Transforming HR to Create Value

By David Ulrich, University of Michigan

NOTES: THOUGHTS

FROM THE

HR transformation has become

all the rage as the function
seeks to deliver value. But, heed
the warning, transformation
efforts that focus exclusively on
improving HR are bound to fail.
At workshops with HR
professionals, we often begin by
asking: What is the biggest
challenge you face in your job
today? As we go around the
room, the challenges mentioned
usually range from getting HR
practices right and relating to
business leaders to managing the
increased personal demands of
the job. Heads generally nod in
agreement until we say that all
these answers are wrong (or
incomplete). Silence then
ensues.
Our point is that HR
professionals often focus
internally on their own function
and roles, rather than externally
on what their customers need.
We believe that the biggest
challenge they face today is
helping their organizations
succeed. Thats not to say that
activities such as hiring people,
developing leaders or building
incentive programs do not
matter. They obviously do.
However, our argument is that
HR professionals should be at
least as concerned with the
outcomes of these activities

THOUGHT LEADERS

AT THE

the value they create as with

the activities themselves.
The same goes for efforts to
transform the HR function.
Initiatives such as implementing
e-HR, restructuring the function
or designing new HR practices
are often described as
transformational. However, our
experience of working with many
thoughtful and innovative HR
executives, as well as over 20
years of research suggests that
these actions will not be
transformational and are unlikely
to be sustained unless they are
tied to clear business objectives.
HR transformation, in other
words, is not about doing HR
more effectively, but about
building business success.
To help practitioners achieve this
goal and avoid the mistakes that
are often made along the way,
we have developed a four-phase
model for HR transformation.
Phase 1 consists of building the
business case for transformation,
phase 2 of defining the
outcomes, phase 3 of
redesigning HR, and phase 4 of
engaging line managers and
others in defining and delivering
the transformation.
The first phase addresses the
question: why do
transformation? We believe that

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OF

BUSINESS

When the HR function

is redesigned, HR
practices may also need
to be revamped. HR
transformation means
doing the work of HR in
a different way.
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HR transformation should begin
by making sure that all those
involved in the process have a
clear understanding of the
context of the business.
- continued -

Transforming HR to Create Value

By David Ulrich, University of Michigan

When HR professionals start

thinking about the outcomes of
their work as defined by the
business context, they change
their conversations with line
managers and are able to justify
and build a business case for the
transformation. They are also
more likely to avoid the common
mistake of seeking to implement
internally focused ideas that
come across as solutions looking
for problems.
The approach we propose has a
number of practical implications.
For example, many HR leaders
launching transformation
programs call an all-hands
meeting to share the vision and
goals of the new HR
organization. We strongly
recommend beginning this event
with a detailed discussion of the
business and the challenges it
faces, as this will set the agenda
for the entire HR transformation.
The second phase of a
transformation program involves
defining its expected outcomes.
We recommend that you start by
picking the stakeholders you are
most worried about and then
discuss and define the outcomes
that will be most important to
them. For customers, customer
share represents the
relationships with them. For
investors, the intangible value as
identified by the par

price/earnings ratio within your

industry becomes relevant. For
communities, the reputation of
the organization becomes
relevant. These stakeholder
outcomes should be tracked
over time to measure the
progress of your HR
transformation.
At the same time as delivering
outcomes that are important to
the recipients of HR services, HR
transformation should also
change the fundamental
identity, culture, or image of the
organization. We refer to this
outcome of HR transformation
as defining and building
capabilities. These capabilities
become the identity of the firm,
the deliverables of HR practices,
and the keys to implementing
business strategy. For a retail or
hotel firm, service might be the
critical capability. For a firm
moving into Asia, collaboration
with business partners might be
the capability. For a
pharmaceutical firm, speed of
innovation might be the
capability. Senior leaders must
be clear about the two or three
most critical capabilities the firm
must have in order to execute its
strategy.

inherent in most well-managed

firms. For example, they are
good at building leaders who
generate confidence in the
future, at creating a shared
agenda around business
strategy, at fostering enduring
relationships of trust with
customers and at working
together across organizational
boundaries. They also tend to
have a strong reputation for
corporate social responsibility,
innovation, efficiency and
accountability.
The third phase of our
transformation model focuses on
redesigning the HR function to
make sure that it is aligned with
business strategy. We have
found that the most successful
designs are those where the
structure of the HR function
reflects that of the business
organization. So if the business
has a centralized structure, HR
should also be centralized, or if
the business is decentralized, the
HR function should be similarly
decentralized. The HR
organization should also mirror
the structure of any professional
service organization.

- continued Our experience suggests that

while there is no magic list of
desired or ideal capabilities,
certain capabilities seem to be

Transforming HR to Create Value

By David Ulrich, University of Michigan

This means that there will often

be centers of expertise where
specialists with distinct
knowledge of learning and
development or reward, for
example - are charged with
turning that knowledge into
productivity. Finally, the
redesigned HR function needs to
differentiate between
transactional and
transformational HR work.
These design principles can
result in an HR organization with
five distinct - and at times
overlapping elements or
channels. These are corporate
HR, which oversees the whole
function and is also responsible
for top management, corporate
initiatives and HR careers;
operational executors, including

project
managers
and those

responsible for implementing

initiatives; embedded HR,
including both strategic business
partners and generalists, and
finally service centers that carry
out transactional work. (See
figure below.)
Some organizations try to
transform the HR department by
focusing on just one of these
channels. For example, they may
create a service center using a
new HR information system. This
can increase the efficiency of HR
administration, but it will not be
a complete HR transformation
unless the other roles are also
redesigned.
When the HR function is
redesigned, HR practices may
also need to be revamped. HR

transformation means doing the

work of HR in a different way. If
we change the HR structure, but
not the work of HR, then real HR
transformation has not occurred.
To transform HR work, we need
to describe it. We divide the vast
array of HR practices into four
domains that represent the flows
or processes central to
organizational success.
Flow of people: how people
move in, through, up, and
out of the organization.
Flow of performance
management: what links
people to work - the
standards and measures,
financial and non-financial
rewards, and feedback that
reflect stakeholder interests.
Flow of information: the
information people need to
do their work can flow up,
down, or laterally. It can flow
from the outside in or from
the inside out.
Flow of work: who does the
work, how and where work is
done, and how it is
supported through business
and operating processes to
turn individual efforts into
organizational outputs.
To transform HR, work in each of
these four flows of HR practices
- continued -

Transforming HR to Create Value

By David Ulrich, University of Michigan

should be innovative, aligned to

customers and integrated with
each other.
Ultimately, HR transformation
depends on the quality of HR
professionals, who may need to
upgrade their competencies to
enable them to perform their
roles in the new organization. HR
transformation has therefore
raised the bar for the profession.
We have identified six domains
of competencies required of HR
professionals using data from
just over 10,000 people around
the world.
Credible activist: being able
to form relationships of trust
with others while having a
strong point of view about
the business.
Business ally: understanding
the business and knowing
how it makes money and
serves customers.
Strategic architect:
contributing to the
formulation and
implementation of strategy
by creating strategic stories
and aligning HR practices and
leadership behaviors.
Operational executor:
making sure the day to day
work of HR is done with
flawless execution

Talent manager/organization
designer: ensuring that HR
practices around talent and
organization are innovative
and integrated.
Change and culture steward:
making change happen and
sustaining that change into
new cultural norms tied to
customers.
These competencies are not the
entry standards into HR
(certification), but the
differentiators of those who
succeed in delivering value from
HR.
The fourth and final phase in our
HR transformation model is
concerned with accountability.
Four groups of stakeholders
should be involved in any HR
transformation: HR, line
managers, customers and
investors, and external
consultants. HRs role is to
design the process and facilitate
the implementation of the
transformation. However, it is
line managers who are
ultimately accountable for
ensuring that the organization
has the right talent and right
structures in place to deliver on
the expectations of customers,

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shareholders, and communities.

So, line managers need to work
with HR on implementing the
transformation and also make
sure it is aligned to business
goals. Another group of
stakeholders, external customers
and investors, can play a role in
guiding HR decisions throughout
the transformation, while
consultants and advisers can
work as partners to advance the
transformation. Clear role
definition and rigorous
accountability will help an HR
transformation succeed
While we have listed the four
phases of a transformation
sequentially, in reality they are
likely to occur concurrently. For
example, while knowledge of
business conditions has to frame
the HR transformation (phase 1)
having the right transformation
team (phase 4) is critical to
initiating the process. The
challenge for HR professionals
throughout is to remember that
HR transformation is not an end
in itself but a means to helping
their organizations succeed.
David Ulrich is a professor at the University
of Michigan Ross School of Business
Executive Education program specializing in
human resources and leadership.