What impact has 18 years of the Ulrich model had on the HR operating model and what does it tell us about the future?
The worst enemy of life, freedom and common decencies is total anarchy; their second worst enemy is total efficiency - Aldous Huxley
A generation of transformation
It is 18 years since Dave Ulrich's book Human Resource Champions proposed a differentiation of HR activity based on the nature of HR roles, which in turn led to the organisation of many HR functions into shared service operations, business partners and centres of expertise. Although Ulrich never claimed to have invented it, the three-legged model for HR has, like Sellotape, Hoover and Biro, become synonymous with his name – the Ulrich model.
After nearly a generation of HR investment in the Ulrich model, we wanted to know what impact the model had had, whether it had delivered on its promise and what benefits and disadvantages organisations had seen. Most importantly, what could we learn from the experiences of implementing the Ulrich model about the likely future direction of HR?
In early 2014 we surveyed business and HR users in 40 organisations, each with more than 10,000 employees – complex beasts by anyone's standards. The survey showed, as expected, that in the last ten years, investment in the HR operating model has become the norm, with over 95% of organisations having undertaken some sort of HR transformation.
Of those, more than 50% had invested in what they termed the 'Ulrich model' for HR. The scope of HR transformation usually incorporated elements of centralised shared services, business partners and centres of expertise. However, we found that the most significant areas of investment were nearly always in the development of HR shared services and associated IT systems.
When it came to measuring the performance of the model, the results are compelling. Firstly, more than 90% of organisations felt their HR function is more efficient and commercially focused than it had been ten years ago, with the majority (77%) attributing this success to the 'Ulrich model' (Figure 2).
Typical benefits highlighted include improved operational efficiencies, improved capabilities in HR and a closer alignment with the commercial objectives of the organisation; all highlighted this as evidence of a 'positive direction of travel' for HR. The biggest area of impact is in HR operations, where 95% class their HR operations as 'good to acceptable' (Figure 3) compared with ten years ago.
But the news is not all positive. There are clear indications that, while HR operations and skills have improved, this is not carried through to other areas of HR. Many pointed out that their HR business partner roles are still 'too transactional' in nature and that they struggle to shed the administrative elements of their roles.
But the most surprising shortcomings are in the area of talent management (which we characterised as the delivery of strategies associated with recruitment, performance, learning, succession and reward). Most frequently we found that these sit within the 'centres of expertise' part of the model. When compared with the results of HR operations, satisfaction ratings for talent services were less than half that of HR operations. Nearly a third said that talent management represents 'an area of major missed commercial opportunity' (Figure 4).
The messages are clear: while a focus on the Ulrich model for HR has produced tangible benefits in the quality and efficiency of HR operations, the benefits have not flowed through to other parts of the model. Most notably, many organisations have neglected the talent management agenda and, in doing so, have missed a significant opportunity to add commercial value to the organisation.
The talent gap
The reasons for this disaffection with centres of expertise become clearer under scrutiny. Only a third of organisations maintained dedicated talent specialists in each of the functional areas highlighted above. This suggests that critical skills in talent management are missing from the HR armouries of some of our largest organisations. Furthermore, less than a quarter of organisations maintain a fully integrated talent process in which recruitment, performance, learning and reward all share the same data and where activity in one area is understood in terms of its impact in the others (Figure 5).
We saw nothing to suggest that the lack of progress in talent management is a shortcoming of the Ulrich model itself, but it did suggest that that this is a failure of the HR function to look beyond basic efficiency savings. Indeed, against a background where 97% said that people issues are 'highly important' or 'critical' to the business, it suggests that the search for HR efficiency has deflected HR from its true mission and that it has neglected those areas that have the potential to offer the greatest level of commercial benefit.
An operating model for talent
So how do these findings inform the discussion on the future of the HR operating model? I believe they highlight both a significant success story and a major missed opportunity for HR and spell out the priorities for future development.
It is clear that huge strides have been made in organisations that have moved from being barely able to produce a headcount to running streamlined HR operations. This may have been done as part of a shared service centre, an outsourced model or just through the disciplines of standardisation, centralisation and automation, but this has been a major contributor to the improved efficiency and effectiveness.
