Strategic HR Review for publication 03/04 2007

The concept of Lean HR

Introduction and context Over the past two decades, the HR function has changed beyond recognition. Where once there was a personnel function manually recording individual employee details, guardians of the organisations recruitment process and main responsibility for industrial relations and payroll; now the HR function has a potential remit that covers 93 main activities stretching from HR governance and organisation design and change through to reward, performance, learning and development, talent, employee relations and communications, resourcing, HR information systems, measurement and payroll. Where once HR functions were commonly sited at HQs with one location, now there are multiple sites across the globe with matrix-type reporting lines; centres of excellence, shared services, individual country structures, outsourcing and offshoring and of course the onset of e-enablement. It is not uncommon to find HR functions in multinationals staffed with over two thousand people and budgets of over 50 million a business unit in itself. Increasingly, HR can identify its value proposition through assisting in improving and/or maintaining organisational performance, supplying a portfolio of HR productservices through HR delivery channels. HR activities and processes have now evolved into elaborate systems, whilst organisational and HR operational risk is now the focus in relation to compliance. Thus, effectiveness, efficiency and performance are key drivers of HR existence and as a result, business concepts such as supply chain management excellence, lean and six sigma are equally as applicable if HR operational excellence is sought.

HR operational excellence To provide a context for Lean HR it is important to derive underlying parameters of what defines HR operational excellence. There are eight core fundamentals which are referred to as the clock. These are: Governance Value proposition Structure Processes Technology People (capability) Measurement Financial acumen An explanatory brief on each of these is provided in the box [inset]

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Strong HR governance in terms of strategy, leadership and execution with regard to the other clock dimensions A defined set of value propositions to clarify expectation and HR delivery parameters An appropriate HR delivery structure that retains flexibility and resilience Efficient HR processes that maximise value-added work drivers and minimise duplication/non-added value work A defined high performance competency set for HR professionals with supporting infrastructure that maintains/enhances their individual knowledge capability Strong financial acumen that results in HR spend proficiency and commercial aptitude, given the modern-day demands and increasing use of HR procurement and outsourcing A systematic focus on measurement and reporting on both the HR function and the wider aspect of human capital performance Appropriate use of technology, not technology for technologys sake, which enhances HR functional performance

Governance
(HR strategy and leadership)

Financial acumen

Value proposition
(mandate)

Measurement
(Analytics and reporting)

World Class HR
(Capability & Performance)

Structure
(Delivery model)

Process People
(Activity/task/ system)

Technology

Thus, high performing HR functions look to apply best practice across the eight components of operational excellence. However, there is no one HR function that can yet state that it has reached world class in each of these areas. More common, is that certain aspects of operational excellence are attained.

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Strategic HR Review for publication 03/04 2007

HR functional effectiveness differentiators Like any naturally occurring (normal) distribution, HR functional effectiveness across organisations displays the same properties. On a spectrum of high effectiveness and efficiency and low effectiveness and efficiency, there is a wide dispersion with a bump in the middle. However, it is important to point out that based on our previous VB-HR Rating HCM100 study, there were more HR functions at the lower end rather than the top end. Other market evidence reaches similar conclusions, though the ways of calibrating what is high/low effectiveness and efficiency has different interpretations applied across different parts of the HR delivery map. Our study also yielded insight into why considerable gaps exist across organisations: High performing HR functions have more defined HR strategy that connect parts of people management into a more integrated approach Lower performing HR functions have HR strategies that are disconnected from line expectation High performing HR functions generally score higher in their use of workforce intelligence and measurement Lower performing HR functions tend to limit themselves to little measurement and/or operational benchmarking (with its inherent limitations) Those organisations with high performing HR functions also, in most cases, score higher in line management capability and competence High performing HR functions have robust HR architecture, i.e. supporting HR processes and systems whereas lower performing HR functions have more incidence of broken processes or system failure High performing HR functions manage to balance their role between support and compliance whereas lower performing HR functions tend to be heavily compliant-focused. The wide-ranging remit of HR and the subsequent differences in delivery expectations between organisations means that distinguishing individual best practice can be sometimes misleading. The study also revealed the differing propositions HR functions displayed. Examples were found of HR functions with narrow duties who were viewed as effective, whereas others with a far more broad portfolio were deemed poor. Thus, in any debate to label HR functions as more effective/efficient, one needs to ensure comparability, not only in terms of HR delivery but in terms of management expectation within organisations. Lean HR as both philosophy and organisational application In recent times, HR functions have undergone successive functional realignments and transformations through various cost-reduction and outsourcing strategies. However, many of these undertakings have been mainly driven as a cost-reduction exercise with greater focus on restructuring HR delivery with less attention given to other aspects of HR operational excellence. Unfortunately, these transformations have not always benefited the function nor the organisation in terms of the potential loss of capability and subsequent increased costs realised as a result of inadequate

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business case construction. The diagram below provides an illustration as to the benefits/problems encountered with the various strategies adopted.

