The evolution of HR: developing HR as an internal consulting organization.

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As the role and impact of the HR profession continue to evolve, we have reached a critical crossroad. Together and now, business leaders and HR professionals have the opportunity to understand the history that brings us to our current situation, to be informed by predictable trends, and to make the transformation necessary to result in organizational competitive advantage and HR functional viability. Over the last hundred years, the HR profession evolved dramatically, usually in response to external Unquestionably we are changing--the issue in front of us is whether we will define that future or simply react to the changes that continue to occur in the economy and in our business models.

If we do not step forward with compelling HR leadership, the future will be determined for us. When the June 2005 Business Week reports "Why HR Gets No Respect," the August 2005 Fast Company proclaims "Why We Hate HR," and the "evil personnel director" in Dilbert continues to get knowing laughs, something is going on that the HR profession needs to address. This set of issues goes beyond the never-ending lamentations about lacking a seat at the table for the top HR person--this is about the future of HR in total.

We present a historical review and conclude that HR's greatest opportunity is to develop the organizational capability to be a relevant and respected internal consulting organization focused on talent. The good news is that the knowledge, skills, and abilities needed to do this exist now and are teachable. A virtual army of HR professionals "get this" and are ready, willing, and able to develop in this way.

"No Respect"

It is laughably easy to characterize HR as the Rodney Dangerfield of the C-Suite ("I don't get no respect"). HR is not, however, a monolithic thing. Some individuals and companies still cling to an old style of personnel administration and policy police, and some leaders and companies more fully recognize the connection between talent and results, and the function of HR is well integrated with the implementation of business strategy. We know that HR professionals are experiencing the negative views of the function directly. In a recent study, Kahnweiler (2006) identified five key challenges faced by successful HR professionals:

1. Lack of power;

2. Walking a tightrope;

3. Dealing with skeptical customers who view HR negatively;

4. Vulnerability; and

5. Being overwhelmed.

In addition, the Society for HR Management (SHRM) Global Forum report on "The Maturing Profession of Human Resources Worldwide" (2004) showed that over half (54.8%) of HR professionals say the most frequently encountered obstacle to career advancement is HR's not being held in high esteem by the organization.

One thing is certain, HR is evolving and the profession will either be driven reactively by external changes or will more proactively define its own future. The Bureau of National Affairs (2004) reports that 38 percent of HR professionals have had responsibilities added during the preceding year (e.g., monitoring corporate ethics, managing external partnerships, protecting intellectual capital or knowledge management). The same report shows that HR staff per 100 employees has remained at 1.0, roughly the same average as for the last 10 years, regardless of automation, efficiencies, scale, or outsourcing. The content of the roles in HR continue to increase and shift, while resources are constrained. In the face of these growing responsibilities, we have not developed a way to describe adequately or consistently our value added in terms of effectiveness, or even to show significant improvements in efficiency--although it must be said that enterprise software systems have greatly improved the ability to report on efficiency improvements.

Sadly, this is not a new lament. More than 25 years ago, a noted Harvard Business School professor wrote an article entitled "Big Hat, No Cattle: Managing Human Resources" (Wickham, 1981). You can guess the point: Despite the external trappings, HR was not delivering "the beef." Over 10 years ago, an article in Fortune magazine (Stewart, 1996) began with an uncomplimentary view of HR as "the last bureaucracy" wherein the author then proposes:

I am describing, of course, your human resources

department, and have a modest proposal: Why not

blow the sucker up? I don't mean improve HR.

Improvement's for wimps. I mean abolish it. Deep-six

it. Rub it out; eliminate, toss, obliterate, nuke it; give

it the old heave-ho, force it to walk the plank, turn it

into road kill.

The emotional content of this presentation reveals the gut-level issues involved.

As HR leaders we are challenged to guide the many changes needed to continue the HR evolution. It surely looks worth the effort: The Hackett Group in Best Practices in HR (2004) showed that companies they defined as having "world class HR" spent 27 percent less per employee annually, spent 31 percent less on total labor, had 35 percent fewer HR staff per 1,000 employees, and experienced 61 percent fewer voluntary terminations (see Exhibit 1). So, it is possible to improve both the effectiveness and the efficiency of HR.

Defining the Problem with HR

HR is at the crossroads we have described for many interrelated reasons:

1. HR as a profession does not have the same "grounding" in legally mandated processes and reporting as does Finance, so there continues to be more "art" than "science" and much greater variability in the quality and completeness of how the work is defined and delivered. In addition, professions like Finance that have their roots in Accounting (and are grounded in FASB and many other legal requirements, most recently Sarbanes-Oxley) have mastered the transactional arena and have continued to evolve into more of a strategic decision science, for example, using ROI principles to allow leaders to think about how they manipulate certain variables to get desired business outcomes (Boudreau & Ramstad, 2006 and 2007). Arguably, HR has improved in its ability to deliver efficient transactional processing, but has not yet grown into a strategic decision science even though variables like talent in certain positions (right seat on the bus) or organizational capability and culture in support of business strategies can have a direct impact on business outcomes.

2. HR in the C-Suite has not been uniformly accepted. CFO Research Services (2003) found that HR reports to the CEO in only about 52 percent of companies. HR reports to the COO in about 17 percent and to the CFO in about 13 percent of the cases. In addition, boards of directors have differed widely in the extent of their utilization of the HR leader in the strategy of the organization.

3. The role of HR as a function within organizations might best be described as a scattergram. There are huge variations by industry, global geography, and CEO preferences on what HR is asked to do. One cannot attend most HR conferences without smelling the inferiority complex inherent in the "how do we get a seat at the table" kinds of topics. When one hears of "outsourcing HR" and delves into it, one finds that the HR elements that can be outsourced are really the transactional and administrative part of HR, not the other more strategic and value-added parts that relate to business partner and change agent roles (the transformational business relevant part).

4. HR as a personal skill set must also continue to grow and develop. The activities and skills to deliver the transactional parts of HR are quite different than those required to deliver the transformational parts of HR. "Letting go" of the transactional part can be personally pretty scary when one's value in the past was "how quickly I can go do what you asked me to do." When either an outsourced agency or manager and employee self-service systems handle those issues, then what is left for me to do? The truth is, some HR people should migrate toward the delivery of those outsourced transactional services because that fits better with their skills and interests; others should develop the internal consulting skill sets that enable the transformational part of HR. Many organizations are struggling with this now, or will be in the near future.

5. The role of HR as policy police has to be put on the table. In mid-2005, Fast Company ran an article entitled "Why We Hate HR" in which Keith Hammonds laid out some facts and drew some journalistically sensational conclusions. He describes HR as a "henchmen for the chief financial officer" and as a "dark bureaucratic force that blindly enforces nonsensical rules, resists creativity, and impedes constructive change." Wow, he must have had a bad day. For many people the article simply rang true, and as the success of the evil HR Director in Dilbert also attests, we cannot afford to dismiss this caricature too quickly. Yes, HR must represent defensible policies to keep the organization in compliance, but that is not all they must do.

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Taken together, these observations present the HR profession with some real challenges (summarized in Exhibit 2). At the heart of it, HR must get relevant now or risk continued marginalization.

These are huge challenges and the fate of our profession rests in the balance, but these challenges can be met and mastered. We have the talent and the motivation. Now we need a roadmap, which the remainder of this article attempts to provide through the following topics: