Interview: i4cp Analyst Discusses Creating Competitive Advantage Through a Leveraged Workforce (Part 2)

October 9, 2009 – In what ways do you feel HR executives suffer from not working directly with top management?

If they don’t work closely with senior leaders, I think HR executives stand a greater chance of finding themselves out of work because their company failed to thrive. In the short term, if HR isn’t closely allied with senior leadership, then that’s a pretty telling commentary on senior management’s views about their employees. A CEO who values the organization’s people and the contributions they make is going to evidence that viewpoint by including HR at the top level of the firm. That sort of endorsement suggests a company that recognizes the vital role its people play in conducting business, in creating competitive advantage, and in ensuring longevity. When employees see that kind of top-down dedication to people issues, they are more likely to place trust in senior leadership and to feel a greater connection with the organization. That translates to engaged workers. Research tells us that higher engagement levels drive productivity, employee retention, greater ability to attract top talent and the like. These are key building blocks to help optimize business outcomes.

What are some new trends you've witnessed within the HR functions of companies?

The HR Organization Structure Pulse Survey revealed that teamwork seems to be an emphasis of high-performing companies when it comes to their HR functions. We asked survey participants how they chose to go about formulating major HR initiatives and projects. Did they opt to have the HR leader work temporarily with other company executives? Did they vest ownership with a center of excellence and have center leaders work with other business units or managers? Did they set up longer-term management committees? What the high performers elected to do was set up multifunctional temporary team-based structures to address such major projects. Large, high-performing firms were significantly more likely to take this approach – 44 percent versus 28 percent of low performers. When we asked respondents what sort of HR team structures they used in general, we found that high performers were more enthusiastic users of teams across all the contexts mentioned. For instance, 56 percent of high performers said they formed project teams to work on specific initiatives, while 49 percent of low performers said the same. Forty-eight percent of high performers told us they build cross-functional teams with other departments, such as marketing or finance; 35 percent of low performers said they did. The gaps grew larger with HR-specific teams. Forty-eight percent of the high performers said they formed cross-functional teams within HR; 38 percent of low performers did. Thirty-six percent of high performers use self-managed teams within HR, but only 22 percent of low performers do. In the online world, 18 percent of high performers rely on virtual teams within HR. Among low performers, that percentage dropped to just seven percent. Particularly telling was the fact that the percentage of low performers who said they don’t use teams was more than double that of the high performers. These findings suggest that companies not currently fully utilizing teams of employees to address business and HR challenges might find a number of unexplored opportunities awaiting them.

How do you determine exactly what types of HR structures are the most successful?

When we conduct such surveys as this one on HR structure, i4cp looks across a range of organizational sizes. That enables us to gauge trends that may differ on the basis of such factors. Indeed, we did find differences in HR structures based on company size. Small organizations – those employing fewer than 1,000 people – were pretty even on the high/low performance scale 66 percent and 64 percent, respectively, in their endorsement of a structure centered on HR generalists only, covering all major HR functional areas for the whole firm or business units, regions, etc. For small companies, this structure far outweighed any other. Medium-sized companies (1,000 to 9,999 employees) chose a structure based on HR functional areas in which specialists worked in coordination with HR partners/generalists located in business units, regions or other divisions of the organization. Sixty-five percent of high performers opted for this approach, and 48 percent of low performers did.

How important is it for HR budgets to be on the higher end?

Certainly, common sense suggests that the higher the budget, the better – whatever organizational functions might be involved. Interestingly, in this study, i4cp found that wasn’t the case. We asked survey participants to tell us their estimated costs for the HR function as a percentage of their organization’s operating budget. The ranges we specified were less than one percent, 1-2 percent, 3-5 percent, 6-7 percent, 8-10 percent, and 10 percent or more. Among the high-performing large organizations, the greatest percentage (56 percent) noted the 3-5 percent range. More than three-quarters of the low performers noted lower ranges. The 3-5 percent range also was indicated by the greatest percentage of high performers among mid-sized firms (38 percent), although nearly as large a proportion (31 percent) said HR costs were less than one percent of the operating budget. High performing small companies were more divided in their responses, with about a quarter each their HR costs at less than one percent, 1-2 percent, and 3-5 percent. How much has the recession and its relentless emphasis on cost-cutting affected the HR spend? This particular study didn’t delve into that nuance, although many of the survey’s we’ve conducted on other productivity-related topics have explored the budgetary effects of the economic downturn. As you might imagine, those impacts are far-reaching. At the very least, I think we can say that HR functions have not been spared the directive of making do with less.

Explain the advantages or disadvantages you've seen with HR execs that work closely with executive search firms?

Late last year, we did a survey on HR Benchmarking. The 456 respondents represented a variety of industries and organizational sizes. When we asked about outsourcing or the use of consultants in a variety of areas, 28 percent of respondents overall told us that they chose this route. The percentages grew higher as organizational size increased. The use of executive search firms would fall under that category. A couple of years ago, i4cp fielded a Recruiting Function Practitioner Consensus Survey that found about a third of 188 international organizations confirming that they outsourced at least one of their recruiting functions and that executive searches were more likely to be outsourced than were those for lower-level professionals. That survey found 57 percent outsourcing executive searches. A relevant consideration is that HR leaders must grapple with the question of developing internal talent for advancement to executive positions versus seeking candidates externally. There are good arguments for both approaches and no set-in-stone answers. Some organizations want executive candidates who can bring in new perspectives, experience that isn’t available within the firm, or competencies developed in other industries or organizational structures. Other firms care more about executive candidates who are grounded in their companies’ histories, values and traditions – people who are real pros in that particular setting. Accordingly, I think that an HR leader with insight and savvy is going to base the choice of working with an executive search firm on the individual circumstances at work in his/her organization, opting for the tactic that will best serve the company’s needs within its financial constraints.