Value-add

Increased HR capability through expanded team

DEGREE OF HR VALUE-ADD/ CAPABILITY

Lean/ Dynamic/ Value-Based HR

e.g. correctly applied HR functional transformation

HR capability acquisition by buying-in of added expertise

HR transstrategy

HR cost reduction poor business case

Reduced capability e.g. ill-conceived transformation effort Cost increase

HR cost reduction narrow focus

e.g. HR process redesign such as automation but with reduced post-support capability Cost decrease

DEGREE OF HR COST CHANGE

Too often, the bottom left-hand box has been the outcome. Poor business case design has overly focused on HR FTE/total FTE ratios; lumping administration into a shared service centre and/or HR processes that have been outsourced. This means that any material benefits are quickly nullified with the additional relationship management required, growing duplication of effort, particularly at business unit level together with extra risk. A structured approach, such as Lean HR, provides a means of changing this in terms of the value-cost relationship. Taking the baseline approach of looking at people management activities across the organisation, Lean HR first maps the entirety of HR delivery as illustrated in the diagram below.

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PERFORMANCE HR ORGANISATION RESOURCING TRAINING & (TALENT) GOVERNANCE DESIGN DEVELOPMENT MANAGEMENT
1.1 Employer brand 2.1 Organisationa l Design/ Capability Planning Business Unit Level 2.2 Organisationa l Design/ Capability Planning Multi-country Level 2.3 Organisationa l Design/ Capability Planning Global Level 3.1 Workforce Planning 4.1 Needs Assessment 5.1 Performance (Talent) Management Assessment

REWARD

EMPLOYEE RELATIONS & COMMS

7.1 Employee Communications

EMPLOYEE HEALTH & SAFETY

8.1 Risk Management/ Regulatory Compliance/ Security

HRIS & MEASUREMENT

PAYROLL

6.1 Total Reward Programme

9.1 HRIS Strategy

10.1 Payroll

1.2 HR Value Proposition

3.2 Candidate Identification Services

4.2 General Training Design, Development and Delivery

5.2 Performance (Talent) Management Development

6.2 Wage And Salary Management

7.2 Benefits

8.2 Risk Assessment

9.2 HRIS Planning

10.2 Employee/ Manager Interaction/ Problem Resolution

1.3 HR Delivery Structure

3.3 Job Profile Services/ Requisition Processing

4.3 Training & Development Management

5.3 Performance Reviews

6.3 Bonus/Incenti ve/ Stock Options Compensatio n

7.3 Attendance/ Leave Of Absence/ Exit Interviews

8.3 Accident Prevention and Training Programmes

9.3 HRIS Support

10.3 Time Reporting

1.4 HC Reporting

2.4 Job Classification/ Evaluation

3.4 Candidate Selection

4.4 Technical/ Functional/ Policy & Procedure Training

5.4 Succession (Talent) Management

6.4 Senior/ Executive Compensatio n

7.4 Return-ToWork and Job Accommodati on

8.4 Health/Medica l Programmes

9.4 Employee Research & Modelling

10.4 Special Pay, Adjustments And Deductions 10.5 Payroll Accounting/ Recon/ Manual Calculations & Disbursement 10.6 Tax Reporting/ Audit

