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World-Class HR I The Hackett Group I 1© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
An Unrelenting Focus on Operational ExcellenceTo achieve their exemplary levels of effectiveness and efficiency, world-class HR organizations embrace the following strategies.
High levels of automation and self-service World-class HR spends 8% more on technology per employee. Much of this goes toward automating data-intensive administrative and transactional activities (Fig. 3). The result is greater process standardization, which in turn leads to faster, higher-quality, lower-cost decision making. Managers and employees alike in the world-class group are more productive due to their use of self-service tools to initiate transactions and perform tasks. This gives HR organizations more time for high-value, non-routine tasks such as talent management and strategy.
Emphasis on complexity reduction and increased productivity World-class organizations’ commitment to process simplification and continuous improvement is reflected in the smaller number of job grades and pay/benefit plans they maintain (Fig. 4). This simplifies position administration as well as management of employees. Emphasizing simplification yields savings across the entire breadth of world-class HR operations.
HR Executive InsightManagement Issue
May, 2014
Despite ongoing challenges to the economic and business environment, world-class HR organizations continue to outperform the peer group by a wide margin up to $10 million in cost savings for the typical large company1. They deliver services at 23% lower cost (Fig. 1) but with greater effectiveness. Their cost advantage has grown since 2012, yet they require 32% fewer FTEs per employee served (Fig. 2). Furthermore, those FTEs devote their time mostly to very high-value processes like strategic workforce planning. The secret of world-class HR organizations is greater agility and better understanding of business needs, made possible thanks to a well-designed service delivery model (SDM). World-class HR organizations are also able to quantify the value they bring to the enterprise, due to better and more global KPIs, technology and processes. In contrast, half of the companies in the peer group do not even measure the results of their change initiatives or produce any type of functional scorecard.
By Tony DiRomualdo and Nathalie Bression
Complim
entary Research
How Leading HR Organizations Outperform Their Peers
The World-Class Performance Advantage:
FIG. 1 Total HR cost peremployee
Source: The Hackett Group, 2014
Peer group World class
23%
0
500
1000
1500
2000
2500
FIG. 2 HR FTEs per1,000 employees
Source: The Hackett Group, 2014
Peer group World class
32%
0
3
6
9
12
15
1 The cost savings calculation is based on a company with an employee base of 20,898, which corresponds with the average number of employees of the typical “large” company ($10 billion in revenue) as defined by The Hackett Group
World-Class HR I The Hackett Group I 2© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
Flatter organizations World-class HR organizations have fewer managers (Fig. 5), which reduces overhead and accelerates decision making. Managers are given broader spans of control, as well. This reflects the continued movement of administrative and transactional activities performed by clerical staff out of world-class HR organizations. Retained staffs are smaller and consist of more professionals who have the skills needed to conduct higher-value analytical and consultative work.
FIG. 3 Automation and self-service usage
Percent of transactions automatedPercent of companies with high degree
of manager self-service usage (>75% usage)Percent of companies with high degree
of employee self-service usage (>75% usage)
PEER GROUP WORLD CLASS
Source: The Hackett Group, 2014
0 20 40 60 80 100 0 20 40 60 80 1000 20 40 60 80 100
51%
60%
70%
73%
75%
16%
50%
25%
49%
32%Total rewardsadministration
Payrolladministration
Staffingservices
Time andattendance
Trainingadministration
Performanceappraisal
data capture
Job/gradechanges
Merit paychanges
Courseselection and
scheduling
Developmentplan data
capture
Employeecompetency/
skill inventory
Employee paystatus change
Interview results/data capture
Job requisitionsubmissions 57%
57%
57%
57%
71%
71%
31%
12%
24%
38%
17%
38%
57%
86%
86%
24%
22%
32%
Incentive bonus awards 43%
26%
Personal/lifeevent data
changes 71%33%
FIG. 4 Number of job grades and plans per 1,000 employees
4.9
Source: The Hackett Group, 2014
1.2
5.4
2.6
0.9
3.5
76%
35%
65%
Job grades Health and welfare administration plans
Compensation plans
WORLD CLASSPEER GROUP
0
1
2
3
4
5
6
World-Class HR I The Hackett Group I 3© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
Use of outsourcing World-class HR organizations use outsourcing more effectively than the peer group. While both outsource administration activities such as health and welfare, pension and savings, compensation and benefits, and employee data management at nearly the same level, the world-class group retains significantly fewer resources in-house associated with these processes after they have been migrated. This suggests that when world-class companies outsource, they make sure to allocate an appropriate level of resources needed only to manage the service provider and perform any remaining work that is kept in-house. On the other hand, the peer group appears to change little internally, making it impossible to reap the full cost and productivity benefits of the outsourcing arrangement.
