by Mark Vickers, Institute for Corporate Productivity
Should the HR function be centralized or decentralized? Should it be composed of generalists or specialists? The best model is one that is tailored to each organization’s needs—so that it can deliver the greatest strategic value and effectiveness.
One-size-fits-all HR is a thing of the past. A new study, HR Organization Structure, from the Instittute for Coporate Productivity, indicates that HR functions are adapting to today's global business environment and morphing to meet their organizations' unique needs.
So, what's the one best way to structure a company's HR organization or formulate major HR initiatives? It turns out there's no single right answer, but size definitely plays a role.
The study found that the most common way of structuring HR is by having HR generalists cover all functional areas, with about two-fifths of survey respondents saying their HR functions are set up this way; but that finding needs to be taken with a sizable grain of salt because this mostly applies to smaller organizations, those with fewer than 1,000 workers. For midsized companies (between 1,000 and 9,999 workers), the most common way of setting up HR is by having functional areas—which contain specialists—working in coordination with HR partners/generalists located in business units, regions, and so forth.
Meanwhile, the largest organizations—those with 10,000 or more employees—are most likely to use a combination of Centers of Excellence (COEs), shared services, and HR generalists. Half of respondents for large companies say their firms are set up this way, while another 35% use the model of HR functional area plus HR partner/generalist.
The study, which is based on April 2009 survey responses from 463 participants, also found that there's no single best answer for global firms. In fact, there's a lot of diversity in terms of how global HR leadership teams are structured. Among small and midsized firms, there's a tendency to centralize the HR leadership team, but among large organizations the most common structure (45.5% of respondents) is to decentralize by region.
Then there's the question about whom HR reports. Some experts say that if HR doesn't report directly to the CEO, it's not as likely to have a major impact on strategic decision making. If that's true, then there's good news in this study, with a majority (63%) of companies of all sizes saying HR reports directly to the CEO; the second-most-common answer is that HR reports directly to some other officer-level position.
HR is clearly not some stand-alone fiefdom in most organizations. In fact, it's likely to act like a team player when formulating major HR initiatives and projects. When such initiatives are created, the most common structures adopted are the following:
- Having an HR leader temporarily work with other executives (38% of all respondents)
- Using a multifunctional temporary team-based structure (33%)
- Ensuring that initiatives are owned by a Center of Excellence, whose leaders work with business units and other managers as needed (15%)
But, again, size plays a key role. The largest organizations are more likely to use multifunctional temporary teams or COE-based structures than to have a single HR leader work with other executives. That's probably because large companies often have many initiatives that are too complex for any one HR leader to keep track of. Temporary multifunctional and/or expert teams are often the way to go for those organizations.
Although the Institute's research does indicate some relationships between HR structure and overall market performance, it's clear that structure alone doesn't determine HR's success. An HR director at one midsized company attributes much of his HR organization's success to excellent communication. The firm relies on HR generalists who work with its Centers of Excellence when necessary.
This HR director sees some unique advantages springing from his HR organization's setup. "One of the things that makes us effective is that we're all together," he notes. Although generalists are often assigned to specific leaders or business units, HR professionals nonetheless work in the same physical space, making communication with one another easier and more robust. Managers in the field have substantial autonomy, and HR professionals travel out to other locations as needed.
As the director of one of the COEs, he notes, "We're real good from a communications standpoint. I purposely go out to work with [HR generalists] closely." He notes that his company's system is "not an overly complex model," which actually helps make it more effective.
One of the primary lessons learned from the study is that HR functions are not structured to accommodate some single standard. They're designed to meet the specific organizational and cultural needs of their companies. If HR is not working effectively in an organization, it has various models from which to draw. The goal is to find the model that is best suited for the company, delivers strategic value, and makes the organization as effective as possible.
About the Author(s)
Mark Vickers, Institute for Corporate Productivity Mark Vickers is an associate with the Institute for Corporate Productivity.