1.5 HR Capability

2.5 Organisation Restructure/ Change/ Development

3.5 Temporary and Contractor Staffing

4.5 Employee Induction/ Orientation

5.5 Attendance Management

6.5 Expatriate Compensatio n

7.5 Company Policies And Procedures

8.5 Incident Tracking and Reporting

9.5 Benchmarkin g

1.6 HR Policy

2.6 Acquisition/ Divestiture/ Start-up Due Diligence/ Support 2.7 Managing External Consultants/ Outsource Providers

3.6 General Employment Services

4.6 Competencies / Skills Model Development And Assessment

5.6 Employee Coaching

6.6 Compensatio n Analysis/Pay review 6.7 Healthcare/ Welfare/ Statutory/ Other Benefit Programmes

7.6 Collective Bargaining/ Negotiating/ Consultative Processes 7.7 Work Practices For Represented Employees

8.6 Managing External Consultants/ Outsource Providers

9.6 Measurement and Reporting

1.7 HR Performance/ Strategy Review/ Audit

3.7 Relocation

4.7 Leadership/ Management Development

5.7 Employee Counselling/ Case management

9.7 Employee Records/Case management/ Data Maintenance

10.7 Employee Reimburseme nt

1.8 Managing External Consultants/ Outsource Providers

3.8 Outplacement Services

4.8 Executive Development

5.8 PM Compliance Support

6.8 Pension Management

7.8 Conflict and Issue Resolution

9.8 Reporting/ Interfaces

10.8 Statutory Benefits/ Miscellaneous Admin

3.9 Employment Law Services

4.9 Career Development

5.9 Consulting To Line Managers On Performance Issues

6.9 Retirement Planning/ Counselling And Administratio n 6.10 Managing External Consultants/ Outsource Providers

7.9 Corporate/ Community Social Responsibility

9.9 Managing ASP/software/ Outsource Providers

10.9 Reporting/ Interfaces

3.10 Consulting Line Managers On Staffing Issues

4.10 Consulting On Managerial Issues

5.10 Managing ASP/ERP/ Software Providers

7.10 Government/ Legislative Issues

10.10 Managing Outsource Providers

3.11 Managing ASP/software/ Outsource Providers

4.11 Managing ASP/ERP/soft ware/Outsour ce Providers

7.11 Managing External Consultants

VaLUENTiS LeanHR Global Profiler A structured approach incorporates a generic 6-step methodology contains a number of phases (not all of which will be used for any individual organisation). Each of these has a series of inter-related activities which are designed to provide:

A business case (if one is not readily available or clarified) An As Is state of HR delivery A review of current HR (HCM) strategy and value proposition A To Be roadmap which provides the transformation plan from communications strategy through to the tactical steps of individual task (re)design The actual implementation and follow-on embedding Ongoing review

Phases 1-4

Phases 11-15

Phases 22-26
es se ha Ph

Phases 5-10

Phases 16-21

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27 -3

Setting the agenda/ business case

Conducting the As Is

HCM strategy (clarification) & design

Designing the To Be roadmap

Implementation and embedding

Alignment & review

Strategic HR Review for publication 03/04 2007

These main steps are much more inter-related than the linear process reflects, partly due to practicality (certain quick-wins), and partly due to the messier context that prevails.

Common challenges for HR functions So what are the common challenges facing HR functions who wish to implement Lean HR? They include: 1. HR teams understanding the breadth of HR delivery. 2. HR understanding the need to focus on operational excellence on a daily basis (as opposed to cost-reduction exercises driven by organisation directive) 3. HR teams realising that HR delivery has similar properties to certain management methodology/principles that can be applied to HR 4. HR having a working, defined HR value proposition 5. The HR function has the right capability both during and, particularly, after the initial phase of Lean HR transition 6. The HR function undertakes analysis and assessment both in terms of a new approach and being able to collate appropriate data, particularly on HR budgets. 7. The resistance encountered within the HR function 8. The collation of appropriate comparative benchmark data that provides informed insight for decision-making 9. The actual undertaking of the exercise as business as usual always poses a challenge 10. The engaging of the line management in seeing how HR adds value to the organisation (not necessarily to an individual manager). Means of overcoming these challenges include: HR teams need to ensure that they have a map of HR delivery, similar to the graphic illustration shown earlier. HR teams need to undergo education on both the topic of operational excellence and wider commonly-used business methods. HR leaders and their functions need to articulate their value proposition to the organisation in terms of setting and meeting expectation, being able to execute the required HR delivery The HR function needs to carry out an assessment of current HR personnel in terms of capability and potential Use of external advisors, skilled in qualitative and quantitative assessment, can provide the necessary rigour of analysis, particularly where resource is at a premium Providing a blended approach, i.e. a mix of activities, to engaging line managers in the process of defining and acknowledging HRs contribution

Achieving Lean HR Having outlined the rationale and objectives of Lean HR using the operational excellence model we can now turn to the individual parameters and to their properties, in order for organisations to achieve Lean HR.

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The table below itemises both parameter objectives and ways to achieving them: Operational Excellence Parameter HR Governance

HR value proposition(s)

HR structure

HCM Processes

Technology HR Professionals HC Measurement Financial acumen

Applying supply chain management principles with an HR calendar in use. The HR function prioritises its HR initiatives and business as usual delivery to the organisation. In conjunction with the governance perspective, the HR function has articulated a basic value proposition regarding its contribution to the organisation. This may manifest in a number of propositions relating to areas such as reward, recruitment, training and development, talent/management development, payroll etc. The basic point is that there is something measurable in place to calibrate the contribution. A few HR functions have used an adopted version of the Quality Function Deployment tool as a means of identifying delivery excellence and expectation. The HR structure is engineered around the value propositions, i.e. should be following the most appropriate process/system. shared services, centres of excellence (and any hybrids) require clear boundaries and hand-offs to avoid service holes. By mapping out the entire HR process delivery chain, HR functions can drill down and assign HR delivery roles, responsibilities and accountability among the HR team Lean HR is all about evaluating (and redesigning) efficient HR activities which optimise the use of individual HR/line resource, whilst eliminating any wasteful duplication and risk of non-delivery. The focus of Lean HR is to use technology to streamline existing processes that lend themselves to automation rather than to upgrade across the board. HR team to undergo training on basic Lean HR principles and 6sigma techniques and accredited where necessary. Also the potential to expand general HR proficiency. Use of evaluative analytics such as employee engagement and/or specific HR activity outputs around efficiency. Some form of structured HR scorecard may exist. The HR function will have a clear picture on the efficiency of current HR spend, both functionally and organisationally.

