Global Trends in Human Resource Management: A Twenty-Year Analysis
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Global Trends in Human Resource Management: A Twenty-Year Analysis
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Overview
Since 1995, USC's Center for Effective Organizations (CEO) has conducted the definitive longitudinal study of the human resource management function in organizations. By analyzing new data every three years since then, the Center has been able to consistently chart changes in how HR is organized and managed, while at the same time providing guidance on how professionals in the field can drive firm performance. Global Trends in Human Resource Management, the seventh report from CEO, provides the newest findings about what makes HR successful and how it can add value to organizations today. Edward E. Lawler III and John W. Boudreau conclude that HR is most powerful when it plays a strategic role, makes use of information technology, has tangible metrics and analytics, and integrates talent and business strategies.
To adapt to the demands of a changing global marketplace, HR is increasingly required to span the boundaries between its function, the organization as a whole, and the dynamic environment within which it operates. This report tracks changes in a global sample of firms that shows how HR differs across Europe, the U.S., and Asia, providing an international benchmark against which to measure a company's practice and shows how HR can adapt in a rapidly changing landscape.
Product Details
| ISBN-13: | 9780804794558 |
|---|---|
| Publisher: | Stanford Business Books |
| Publication date: | 06/24/2015 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 216 |
| File size: | 16 MB |
| Note: | This product may take a few minutes to download. |
About the Author
Read an Excerpt
Global Trends in Human Resource Management
A Twenty-Year Analysis
By Edward E. Lawler III, John W. Boudreau
STANFORD UNIVERSITY PRESS
Copyright © 2015 Board of Trustees of the Leland Stanford Junior UniversityAll rights reserved.
ISBN: 978-0-8047-9455-8
CHAPTER 1
What HR Needs to Do
A changing workforce, global competition, advances in information technology, new knowledge, an uneven recovery from the 2008 global recession, demands for sustainable organizational performance, and a host of other changes are forcing organizations to constantly examine and reevaluate how they operate. They are using new technologies, changing their structures, redesigning work, relocating their workforces, and improving work processes to respond to an increasingly demanding, unpredictable, and global competitive environment (Lawler and Worley 2011). These important changes have significant implications for how their human capital should be managed and how their human resource functions should be designed and operated. But are organizations changing their human capital management policies, practices and processes? Are they redesigning their HR functions?
Over the past decade, it has been difficult to find a management book or business magazine that does not point out how many of the changes in the business world have made human capital—people—an organization's most important asset. Human capital management has been the focus of a great deal of writing focused on finding, motivating, developing, and monitoring the right talent. The annual reports of many corporations in North America, Europe, and Australia argue that their human capital and intellectual property are their most important assets. In many organizations, compensation is one of the largest costs, if not the largest one. In service organizations, it often represents 70 to 80 percent of the total cost of doing business. Adding the costs of training and other HR management activities to compensation costs means that the HR function often has the responsibility for a very large and growing portion of an organization's total expenditures.
In most organizations, the compensation cost of human capital is not the only, or even the most, important determinant of an organization's effectiveness. Even when compensation accounts for very little of the cost of doing business, human capital has a significant impact on the performance of most organizations (Cascio 2000; Cascio and Boudreau 2011). In essence, without effective human capital, organizations are likely to have little or no revenue. Even the most automated production facilities require skilled, motivated employees to operate them. Knowledge work organizations depend on employees to develop, use, and manage their most important asset, knowledge. Thus, although human capital does not appear on the balance sheet of corporations, it represents an increasingly large percentage of many organizations' market valuation (Lev 2001; Huselid, Becker, and Beatty 2005).
In an increasing number of organizations, having the best talent and talent management processes can be a continuous, difference-making source of competitive advantage. It can make companies more innovative and agile, better able to develop superior products and customer knowledge, and offer superior services (Worley, Williams, and Lawler, 2014).
Role of the HR Organization
Because of the way the business environment has changed, there are more and more ways the HR function can add value to an organization. For decades, it has added value primarily by performing administrative tasks. But two other roles that it can play allow it to add greater value. Lawler (1995) has developed this line of thought by describing three roles HR can take on. The first is the familiar HR management role (exhibit 1.1).
