Updating the HR Operating Model

Updating the HR Operating Model

Charles Goretsky Charles Goretsky
18 minute read

How to best organize an HR function has historically received extensive coverage (a recent Google search yielded 934,000,000 results!), with all sorts of frameworks, opinions, and case studies from HR consultants and firms who are selling their position (and services) as the best option to support your reorganization. However, there is a critical step and consideration that should always preface any such decision related to HR organization charts - updating the HR operating model to determine the “right” HR service delivery framework for a given organization. 

An HR operating model defines how the function will organize itself to deliver necessary services, products, and processes. It clarifies the types of roles, technologies, and interactions a given organization’s HR team will leverage to meet business requirements while supporting the associated talent needs. 

The issue concerns continuing frustration with HR as a strategic resource and dissatisfaction with its ability to drive business results.  In fact, over the last few years, nearly two-thirds of organizations have changed their HR function’s design or operating model. The question is. “to what end?” Updating the HR operating model is key to clarifying what is being done and why.  

While many models have been proposed over the years, the “Ulrich model” dominates. Defined in 1997’s groundbreaking book Human Resource Champions, Dave Ulrich clarified four key roles and seven key functions of a business-centered HR organization. While the widely accepted concepts of three primary HR functions were defined – Strategic Partner, Centers of Expertise, and Service Center, he outlined four other areas of an HR organization – Corporate Staff, Business Unit Staff, Broker of Services, and Integrated Solutions that could be organized to deliver efficient and strategically-effective support and services. 

The key elements that most companies took away from this was to 1) spread the talent out amongst the business where it could best impact results through tailored support and implementations, 2) leverage smaller, more specialized teams developing process-based (compensation, recruiting, learning & development) solutions to common needs at scale, and 3) provide common administrative support for various HR functions and capabilities through a mix of people and technology. What is most interesting about his book is its unusually broad acceptance and adoption of the model (or variants) for most companies. However, many miss the need to clearly develop and articulate how services will be delivered by updating the HR operating model before reorganizing the function.

Application of the “classic” Ulrich model

The model that most organizations rely upon is a variant of the basic three-legged stool that has been used for years – HR Business Partners (HRBPs), Centers of Excellence (COEs), and HR Shared Services (HRSS).  

1. HRBPs were designed to give leaders and managers strategic advice, interpret and tailor corporate processes and resources, design HR and talent solutions, and broker COE programs, processes, and services implementation.  

2. COEs were established to bring deep expertise that was developed and continually updated to all the business units and functions, such that guidance and processes would be standardized and structured for fairness and equitable employee treatment.  

3. HRSS was designed to absorb the administrative load of field HR people so they could focus on supporting local leaders and their employee populations. It was created to handle common administrative transactions and inquiries in bulk form by using dedicated administrative specialists and self-service technologies with deep process and policy expertise built into both. HRSS was designed to administer HR systems and policies while handling questions and issues about policies and processes related to primarily transactional HR activities (e.g., payroll, benefits, transfers, new hires, pay raises, etc.).

Perceived issues with the Ulrich model

The model has been oversimplified over the years by reducing it to no more than an HR organization model vs. a broader operating model. While Ulrich talked about the range of roles that HR should play – that of strategic partner, administrative expert, employee champion, and change agent, the bulk of the attention falls on strategic versus non-strategic elements of the roles. Experts (including those of us at Wowledge) have worked with thousands of companies and observed the model's shortcomings, which have been less about the model than more often due to imperfect execution, poor selection and management of the people, and weaknesses in their processes.   

It has been suggested that the model creates silos that run counter to an increasing call for a more holistic, integrated, and comprehensive employee journey, employee experience (EX), and greater “connectedness” of corporate functions. Those organizational silos can lock critical knowledge and expertise behind doors instead of more openly sharing and mixing ideas, concepts, and perspectives with field experts to solve business challenges. There is an increasing need for tailoring HR practices and solutions to address complex challenges across generations, businesses, locations, and workforces. That level of customization requires a shift from the current model, given the breadth and depth of the drivers and influences of those differences. Updating the HR operating model is critical to understanding and defining how such complexities can be best managed. Each element of the three-legged model has benefits and issues, but let’s look at the challenges facing companies today.

The HRBP role

The role is designed as a strategic partner with broad knowledge and expertise in the business and “everything HR.“ The HRBP is designated as a point guard who leverages the expertise and efforts of those in the COEs and HRSS to generate tailored solutions to business and related talent issues. However, what is generated is often a solution to pressing HR issues that are disconnected from business outcomes. The issue is that the HRBP role is typically the only one specifically designed and relied upon for strategic business impact, with many HRBPs struggling to deliver business outcomes. While Ulrich pressed the point that strategists needed to operate in each type of role, the proper execution of that tends to be limited. The role tends to call for very experienced, business-savvy personnel and too few HR people outside the HRBP are positioned to address those strategic issues. 

