Dirk Verburg

Why the current debate about the ‘HR’ function is superfluous and why a new one should start to take place

By Dirk Verburg

It seems like the Human Resources function attracts more and more criticism over the years. This criticism was initiated by a few articles in high profile publications. The most important are: ‘Why we hate HR’ by Keith H. Hammonds in Fast company,‘It’s Time to Split HR’ by Ram Charan in the Harvard Business review, ‘Why We Love to Hate HR and What HR Can Do About It’ by Peter Capelli in the Harvard Business Review and ‘Companies Say No to Having an HR Department’ by Lauren Weber and Rachel Feintzeig in the Wall Street Journal.

These articles had a lot of impact and resulted in a great deal of soul-searching by HR leaders and HR practitioners. Although critical self-reflection is usually a good thing, the question is whether this is justified merely on the basis of these articles. The second question is whether or not this is the most important debate to have about the HR function now – or are there more important issues for HR to focus on.

Where are the data?

Although one of the authors of these articles criticizes HR for not using data (enough) to base their decisions on, the authors themselves base the conclusions in their articles on a very limited data set

Keith H. Hammonds, the author of ‘Why we hate HR’, bases the conclusions in his article on personal observations during a conference of HR professionals in Las Vegas (more specifically on the presentation of one specific HR leader), a single incident at Time Warner and on quotes and interviews with six (former) practitioners, three consultants and four academics. He also quotes four surveys; however, none of these mentions anything negative about the HR function as such. The only CEO he quotes (from Hunter Douglas) is actually very positive about his HR department. Besides Hunter Douglas, he also mentions a number of other companies, but from none of these a company representative is quoted with a (positive or negative) statement about the HR function.

Ram Charan bases his recommendation to split HR on talks ‘with CEOs across the globe who are disappointed in their HR people’. As a reader, I would like to know with how many CEO’s Ram Charan spoke and who they were, in order to assess how representative these statements are. Besides the lack of solid data, there are two other problems with this article. First of all, I wonder why these CEO’s do not do their duty towards their shareholders and replace these non-performing ‘HR people’. Secondly, I know a lot of business leaders who are disappointed with IT. The reasons for this are obvious: IT projects tend to suffer from cost overruns, are not delivered on time, IT-systems and networks tend to ‘go down’ from time to time and support for end-users is far from perfect in a number of organizations. Does this mean that it is time now to split IT?

The author of ‘Why We Love to Hate HR and What HR Can Do About It’, Peter Capelli, mentions 15 companies, but mainly to quote examples in specific areas. Microsoft for instance is mentioned as an example in the context of investments in management skills, GE in the context of management development as well as performance management, and JP Morgan for using an algorithm to identify employees who are likely to act non-compliant. Again, from none of these companies a representative is stating anything negative about the HR function in their company. In addition, Capelli quotes one academic (John Kotter), one institution (Society for Human Resource Management) and two surveys (Bureau of Labor Statistics and a non-specified one) to provide evidence on specific points, but none of these surveys provides a negative overall statement about HR functions.

Lauren Weber and Rachel Feintzeig base the findings in their article ‘Companies Say No to Having an HR Department’ on four companies: LRN corp., Ruppert Landscape Inc., Outback Stakehouse and Klick Health. In addition, they quote anonymous ‘executives’ and one academic and former practitioner. Furthermore the article mentions that two of the four companies decided to reintroduce HR in their organization (although one of them avoid the label HR).

Given the lack of discernible statistical evidence for the conclusions in the articles, it is surprising how much attention was paid to these articles.

How meaningful is the generic notion of ‘HR’?

All articles quoted at the beginning of this article focus on HR as a function in the organization. This means the subject of these articles are a group of individuals that are clustered under the heading ‘Human Resources Department’ in the organization chart.

This is not a great starting point for generic conclusions. The reason is that HR functions differ significantly from organization to organization in terms of their mandate. These differences originate from two interdependent factors: the environment of the organization and the (implicit) design choices by the leaders of the organization.

• Environment – The focus of HR is often related to the industry in which the organization operates. In manufacturing industries, for instance, Industrial Relations tends to be one of the most important HR activities, whereas this activity is almost completely absent in professional service companies.
• Design choices – What is done by the HR department in a company is often a matter of choice. In some companies, payroll for instance is outsourced and overseen by the finance function. In partnerships (e.g. in consulting and legal firms), HR’s role is often limited to a purely administrative one. The reason is that in a number of these companies all decisions around the development, compensation and promotion of individuals are taken by the partners and the role of HR is limited to the implementation of these decisions.

Given the significant differences between HR functions, it is questionable how valid general statements about ‘the’ HR function are. This would be similar to making remarks about all ‘paintings’ in all museums worldwide, without taking into account whether these paintings are impressionistic, expressionistic, cubist or abstract and completely ignoring the differences between the individual painters.

How real are the issues and how difficult is it to fix them?

Let’s now look at the content of the criticism on HR in these articles. First of all a number of statements refer to the personal characteristics of HR people. Such statements are by definition extremely subjective. According to Ram Charan HR people cannot very well ‘relate HR to real-world business needs’, ‘don’t know how key decisions are made’ and ‘have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals’. The judgment of Keith H. Hammonds about HR people is not very flattery either: they are ‘not suitable for the business’, ‘not creative’, ‘not the most intelligent’ and ‘tend to use unnecessary complicated language’. Unfortunately, the authors do not explain the (quantitative) data these statements are based on. This makes it difficult to valuate their criticism.

