The rapidly changing business dynamics continue to pose a challenge before organizations to transform themselves and adapt to the new realities. While HR transformation is also a consequence of such dynamics, the benefits of transforming the way talent is hired, managed and utilized, is emerging to be a strategic differentiator in itself.
People Matters presented two stories that emerged from the PeopleStrong roundtable series “HR Transformation: What’s inside?” in Mumbai and Gurgaon.

Many CEOs are revisiting their entire people strategy as a result of the changing business scenario. The strategies that helped companies succeed during the downturn will not be applicable anymore and the pre-crisis talent approach will not work either. Progressive organizations will focus on rethinking and restructuring the HR function to align with the company’s growth ambitions. This makes HR transformation a necessity for organizations to prepare themselves for the next wave of growth.

HR transformation: The drivers

HR is actively moving from delivery of routine services to strategic services. The drivers of HR transformation, at a broader level, are not different from the drivers that are impacting the overall business environment. The elements impacting business and HR include, changing customer needs, new governance requirements, change in demographics and dynamics of talent, rapid evolution of technology and increasing importance of organizational culture for a sustainable business advantage.

Changing client requirements and its implication on delivery. The current client requires companies to support their growth, maximize margins, and provide differentiators. HR needs to support the business by fuelling the growth engine with capable talent who can execute new business opportunities, while keeping a close eye on margins and creating a differentiated culture. This demand for the trio requires HR to operate differently and change its service delivery model.

Change in talent dynamics. Changing talent demographics and the availability of talent is also impacting the way companies are looking at talent acquisition and retention. On the one hand, the demand-supply gap in India has forced organizations to pioneer new practices where HR proactively involves itself in the search for solutions, not only for their own company but also for the overall industry. On the other hand, the changing workforce demographics, their expectations and ambitions, require organizations to adapt themselves to create new ways of engagement at work.

Changing governance standards. The rules of business have completely changed after the Lehman era and some other infamous ones like Satyam, and debacle of the microfinance industry. The importance of metrics today is not only a business need but also governance imperative. Governance is no more a responsibility only of the legal and finance functions but it is equally a HR mandate.

Organizational culture & values to find its true owner. CEO and the boards have realized that values and culture of the organization are crucial ingredients in building a sustainable and differentiated business. The HR function has been specifically held accountable for embedding the culture and values in all employee lifecycle events as HR processes provide the right levers to build the organization’s culture.

New opportunities driven by technology. The increasing use of technology has transformed the way we collaborate, organize and learn. These changes have implications on the way business operates and opens the door to many more models of work, like flexible working, virtual working, working from home, etc.

What is core HR and what is not?

Dr. Misra puts perspective on how we can ponder on this question and says, “This is a question that each HR group should answer in the context of their business and their industry.” The onus of deciding how much time and effort HR should spend on which activity lies with HR alone and this requires HR heads to stop and reflect how they can maximize their impact on business. There is no one common answer to this question. If one is to compile these answers together, there are actually many common areas that may arise in terms of what is core and what is not, but one cannot take these areas and apply them in their HR teams without embarking on the exercise themselves.

At present, HR teams spend most of their time in activities that are transaction-intensive.

HR transformation will require HR teams to define what is ‘high-touch’ and what is ‘high-transaction’ when deciding what is core and what is not. Further, they must look at outsourcing everything that is high-transaction. Even in the high-touch areas, very specialized services will also be outsourced when the size of the company does not justify a full-time team for delivering this service, for example, coaching and mentoring. In the high transaction area, most activities will either be replaced by technology or be outsourced to a third party vendors.

Alternative models for non-core activities

Once the HR teams identifies the work that is not business critical, the next question is to find out who will take on that work. This is a second level question for HR teams. The answer depends on various elements like the number of service provider available, maturity and experience of the available service providers, their capabilities and the cost of outsourcing to the organization.

A natural question when looking at outsourcing is whether to create an internal captive shared service or look for an external vendor. While both models prevail globally today, the real question lies on the number of vendors available to undertake such type of work. Important factors to be addressed when deciding on building an internal shared services team are many. On the one hand, the management will have to create the mindset of service delivery, quality and performance in an internal team, drive SLAs and deliver performance; secondly, the commitment to invest on technology is critical. Technology will play a crucial role in creating value for the transactional team by providing bandwidth, and the commitment to invest in technology will determine the success of this internal initiative; thirdly, often if the operational scale is not large enough it becomes impractical for the company to run a captive shared service. Finally, the organization’s accessibility to best practices in the transactional space is important in making such a decision. Normally, outsourcing players will have a service delivery mindset, invest heavily on technology, have operational scalability and access to best practices as transactional operations are core to their business.

Is HR ready for the required transformation?

The essential competencies for the HR team going forward will be aligned to this new role. While knowledge of operations will continue to be important, the specific understanding of the business and organizational context will be most relevant. Just as the CEO is not an expert of all functions it is responsible for, the HR function too will not be required to be an expert in all HR areas but they will require a good understanding of the business and the organizational context to make the right judgments.

In the new HR backdrop, the key competencies that HR will need to actively hone include adequate business acumen, coaching and mentoring skills for CEO and the leadership team, ability to design and architect service delivery models, program management (managing vendor partners), understanding of technology trends and options in HR for driving scale and innovation, finance and budgeting, and ability to sell and position HR with internal and external stakeholders.
Given the transformed role that HR seeks to play, colleges and business schools will need to take a re-look at the pedagogy for preparing graduating professionals for the HR field. Existing companies will need to train people in-house on these new competencies so they can effectively contribute in the transformed function.

Captive shared services or third party vendor?

5 elements to consider when making a choice

1. Are there adequate external vendors in the market who can meet the capability requirements of the organization?
2. Can we create a service delivery mindset internally? Do we support the culture of tracking and monitoring SLAs and performance that will drive the internal captive team?
3. Is the organization prepared to invest in world-class technology to ensure effective delivery of services internally?
4. Does the organization have enough scale to justify the internal investment?
5. What are the internal competencies in the delivery of HR services? Do you have access to best talent and practices to create a world-class internal team?