The second is the role of business partner (exhibit 1.2). It emphasizes developing systems and practices to ensure that a company's human resources have the needed competencies and motivation to perform effectively. In this approach, HR has a seat at the table when business issues are discussed and brings an HR perspective to these discussions. When it comes to designing HR systems and practices, this approach focuses on creating systems and practices that support the business strategy. HR focuses on the effectiveness of the human capital management practices and process improvements in them. HR is expected to help implement changes and help managers effectively deal with people issues.
The business partner approach positions the HR function as a value-added part of an organization so that it can contribute to business performance by effectively managing what is the most important capital of most organizations, their human capital (Ulrich and Brockbank 2005; Lawler 2008). But this approach may not be one that enables the HR function to add the greatest value given the increasingly important role that talent plays in determining organizational performance. By becoming a strategic contributor (see exhibit 1.3), HR has the potential to add more value in situations where human capital performance can be a major difference maker.
Acting as a strategic contributor means that HR plays a role that includes helping the organization develop its strategy. Not only does HR have a seat at the strategy table, it helps to set the table with information about organizational capabilities, talent analytics, and the labor market. It helps shape and enhance strategies by bringing human capital decision science to strategy discussions. It helps organizations operate in ways that help it perform well financially, socially, and environmentally.
In a knowledge business, a firm's strategy must be closely linked to its talent. Thus, the HR function needs to be positioned to play a major role in both strategy formulation and implementation. Expertise in attracting, retaining, developing, deploying, motivating, and organizing human capital is critical to both. Ideally the HR function should be knowledgeable not just about the business and about talent; it should also be the expert in organizational and work design issues so that it can help develop needed organizational capabilities and facilitate organizational change.
To be a strategic contributor, HR executives need, in addition to knowing HR, an expert understanding of business strategy, organizational design, and change management, and they need to know how integrated HR practices and strategies can support organizational designs and strategies. This role requires extending their focus beyond delivery of the HR services and practices that are associated with being a business partner to a focus on making decisions about talent, organizational design, and business strategy.
To be an effective strategic contributor, HR needs to offer a perspective that is often missing in discussions of business strategy and change: knowledge of the human capital factors and the organizational changes that are critical in determining whether a strategy can be implemented. Many more strategies fail in execution than in their conception (Lawler and Worley 2006). What sounds good often cannot be implemented for a variety of reasons having to do with talent management and organizational culture.
Despite compelling arguments supporting HR management as a key strategic issue in most organizations, our research and that of others finds that HR executives usually are not strategic contributors and do not use data to guide their decision making (Lawler 1995; Brockbank 1999; Lawler, Boudreau, and Mohrman 2006; Lawler and Boudreau 2009, 2012). All too often, HR is largely an administrative function headed by individuals whose roles are focused on cost control and administrative activities (Ulrich 1997; Lawler and Mohrman 2003; Boudreau and Ramstad 2005a; Lawler and Boudreau 2009, 2012). Missing almost entirely from the list of HR focuses in our 2010 global survey of HR in large corporations were such key organizational challenges as improving productivity, increasing quality, facilitating mergers and acquisitions, managing knowledge, implementing change, developing business strategies, and improving the ability of the organization to execute strategies (Lawler and Boudreau 2012). Since these areas are critical determinants of organizational performance, the HR function was missing a great opportunity to add value.
There is some evidence that the HR function is beginning to redefine its role in order to increase the value it adds. The first six phases of the study collected data in 1995, 1998, 2001, 2004, 2007, and 2010. The results showed evidence of some change in large US corporations, but there was more discussion of change than actual change (Lawler and Mohrman 2003; Lawler et al., 2006; Lawler and Boudreau 2009, 2012). In addition, there is evidence of change in the profession. The leading professional association for HR, SHRM, has grown to over 270,000 members. Until 1984, SHRM was known as the American Society for Personnel Administration, a name that reflected HR's administrative role in organizations. Nevertheless, although it has changed its name, it still is more focused on personnel administration than on talent management and business strategy.
