What Makes an Effective HR Function?

In this article, we review the value of HR for key stakeholders, nine approaches to characterize the HR function, recent research and insights by RBL on HR effectiveness, and implications for HR value creation. Apply the findings and insight of this article in Leading for HR Excellence, RBL's newest guided-learning journey. 

The value of HR for key stakeholders to build the business case.

We show why human capability (talent + leadership + organization + HR) delivers value to all stakeholders in today’s changing business context, thus building the case for HR functional excellence from a value logic. This value logic means that the “customer” of HR is not just the employee inside the company, but customers, investors, communities, and boards outside.  

Nine recent approaches to characterize today’s HR function.

We review and synthesize nine leading consulting firms' positions on the HR function to show the commonly held views of HR.  

Recent research and insights by The RBL Group (RBL) on HR effectiveness leading to an HR value creation logic.

We share three comprehensive recent research studies with tens of thousands of individuals in and out of HR and thousands of organizations that define our HR value-added approach to functional excellence. From this research and experience, we identify 10 dimensions of HR functional excellence. Our work integrates and expands other work. Our research shows that HR design (dimension #4) is necessary but not sufficient for HR value added and that while using different labels, HR design has commonly accepted approaches. We update each of the other 9 dimensions so that they add value to stakeholders.

Action implications for diagnosis and improvements for HR value creation.

We suggest specific actions to improve HR value creation. These actions include diagnosis to assess your HR function and tools/actions to upgrade your HR function.  

In brief, we believe that HR functional effectiveness is about creating value for all stakeholders. Through extensive research and practice, we have identified 10 dimensions to create value-based HR. By using these ideas, HR is not about HR, but about creating value. This work integrates and advances how to deliver HR functional excellence. 

The Value of HR for Key Stakeholders

In our work, HR is not about HR but about the value HR creates for stakeholders. This simple mantra means that we connect the business context and the HR function. We call this the HR value creation logic (See Figure 1) because it has an outside-in logic with HR actions designed to create value for stakeholders.

Given this logic, Figure 2 summarizes what stakeholders receive from human capability (talent, leadership, organization, and HR department) initiatives, which defines the effectiveness of the HR function.

Figure 1: HR Value Creation Logic: Function Connected to Business Context 

Figure 2: Stakeholder Value from Human Capability 

Nine Recent Approaches to Characterize Today’s HR Function

Because of the increased attention to human capability, most leading consulting firms have expanded their HR services to offer clients ideas that will improve the HR function. Each consulting firm suggests a theme for improving HR and focuses on dimensions of the HR function. We have synthesized this work to help discover what thoughtful colleagues recommend for HR functional effectiveness (See Figure 3). More details are available from The RBL Institute by contacting Joe Grochowski at jgrochowski@rbl.net.

Figure 3: Overview of Views of the HR Function Themes and Focus 

Recent Research and Insights by RBL on HR Effectiveness Leading to an HR Value Creation Logic

We appreciate, learn from, and build on the outstanding work done by our colleagues in these nine (and other) consulting firms, plus exceptional research by so many academic scholars. We believe that HR functional effectiveness requires theory, research, and practice. From theory and research emerge practices and solutions that offer evidence-based insights to make knowledge productive.

We have crafted both long-term and short-term insights through three major research projects that shape HR functional excellence (See Figure 4).

Figure 4: Overview of RBL Insights Research 

RBL’s View of Characteristics of an Effective HR Function: HR Value

Analyzing the nine models of HR function and our research reported above, we would suggest that any effective HR function has ten dimensions that make up the HR value logic, as highlighted in figure 5. In this figure, we highlight the question for each of the ten dimensions and our contribution on how to answer these questions.

Figure 5: RBL's HR Value Contribution to HR Functional Effectiveness on Ten Dimensions

RBL Comparison to Other HR Functional Models

Given our work on defining HR functional effectiveness into ten dimensions, we highlight how the nine HR operating models compare to RBL and each other in order to help HR leaders know where and how to focus to build functional excellence. Figure 6 shares each of the nine models (columns), the research behind the model (as reported in row 1), and the concepts from these nine models as they relate to the ten HR functional effectiveness work we have done.

Figure 6: Overview of HR Operating Models

 