Furthermore, the HRBP roles are often poorly defined, with little true differentiation from the earlier generation of HR generalists. People may be given the title when supporting lower levels of managers, whose needs are not strategic, and thus are more likely to handle policy interpretation, conflict resolution, and related tasks. Finally, HRBPs can become overly integrated in their local partnerships such that they drift from following higher-level business and HR requirements. This often leads to an unhealthy bias toward their specific business unit or function over overriding enterprise needs. Clarity can be provided by updating the HR operating model to accommodate and respond to such issues.

The COE 

The Centers of Excellence, such as compensation, recruiting, leadership development, learning & development, etc., tend to be narrowly focused and siloed into a tight niche. These were designed to develop extremely deep expertise into the nuances of the specialty and can become disconnected from business strategies outside of one or two (e.g., compensation understanding of financial strategies). They also tend to focus on narrow, inward-looking HR (vs. business or operational) processes such as the annual merit pay cycle, year-end performance assessment and calibration process, yearly high potential nomination and identification program, etc. The very structure and operation of COEs often means they cannot develop sufficiently flexible, agile, and responsive solutions to changes in the external or internal environments. Unfortunately, they often lack regular access to their business customers and needs. The opportunity for improvement lies in updating the HR operating model in such a way as to provide more structured access to business insights and resources, enabling them to increase agility.  Lacking such access, they will continue to focus on process excellence and innovation rather than having an ever-evolving understanding of what the business needs.

HR Shared Services

These roles tend to be staffed with narrower, more specialized, earlier-career practitioners who become experts in administrative excellence, process tracking, improvement, efficiency, policy interpretation and compliance, benefits and leave management, relocations, data management, etc. Their linkage to business imperatives and objectives is often limited to cost control and efficiency. These organizations often suffer from too much standardization to the extent that they cannot meet or discern the unique needs of strategically critical roles and populations. When they handle employee relations, compensation, or other more complex cases (at the first or second tier of escalation), they can be viewed as impersonal, non-caring, and inattentive to the needs of the individual. The push to automate has created a near-universal reaction from managers and employees alike.  Managers complain about the transfer of work from HR to them, especially when the self-service technology is difficult to navigate and where those tasks were once performed by their HR contact. Managers also object to the perceived difficulty in getting quick answers and guidance where increased specialization in HRSS may require them to go through multiple channels to find the right answer. While the basic service structure is less likely to be updated by updating the HR operating model, emerging technologies certainly will be.

Cross-functional challenges

Integrating the efforts of these three organizational constructs has proven to be the largest challenge. This is called out by some experts who assert that the primary issue is the poorly defined interactions between the HRBPs, COEs, and shared service centers, which creates conflicts over responsibilities and work efforts. The primary one involves “Who owns the customer relationship?” While the HRBPs are assigned the customer interface role, the COEs need regular interactions and insights to understand the business needs to better design solutions, and the shared services need to interface with those same customers for problem resolution. Add to that the internal customer’s desire for a single point of contact for all HR issues, where there are too few HRBPs to be effective gatekeepers, brokers, and communication linkages. The result is often poorly coordinated HR efforts and finger-pointing when unresolved issues or solutions fall short of meeting the business’s needs. This all-too-common circumstance can be addressed directly by updating the HR operating model.   

The second major issue is that the siloed approach leads to a compartmentalization of HR expertise. HRBPs hold the bulk of the business acumen, COEs much of the technical depth, and HRSS with the administration, implementation, and support expertise. This leaves HR with a lack of necessary agility to respond with blended resource teams of sufficient size to understand root causes, rapidly design solutions, pilot-test those, and implement them.

Changing the HR Operating Model

Change is underway

The three-legged model inspired by Ulrich continues to dominate (to the extent that one research house stopped asking what model is being used in its survey). However, due to these challenges and continuing frustration with results from HR teams, many companies are reportedly tweaking their delivery models. For example, one study found that nearly two-thirds of HR organizations changed their design or operating model within the past two years. Another study by the AQPC (Current State of the HR Function: Survey Report, 2021) found that 85% of HR organizations are in the process of or plan to change their HR structure. These point to an ongoing push to find new variants of the existing model that can benefit their businesses more. 

Change and evolution should always be on the minds of HR leadership. Dave Ulrich himself has been quoted as asserting, "Adaptation begins by making sure that the HR organization matches the strategy and structure of the business.” One of the misapplications of ‘the Ulrich model’ is that there is one type of HR structure that matches all situations. “HR has to adapt to the business requirements.

That said, both academic-related experts and large consulting firms are reporting on new models that incorporate more comprehensive and integrated service delivery concepts, creating new opportunities for leading organizations to update their models.

New HR operating model elements

New proposals have infused fresh thinking into the concept of HR service delivery that is informed by proven concepts from various fields such as technology, marketing, manufacturing, and consumer products. They bring concepts designed to best meet the end-user's needs, increase efficiencies, simplify the experience, increase responsiveness, use disciplined and evidence-based approaches, and marshal diverse skills and capabilities to create focused solutions to business challenges.  

What many of these propose in common are elements for consideration in the design of a modern HR operating model, which can drive either focus or organizational design of the HR function, including:

1. Focus on the employee experience (EX)

View everything in HR through the lens of the leader, manager, or employee.  Engage their input by proactively understanding their experiences, pain points, capabilities, and preferences in every aspect of their workflow and employee lifecycle. Seek to understand their impressions and opinions on how their work gets done, how they interact with business and HR systems and processes, how they are managed and developed, etc.

