Episode Transcript
[00:00:07] Good morning. This week we introduced our new research on the HR operating model, which we call systemic HR. And so I'm going to give you a little bit of a preview today because there's going to be a lot of information about this coming out over the next couple of months and throughout 2024. Were we're going to spend the bulk of our time explaining this to you?
[00:00:29] Because it has many implications. And so before I tell you what it is, let me tell you why it matters.
[00:00:37] If you look back at the human resources profession and how it's evolved, it has obviously evolved from a very bureaucratic administrative back office function of payroll, labor relations and transactional HR, into the service delivery model of HR, into a more consultative role of HR and a more innovative and creative role. And the reason it's done that is not just because we thought it would be a good idea. It's because the business climate changed and it forced the human resources function to add value in different ways. And as you'll read about in our post industrial research coming out this Thursday, that is really the epic change that is affecting everything that goes on in business.
[00:01:26] Business models in the 17 hundreds and 18 hundreds and 19 hundreds early were really in some sense apprentice models where people worked in groups and the companies scaled by hiring. In the 19 hundreds and early twenty s and thirty s, we had machines and automation and we had what we call the industrial hierarchy. So we organized and designed HR around managing the hierarchy, around managing the pre hired or retire experience at work. And there was not a labor shortage, there was a labor surplus. And then in the 1970s and the 1980s when computers came along, suddenly there was a shortage of workers and there was a shortage of skills. And companies became more focused on innovation and creativity and outpacing their competitors and issues like culture and engagement became important. So of course HR focused on that, including recruiting and retention and people analytics and all those things. And then in the most recent era, we're in a world of hyper competition, industry convergence, rapid technology change, and workers basically saying, I'm going to work from home, I'm going to work three days a week. I'm not going to do what you tell me to do unless you make it good for me. And a labor shortage, not just a skills shortage, a labor shortage. And we're going to have a labor shortage for a long time. So the HR function is following this 100 and 5200 year evolution of the business climate and the economy. And so that is exactly why systemic HR has arrived.
[00:03:06] Now. What is systemic HR? Well, we did Kathy Andres and Christophe and some others here, we did a large study. We've been working on this for two years and we've interviewed many, many of you and many CHROs. We did a massive survey. You'll see some of this data. Those of you, by the way, I'm going to make a big deal about our membership. We're not going to give all this content away. You're going to have to join our membership to get some of the details. But basically what we found is there are dozens and dozens of factors to consider. The strategy of HR, how it's aligned with the C suite, the operating model, how roles and teams are set up inside of HR, what kinds of skills you have in HR, what kinds of technologies you have the focus of the technologies, not the types of technologies. What the role of the business partner is, what is the role of the COEs and all sorts of granular things about the capabilities of HR. And we surveyed, of course, a whole bunch of you, more than a thousand companies. And we worked with LinkedIn on a lot of this. And we also looked at a lot of skills data and about how the skills of the actual HR function of all of us have changed over the years, too, because we have data on that from LinkedIn and from eightfold. And what we basically found is that the HR function has evolved in four levels of maturity. The first level is the transactional HR compliance function. And everybody who ever started the company started HR. Here. I got to hire people. I got to pay people. I've got to make sure we don't get sued. We have to pay our taxes. I mean, that's the first thing that the HR function does. That's the first thing the HR function did. And what happens is that goes for a while. And as the company grows and expands and maybe does a merger, goes into a new geography, goes into a new business area, the HR function gets distributed around, and we have HR people in this department and in this city. And then we have a bunch of people in this city, and we have two payroll systems, and we have three payroll systems. And then we start hiring generalists to go out there and work with the line leaders. We have recruiters. We have l and d people. And it starts to become a mess. And you look around and you say, wow, we got an awful lot of HR people sprinkled all over the place. The ratio of HR, of employee to HR has gone way down. We have many, many more HR people than we should. Roughly, the optimum number is around 120, but some companies have 50 the ratio of employee to HR. And we do what is called an HR transformation. And that's what we call level two. Level two is when you sit down and you rationalize this combination of skills and activity into what used to be called the Ulrich model. I'm not sure it is anymore, but the service delivery model, well designed, COEs, federated center of excellence, where there's a central group and some distributed groups. So a learning group, recruiting, a talent acquisition function, a dei function, a compensation function, eventually an ex function, and a bunch of others. And we say, okay, we've now transformed ourselves. And usually during level two, stage two, there is a tech project underneath it and many, many times the way the level two transformations take place. And a lot of, you know, this is because we needed to replace our technology. Because we had 15 HR systems, we had twelve payroll systems, seven LMS, et cetera. So we hire a consulting firm or we do it ourselves and we consolidate all that stuff and we define the roles and we say, okay, now we've transformed. Or take a deep breath after two years, okay, that's done. Well, it's not, you're still at a fairly tactical level because as we define level two, what you've now created is a service delivery function, not a design function, not a consulting function, not a problem solving function, not a talent intelligence function, not a data centric function. But you've cleaned up the mess. And a bulk of the companies we've talked to, including the ones we worked with at Deloitte, that have gone through these transformations basically, you know, at least we got this new platform installed and everybody's kind of using it and we have a much more centralized store of data. As far as the rest of it, it's gone. Okay, well that's level two.
