The Future HR Operating Model
Organizations are used to manage people in a fairly straightforward manner. For more than two decades, multinational corporations have generally used an amalgamation of HR business partners, centers of excellence, and shared service centers, adapting these three elements to fit the distinctive nature and necessities of each organization.
This approach, pioneered by Dave Ulrich in 19961, is rapidly evolving today. We recognized five HR operating-model archetypes that are emerging as a result of dramatic changes in business and the world, such as increased geopolitical risk, hybrid working models, and the emergence of majority-millennial workforces.
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Understanding what is an HR operating model
The earlier definition of the HR operating model defined it as a collection of processes and procedures used by an organization to manage its human resource requirements. The HR operating model is the organizational process through which a company manages its human resources functions and responsibilities. Some organizations use a functional-based HR operating model, in which specific functions are assigned to different departments. In this case, each function would be overseen by a department head, and all functions would collaborate to support the organization’s central mission. Other organizations use a strategic-based HR operating model, in which all of these functions collaborate behind closed doors to achieve a shared broad vision for the future of the organization.
But to keep up with the evolving post-pandemic working environment, the HRs have to evolve their operating models as well. Let’s have a look at the five emerging HR operating models that HRs need to update themselves with.
5 emerging HR operating models
The five emerging HR operating models are all empowered by two core elements. These are a strong, accurate data backbone and an easy-to-use, highly reliable service backbone.
The HR business partners develop functional spikes and take over execution responsibilities from centers of excellence in this model, which is an adaptation of the classic Ulrich model (CoEs). CoEs are then downscaled to become teams of experts and carefully selected HR business partners. They are backed up by multinational companies’ services and a digital operations infrastructure. Many CHROs believe that the classic Ulrich model is inadequate for addressing today’s HR challenges, with HR business partners sorely lacking the skills and time to stay current on HR developments. Inflexible CoEs stifle agile responses, while other organizational boundaries have become increasingly permeable. Multinational corporations with mature and stable business models are frequently affected by these pain points.
This model requires fewer HR business partners, with a focus on counseling top management, while CoE professionals focus on data and analytics, strategic workforce planning, and diversity and inclusion. The freed-up resources are combined and used to carry out cross-functional projects. CHROs who support this operating model believe that HR must accelerate in order to keep up with the increased emphasis on execution demonstrated on the business side and to avoid HR from impeding rapid transformation. When companies are experiencing rapid growth or discontinuity, they use this and other agile methodologies.
This model is intended to assist CHROs in gaining a competitive advantage by developing a world-class EX journey. Prioritizing EX entails allocating disproportionate resources to “moments that matter.” HR, IT, and operations experts, for example, could be given full authority to plan, develop, and implement a critical onboarding process. HR becomes the driving force in bridging cross-functional silos and overcoming the mishmash of fragmented data and processes that many organizations face today by creating a world-class EX. Companies that use this model rely heavily on top talent with a limited set of clearly defined skills.
In this model, CHROs shift HR accountability to the business side, including the cost of hiring, onboarding, and development, while providing line managers with HR tools and back-office support. This archetype also necessitates difficult decisions regarding the strict discontinuation of HR policies that are not legally required. Oversight, slow response times, and a lack of business acumen in HR have led some organizations to give line managers greater autonomy in personnel decisions. Companies that are considering this option typically have a high proportion of white-collar employees and a strong emphasis on research and development.
Algorithms are used in this model to select talent, evaluate individual development needs, and assess the root causes of absenteeism and attrition, freeing HR professionals to counsel and advise employees. As digitalization reshapes every aspect of business, including human resources, CHROs are looking for ways to leverage the power of deep analytics, artificial intelligence, and machine learning for better decision results. Organizations experimenting with this are primarily those with a large population of digital natives. But HR departments at all companies are being challenged to build analytics expertise and reskill their workforce.
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Eight innovation shifts are propelling new HR operating models.
Companies are being forced to transform at an unprecedented rate in today’s increasingly turbulent, uncertain, intricate, and often ambiguous business environment. The global COVID-19 pandemic and the rapid evolution of workplace technology have amplified the adoption of various alternative, hybrid working models—along with new challenges in monitoring employee behavior and performance. The rise of majority-millennial workforces has resulted in a significant shift in employee preferences. Furthermore, the “Great Attrition” of workers, exacerbated by demographic changes in many parts of the world, has exacerbated existing talent shortages.
HR plays a critical role in navigating this upheaval, necessitating a new level of agility and responsibility for the function. While each organization has its own path and HR operating model, organizations are innovating in ways that collectively shift the HR function away from the “classic Ulrich model.”
- Adopt agile method to guarantee strict prioritization of HR’s existing capacity as well as rapid resource reallocation when needed, allowing for a fundamentally quicker rate of change in the business as well as with folks and how they work.
- Excel throughout the employee experience (EX) journey to win the battle for talent during the Great Attrition, enabling employee resilience and well-being.
- Re-empower front-line leaders in the business to generate human-centric interactions, simplify processes, and return decision-making authority to the people who deserve it.
- Provide personalized HR services to meet the growing demand for personalization.
- ‘Productize’ HR services in order to create fit-for-purpose offerings that meet the requirements of the business, and to enable end-to-end accountability for those services through cross-functional product owner teams in HR.
- To adequately address strategic HR priorities, minimize back-and-forth, and clarify ownership, integrate design and delivery with end-to-end accountability.
- Change your focus from process excellence to data excellence in order to tap into new sources of decision-making through artificial intelligence and machine learning.
- Automate HR solutions to increase efficiency and leverage the benefits of digitalization in HR.
These innovation shifts are fueling the emergence of new HR operating models, though to varying degrees depending on the nature of individual organizations.
Evolving to a new operating model
Changing to a future-oriented archetype is usually a three-step process. First, CHROs and their leadership teams must agree on the best operating-model archetype for their organization. taking into account the most pressing business needs, workforce expectations, the larger organizational context, and the company’s dominant core operating model. CHROs in large, diverse organizations may discover that different archetypes better fit the differentiated needs of specific businesses and may adopt a combination of HR operating models.
Second, HR leadership teams emphasize the three or four most important innovation shifts that will move their function toward the operating-model archetype of their choice. When doing so, leaders must consider strategic HR priorities as well as the shifts required to establish the operating model given its feasibility, potential limits to implementation speed, and magnitude of change.
Finally, teams consider the transition journey holistically, working toward core benchmarks for each of the prioritized innovation shifts individually while maintaining a systemic, integrated transformation perspective. This necessitates mobilizing for specific shifts, developing new capabilities, and implementing an integrated change agenda across business and HR.
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