Out on a limb

In many modern organisations, human resources departments are increasingly finding themselves in a sticky situation. Continuing talk – even in these less exuberant times – of the war for talent and of the notion that people are our most important assets should put HR directors in a powerful position. And yet, with few exceptions, they have so far failed to make much progress in achieving their long-held ambition of assuming a strategic role alongside the chief executive, the FD, or even the sales and marketing director.

Part of the problem has been that HR departments have traditionally been seen as dealing in soft issues that, while important in helping an organisation run smoothly, are often difficult to value. That’s particularly true for FDs, who are accustomed to dealing with hard data.

The issue is being brought to a head by both the continuing tough trading environment, which is forcing FDs to become even more hard-nosed in their attitude toward costs, and the arrival of new technology, which according to its providers offers great opportunities for cutting these costs.

At the heart of this is the trend for outsourcing. Just as happened in finance and IT, companies are being encouraged to transfer certain back-office aspects of HR, such as payroll and benefits management, to specialist suppliers which claim to offer these services at a fraction of the cost of doing it in-house.

Thanks to the internet, employees can gain access to these services without really being aware that they are no longer provided by the company. Moreover, conducting this sort of business over the web – what is known as e-HR, or electronic HR – means companies can often avoid a lot of the expensive startup costs that are associated with new IT projects.

Research published in July 2002 by Accenture in conjunction with the Conference Board suggests a certain amount of success by the proponents of outsourcing. The study found that while US companies were twice as likely as their counterparts in the UK and continental Europe to outsource major parts of their HR functions, all of the 165 companies surveyed intended to increase the number of functions they outsourced.

Nor was cutting costs the only driver behind such moves. The survey found that other benefits included higher service quality, access to expertise and technology, and the ability of staff to focus on core activities.

Accenture points to its work with British Telecom as evidence of what can be achieved through this approach. Back in 1990, the former state-owned utility had 14,500 HR professionals operating 26 separate HR systems, 30 telephone helplines and more than 26 different sites allied to the organisation’s 26 geographic districts. Not only was this costly, it was also cumbersome. It has since been streamlined so that Accenture carries out the transactional aspects of the job, allowing just 650 in-house HR business partners to provide strategic input and facilitate the delivery of training and other facets of people management.

Stephen Randall, vice president of customer services at Accenture’s HR Services unit, reinforces this point. “We don’t just take on an existing service; we seek to improve it.”

One of the ways in which this improvement manifests itself is in the data that is increasingly available through new technology. “We’re getting more measurables around the service that is provided so companies can better understand the value they’re getting for their money,” adds Randall.

Indeed, he says that the data is key because it provides the basis for the decisions about the deployment of resources and that can produce the really attractive gains in efficiency and productivity that are touted.

It is a point that is reinforced by Steve Foster, HR solutions practice leader at software company Rebus HR. Pointing out that HR typically accounts for between 1% and 1.5% of a company’s operational budget, he says that shaving off 30% will not make much difference to profitability. But the benefits of adopting this sort of technology – in companies knowing more about who works for them, assessing their strengths and weaknesses, and providing information about their performance – amount to “powerful stuff”, he says.

The challenge for HR departments is to use the time freed up by the transfer of the humdrum administrative aspects of their role to demonstrate they can be of value in areas such as interpreting the data provided, and ensuring that employees are equipped with the right skills and experience to serve the business as it develops.

“There’s a great big role in here for HR to champion the use of technology in organisations, and to carve out a role about what you put on people’s desks – and they are not responding to it,” says Foster.

Others, though, stress that it is not just a case of transferring aspects of the job or using technology to provide services. Nick Throp, a senior consultant with Mercer Human Resource Consulting, says that unless companies change the processes by which they deliver HR they will not gain value from technology because employees subvert the technology by reverting to what they have always done.

It has been argued that, in the past, many HR managers have been enthused by talk of playing a more strategic role in their organisations, only to use the administrative aspects of their job as a cushion to avoid having to change the way they do their jobs.

A former HR manager himself, Foster believes that many HR specialists – particularly in Britain – feel that outsourcing will not happen on a widespread basis because companies are not prepared to take the risk.

“A lot of HR people have got their heads in the sand and FDs are going to shake those people up,” he says.

Not least because the likes of Rebus and other technology companies, such as PeopleSoft and SAP, are realising that, although they are offering HR solutions, for HR departments to buy their services can be like turkeys voting for Christmas. “It’s not very fertile for us to sell to HR. We find that people are much more receptive in finance departments,” explains Foster.

This would suggest that finance departments are gaining an even greater advantage over HR functions – a development that might even lead to HR being subsumed within finance. After all, high-tech companies seem to be moving the two ever closer together, with Microsoft in the UK having created a single department called – in typical, new economy speak – people, profit and culture, under director Steve Harvey.

According to Throp, a further issue for HR professionals is that while they have sought to distance themselves from the administrative aspects of their role for some time, there has been, to some extent, “a bit of a mismatch between HR aspirations and what the business wants”. Often, he adds, businesses have been “quite happy for HR to deliver the administrative stuff”.

A particularly strong reason for this would be that it would avoid a concern shared by many – burdening line managers with responsibility for this sort of thing.

But Randall believes that after a lengthy period of “healthy tension” between HR directors and their counterparts in finance, a better relationship is developing because outsourcing of the transactional aspects enables them to concentrate on providing the information that FDs value. Moreover, others see the arrival of a new breed of HR manager – one who sees the potential of technology for delivering better consistency and better services across organisations.

There is a sort of acceptance, says Foster, that if a company puts the right tools on people’s desks it will not only gain operational savings, but also improvements in areas such as productivity, data collection and analysis. “It really is down to people’s creativity as to what that looks like,” he adds.

This is not to say that software and outsourcing are suitable for every organisation. But it is likely that most HR directors and certainly all FDs are looking at this approach. As Foster puts it, “Some form of transformation in HR is inevitable. As long as HR is seen as a cost centre, there will always be that pressure.”