[00:07:41] And by the way, you're going to always doing that kind of work because as your company grows and you acquire other companies, you're going to have to continuously do this.
[00:07:51] So that level two service delivery optimization work is never ending unless your company stops growing entirely. But the technology world keeps changing. So every time you want a new technology platform, you've got to look at it again. But that doesn't mean you're adding a lot of value. What you're really doing in level two is you're reducing cost and you're reducing overhead of the HR function.
[00:08:14] But that's actually not the reason we're here. The reason the HR function exists is not to manage compliance and pay people and service delivery to keep the employees happy. That's all fine. I mean, we obviously want the employees happy and we want them productive. It's really to do much more. It's to help the company transform, it's to help the company get into new businesses. It's to help the company deal with cultural changes, workforce changes, the inflation. I mean, the reason people are quitting isn't because they can't get access to the service delivery center to fill out their pay card. It's because they're overworked, or the job design is bad, or they don't have the right skills, or their manager is treating them poorly, or they don't have the information they need to do their jobs. That's not level two stuff, that's level three and level four.
[00:09:13] So level three is we take this sort of transformed group of people which has much more clarity of roles. And by the way, one of the things we went through is we know all the roles in HR now, and there's a lot of them, more than 300 roles.
[00:09:31] We have 92 capabilities in our capability model, and we probably need to add another ten. So even though you transform the function from a service delivery standpoint, there's lots and lots of roles and jobs and capabilities needed in HR because this is a very complex profession. We're dealing with human beings and many, many things we have to do are difficult and not simple. So anyway, so that's level two. So then the company says, mr. And Mrs. HR leader, hey, we've got this group over in some city or country, maybe they're sales, maybe they're manufacturing. They're completely messed up. They're way behind on their business metrics. Maybe we need to retrain the leaders. Maybe we need to fire a bunch of people. We're trying to hire a bunch of people in there. There's new skills. They need to, would you go fix, get involved and fix them? So the HR leader has to take a group of people in the function, not just one person, because the COEs are not problem solving groups. They can solve groups from the standpoint of what they do. The learning group can do learning. The recruiting group can do recruiting. But they can't necessarily work together unless they're designed to do that. So at level three, you start to focus on building solutions. And this is where the idea, which has been around for now, at least five years of design, thinking of iterative, problem solving, having a product management group in HR, where we build solution products like an onboarding product, a career development portal or product, or a talent marketplace, which is essentially an offering from HR. A program for first level leaders, a program for high level leaders, a program on innovation and so forth. So we build these solutions in level three and we roll them out. And of course the solutions are targeted towards problems, but they're designed in a way to be corporate wide. So even though one department and one group has a very special issue going on, we don't just create a whole HR department for them because we just did away with that. We take the expertise in the COEs and we design something that feels like a more scalable solution. Maybe we buy service now. We do a whole bunch of creative tools for employee experience. We give them some dashboards so they can understand the metrics as to why people are leaving, et cetera. And all of a sudden we add a lot more value. And the CHRO is now getting access to a lot of business issues, and all of the HR function starts to interoperate. We start moving people between COEs to build these solutions. We have sort of a service delivery group underneath this, because when you build a new solution, the service centers have to know how to support it. So we build a new onboarding program. We got to train all the people in the service center what it is. We have to put something in front of the employees on the portal, and we end up with this very product or solution oriented group. And that's actually a huge leg up. You'll see in the research how much value is added at level two. The business partners, by the way, are now taking on a more strategic role because they're not designing the solutions, but they're helping the business use the solutions and take advantage of the solutions. Then of course, behind the scenes, there's multiple HR people working on the solutions. Iterating getting feedback, making them better, treating them as if they're products or offerings. That's very different from level one, level two.
