Human Capital Briefs

Do Not Split HR – At Least Not Ram Charan’s Way

November 24, 2014

Ram Charan’s recent column “It’s Time to Split HR” has created quite a stir. He argues that it’s the rare CHRO who can serve as a strategic leader for the CEO and also manage the internal concerns of the organization. Most CHROs, he says, can’t “relate HR to real-world business needs. They don’t know how key decisions are made, and they have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals.“

While I have enormous respect for Ram’s wisdom, I believe CHROs have much to offer CEOs and can be better prepared to do so without splitting HR.

Much of Charan’s recent work has tilted towards organization and people (books on strategy execution, leadership pipeline, talent and advice on intensity, change, leadership traits, performance management, governance). I believe that Charan’s perspective reflects an increasing emphasis among business leaders on the organizational capabilities required to win. Charan has turned his attention to these organization dynamics in response to CEOs recognizing that technology, operations, access to financial capital, and even strategic positioning statements are less differentiating than their organization’s ability to respond to opportunities. As business leaders demand more of their organization, they look for counsel to create more competitive organizations, thus raising the bar on HR. Charan’s latest column actually affirms the value of HR to sustained competitiveness.

More is now expected of HR professionals. Charan (intentionally or not) lambasts the entire HR profession (“It’s time to say good bye to the Department of Human Resources”). This is both unfair and simplistic. It ignores what I call the 20-60-20 rule. In HR (or finance or IT), 20% of the professionals are exceptional, adding value that helps organizations move forward, 20% of HR folks are locked into a fixed mindset and lack either competence or commitment to deliver real value, and 60% are in the middle. It is easy and fair to critique the bottom 20%, but it is not fair to paint the entire profession with this same brush. I tend not to focus on either 20%. The top 20% are exceptional and don’t need help. They should be role models for others. Charan noted a few of these folks in his column. The bottom 20% won’t take help. But, the 60% seem, in my view, to be actively engaged in learning how to help their organizations improve. Sometimes they are stymied by their own lack of ability, but I find that often they are also limited by senior leaders who don’t appreciate the value they offer. I advocate teaching the 60% what they can do to deliver value even in difficult circumstances (working with non-supportive leaders or in difficult markets, for example).

As HR professionals engage with business leaders to deliver value, the conversation should not just be about talent. The top 20% today (and I hope more of the 60% tomorrow) focus on three things: talent, leadership, and capability, along with their attributes:

• Talent: delivering competence (right people, right place, right time, right skills); commitment (engagement); and contribution (growth mindset, meaning, and well-being) of employees throughout the organization.
• Leadership: ensuring leaders at all levels who think, feel, and act in ways that deliver sustainable market value to employees, customers, investors, and communities.
• Capability: identifying the organization capabilities (called culture, system, process, resources, etc.) that enable organizations to win over time. These capabilities would vary depending on the strategy, but might include service, information (predictive analytics, metrics), innovation, collaboration, risk, efficiency, change (adaptability, flexibility), culture change, learning, strategic focus, etc.

I strongly believe that excellence in talent, leadership, and capability requires an outside-in not inside-out perspective. For talent, being outside-in means not being the employer of choice, but the employer of choice of employees customers would choose. It means that effective leadership is defined through the brand promise made to customers and the intangible leadership capital investors value. And that capability becomes defined as the identity of the firm in the mind of key customers. As I’ve suggested before, this outside-in view of HR complements current strategic HR perspectives.

Charan’s advocacy for a “talent” HR role actually limits the breadth of what HR can and should deliver. When HR professionals bring unique insights about talent, leadership, and capability to the senior management dialogue, they add enormous value. I suggest that HR professionals are better at delivering in each of these areas than line managers who get moved into HR roles—the path Charan recommends.

Charan’s recommendation for splitting HR into two groups raises two concerns. First, it offers a simplistic structural solution to the fundamental challenge of increasing HR’s value to the business. I am a little surprised that Charan, who is known for his integrated strategic approach to business, has reduced the HR challenge to a governance problem. Upgrading HR requires more rigorous redefinition of how HR can deliver value, how to develop HR professionals, and how to rethink the entire system of HR.

Second, advocating the separation of the HR function into two groups cannot be a blanket solution to HR governance. The structure of the HR department should be tied to the business structure (a centralized business should not have divided HR governance nor should a pure holding company). In diversified organizations HR departments should be run like professional services firms. This approach offers the benefits of centralization (efficiency, economy of scale) and decentralization (effectiveness, local responsiveness). In fact, many large diversified organizations have separated HR into three groups: the embedded HR generalists who work with business leaders on talent, leadership, and capabilities; centers of expertise that offer analytics and insights into HR knowledge domains; and service centers that do the administrative work of HR. All can be governed under the HR umbrella–just the way finance and accounting or marketing and sales work together.

I suggest a holistic approach to helping the middle 60%. This includes redefining the strategy (outside-in) and outcomes (talent, leadership, and capability) for HR, redesigning the organization (department structure), innovating HR practices (people, performance, information, and work), upgrading the competencies for HR professionals, and focusing HR analytics on decisions more than data. It is not easy to move a profession forward. The top 20% don’t always share their lessons in ways that teach others. The bottom 20% get too much attention. And, the vast middle gets discouraged when respected colleagues (unintentionally, I believe) belittle them and their efforts. We can do better than this.

 

This blog first appeared on Harvard Business Review on 07/30/2014.

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