At the end of World War II, the United States economy began to take off in a dramatic way. The industrial machine that helped the Allies win the war was converted into a domestic engine that propelled the U.S. into a sustained period of economic growth.
In light of this, corporations adopted the personnel office function in the 1960s, primarily to serve the baby boomers. The office focused on more transactional activities such as recruiting, compensation, benefits, payroll and labor relations.
In the decades that followed, the personnel director became the chief human capital officer and the personnel officer became the human resources specialist.
In “The New Human Capital Strategy,” author Bradley Hall writes that “despite these great titles, the daily activities and skills of HR business partners never changed.”
With the exception of a label change to human resources within the past two decades and the addition of some strategic tasks, the functional structure has been stuck in an organizational time warp for the past half century.
During those years, 10 U.S. presidents held office in a period accented by a global computer revolution that accelerated the speed of how we work and conduct business around the world.
This accelerated change forced companies to assume higher capital risks to remain agile in the marketplace. However, at the same time, failed mergers and acquisitions reached a level of 50 to 80 percent, according to the book “The Lords of Strategy: The Secret Intellectual History of the New Corporate World” by Walter Kiechel III.
Market strategists look at these events through two different lenses. One is from a numbers perspective — market share, account receivables and budgets — and the other is from the perspective of human capital, or people — talent, energy and limitations.
The clash between corporate cultures and people factors figures prominently as a critical risk in most mergers and acquisitions.
The underlying question becomes: Why did human capital leadership fail to mitigate these risks? A new paradigm for human capital leadership could enable the function to truly align itself as a business partner in the C-suite.
Why Change Is Necessary
Human resources, also known as the human capital function, has traditionally been split into two functional divisions: talent management and talent development.
Talent management is all about tactics and transactions, including employee records, workforce policy, compensation and benefits, employee and labor relations, and recruiting and retirement processing.
On the other hand, talent development is all about learning and strategy — workforce planning, learning and training, team development, change management, leadership and succession strategies, career development, coaching and mentoring, and competency development.
There are a number of reasons why this organizational model has failed to drive transformation and keep pace with the speed of business.
Originally conceived in the 1960s, the model was designed to deliver administrative services, not provide value to stakeholders and the operational units of an enterprise.
In a 2006 annual survey by the Economist magazine of 555 executives — including 226 CEOs — when the respondents were asked to identify the most critical corporate functions, human resources tied for last place along with procurement and supply-chain management.
Following are several reasons why talent development and the learning organization have gotten caught in the shadows of the talent management side of the model, leaving them unable to fully add value to the operational elements in an enterprise.
Internal customer: In the era when the current human resources model was built, the customer who received HR services was internal, not external. Although the call from HR professionals was always, “We want a seat at the table so we can make a meaningful difference,” it was not possible with this model.
Organizational change: An industry initiative in the 1990s was designed to provide organizational change assistance to operating units, but it was never fully realized because of the inhibiting structural model of HR organizations, which focused primarily on the transactions associated with the function.
Also, the strategic function of the learning organization never had a chance to fully partner with the operational line units because it, too, was lost in the shadows of transactional functions.
Lower training budgets: During lean times, human resources makes the choice to cut the learning budget, since it is valued below the transactional activities of the talent management division.
It could be argued that this choice makes little sense since many transactional activities can be outsourced while the strategic ones are endemic to an organization’s success.
The workforce plan: The annual workforce plan was often prepared in isolation with little attempt to conduct meaningful collaboration with the operating line units.
Lack of accountability: Until the strategic element of the HR organization can be repositioned to partner with operational units, needed metrics will only measure activities, not results.
Strategic talent development must be repositioned to drive transformational change that delivers continuing results. It also must be aligned with the vision and mission of the organization.
Just as many organizations decided to separate and realign the marketing and the sales functions to bring greater value to both, so it needs to be with talent management and talent development.
How It Works in Practice
Two case studies in the book “HR Transformation: Building Human Resources From the Outside In” highlight companies that created their own unique human capital leadership models to serve their organizational needs.
Although there is no single model design that fits all organizations, each takes the traditional human resources transactional work and separates it from the strategic work.
Flextronics is a global electronics turnkey manufacturing firm that grew from being a $100 million company in 1993 to a $33 billion company by 2006. After the dot-com bust of the early 2000s, the company realized if it wanted to grow it needed to build a stronger human capital organization that was scalable to its needs.
Since it did not have a central human resources organization, Flextronics knew it would have to create one. It also determined that it would separate tactical or transactional elements of human resources from the strategic elements.
The company’s senior leadership adopted a business model called Discover, Design and Deliver.
The discover unit was staffed with market strategists embedded within senior leadership who lead each of the global business segments. The design unit was staffed with experts in compensation, learning and development, and human resources.
The deliver unit was the largest of the three; it contained the tactical or transactional activities that supported the business regions in Europe, Asia and the Americas.
Flextronics embedded strategic components where they could affect the agility of the organization in the market while leaving the tactical or transactional components to continue their direct support of the three global organizations.
Another example is Pfizer, a pharmaceutical company with a workforce of roughly 100,000. When its senior leaders decided to redesign the human resources organization, it was already large and well-established.
But senior leaders developed a strong business case to transform the company from a transactional organization to a strategic enterprise so it could better position itself in the market.
In essence, the company wanted to redirect its customer base focus from internal to external. Pfizer’s answer: Develop the three-tier structure of enterprise, business unit and manager and operational support.
Human capital leadership policy centered on the enterprise unit, workforce planning, change management and development was embedded within the business units, and the foundational and operational support activities were in the manager and operational support units.
A New Paradigm
Each enterprise needs to evaluate how it can realign its strategic human capital to bring more measurable results.
The foundational and tactical elements of the human resources function need to be delivered in a reliable and cost-effective manner.
The new paradigm for human capital must first begin with a transformed model with three new organizational unit labels. Second, each of the three units should have a separate and distinct reporting structure so that transformational change can drive value to the entire enterprise.
Human resources support: All tactical and transactional activities should provide direct support to the line operating units.
Learning and development: A corporate-wide function should deliver leadership as well as learning and development along with workforce and succession planning.
Change management: This idea should be embedded within the line operational units to promote agility in the marketplace and increase success with mergers and acquisitions.
Fred Lang is the president of Golden Pines Associates LLC, a human capital consulting firm, and former CLO at the U.S. Department of Commerce. He can be reached at editor@CLOmedia.com.