Proficiency at Managing Talent StrategicallyOne of the main differentiators of world-class HR organizations is their proven ability to strategically manage talent. This not only makes them far more effective, but enables the whole business to perform better. At the core of the world-class group’s success is a comprehensive approach to strategic workforce planning (SWP). These organizations leverage critical enablers, discussed below, to generate measurable results that are substantially better than those of the peer group.
Leveraging leaders, staff and technology to drive the SWP process World-class HR organizations, after years of higher investment, have largely completed building a sophisticated SWP process. Peer organizations, on the other hand, must catch up and are beginning to devote more resources to build this critical capability – in fact, today spending more on SWP on a per-employee basis than world-class organizations. At present, a substantial capability gap remains, to the detriment of the peer group (Fig. 6).
As Fig. 6 shows, world-class HR organizations make use of three principal enablers of effective SWP:
• Active involvement of senior business leaders ensures that SWP has sufficient organizational support and the insights it produces are factored into decision making. For HR to add value to this process it must work with senior managers to identify and address their greatest talent needs, weigh the staffing implications of trends, create new strategies or revise existing ones, and make decisions on hiring and development plans and workforce improvement initiatives. A critical success factor of strategic talent management is getting senior business leaders to take responsibility for developing a talent/workforce strategy.
ManagersClerical/hourly
Professionals
FIG. 5 HR staff mix and manager span of control
Span of control
World class
World-class
Peer group
Peer group
3.8
2.7
Source: The Hackett Group, 2014
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
21%20%
59%47%
26% 27%
Clerical/hourly
Managers
Professionals
World-Class HR I The Hackett Group I 4© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
• Skilled professionals analyze workforce data to identify supply and demand trends and risks, and work with business leaders to incorporate insights from this information into business planning and strategy processes. SWP means more than just providing workforce data and reports to stakeholders in HR and the business. The most effective groups analyze the data to understand the drivers of workforce performance and talent risks, and uncover opportunities throughout the organization. World-class SWP groups are populated with a far greater percentage of professionals with the skills to work effectively with HR business partners and directly with business stakeholders. The peer group, on the other hand, is top-heavy with managers, suggesting a data-gathering and reporting orientation.
• A common platform and tools provide consistent information and analysis across the entire enterprise. A common platform and tool set that provide consistent access to standard data is needed to implement an SWP process on a large scale. This is used primarily by specialists but can also provide HR business partners and even managers in the business with direct access to data and reports.
Better outcomes in talent placement and retentionWorld-class HR organizations produce demonstrably better results from their SWP efforts (Fig. 7). Compared with the peer group, talent gaps are narrower, skills fit is tighter and retention rates are higher. This is accomplished through:
• A more balanced approach to placing talent. A hallmark of organizations that strategically manage talent is their ability to grow and move talent internally to fill skills needs generated by change and growth. Internal candidates have an advantage, given their knowledge of the organization. As a result they usually become productive in new roles faster than external hires. They also get placed more quickly and are less costly than those hired from outside. World-class HR organizations internally place an impressive 61% more per staffing FTE than peers.
