Transforming the Traditional HR Operating Model

September 16, 2022 – To achieve change, companies need to trust and invest in their leaders, ensuring the capabilities and design of the organization can support a new model. A change in organizational design alone cannot be successful unless there is alignment throughout the business. As HR leaders consider what might be best for their companies going forward, they will have examples to potentially draw from. “Today, there are HR operating model experiments as progressive as they are interesting,” says a recent report from Egon Zehnder. “With curiosity piquing as HR collectively begins to reset using learnings from COVID-19, we lay out some of the possible alternatives HR leaders have today when setting up or revisiting the HR operating model.”

For the study, Egon Zehnder set out to discover the key trends shaping the future of HR. The firm had hundreds of conversations with industry leaders around the globe, and what they heard comprised some of the biggest trends in the field today, from digitization and AI, to  experimentation with new HR models, and even major transformations of leaders and their organizations.

What do these trends mean for the future of the HR operating model, and how do they shape the way we should organize the HR function? These were questions that HR leaders were eager to answer. “They were either enthusiastically telling us about their experiments in the area, sharing frustration with some of the traditional HR organizational models, or even seeking our advice—asking for a ‘silver bullet’ solution to set up their HR functions in a way that could cope with the changing needs of their business clients,” said Egon Zehnder. “Spoiler: There is no silver bullet.”

Is this the end of the three-pillar HR organizational model?

One seasoned HR leader told Egon Zehnder during the study, “If you needed to set up the HR operating model for an organization 10 years ago, you would simply look at the three-pillar template of the David Ulrich model and tweak it to your organization.” The pillars of HR business partnering, centers of expertise and HR operations used to fit the reality of virtually any organization. But as today’s HR leaders know, it’s not always that simple anymore, the report said.

“It’s changes like this that have both cemented the role of HR operations within organizations and been the reason why so many organizations have invested in this particular HR pillar over the past few years,” the Egon Zehnder report said. “The leaders we spoke with are more in unison when it comes to the need to centralize and digitize HR operations once scale is given and focus on cost-efficiency and effectiveness to become a more customer-oriented, employee-experience delivery center. Many leaders have also turned to outsourcing as an option, looking to established and data-driven companies to jumpstart a more agile operations model. However, while there is a clear trend in terms of where HR operations is going, the future of HR business partnering and of the centers of expertise is foggier.”

A wide spectrum of experiments

What are HR leaders experimenting with when they conclude the three-pillar HR operating model no longer works for their organizations? Egon Zehnder organized its findings in the model below.

Setting A New Direction for HR

Perhaps more than any other leadership position, chief human resource officers took on an outsized role during the pandemic. In a new report, Claire Thomas, an Egon Zehnder senior advisor, shares insights from the firm’s recent online forum with 50 HR leaders about how they navigated the work world’s changed landscape.

On the horizontal axis Egon Zehnder has placed the “agility embedded in the operating model.” Agility is defined as the ability to adapt and evolve people and processes in unexpected or fast-changing times: “How much agility should I bring into the HR function? How much disruption is my organization ready for?” As agile organizations become trendy and increasingly popular beyond the tech industry, these are key questions HR leaders are confronted with when making decisions about their HR operating model, the report said.

The vertical axis is focused on the level of change that an organization is willing to accept, with the low end being none at all—staying securely in a traditional model—and the high end being ready to completely transform. Egon Zehnder defined it with two aspects:

1 Speed of the industry dynamics and susceptibility to movement or disruption: Are you in a fast-moving tech industry, where disruption is always at the gate, or are you in an investment-intensive machinery or infra-structure business with long product life cycles?

2. Level of transformation in the company strategy: Within your industry, are you a low-cost player or a premium provider? Are you on a rapid growth trajectory, or are you cruising based on a stable platform of moderate growth, high profitability? How quickly are you digitizing your support functions with automated shared services and other platforms? Are your talent needs relatively stable or rapidly shifting?

“Of course, these factors could be expanded depending on the industry or specificities of the organization, and by doing so you could find more elements that can influence the decision to rethink the traditional HR operating model,” the Egon Zehnder report said. “Ultimately, structure should follow strategy, and that continues to be the key guiding principle for organizational design decision.”

Structuring Egon Zehnder findings by using the definitions they developed, the firm provided the following five HR organizational models:

1. Traditional Model: The three-pillar model still works, as some of the companies we have been in touch with exemplify. In these cases, Egon Zehnder says that the model clearly does the job of providing good HR service to the organization. Those who still use this HR operating model appreciate the clarity it provides in terms of roles and responsibilities and the clear focus on defining and improving HR processes, which makes it a useful template for organizations that are professionalizing HR as part of their growth and internationalization.

2 Double-Hatting: When more speed is needed for the implementation of HR processes and innovation, the integration of HRBPs and CoEs seems to be an alternative solution that some companies have been experimenting with, according to Egon Zehnder. Many companies that opt for a double-hatting solution do so to encourage more business intimacy from the HR function and to shorten coordination paths for implementing new HR solutions. The intent is to force leaders to think about the implementation reality and encourage pragmatism as they design certain HR solutions. While this operating model will likely be more cost-effective and leaner, it might create capacity management challenges for those wearing a double hat, and it might need to be more reliant on external support, such as consultants, when really in-depth expertise is required, since some of the double-hatters might not be experts from the get-go.