Creating Change
Describing the new role of HR is only the first step in transitioning the HR function to be a business partner that contributes to organizational effectiveness. For decades, the HR function has been organized and staffed to carry out administrative activities. Changing that role will require a different mix of activities and people. It will necessitate reconfiguring the HR function to support changing business strategies and organizational designs. It also will require the employees in the HR function to have very different competencies from those they traditionally have had (Ulrich, Younger, Brockbank, and Ulrich 2012).
It is clear that information technology is playing an increasingly important role in the future of the HR function (Lawler, Ulrich, Fitz-enz, and Madden 2004; Boudreau 2010). Administrative tasks that have been traditionally performed by the HR function can be done by employees and managers on a self-service basis. Today's HR information systems (HRIS) simplify and speed up virtually every administrative HR task: salary administration, job posting and placement, address changes, family changes, and benefits administration, for example. What is more, HR systems are available around the clock, and with mobile technology, they can be accessed from virtually anywhere by anyone, thus making self-service possible, convenient, and efficient.
Perhaps the greatest value of HRIS results from enabling the integration and analysis of HR activities, thus guiding strategy development and implementation. Metrics can be easily tracked and analyses performed that make it possible for organizations to develop and allocate their human capital more effectively (Boudreau and Ramstad 2007; Lawler, Levenson, and Boudreau 2004).
It is increasingly possible to measure and analyze the effectiveness of many HR policies and practices. With big data and a strategic mind-set, HR can be a data-driven function that practices evidence-based management. Business leaders can now be held accountable for HR measures such as turnover, employee attitudes, bench strength, and performance distributions.
A strong case can be made that HR needs to develop much better metrics and analytics capabilities. Our previous six studies identified metrics as one of four characteristics of HR systems that lead to HR's being a strategic partner. Managers want measurement systems that inform their decisions about human capital. All too often, however, HR focuses on the traditional paradigm of delivering HR services quickly, cheaply, and in ways that satisfy their clients but fail to use HR measures to make a true strategic difference in an organization's performance (Boudreau and Ramstad 1997, 2003). The issue is how to use HR measures to make a true strategic difference in an organization's performance.
Boudreau and Ramstad (2007) have identified four critical components of a measurement system that drive strategic change and organizational effectiveness: logic, analysis, measures, and process. Measures certainly are essential, but without the other three components, they are destined to remain isolated from the true purpose of the HR measurement systems.
Boudreau and Ramstad (1997) have also proposed that HR can make great strides by learning how more mature and powerful decision sciences have evolved their measurement systems in order to improve decision making. They identify three anchor points—efficiency, effectiveness, and impact—that connect decisions about resources such as money and customers to organizational effectiveness and that can be used to understand HR measurement:
1. Efficiency asks, "What resources are used to produce our HR policies and practices?" Typical indicators are cost-per-hire and time-to-fill vacancies.
2. Effectiveness asks, "How do our HR policies and practices affect the talent pools and organizational structures to which they are directed?" It thus refers to the effects of HR policies and practices on human capacity (a combination of capability, opportunity and motivation) and the resulting aligned actions of the target talent pools. Effectiveness includes trainees' increased knowledge, better-selected applicants, stronger qualifications, and performance ratings of those receiving incentives.
3. Impact poses the hardest question of the three: "How do differences in the quality or availability of different talent pools affect strategic success?" This question is a component of talent segmentation, just like market segmentation is for marketers: "How do differences in the buying behavior of different customer groups affect strategic success?"
Most HR measurement systems largely reflect the question of efficiency, though there is some attention to effectiveness as well through focusing on such things as turnover, attitudes and bench strength (Gates 2004). Rarely do organizations consider impact (such as the relative effect of different talent pools on organizational effectiveness). More important, it is rare that HR measurement is specifically directed toward where it is most likely to have the greatest effect: on key talent. Attention to nonfinancial outcomes and sustainability also needs to be increased, as strategic HR can affect these as well (Boudreau and Ramstad 2005a).