• Better development of leaders internally. World-class HR organizations are 82% better than the peer group at developing managers so they can move into leadership roles within the company. This is partly due to their approach to succession management: 22% more have created succession plans for senior leaders and high potentials and 49% more have developed retention plans for their succession candidates. Further, on a day-to-day basis, HR business partners in world-class organizations spend 27% more time on organizational and leadership development.
FIG. 6 Strategic workforce planning process enablers
20%
Source: The Hackett Group, 2014
60%
33%24%
83%
60%
2.0x
82% 2.4x
Facilitate senior management involvement
in the SWP process
Employ staff with advanced skills in the SWP process
Maintain common platforms and tool sets to enable
access to SWP data
WORLD CLASSPEER GROUP
0
20
40
60
80
100
FIG. 7 SWP process results
Peer group World class
23
Number of internal placements per FTE
Source: The Hackett Group, 2014
37
61%
Peer group World class
33%
Percent of manager positionsfilled internally
60%
82%
0
5
10
15
20
25
30
35
40
0
10
20
30
40
50
60
World-Class HR I The Hackett Group I 5© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
• Greater retention of managers and professionals. Staff retention rates provide more compelling evidence of the efficacy of the talent management approaches employed by world-class HR organizations. Turnover rates of new staff after one and two years demonstrate the effectiveness of the talent acquisition process in attracting candidates who fit with the skills and culture requirements of the organization. World-class organizations shine in these comparisons, especially with new managers hired. Compared to the peer group, their retention rate for managers after one year on the job is 86% better and 70% greater after the second year. Retention rates are similarly better for professionals: 78% greater after year one and 57% more after the second year.
Tight Alignment with the Business The third differentiator of world-class HR organizations is their greater ability to work with the business to deal with the human-capital aspects of planning and executing business strategy. To succeed at this task, they deftly employ the mix of processes, skills and information described below.
Integrated into business strategy and planningHR organizations cannot impact the performance of the business without working closely with business leaders charged with formulating strategies and drawing up execution plans. Winning trust through consistent delivery opens the door, but demonstrating an understanding of the commercial drivers of the business and the way that human capital enables financial performance is a further differentiator. Sixty percent more world-class HR organizations have leaders involved in processes tying together business and people strategies, and over 70% more are proactively engaged by company leadership to partner with them on strategic business opportunities (Fig. 8).
FIG. 8 Involvement of HR leadership in strategic business opportunities
Peer group World class
50%
Percent of HR leaders who are routinely involved in executive-level deliberations about tying business
strategy to people strategy
Source: The Hackett Group, 2014
80%
60%
Peer group World class
29%
Percent of HR leaders who are engaged proactively by
management to partner on strategic business opportunities
50%
72%
0
10
20
30
40
50
60
70
80
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Advanced skill sets The demand for HR staff with business skills is strong and growing, far exceeding the current supply. Organizations staffed by individuals with these sought-after skills are at an advantage. At world-class HR organizations, many more staff are occupied in business-oriented activities which require these specialized skills, such as high-level consulting (Fig. 9). Staff are more engaged in managing and facilitating business change as a primary part of their job, which requires understanding both the business operational context as well as the options available for successfully driving change.
Measurement and communication of performanceMeasurement and analytics are increasingly important HR competencies. World-class organizations focus more than the peer group on what is most important to measure, as opposed to simply what it is possible to measure. Dramatically more world-class organizations publish HR scorecards with standard performance metrics and publish them quarterly (Fig. 10). This emphasis on measuring and frequently communicating performance helps HR build visibility and trust with executive stakeholders throughout the organization.