Related: Are Today’s HR Leaders Ready for Tomorrow’s Challenges?

3. Super CoEs: Almost as an evolution of double-hatting and perhaps as a response to its challenges, Egon Zehnder says it has seen some companies opt for an HR operating model that goes in a different direction. Instead of embedding the CoEs into the HRBP roles, they decided to give CoEs more implementation power for HR solutions, making them not only accountable for building new HR processes and solutions, but also for implementing them. This solution alleviates HRBPs from the burdens of execution, freeing up valuable time from HRBPs and other HR managers to be more strategic. In this model, CoEs are expanded with the addition of central (sometimes global) project management & implementation teams to make sure the initiatives created at the CoE level are professionally and timely deployed across the organization. Egon Zehnder notes that these project management and implementation teams often also bring the needed change management skills and are able to train local champions, etc. The downside of the super CoEs is that more resources overall are probably needed, creating a risk of potential cost increases for the HR function as a whole.

4. Incorporate agile working methods into a traditional organization:As an entry point to becoming more agile, the HR operating model can evolve first into agile methods, especially when it comes to the creation or optimization of processes within the CoEs. In this operating model, the CoE owners still exist as job roles on leaner teams, operating instead in a full agile mode and using resources from all functions when process creation or reviews are needed, according to Egon Zehnder. The implementation of the solutions coming from these “agile CoEs” can then be done either by dedicated teams – such as in the previous model – or via the cascading of traditional HRBP paths. This alternative can be a good way to test if agile fits a certain HR organization. If successfully implemented, it can create a higher pace of innovation, more buy-in from stakeholders for new solutions, less coordination effort, and more client orientation. On the flip side, it can generate confusion and potentially create a machine that is good at generating ideas, but that lacks muscle to implement them. Such a step should only be made if the organization’s culture and leadership is open to and ready for it—and ideally if HR is not doing it alone, said the report. Every organization is different, but without buy-in and support from the right players in the enterprise most efforts won’t be successful. It’s a big step and the effort to make it is considerable, so Egon Zehnder says that organizations should not attempt to do this lightly.

5. Full-fledged agile: Egon Zehnder observes a gradual increase in the companies or business units moving to full-fledged agile work and organizational models, especially in the “usual suspect” industries, such as tech, telecom, and professional services, and increasingly in industries being disrupted or accelerated, such as financial services and life sciences. In those cases, HR gets pulled into the vortex of company-wide agile transformations via individual experts in their pool of professionals, who take on challenges and are empowered based on their own expertise. The opposite way seems to be exceedingly rarer: HR is not normally the initial hooking point of moving to an agile model. Something that Egon Zehnder has concluded, and many leaders have agreed with them, is that HR probably should not do it alone. That said, moving to a full-fledged agile mode can be a thrilling exercise and yield increased speed of innovation, higher levels of empowerment, and potentially more proximity to the internal customers for a business. It can also revolutionize an enterprise’s talent development and succession planning model, grooming future leaders to accept and work from the updated HR operational model and know that there is room for change and growth. But it comes at a cost of potentially losing sight of some basic HR processes that are critical for a good employee experience, such as performance management, career planning, and learning development. Those Egon Zehnder have spoken to see huge upsides in all these areas when HR and their organizations shift to an agile model, but they also acknowledge that it comes with a risk of potential disengagement if not done right.

Which model is right for your organization? 

When it comes to HR models, every organization will need something different, said Egon Zehnder. “If you’re an HR leader, maybe you’ll find one of the models above insightful or that a blend of elements from two or more of those is the right path. If you’re in charge of HR for a complex organization, then you might find that each business within it needs a slightly different touch.”

Even after talking with over 300 HR leaders and addressing the HR operating model in all those conversations, Egon Zehnder said it doesn’t think there is a “silver bullet” or a single new “org template” that can be widely applied in today’s complex corporate world. If you are in the process of reworking your model, Egon Zehnder says that some best practices to follow in your approach include:

• Understand your company’s broader business strategy and enterprise design and shape your talent and operational strategies within the context of it.
• Clarify what your organization’s pain points are—why is this change needed? Using that knowledge, you can better tailor the design principles behind the rethinking of HR and have an idea of future needs.
• Based on what the business is ready for and what its future needs are, reevaluate what design options are in front of you and what their feasibility is.
• Pick the best option at your disposal based on current knowledge, plan, and phase its implementation over time, and most importantly, have a continuous improvement mindset and try to learn on the way.

Human Answers for Complex HR Challenges

What Egon Zehnder research found was that universal best practices aren’t nearly as reliable as they have been in the past. To catalyze effective change, HR leaders will have to zoom-in on the culture of their own businesses and tailor their operations around solutions related to their unique business strategy, objectives, and capabilities.

“Finally, although a discussion about the HR operating model is important and extremely relevant, leaders should not forget that organizational and team effectiveness are just partially a factor of the boxes and lines and job descriptions,” the Egon Zehnder report said. “There are many other elements of the system that play a big part in an organization and are maybe even more important: trust, collaboration, and adaptability, to mention a few. While we encourage HR leaders to seek the best possible technical design for their organizations, we believe that the function should lead the way in addressing effectiveness topics first via human answers—thoughtful leadership, deliberate coaching from HR partners, and a solutions-based mindset— not technical ones.”

Related: How HR Can Help Build the Organization of the Future

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media