After eliminating the criticism on the personal characteristics of HR people, the following points of criticism remain:

• Traditional HR departments stifle innovation and bog down businesses with inefficient policies and processes
• HR processes are deemed to be too bureaucratic and time-intensive
• HR people spend too much time on administration and are not strategic enough
• HR people are too focused on costs and not enough at adding value
• HR people strive to treat all employees the same
• HR people do a bad job at talent management
• HR people do not use data enough

These points do not seem to be too difficult to address, all that is required is a structured dialogue. Business leaders who recognize these issues in their organizations or HR leaders who are confronted with this criticism, can use the following 3D approach to make this dialogue happen:

1. Discuss – Initiate an open dialogue between the executive leadership team (the ‘C suite’) and the HR leadership in the organization. During this dialogue the leadership team needs to indicate what it expects from HR (demand side), while HR needs to state what it can offer and what the organization needs in their view (supply side). During this process, the background of existing design choices can be discussed as well. What actually happens in this dialogue is that the added value of HR processes and initiatives for the organization is reviewed. The output of this dialogue will be a description of the mandate for HR.
2. Design – HR needs to design solutions for the different elements of this mandate. These proposed solutions will include process designs, IT tools and the costs and effort required by the organization to implement and maintain these processes (e.g. for performance management cycles). The effort needs to be broken down between the HR function and the line managers and employees of the organization, because it needs to be clear how much time and effort each process will require from whom. A number of organizations for instance are making line managers responsible for off-boarding. This includes updating the HRIT system, as well as the collection and distribution of the necessary paper work. This takes line managers around 2 hours per employee, so management needs to decide if this is an efficient use of the time of the line manager.
3. Decide – These designs need to be reviewed and agreed with the executive leadership team of the organization. In order to enable this dialogue, HR leaders need to be willing to engage in an open dialogue and question their own paradigms. Business leaders on the other hand should stop hiding behind HR if they have to take unpopular decisions (e.g. giving someone a bad performance rating or letting one of their staff go). Hiding behind HR for having to take these decisions is often not true, and often only undermines the credibility of the business leader who does so.

There is another dialogue that does need to happen…

The dialogue around the existing portfolio of HR is a relatively simple one. The real dialogue that needs to be initiated is how companies need to deal with the paradigm shift that is taking place on the labor market. Traditionally, HR functions limited the scope of the ‘Human Resources’ they were responsible for to employees with a fixed or temporary contract with the organization. The question is how relevant this scope is for the (near) future.

A couple of weeks ago HR consulting boutique Kennedy Fitch organized a thought provoking ‘HR masterclass’ dedicated to ‘The Workforce of the Future and the Future of HR’. One of the most important themes discussed that day was the unbundling of ‘jobs + employees’ into work + ‘capabilities in the ‘Gig economy’. 

Ruud Rikhof of Kennedy Fitch started the discussion by arguing that the economic reality of yesterday, and to a large extent today, is that production processes in companies are broken down in jobs and performed by employees. The economic reality of tomorrow however will resemble a ‘Gig economy’. A Gig economy can be described as ‘an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements’. The fact that the Gig economy is real and not a hype, can be illustrated by a couple of important data points.

• The Gig economy as such is recognized by the US Department of Labor, which even publishes information about how individuals can participate in this market
• In the UK, the number of self-employed people has risen to nearly five million, approaching the number who work in the public sector. In the US, around 54 million people are now freelance, roughly a third of all workers
• In 2014, the global market for gig economy platforms and related services was valued at $10bn. PwC expect this market will be worth almost $63bn by 2020
• Sites like Upwork.com and Toptal.com are extremely successful marketplaces where supply and demand for temporary work meet. The maturity of these sites can be illustrated by the fact that Toptal.com is for instance used by, amongst others, Hewlett Packard Enterprise, Emirates Airlines and Pfizer

Interestingly enough, the drive towards a Gig economy does not only originate with companies that want to work in more agile way. It also accommodates the needs of members of Generation Y. According to Leonid Bershidsky (a Bloomberg View columnist): ‘A lack of employer loyalty is a defining feature of Generation Y. No matter how satisfied these highly marketable young minds may be, no matter how much they enjoy the free meals and hybrid car subsidies, they will jump ship as soon as they get bored or get a better offer elsewhere’.

Although the Generation Y members Bershidsky refers to are a specific subset of the labor market (young and much sought after software engineers), they nevertheless are setting a trend. There are also plenty of people in their 40’s and 50’s who have to leave the corporate world and prefer to continue their careers as independent contractor, rather than rejoin major corporations. They value their independence and the variety of their assignments more than the financial stability established companies could offer.

In order to stay relevant to their organizations, it would be beneficial for HR departments to address this. Therefore they will need to do two things:

1. Review whether they want to maintain limiting their remit to ‘jobs + employees’ or whether they want to expand their scope to ‘work + capabilities’.
2. Analyse the implications of the Gig economy for their ‘traditional’ HR processes. Michael Liley of Kennedy Fitch for instance wonders what Talent Management will look like in the future. If a large number of the workforce of the organization consists of temporary workers, should the efforts around talent management be concentrated around individuals or capabilities? Another example is engagement surveys. Several large companies already have a workforce that consists for 25-35% of contingent workers, however these workers are not included engagement surveys. This poses a number of interesting questions about the value of these surveys and the validity of the outcomes. Similar questions can be raised for other ‘classic’ HR functions and processes like Learning & Development (what training and for whom) and Compensation & Benefits (should the scope be limited to employees with a fixed or part-time contract)?

It makes sense for HR leadership teams to start reflecting on these question now, if they want to remain relevant for their organizations in the future. The best thing HR departments can do is follow Wayne Gretzky’s advice and to ‘skate to where the puck is going to be, not where it has been.’ Practical advice on where to skate to can be found in this article by Ruud Rikhof.

Originally published on LinkedIn of Jan 10, 2017