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Lean HR two case studies Having outlined the rationale and objectives of LeanHR through the operational excellence model, we now turn to two case studies to highlight the components of applying LeanHR principles. FTSE100 manufacturing/mining The organisation is a FTSE100 global mining company. Historically, its mining operations had been supported with individual HR teams providing on the ground support with limited central oversight. Following the implementation of a shared technology platform, the organisation faced the challenge of centralising its HR team and standardising service delivery. Legacy approaches had resulted in the following: Roles of HR professionals differed across sites as did expertise and service delivery No means existed to identify and share internal HR best practice HR system failures were known to exist Questions raised about the quality and cost of HR support. Accordingly, a global exercise was developed with the joint aims of reducing overall HR functional costs whilst standardising and improving the quality and consistency of HR support and monitoring. The approach adopted by the HR function had the following aims: To understand how HR processes should be linked/integrated for maximum efficiency and effectiveness To utilise template process maps for 93 areas of HR delivery to identify system failures To apply Six Sigma methodologies and principles to HR processes and outcomes To introduce a measurement framework across 93 areas of HR delivery (linking to Six Sigma measurement approaches) To enhance individual capability within the HR team through understanding of LeanHR and its linkage to the commercial operations. Through utilising LeanHR, the adoption of Six Sigma principles combined with deep understanding of HR delivery, processes and measurement approaches, as an HR toolkit was developed to provide HR teams with a common approach. For each activity, a high level process map established an integrated picture of HR/human capital management. Over 500 linkages exist between the 93 activities. This allowed rapid identification of system failures, broken/incomplete processes or absent human capital management components (e.g. failure to link appraisals with personal development planning). Each of the 93 activities additionally has a series of related metrics which aggregate up into a series of scorecard layers, providing an overall measurement approach. Following the rollout of the HR toolkits across a global HR project team, the organisation has identified developed standard approaches, based on internal and external best practice. Through developing a related measurement framework to
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monitor outcomes and efficiency, the organisation is on target to realise in excess of 15% cost savings from a global annual budget in excess of 40m. Additionally, the increased levels of capability within the HR team have resulted in clarified accountabilities and additional responsibility for individual managers.

FTSE100 business services This global company was structured with over 12 business units that operated in different market segments. The HR function had migrated to a semi-shared service centre environment with business partners allocated to each business unit. Due to the size of some of the business units, some business partners looked after more than one business unit. Though the delivery structure was in place, the function had never clarified value propositions to each business unit. Issues had appeared with regard to design and delivery of certain HR practices particularly in recruitment, performance management, training and international policy. These had manifested in the handoffs between the various channels leaving the HR function open to criticism over its execution despite the fact that some of these issues were down to the line (for example recruitment requisition). The Lean HR approach helped to clarify the business case through interviewing, with a structured template, the senior team of each business unit. The responses were telling in that business units had quite differing expectations around certain core processes which HR had assumed to be similar (based on previous conversations) thus making delivery impossible under the current modus operandi. The HR team were then involved in a number of workshops and exercises to map out the HR delivery in entirety, first in a generic sense, defining the underlying tasks, who was involved, the hand-offs and who had the ultimate authority to ensure decisions were made. This last point was very important. The team realised the intricate nature of hand-offs between many activities that had not always been apparent and decisions had essentially been bogged down by no overall accountability. Having mapped the generic core platform of HR delivery, individual team members then used it to map, customising where appropriate, taking into account the nuances of each BU context. This was particularly acute for the international operations because of the variety in scale of enterprise. As a result a number of processes and activities were recognised as redundant and a decision protocol was put into place to speed up reaction to line requests or issues. An interesting insight was the correlation between the people manager population and the number of cases/events that HR had to deal with. As such, a re-alignment took place with regard to the business partner to business unit allocation making it more equitable in terms of workload. A number of subsequent HR initiatives were successfully delivered to the line using the new improved leanHR design.

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The future evolution of HR Lean HR is actually the first step on an evolutionary journey with added depth and breadth which sees HR functions adopting value based management principles, acting as lead within an organisation rather than as a laggard.

Lean HR

Dynamic HR

Value Based HR

Value Based Management

True value based management principles put people and other stakeholders at the heart of the organisation whether public, private or NFP, incorporating the best in management practice. HR has a bright future, it just needs to embrace the present......

Nicholas J Higgins Dean, International School of Human Capital Management, & CEO VaLUENTiS, London 01.03.07 WORD COUNT = 2685 (excluding inset box text on page 2)

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