands. Since 2000, TPI has advised on more than 25% of total contract value awarded in the broader outsourcing market, which includes commercial contract awards each valued at €40 million or more. With 340 advisors to help clients find the right balance of value, speed-to-market and risk mitigation, TPI remains the most sought-after advisory firm in the world. TPI operates in locations including Houston, New York, Toronto, London, Paris, Brussels, Frankfurt, Sydney, Bangalore and Singapore. For additional information, visit www.tpi.net.