[00:13:06] By the way, most of the companies we interviewed are at level one and level two. Some are at level three. But then that goes well. And the more you do that, and the more of these offerings and cross functional, systemic solutions you build, the more you realize, well, now that we're deeply embedded into some of these issues, they actually sometimes cannot be solved by a given product. And so we move into what we call solution to problem oriented solutions, not product oriented solutions. In other words, we turn HR into a consulting function. The example that we use to compare the difference between level three and level four is that level three is like the United States post office. The United States post office is extremely good at delivering the mail. They have productized streamlined, operationalized, and scaled the delivery of packages and letters extremely well. There are a lot of ways to make it even better, and they're constantly working on that. But they don't know what email is. They're not in the communications business. They're in the mail business. A level four example is Netflix. Netflix is, in a sense, the entertainment business. You know what they used to do? Of course. They used to send CDs. And then they started putting videos online. And now they don't put videos online. They're basically a production company. They create entertainment. And their entire team, we met with them last year, their entire team is focused on the personalization of that entertainment for every consumer in the world. So they chase the problem, not push the solution. Now, listen, I'm not criticizing at all, but I know what it's like when you're a training person. Every problem looks like a training problem. When you're a recruiting person, excuse me, every business issue looks like an opportunity to recruit somebody new.
[00:15:13] And those are all natural evolutions of what we have to do. But in level four, we reorganize, we flatten the HR function, we reduce the number of roles, and we start to build cross functional consulting teams and consulting opportunities. Now, I'm not going to tell you exactly how to do this because we have this written in the report. But at level four, you actually end up with a smaller HR department because more of the level three solutions are automated. And by the way, this is an evolution. This isn't a step change. You have to go through all four levels because you have to do everything at the level before you can't become a consultant. If you can't pay people, obviously, and if you can't answer the questions or give them a way to get their questions answered, you can never go out there and build anything better. So this is an additive process, and we basically will argue that these HR transformations you're doing are really not transformations. They're really cleaning up. They're cleanup programs, which are important and necessary because everything in business I've ever seen obeys the second law of thermodynamics. If you're not a physicist or a mechanical engineer, what the second law of thermodynamics says is that the world is always getting more random. There's this idea of something called entropy, and it actually comes from Einstein. But the idea is that over time, things get messy. The kitchen drawer gets messy, your house gets messy, your garage gets messy, your HR department gets messy, your company gets messy. We add more things. We do this. Oh, let's do this, let's do that. And we never kind of throw away the old stuff. So we're always going to be going through level two stuff because we've always got to clean up the stuff we don't use anymore. And we're always going to be building solutions, and then we're going to be thinking about how can we make them more tailored and more consultative? So that's the high level story. There's a lot of detail. There's a lot of data. There's a lot of best practices and a lot of examples underneath this. Now, two things I want to point out that change during this evolution. The first is the skills of the HR team. Because if you buy what I just said and you believe, as I think most of you do, that the ultimate value of human resources is to help the company transform and grow and evolve and attract and retain and develop people, then you understand that that is a very, very complicated role. We have to take care of our skills. We have to understand all of the domains of HR and all of the best practices as they are invented and changed all the time. We have to understand all of the technologies that are related to work and HR and assessment and listening and analytics and AI. We have to understand the economy and what is going on in the labor market because that impacts our pay, our competitiveness, our hiring strategies, our location strategies and things like that. We have to understand psychology. We have to understand