Realigning HR to Deliver Business Results (Bradley W Hall,PHD)

Two things will help us implement the new Human Capital Strategy by realigning HR to deliver business results: 

(1) splitting the HR administrator, fixer, and strategic partner roles, and 

(2) aligning the human capital organization to deliver the four strategic objectives.

Split the HR Administrator, Fixer, and Strategic Partner Roles. 

In 1964, Chaney and Owens conducted an academic study that makes a persuasive case that individuals with different personalities tend to migrate to jobs that fit. From a sample of 900, they looked back to high school and found that engineers disliked verbal activities and courses where discussion was involved, were slow in dating and preferred to spend time reading or in problem-solving activities. Those who became sales reps were only average in math and science capabilities, dated earlier, enjoyed meeting new people and had more friends and were leaders in different activities.

Sure, there are some good “sales scientists,” but not many, and trying to make a scientist into a sales rep may result in frustration by both parties. (As the saying goes, “Don’t try to teach a pig to sing. It wastes your time and it frustrates the pig.”) The study provides an important lesson for HR. The all-in-one HR business partner model has not and will not deliver value because it is based on an assumption that people can perform well in very different roles that require very different talents. It is time to admit defeat and completely separate the administrative, fixer, and strategic roles.

A more radical solution is to follow the Innovator’s Dilemma model of creating a stand-alone unit for the discontinuous work of strategic HR. The head of HR administration should report to the corporation’s top operations executive or CFO. This reporting relationship was very common in the days before the promise of strategic HR. It was common because it made sense. If the core capability of administrative HR is operational excellence, then operations is the right place to report. (See Figure 3-5.)

Next, build a fully separate organization reporting to the CEO that provides change leadership and organizational consulting to top leaders. Calling this organization something other than “human resources” might be wise as an HR title brings with it a set of internal customer service expectations that will no longer apply. This new “human capital” organization will comprise a set of full-time consultants who are educated and trained to improve the performance of people and organizations. Human capital business consultants should spend 100 percent of their time identifying opportunities to improve customer and shareholder satisfaction and should be evaluated by their impact to both. Their customer is external, their investment model is ROI-based, and they are business performance advocates.

Aligning the HR Structure (Bradley W Hall,PHD) - Part 2

HR Is Structured to Produce Programs and Policies Rather than Business Results

Let’s say, as a general manager, you see a leadership deficit in your business unit. Who in your HR function is accountable for improving leadership performance? The organizational development department is not; it creates competency models and assessment tools. The talent management department is not; it runs the succession planning cycle. The performance management department is responsible for appraisals, the compensation department makes pay decisions, and the training department develops and delivers courses. So which department manager will stand up and say, “My department is accountable for growing leaders”?

Today, the answer is “nobody.” 

The reason is that today’s HR is aligned by subprofession (e.g., training, staffing, compensation), the same as it was thirty years ago. Let’s call these subprofessions by their new name, Centers of Excellence (COEs). COEs are factories that produce state-of-the-art HR tools. They are not designed to produce business results and often operate as uncoordinated product development units, as indicated by Figure 3-4, which shows the COEs of one institution.

Many companies refer to both first-level (e.g., organizational development) and second-level (e.g., HR metrics) organizations as COEs. If this was an automobile engine, each COE unit  would be producing a different engine part. The problem is that there is no blueprint of what

the completed engine will look like or do. Just as it is unreasonable to build parts to an engine without a blueprint of the finished engine, it is unreasonable to build HR tools and processes without a Human Capital Strategy.

Aligning the HR Structure (Bradley W Hall,PHD) - Part 1

Today’s HR organizational structure is misaligned with a Human Capital Strategy of sustained competitive advantage through people. There are two critical areas of misalignment:

1. Strategic and administrative work remains tangled.
2. HR is structured to produce HR products and processes rather than business results.

Strategic and Administrative Work Remains Tangled

Several decades ago, sales and marketing organizations were commonplace. Over the years, marketing was split off into its own organization. Although the purpose of both functions is business development, each requires a different approach and skill set. The same is true with accounting and finance. Accounting is an old profession, and finance recently emerged from accounting with the rise of capital markets. The purpose of both functions is to leverage financial capital, but each uses different methods to accomplish the task. Like sales and marketing and accounting and finance, administrative and strategic HR are both about people, but each requires a different approach and skill set.

Over the past decades, the HR profession has aspired to create fundamentally different outcomes, but it has attempted to do so inside the walls of traditional HR. As the model presented in Clayton Christensen’s The Innovator’s Dilemma (Harvard Business School Press, 1997) would predict, it is difficult to create a business that represents a discontinuous change inside an old organization: The old will strangle the new. When an organization needs new capabilities, it may need a new organizational space where those capabilities can be developed. Christensen suggests that a successful approach is to spin off an organization so that the new capabilities can be managed in a very different way than in the mainstream business. This has not happened in HR; the old is strangling the new.

Today’s Human Resources Function (Bradley W Hall,PHD)

Throughout history, virtually all breakthroughs required replacing a current model with a fundamentally different paradigm. Scientific examples include germ theory and the theory of relativity. Federal Express and Amazon.com are business examples of a paradigm shift, and W. Edwards Deming’s statistical process control is an example of a professional shift. In each case, these new paradigms emerged and completely challenged existing “truths.” The HR profession has yet to go through its paradigm change.