The Emerging HR Decision Science
The majority of HR practices, benchmarks, and measures still reflect the traditional HR paradigm of excellence, defined as delivering high-quality HR services in response to client needs. Even as the field advocates more strategic HR, it is often defined as delivering the HR services that are important to executive clients: leadership development, competency systems, board governance, and so on. But this traditional service delivery paradigm is fundamentally limited because it assumes that clients know what they need. Market-based HR and accountability for business results should also be recognized as important (Gubman 2004). However, all too often, they amount to merely using marketing techniques or business results to assess the popularity of traditional HR services and their association with financial outcomes.
Fields such as finance have a different approach. They have augmented their service delivery paradigm with a decision science paradigm that teaches clients the frameworks to make good choices. Significant improvements in HR decisions will be attained not by applying finance and accounting formulas to HR programs and processes, but by learning how these fields evolved into the powerful, decision-supporting functions they are today. Their evolution provides a blueprint for what should be next for HR. The answer lies not just in benchmarking HR in other organizations, but in evolving to be similar to more strategic functions such as finance and marketing.
In marketing, decision science informs decisions about customers. In finance, decision science informs decisions about money. In human capital, a decision science should inform decisions about organizational talent and decisions made both within and outside the HR function. Boudreau and Ramstad (2005a, 2007) have labeled this emerging decision science "talentship" because it focuses on decisions that improve the stewardship of the hidden and apparent talents of current and potential employees.
(Continues...)
Excerpted from Global Trends in Human Resource Management by Edward E. Lawler III, John W. Boudreau. Copyright © 2015 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of STANFORD UNIVERSITY PRESS.
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Table of Contents
Contents and Abstracts1What HR Needs to Do chapter abstractThe world of work is changing rapidly and dramatically. A strong case can be made that the HR function in organizations needs to change as well. It needs to take a more strategic role and develop new talent management approaches. If it doesn't change, it could end up as an administrative function that manages an information technology driven HR system. If it changes it can become a driver of organizational effectiveness and business strategy.
2The Role of HR chapter abstractHR has not significantly changed how it allocates its time since 1995. It remains a function that spends the majority of its time on services, controlling, and record keeping. This is true in the United States and in the other countries studied. HR executives perceive that they spend more time on strategic partnership, but the data show little change. Data on management approaches and strategy provide one likely reason why there has not been much change. Bureaucratic and low-cost organizations have HR functions that spend the most time on services, controlling, and record keeping. Management approaches and strategies such as innovation and sustainability have a more strategic HR role, but are only now gaining "market share."
3HR's Engagement with Boards chapter abstractHR has a limited role when it comes to supporting boards in all countries. When it does provide support it is typically in executive compensation and succession. HR Board support is more frequent and covers more diverse arenas in high-involvement and sustainable management organizations, and it is rarer and less extensive in bureaucratic and low-cost-operator organizations. Providing support to boards is clearly an area where HR could do more, which would lead to a larger role in the formulation and implementation of business strategies.
4Business Strategy and HR chapter abstractIn most organizations, HR remains a limited contributor to the business strategy, development, and implementation process. The 2013 results are remarkably similar to the 1998 results. Despite massive changes in the business world since 1998, the data suggest that HR has changed little. Yet, the direction of business changes would seem to lead to HR being more of a strategic partner. The data show that HR executives are active in some areas that directly affect the strategic direction of organizations, such as human capital recruitment and development through organization design and strategy development. Yet, the role of HR is too often separated or subsequent to strategy formulation. The challenge for HR is to evolve toward a balance of activities that support strategies after they are developed as well as direct involvement in strategy formulation, as a full partner in the high-value-added area of business strategy development and implementation.
5HR Decision Science chapter abstractDecisions about human capital are a vital outcome of HR functional leadership. HR executives rate human capital decision making in their organizations as moderately effective, both inside and outside of HR. The HR decision-science facility of organizations varies with the strategy they pursue. Decision support and quality are more sophisticated in high-involvement and sustainable management approaches. More sophisticated HR decision support and quality is correlated with HR's role in strategy, suggesting the strategic value of sophisticated human capital decisions. There is room for improvement, as the average ratings of decision quality in 2013 are near the midpoint of the rating scale. Yet, survey results dating from 2007 show the positive association between an organization's decision-science capacity and HR's role in strategy, particularly in organizations pursuing management approaches and strategies that are workforce-intensive and high-involvement.