organizational culture. We have to understand organizational design, we have to have a sensitivity to diversity and inclusion and how it changes based on the political environment and based on the cultural environment of different countries and cities. We have to understand demographics because people are changing, our world is changing. We are getting older and we are also getting younger in some respects. People are living longer. What's the impact of that? And we have to understand business. We have to understand finance, accounting. We have to understand marketing, sales, research, manufacturing. And we have to understand the industry that we're in. Because a lot of the things that we want to do in HR have to do with being competitive in our company versus our peers. So we have to build our own skills. And the reason I started our academy is that that is a huge, huge part of the evolution and growth of the HR profession. And we're going to spend a lot more time on this and we're going to talk a lot more about it over the next several months. The second thing that you notice as you get to know this model and how it works is that what is essentially happening from level one to level four is the HR function itself is becoming an agile, adaptive, what we call dynamic organization.
[00:19:51] And one of the most fun things we're launching next week after next this week is HR tech. The following week is a big study we just finished called the dynamic organization.
[00:20:02] And what the dynamic organization study will show you is that at a company level, the highest performing companies are dynamic. By the way, 93% of the companies are not dynamic. 7% are dynamic. Companies move people around.
[00:20:20] They jump into new business opportunities. They empower innovation at the front lines. They don't wait for some R and D group to figure it out. They have a culture of skills, meritocracy we call it. They are not afraid of trying new things. They iterate. They take care of their people. They spend a lot of money on training and development because they know that everybody needs to stay current. They're good at listening to the outside world. They move people between functions so they get build good general management skills. And all of that has to be done in HR. In fact, one of the most highly correlated practices for these level three, level four companies is the development and job rotation of HR people into and out of different parts of HR and into and out of the business. By the way, I would ask you, does your company look at HR as a developmental opportunity for non HR people? Probably not. Well, it should, because that's the way we professionalize the HR function.
[00:21:22] So I'm really just touching the top of the iceberg here in this podcast. But the reason I wanted to bring it up is because I think this is some of the most meaningful work we've done when we presented this at LinkedIn this week. We were just flooded with feedback and excitement and interest, because this gets to the core of what you guys do all day. It gets to the core of what we wake up in the morning and want to add value to in our companies. It gets to the core of why we buy all this technology and spend all this money on AI and all that other stuff that's going on. And of course, it gets to the core of the most interesting thing of all, which is what makes companies competitive.
[00:22:07] I find my work in HR fascinating for many, many reasons. But maybe the most interesting of all is we're trying to unlock the secrets of really, really high performing companies so they can be better and everybody else can figure out what they're doing. That's really what my book is all about. So HR's evolution is striving to do that, in a sense, anyway. So we're not going to announce or release a lot of IP on systemic HR quite yet. It's coming. And what I really want to encourage you is to, if you're an individual, join our academy, because we will be putting a fair amount of it in there. And if you're an organization, please talk to us about our corporate membership, because this is really high value stuff. We can't deliver it in a 30 minutes podcast. It's a little bit deeper than that. It's really a workshop oriented experience, and we will publish a lot on this and write a lot of articles and so forth. And of course, if you'd like us to interview you and talk to you on a one on one, please reach out. I think this is a really, really important topic. It has to be discussed in this age of AI, in this age of intelligence that we live in, and the economy is more disruptive and more unpredictable than ever. So we are going to be forced to play a central role at the sea level table in virtually every company. Thank you for your time today, and I'll see a lot of you guys in Vegas next week and in Paris the following week. Bye for now.
