The human resource function in most large US
organizations is in a state of significant transformation, driven
by intense cost pressures and growing recognition that an organization’s
workforce represents a new—and largely untapped—source
of competitive advantage, a new study from Mercer Human Resource
Consulting finds.
Over the past six months, Mercer surveyed HR
leaders at more than 300 US-based organizations to assess specific
ways the HR function is changing, why the changes are occurring
and what this means for the broader organization. The results of
the study are presented in a new report, "Transforming HR for
Business Results: A Study of US Organizations."
"Maximizing the return on human capital
investments has become a critical management and shareholder issue,"
says David Knapp, a senior consultant in Mercer’s technology and
operations practice and the study’s author. "Companies are
scrutinizing their people-management practices and expecting the
HR function to play a more strategic role in achieving business
success. Our study takes a close look at how HR is responding to
these new challenges."
Strategy Matters
As part of the study, Mercer wanted to determine
whether companies that had explicit human capital and/or HR strategies
differed in meaningful ways from companies that do not have such
strategies in place. They found the answer to be a resounding "yes."
Of the survey respondents, 55% reported having
a human capital strategy. Of those, 88% indicated that the human
capital strategy was linked to their company’s business strategy.
(A human capital strategy is defined as a set of management practices
that produces the right workforce for the business and manages the
workforce in ways that optimize overall firm performance.) In organizations
with an explicit human capital strategy, business leaders:
- View human capital primarily as a source of value, rather than
a business expense
- Understand the return they receive for their investments in
human capital.
"The message is very clear," Mr. Knapp
says. "Leaders who understand how their human capital assets
are performing place a higher value on them."
In addition, respondents who indicated their
company has a human capital strategy are more likely to have a human
resource strategy. More than three-quarters of the respondents (79%)
indicated they have an HR strategy. (An HR strategy focuses on aligning
the HR function, its priorities, service delivery channels, and
capabilities to support the company’s human capital and business
strategies.) Mercer’s study found that the HR functions in organizations
with an HR strategy:
- Spend more time on strategic activities and less time on administration;
- Use technology more effectively;
- Are viewed as a strategic business partner by the organization’s
leadership;
- Have greater control over budgets and allocation of resources;
and
- Are more effective at using metrics to manage HR operations
and to influence business decisions throughout the organization.
Transforming HR
Half of the survey respondents (50%) indicated
that their HR function is in the midst of a transformation, while
one-quarter (25%) recently completed a transformation and 8% plan
to begin a transformation within the next year. (Transformation
refers to the reinvention of the HR function, typically involving
such activities as restructuring the HR organization, implementing
a new service delivery model or automating work processes.)
The key drivers of HR transformation, according
to those who have completed a transformation, include:
- Leadership changes in the HR organization;
- Response to changes in the business; and
- Part of the company’s own transformation process.
"The study shows, on several levels, that
change doesn't happen in a vacuum," says Knapp. "Changes
in the business or in HR leadership typically lead to changes in
the HR function. Changes in one service area or program within HR
can seldom be implemented without affecting other aspects of HR
service delivery."
Mercer’s study asked respondents to identify
the specific tactics or activities that were part of the HR transformation
effort. The activities most commonly completed in the past 12 months
include assessing the needs of HR customers (54%), creating a new
HR organizational structure (46%), auditing the current HR information
system (46%) and designing a new HR service delivery strategy (42%).
Respondents planning an HR transformation in
the upcoming 12 months were focused on two primary activities: redesigning
HR work processes (59%) and talent development strategy for HR staff
(58%). Items related to the reward (70%) and retention (53%) of
HR staff were the least likely to be under consideration as part
of HR transformation efforts.
HR Leadership
Mercer’s HR transformation study also explored
several questions around HR leadership, including who sets the direction
for HR, what sorts of work experiences HR leaders bring to the job
and who is involved in HR decisions.
- Setting direction. More than half of HR leaders report
either to the company CEO (54%) or president (8%), while some
report to another company officer, such as the chief administrative
officer (11%), chief operating officer (11%) or chief financial
officer (9%).
- Work experiences. The majority of respondents (85%) have
10 or more years of experience in HR. More than three-quarters
(79%) indicated that they have non-HR work experiences, and more
than half (57%) have held between one and three different jobs
outside of HR. The work experiences outside of HR cover many corporate
functions (such as customer service, operations, finance, legal
and information systems), as well as outside experiences with
HR consulting firms and HR administrative service providers.
- HR decisions. Most HR leaders work in collaboration with
the finance function in setting human capital strategy, developing
human capital budgets and allocating the budget to various programs
(e.g., compensation and benefits). However, he notes, the responsibility
for setting and allocating the budget for the HR function is primarily
HR’s responsibility. "The involvement of finance in these
decisions is not surprising, given the magnitude of human capital
expenditures in any large organization,"Knapp says. More
than one-quarter of the respondents (28%) estimated that their
annual human capital expenditures are equivalent to more than
50% of their firm’s annual revenue.
Study Information
Participants in Mercer’s HR transformation study
come from a broad range of industries, with the largest share from
manufacturing (23%), health care (18%) and financial services (10%).
They also vary by size: 28% have 10,000 or more employees, 17% have
5,000-9,999 employees, 36% have 1,000-4,999 employees and 19% have
fewer than 1,000 employees.
The full study report, "Transforming HR
for Business Results: A Study of US Organizations," can be
downloaded at no cost from Mercer’s Website at www.mercerhr.com/hrtransformation.
Mercer Human Resource Consulting is one of the
world’s leading consulting organizations, with more than 13,000
employees serving clients from some 150 cities in 40 countries worldwide.
The company is part of Mercer Inc., a wholly owned subsidiary of
Marsh & McLennan Companies, Inc.
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