There can be no doubt either that the changes of the last ten years were highly necessary. Any HR organisation that could not maintain basic standards could scarcely lay claim to a 'seat at the table' to participate in the strategic agenda. An effective HR operational/transactional model is therefore a minimum prerequisite to building a strategic HR function and we see little prospect of organisations making a major shift away from the standardised, shared model of HR operations.
Where there does seem to be significant room for improvement is in the 'centres of expertise', which show signs of serious neglect in the rush for transformation. Very few of the organisations we spoke to could point to a full integrated talent process. Where success in resourcing, performance management or learning had been achieved, this was as likely to be the result of a single capable individual working in isolation rather than a coherent talent strategy.
Our prediction is that the next ten years of HR development will see the focus shift away from HR operations and towards the 'neglected children' of the HR operating model in the centres of expertise (COEs). Based on our research, the highest priorities include:
- Alignment with the business model: talent processes should not exist in a 'best practice vacuum' – the talent needs of a retailer with a growth agenda will be different from an engineering firm with an ageing workforce. Close alignment with the business to understand the precise nature of the need is critical.
- Integrated talent process: COEs can be the worst offenders in terms of maintaining siloed operations. All respondents emphasised the importance of an integrated talent process, underpinned by technology that recognised the interdependencies between resourcing, performance, learning, succession and reward.
- Integration with back office: the best-thought-through talent strategy will be ineffective if the execution of the supporting processes is lacking. Close integration between the COE and the transactional service centre is an essential prerequisite to ensure credibility in talent operations.
- Business integration: management of business performance through people is not something that can be delivered by HR in isolation. Talent strategy must be closely aligned with the role of business managers so that performance and development are embedded in day-to-day activity and that in turn demands leadership and a commitment to embedding change from the top of the organisation.
The case for change?
The case for investment in HR transformation has often been compelling. Fragmented, localised HR activity inevitably leads to inconsistencies in the HR process, a lack of standardisation, poor data and high costs. It stands to reason, therefore, that streamlining HR operations would deliver big benefits, and many organisations in our survey had achieved savings on HR operational costs of 30% or more as a result of HR transformation.
But while the benefits have often been significant, they are inevitably limited. In the average organisation, the HR function accounts for about 1% of the workforce, and even the most radical transformation programme will be limited by what can be cut from this figure.
By contrast, an integrated approach to talent management offers the opportunity to impact performance across all parts of the organisation and incremental changes here might be expected to deliver a disproportionate benefit. This means that future changes to the HR operating model might be justified, not on the grounds of operational cost reduction but on the potential to make incremental improvements to business performance across the organisation.
As organisations achieve more consistent levels of operational efficiency across HR operations, we have seen a marked shift in the transformation process to look at the impact the centres of expertise can deliver to the business. Some recent examples include:
- a global retailer that overhauled in-store recruitment and performance processes to address attrition rates that threatened growth plans
- an engineering-based manufacturer that produced demonstrable improvements in productivity and output through the effective use of succession and development initiatives
- an organisation selling complex technical solutions that drove up sales by reducing lengthy on-boarding periods and achieving peak productivity earlier.
Of course none of these initiatives by themselves represent new thinking. Such activity has always been at the heart of talent management. However, what we have seen amongst these organisations and others is a marked shift in focus towards the 'centres of expertise' in HR and investing in the systems, common processes and team capabilities to drive these improvements systematically.
What does all of this spell for the future of the HR operating model? Overall, our research suggests that HR has developed a greater commercial awareness and has invested heavily in an incremental 'professionalisation' of the function as a direct consequence of the Ulrich model. However, there is a clear limit to the benefits to be derived from excellence in HR operations and it seems clear that the next ten years must bring an increasing focus on the commercial opportunities offered by effective talent management if HR is to deliver on its true potential.
'Ulrich comes of age' – a study of the impact of 18 years of the Ulrich model can be downloaded free of charge.
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