6HR Organization chapter abstractThe design of the HR organization has shown some change over time. The data show significant growth in service units and centers of excellence, and these design elements are related to HR's strong strategic partner role. There is a trend toward less variation in HR practices across business units and a greater emphasis on HR self-service. Yet, other elements that relate to strong strategic partnership remain stubbornly unchanged, including career movement of individuals into and out of HR and adopting information technology. The relationships between the characteristics of the HR organization and HR's role in strategy suggest what HR needs to do to become more of a strategic partner: establish centers of excellence, use joint task forces, use information technology, and develop HR talent. HR leaders plan to use more teams, and improve their efficiency but these design elements also remain stubbornly unchanged so far.
7Changes in HR Activity chapter abstractHR executives report their organizations are expanding almost all HR activities, suggesting that HR is increasingly seen as a worthy investment and a determinant of organizational effectiveness and competitive advantage. Increased activity in design and organizational development are particularly strong with greater strategic focus on knowledge and innovation. Organization design and development is an area that has not always been a focus of HR, despite its close relationship to organizational performance and business strategy. Providing expertise in this area appears to be a way for HR to become more of a business partner, particularly in information- and knowledge-based business.
8Measuring Efficiency, Effectiveness, and Impact chapter abstractHR metrics and analytics remain uniformly rated at or below the midpoint of usage, and yet are correlated with HR's strategic role. This suggests they remain underdeveloped and underused. That said, the strongest relationship with HR's strategic role is with traditional efficiency and effectiveness measures, not decision-focused impact measures. The path forward appears to be for HR to begin by enhancing traditional measurement areas and evolve toward more advanced impact measures as constituents become more familiar and sophisticated. There are also systematic variations in how HR measures are used, and how they relate to HR's strategic role. Organizations that emphasize high-involvement management approaches show greater use of impact measures, suggesting an organization's management approach affects receptivity to sophisticated HR measurement.
9The Outcomes of HR Metrics and Analytics chapter abstractHR measurement systems emerge as moderately effective, with slight but notable effectiveness improvement since 2007. Effective HR measurement continues to be consistently and strongly related to HR's strategic role, so improvement in measurement effectiveness is linked to a more meaningful HR role in business strategy. Yet, it appears that measurement effectiveness in traditional HR functional and operational areas relates more strongly to HR's strategic role than more advanced decision-support and impact measures. The findings reinforce the conclusion from prior surveys—that the potential for HR metrics and analytics to contribute to HR's strategic value is significant, while the perceived effectiveness levels remain stubbornly moderate. The findings also suggest that strategic partnership is reinforced through a balanced approach that combines effectiveness in logic, analytics, measures, and process.
10HR's Role in Sustainability chapter abstractAcross all countries, HR is not very active in sustainability activities but HR executives feel it should be significantly more active. HR executives feel it should provide more support in the design of sustainability programs, organization design, change management, and the way business is conducted. HR executives also believe that sustainability should be built into such HR processes as selection, rewards, and talent development. HR is more involved in sustainability activities in organizations with a stronger strategic focus on sustainability. When HR is active in sustainability, it is much more likely to play a significant role in strategy.
11Outsourcing HR chapter abstractHR outsourcing shows little increase in recent years. Organizations may be missing an opportunity to improve their HR activities. Outsourcing can allow access to knowledge and expertise that they lack and cannot develop, and create economies of scale. Despite these potential advantages, the slow growth of outsourcing may be due to challenges in achieving sustained cost and quality advantages. The findings show that HR executives rate moderate outsourcing as most effective. While it is popularly stated that outsourcing creates resources to enhance strategic partnership, our results show only a slight relationship between the amount of outsourcing and HR's strategic role. Outsourcing might grow in the future but its failure to grow during a historically severe recession makes it difficult to predict what might cause it to increase.