FIG. 9 Demonstration of high-level skills
Peer group World class
53%
Percent of HR organizations with generalists/business partners
involved predominantly in consulting or counseling activities
Source: The Hackett Group, 2014
68%
28%
Peer group World class
21%
Percent of HR staff focused on facilitating business change as a primary part of their job
40%
90%
0
10
20
30
40
50
60
70
80
FIG. 10 Measurement and communication of HR performance
Source: The Hackett Group, 2014
0
10
20
30
40
50
60
70
80
Peer group World class
49%
Percent of HR organizations that publish a scorecard of standard
performance metrics
75%
53%
Peer group World class
24%
Percent of HR organizations publishing scorecard on a
quarterly basis
67%
179%
World-Class HR I The Hackett Group I 7© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
Conclusion and RecommendationsWorld-class HR organizations are distinguished by their commitment to operational excellence, their mastery of strategic talent management and their ability to act as true partners to the business. They are able to accomplish these feats by obtaining more value from investments in technology and process improvement, better leveraging key capabilities such as strategic workforce planning, and developing the business skills of their staff. The implication for HR organizations aspiring to world-class performance is that they need to:
• Formulate their implementation and management approaches to technology invest-ments more carefully.
• Commit to process improvement and be aggressive about simplifying or eliminating tasks, standardizing processes and data, and automating as much as possible.
• View outsourcing as a tool for improving efficiency and effectiveness which must be closely managed for success.
Another way that world-class HR differentiates itself is its proficiency in managing talent. The key enabler is SWP. To build this capability, companies should:
• Do more than provide data; instead, consult with senior managers to identify and address their most pressing talent needs, weigh the implications of trends, create new strategies or revise existing ones, and make informed decisions on hiring and development plans and workforce improvement initiatives.
• Bring in staff who are trained in data analysis and can communicate insights regarding implications for decision making and performance.
• Establish a common platform and tool set that provide consistent access to standard data needed to implement an SWP process on a large scale.
Lastly, world-class HR plays a vital role in aligning human capital with the strategic needs of the business. To accomplish this, companies must:
• Involve HR leaders in processes tying together business and people strategies.
• Acquire, develop and deploy staff with the right mix of business skills and HR expertise that allow them to participate fully in business strategy discussions and execution.
• Develop scorecards consisting of HR performance metrics that are aligned to business priorities and communicate them frequently to business stakeholders and top management.
Related Hackett Research“Re-architecting HR Service Delivery to Support Innovation-Based Growth,” February 2014
“2014 HR Agenda: Recalibrating HR to Deliver Higher Value,” January 2014
© 2014 The Hackett Group, Inc.; All Rights Reserved. | CR_2000164
This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.
About the Advisors
Tony DiRomualdo
Senior Research Director, Human Resources Executive Advisory Program
Mr. DiRomualdo has over 20 years of research and advisory experience in the areas of HR, IT and business strategy. His work has focused on areas including talent management, workforce planning, recruiting, learning and development, employee engagement, leadership, performance management, and HR outsourcing and technology. Mr. DiRomualdo has directed several groundbreaking global studies, producing insights and
tools used by major corporations worldwide. He is the author of numerous Hackett reports and case studies and has published several articles in prominent business and academic publications including MIT’s Sloan Management Review and Chief Learning Officer magazine. Before joining The Hackett Group, Mr. DiRomualdo headed his own research firm and ran research programs at major management consulting firms.
Nathalie Bression
Practice Leader, Human Resources Executive Advisory Program
Ms. Bression has over 20 years of human resources experience with a focus on general HR management, talent management, performance management, process improvement, HR shared services, compliance and employee relations. Her experience includes analysis and utilization of HR-related data and analytics to help organizations identify strategic priorities; design and deploy efficient and effective processes; implement
Service Delivery Models; and conduct overall HR management. She also has deep expertise in integrated talent management and overall strategic HR support to business units and functional groups. Ms. Bression is certified by the Society for Human Resource Management both internationally and for North America.
For more papers, perspectives and research, please visit: www.thehackettgroup.com Or to learn more about The Hackett Group and how we can help your company sharply reduce costs while improving business effectiveness, please contact us at 1 866 614 6901 (U.S.) or +44 20 7398 9100 (U.K.).
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