Think of today’s HR model as an engine with four elements:

(1) structure (i.e., who reports to whom, roles, and accountabilities),

(2) systems (i.e., performance measures, business reviews), 

(3) shared values (i.e., beliefs, values, culture), and 

(4) skills (i.e., talents, knowledge). 

Determining the Optimal Blueprint for Your Organization (Bradley W Hall,Ph.D)

The key question to answer here is: What is the most effective Human Capital Strategy for your organization? How can you know if your company is improving the performance of its human capital? How can you know if your company is managing its human capital more effectively than its competitors are? 

The Human Capital Lagging Indicator 

Is there a single measure that concludes human capital improves year- over-year? Or, should we judge the efficiency of a human capital strategy by measuring changes in each of a set of key positions? 

A 2007 McKinsey Quarterly article stated that the value of “intangible capital” of the world’s top 150 companies, as measured by market value less invested financial capital, increased from $800 billion in 1985 to $7.2 trillion in 2005.6 However, annual reports still focus on how a company uses its financial capital—not how it is growing its in- tangible values, the most important of which is human capital. 

Strategic Human Capital Components (Bradley W Hall,Ph.D)

The human capital vision creates a concrete and measurable definition of success; the strategic components are plans that describe how to achieve that vision. Achieving the vision requires excellence in four components. (See Table 2-2.) If all four are well-executed, it is likely that your organization will have a sustained competitive advantage through people. The first three strategic components are critical roles - roles that are most important for customer and shareholder satisfaction. The fourth component enables the first three. 

Effective Executive Teams 

The key question to ask about the first critical role—effective executive teams—is: Are our executive teams more effective this year than last year? The executive teams may include the corporate top team, business unit teams, region/country-level teams, and functional leadership teams. Without a high-performing executive team at the top, little will happen below. Executive teams set the end-state vision and business strategies, and invest time and money to ensure that aspirations turn to business results. 

Setting the Human Capital Vision (Bradley W Hall,Ph.D)

The human capital vision is founded on the human capital theory and attempts to turn the theory into a concrete statement of success. Figure 2-2 presents an example.

Several assumptions lie beneath the vision statement:


• Leading measures are defined by performance, not competencies. Competencies are an important means to an end and should be measured and managed as such; but success is industry-best performance, not industry-best people.

• Success is measured against industry benchmarks or primary competitors. Being world-class is ideal, but it is not required to deliver business results. Burger King’s performance in site selection must be better than McDonald’s; it does not need to be better than Marriott’s.

The Human Capital Vision (Bradley W Hall,Ph.D)

The important question to answer here is: What does success look like?

In the mid-1990s, Taco Bell, then a PepsiCo company, was one of the hottest companies on earth. In the middle of its success, John Martin, Taco Bell’s CEO, assigned seven of his highest-potential middle managers to a two-year, full-time, multidisciplinary team to rein- vent Taco Bell’s business model. Martin’s vision was “250,000 points of access by the year 2000.” He defined a point of access as “wherever someone can buy a Taco Bell product.” Taco Bell’s new vision was clear, memorable, and measurable.

Given that Taco Bell had about 4,000 stores at the time, 250,000 seemed to be an unrealistic goal. However, the team energetically be- gan work and within a few short months had created a new process that increased store openings from 700 each year to more than 1,200. Martin thanked the team but told them that while that was very good news, the goal was still 250,000 points of access.

The team decided that it needed to think more creatively. At the time, cafeterias were the only place to eat in airports. “What if we put Taco Bells in airports?” the team members wondered. “Let’s call them SPODs” (special points of distribution). Soon, Taco Bell SPODs were popping up in airports, stadiums, and strip malls. SPODs quickly added more than 1,000 points of access each year. Again, Martin was grateful but unmoved. The vision was still 250,000.

The Human Capital Theory (Bradley W Hall,PHD)

The first question to answer is: How does HR create business value? 

Several years ago, while involved in a project with a large retail company’s HR department, I noticed that the labor law team was the largest corporate HR department. The company employed eight to ten times the number of labor lawyers per employee as its competitors, and four of its six corporate HR executives had been promoted from the legal department. Attorney telephone numbers were on the speed dial of every HR generalist, and daily decisions were routinely screened for legal exposure. HR generalists complained incessantly about the legal team obstructing their work, but the checking and approval process remained intact. What would you say was HR’s theory on how it added value to the business? 

A second company I supported had been a lead company in a regulated industry for many years. In this company, the focus of HR staff meetings was policy and policy enforcement. Before meetings and on breaks, HR generalists playfully sparred with one another on policy details. “. . . That’s right, but she only gets 30 days if she has more than two years of tenure at a company merged before 2001.” Peers looked on and cheered as one bested the other. How might you describe the human capital theory at this company? 

Today’s Approach to Human Capital Management (Bradley W Hall,Ph.D)

Today’s approach for improving workforce performance is failing. There are three reasons:
1. No one is accountable for year-over-year human capital performance.
2. Results require a system, not world-class programs.
3. Today’s HR model is misaligned to deliver business results.

Let’s look at each of these reasons.

No One Is Accountable

The head of manufacturing is accountable for year-over-year improvements in manufacturing productivity. The head of marketing is ac- countable for year-over-year changes in brand equity. The head of sales is responsible for revenue growth. But who is responsible for year-over- year improvements in the company’s most valuable asset—its people? Nobody. Line managers see HR as accountable, but HR sees itself ac- countable for programs that must be converted into business results by line managers. No one is in charge of human capital performance.