12Information Technology in HR chapter abstractInformation technology is still used most effectively for the traditional purposes of providing transactional tools for HR administration. There is slow movement toward more integrated HR information systems that improve decision making, but HRISs are not rated as more effective in 2013 than they were in 2001, and they are rated as only moderately effective overall. Yet, the drumbeat of big data and analytics, and the promise of technology-enabled efficiencies continue to raise expectations about what HRIS can and should deliver. HRISs are clearly most effective when they fit the strategy of an organization. They are particularly likely to be perceived as successful in companies with knowledge and information-based strategies. The strongest finding is that HRIS's are perceived as more effective the more things they do, and the more services they perform.
13HR Skills chapter abstractThe highest rated skills in importance for HR managers are business understanding, interpersonal dynamics, and change management. These have not changed significantly over time. Yet, HR professionals continue to suffer from a skills deficit that limits their role in business strategy development and implementation. There is only moderate satisfaction with HR skills. No skill rating is higher than 3.9 on a 5-point scale, and that level was reached only by one of the most traditional HR capabilities — interpersonal skills. Of particular concern are the relatively low ratings given to business partner skills, since they are most strongly related to HR's significant role in strategy. A hopeful sign is an improvement in some business partner skills. Yet, there is much work to be done to enhance HR skills and to develop a common understanding about the required skill level to have an effective HR organization.
14Effectiveness of the HR Organization chapter abstractThe HR function in organizations is rated as only moderately effective, and that rating has not changed in over a decade. HR executives continue to report that HR is most effective in traditional arenas such as delivering HR services and being an employee advocate. The data show there are many important areas where HR falls short. HR is not rated highly in business and strategy effectiveness. This may be due to HR's low rating on analyzing HR and business data. HR executives say that a strong emphasis needs to be placed on HR's role as a business partner and on improving decisions about human capital, areas of relatively low effectiveness for HR. There is a tremendous opportunity for HR improvement in areas that are related to the strategic involvement of the HR function. This potential remains untapped, as HR has not improved its effectiveness since 1995.
15Determinants of HR Effectiveness chapter abstractThere are a number of relationships between the effectiveness of the HR function and the way it is organized, managed, and staffed. Overall, the findings tell an important story. HR effectiveness is associated with a wide array of HR activities, structures, systems, and skills that are within the control of HR. HR can do a lot to make HR more effective. Yes, it needs to be sure its administrative processes work well, but its best opportunities for improvement appear to be in the business partner role and in strategy. Unfortunately, these are also the areas that emerge as least effective and advanced in most HR organizations.
16Determinants of Organizational Performance chapter abstractOrganizational performance is related to how HR is organized, managed, and staffed, and how it spends its time. The amount of time spent on strategic issues is positively related to organizational performance. Having a human capital strategy that is integrated with the business strategy is also associated with high performance. Having an integrated HRIS system, employing metrics and analytics that measure the impact and quality of HR programs, and processes and talent decisions are associated with organizational performance. High performance organizations also have a high level of decision science sophistication with respect to talent and its impact on organizational performance. Overall, high-performing organizations have more effective, strategic and sophisticated HR. The typically moderate levels of HR activities and effectiveness in these areas suggests significant untapped potential for HR to enhance organizational performance.
17How HR Has Changed chapter abstractHR wants to be a strategic partner and the door is open because of the growing recognition that talent is a key determinant of an organization's effectiveness. But HR cannot get through the door in many organizations, much less get a seat at the table. The good news is that there is a pattern of HR activities, skills, and relationships that are associated with HR effectiveness and a stronger strategic role. They include approaches to designing the HR function and improving the skills of HR managers and executives. Difficult as it may be to make them happen, the changes that are required emerge consistently and are easy to identify.
18What the Future of HR Should Be chapter abstractThe opportunity for HR to add value is great, but it remains more promise than reality. HR executives need to develop new skills and knowledge, while maintaining effectiveness in traditional human resource management and administrative activities. The results of this study show that doing the basics well remains the platform on which the HR organization needs to build its role as a business partner. However, HR must also make strategic contributions to the organization. As organizations adopt new definitions of sustainable effectiveness that include social and environmental impacts and face the need to embrace constant and dynamic change, there is an increasing necessity for a new business model for HR, and this necessity has been accepted and acknowledged by most HR executives. Yet, the reality of today's human resource profession appears to reflect only the beginning of the changes that will put that new model in place.