2. Adopt agile methodologies

Devised in the software development world, these involve a structured approach driven by customer collaboration, solutions devised rapidly by cross-functional teams, iterative delivery and testing of prototypes for feedback, and gaining end-user acceptance before completion. The application is for designing, developing, and pre-implementing any HR process, program, technology, practice, or policy.

3. Simplify and optimize the technology infrastructure

Establish ease-of-use and access for all technology platforms, focused on integrating systems and removing redundant log-ins and duplicative data input requirements. Provide access to high-value analytics, insights, and resources aligned with each individual’s function and role.

4. Establish HR project team pools

Create an internal consulting pool that can be leveraged to deploy to high-impact problem or opportunity areas. Resolve the issue of small HR teams with insufficient resources by having a pool of cross-functional experts to work on problems with integrated solutions (e.g., high turnover in a remote location, declining sales in a business unit, accessing skills in a competitive industry segment, etc.).

5. Create high-value data-driven insights

Develop a powerful evidence-based HR unit that produces talent intelligence that can explain and predict business and HR challenges for the broader organization. Move beyond the basic HRIS or reporting team into one that integrates HR and business data, uses advanced statistical techniques, produces reports that link business and HR trends, and focuses on decision support by managers and HR pros alike.

In addition, unique thinking and ideas come from various HR consulting and academic thought leaders who illuminate new possibilities from a service delivery standpoint. Some of these include:

6. Update the HRBP role with strategic talent leaders

Gartner promotes the idea that the HRBP role should be limited to those with exceptionally well-developed skills and experiences in HR and non-HR roles, consultative problem solving, advanced data analysis and interpretation, business acumen, and strategic management. They should operate with high expectations and standards for driving business impact vs. HR process or program success. The assessment methods, selection criteria, and performance standards used for them should be prioritized. Their role needs to be managed to keep the work focused on business capability growth and improvement.

7. Integrate COE design and delivery or implementation efforts

McKinsey suggests integrating HR capabilities driven by a focus on the employee experience (EX). Develop an HR service delivery model that emphasizes the employee journey, continuously identifying moments that matter (MTM) to employees to prioritize enhancements to how HR processes, practices, and systems create value. Similarly, consider the creation of “Super COEs” who own (and have the necessary resources) to both design and implement by expanding and embedding them with global project management and change management teams.

8. Leverage “digital workers” and intelligent workflows to streamline HRSS operations

IBM is encouraging companies to increase the adoption of available intelligent technologies to augment human interactions, especially at lower levels of inquiry or support on administrative issues. It pushes for the broad deployment of chatbots as virtual agents for employee and manager inquiries and robotic process automation (RPA) for transaction automation (new hire paperwork, benefits enrollment, etc.). These can be based upon and added to the expertise and inquiry responses from knowledge management (KM) systems to augment employee and manager self-service.

9. Create “networks of expertise”

Responding to the simultaneous needs for agile or rapid solution deployment, proper resourcing, and skill development at scale, Josh Bersin suggested the concept of “networks of expertise” where specialists in various HR functions across locations and business units report to the appropriate COE. With this concept, their skill development is centralized and can be built with planned mobility. Their aggregated expertise can be leveraged in global design and local implementations. Common frameworks, toolsets, and methodologies can then be developed, used, and/or tailored for local needs.

10. Operate horizontally across the organization

E&Y proposes a value-based delivery model that focuses on financial, human, consumer, and societal value, pushing the HR organization towards greater focus on a shift from a process or function-driven approach to an integrated and combined employee and customer experience. It suggests creating three functions or capability teams: a digital people team that automates most administrative and operational tasks; a people services team with business-facing and focused consultants; and ‍a virtual global business services function that combines the work of HR with IT, finance, legal, and supply chain departments to deliver impactful experiences at scale.

11. Deliver workforce capability-developing services and support

A newer model calls for HR to create evidence-based processes that deliver the most critical workforce capabilities to drive business objectives. They suggest an HR operating model organizing HR disciplines into four new groupings. Workforce capability planning (WCP) identifies the talent capabilities needed to implement business strategies, including both workforce and succession; People process design & management (PPD&M) manages traditional HR processes to meet goals identified by WCP; Data management, productization, and listening measures and models the effectiveness of WCP and PPD& efforts, while facilitating employee listening surveys; and Transformation, which develops and improves the capabilities of leaders and managers, and provides organizational change management capabilities that ensures the outcomes of all the other efforts are successfully adopted and met.

How to build an HR operating model that works

While many options have been reviewed, the challenge is determining the best delivery model for the support and services needed. Updating the HR operating model brings the best practices into play that can be used before reorganizing an HR function. What matters most, however, is the understanding and view of the HR operating model as a journey versus a destination in need of systemic and ongoing updating, a willingness to tailor it to different business environments, and an openness to testing new concepts that can serve to optimize the delivery of business-critical services and support to the organization. Using evidence-based HR approaches is essential for assessing needs and opportunities for updating the HR operating model to improve the functions' contributions to the business.

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