Author/Dimension	RBL	ACCENTURE STRATEGY/HR	AIHR	DELOITTE	GARTNER	KPMG	JOSH BERSIN	MCKINSEY	MERCER	PWC	MARC EFFRON
Research	HRCS (round 8) with 28,500 people OGS with 1,000 orgs G3HC with 5,700 firms	Executive surveys 570 CHRO surveys		Research by Bersin Deloitte		18 HR leaders	4,000 Academy members	Survey of HR leaders	Case study
Reputation	Build reputation from efficiency to innovation to strategy to customer value outside in	“High-Res”				Pathfinders			Target interaction
Customers	Create value for stakeholders inside (employee) and outside (customer, investor, community)	Inside/Employees		HR customer (workforce)		Workforce		Business led	Employee experience	Global trends, business
Purpose	Define purpose/mission as who we are; what we do (human capability); why we do it (value creation)		Let Strategy Lead	Change, new products, cost, customer		Employee experience		Employee experience; agility	Employee and Workforce
Design	Match HR to business design Connect specialists (experts) to generalists with agility	Fluid	5 approaches to HR governance	Operational, COE, business HR partner, digital	Specialized roles/service team; shared services	HR service delivery		Five models based on goals	Manage employee	HR experts, advisors, ops, partners	Compares 5 models with similar logic
Human Capability	Deliver talent + leadership + organization to create stakeholder value	Workforce 6 org capabilities	Focus on skills, not roles	Drive talent and workforce; culture	Employee well-being/workforce plan; agility	Workforce/talent Agility, culture		Front-line employee, agile	Employee	Adaptability, Agility, Change/Flexibility
Analytics	Provide rigorous and relevant information to improve decision making by offering guidance, not just benchmarking or best practices	Workforce insights		Insights; analytic capabilities			High growth companies	AI, big data
Digital/IT	Use digital to be efficient, innovate, share information, and form relationships even across boundaries	Digital connects workplace		Digital access to information				Machine learning automate, machine led	Fully digital experience	Modular apps
Practices	Innovate, align, and integrate HR practices (people, performance, information, work)							Personalized, cafeteria			COE: Talent, DEI, Comp
People	Upgrade the quality of HR professionals with competencies that have impact on stakeholder outcomes	Systems leadership, talent, technology, business, finance	Have capabilities (not listed)	Customer, digital, adaptability, agile	Strategic thinkers	Live values; humanity; flexibility	94 skills in 20 domains mostly on HR tools				Know and love business
Relationship	Form positive and collaborative relationships among HR and between others	Fluid interaction / Braking silos	Partner to implement	Beyond structure to ways of working				Business led			Mortar not bricks

We identified a number of observations from this chart. First, the nine operating models use a host of research approaches (some did not report their research) from case studies to targeted interviews to surveys of senior HR leaders to participants in training programs. We are confident that our ideas come from a rigorous research base that guides actions.

Second, while most approaches used the term “customers” of HR, the primary customer is the employee, and HR is designed to increase employee experience (measured by satisfaction, productivity, and retention). Little mention is made of defining HR success through value created for external customers and investors or of including customers and investors in designing and delivering HR practices.

Third, as noted above, almost all discuss a mostly similar design of the HR department (or operating model) using different terms to highlight how HR expertise (specialized knowledge) can be applied to business problems. Roles in an HR department include specialist, generalist, and technology experts. As Marc Effron, a thought leader in the HR space who summarized five of these models, said, “The striking consistency in these approaches to existing HR design suggests that the debate around design is largely settled and HR should now focus on what enables the success of its structure. . . A new approach to HR design isn’t needed to stay competitive. The model originally championed 20 years ago is still relevant to managing today’s workplace and workforce and can be easily adapted to a variety of situations, as seen in our examination of the identical models used by top consulting firms” (Marc Effron, “It’s the Mortar, not the Bricks: The State of HR Organization Design,” May 14, 2020). We agree.

As we have said previously, HR as a department operates like any professional service firm that turns its knowledge and expertise into its client’s success. The HR department structure or design should match the business structure or design. If a business is centralized (single business), HR is likely to be organized by function (staffing, training, compensation, organization design) for the entire business. If a business is completely decentralized (essentially a holding company), then each business would have its own unique HR functional experts. Since most businesses are some version of both centralization and decentralization (called a multi-divisional firm, allied/related, conglomerate, or diversified), HR’s most common design response is to have specialists (centers of expertise, experts) who have deep expertise and then transfer or adapt their knowledge to HR generalists who work in the business, geography, or functional organization units (see Figure 7).

Figure 7: Align HR Department Structure to Business Strategy and Structure

Fourth, the human capability outcomes both within the HR department and what HR offers to a business are focused almost exclusively on employees (at times called workforce, people, or talent) and on the organization capability of agility.

Fifth, analytics plays an increasingly critical role to deliver HR. Most of the analytics is about reporting what HR does more than what it delivers, leading to benchmarks that offer comparisons more than guidance about what actions a specific company might take.

Sixth, we are seeing a dramatic increase in the utilization of digital information through technology to drive efficiency, improve HR practices, and to connect employees who may be working remotely. The digital and technology agenda affects both how HR can help a business integrate technology into its strategic agenda and how HR can use digital information in doing human capability work.

Seventh, we see many lists of competencies that HR professionals should demonstrate, often defined by HR people as knowledge, skills, and abilities they should possess. Few link these competencies to personal, stakeholder, or business outcomes, but we have a call to upgrade HR.

Finally, most models recognize that HR professionals need to work together (with agility, fluidity, collaboration) to bring the elements of HR into an integrated solution.

In brief, the literature of outstanding thinking is growing, and ongoing work continues to deliver HR functional excellence. Like a piano keyboard with 88 keys and some played more than others, many of these HR models are touching on a subset of the ten characteristics of an effective HR function. Our G3HC work on 5,760 companies shows that when human capability work is integrated and complete, better outcomes occur.