As Bob Dylan once said, the times they are a-changin’, and it’s essential that as HR professionals we are proactively evolving our strategies to meet the rapidly changing needs of the modern workplace.
This also means updating our HR operating models so we can best design and implement the solutions required.
Keep reading to learn more about how HR operating models are evolving as organizations reimagine the function’s role in the future of work.
- What Is An HR Operating Model?
- How We’ve Been Doing Things
- The Need For New Operating Models
- Operating Models For The Future of HR
- Selecting The Right HR Operating Model
- Transitioning To A New HR Operating Model: Best Practices
Let’s dive in.
What Is An HR Operating Model?
Simply put, an HR operating model is a framework that details how an organization's HR function will deliver the services that help enable the success of the rest of the organization. Ultimately, the goal of an HR operating model is to ensure that human resources is aligned with the organization’s overall strategy and goals and is able to support the needs of the business as effectively (and efficiently) as possible.
Typically, this framework outlines the following:
- The structure and design of the HR team (including roles and approval hierarchies)
- The processes and systems that will be used to deliver HR services, and
- The metrics that will be used to measure the performance of the HR function.
Per Deloitte, an effective HR model is grounded in the business needs the human resources function seeks to address. As such, it documents the following:
Which imperatives or outcomes HR is tasked with delivering—whether it’s workforce management (e.g. organizational design, talent management, succession planning, change management), operational services (e.g. benefits administration), workforce development (e.g. learning programs and products), or driving productivity and engagement outcomes (e.g. initiatives targeting employee experience, cultural transformation, and DEI).
Who is responsible for delivering these outcomes—strategic HR business partners (HRBPs), specialized centers of excellence/expertise (COEs), shared services centers (SSCs), project-based teams, HR technology—or a combination of all these elements.
How these outcomes are delivered (and measured)—including applying strategic organizational design, implementing innovation frameworks, adopting core guiding principles (e.g. teamwork, customer focus), practicing goal setting and road-mapping for key HR objectives, tracking key performance indicators (KPIs), and embracing data-driven decision-making.
How We’ve Been Doing Things
Today, the vast majority of organizations use some variation of the Ulrich Model, which seeks to act as a bridge between the priorities of leadership and the interests of employees.
Below, we’ll briefly dive into what this operating model looks like before exploring how this deeply entrenched model is starting to fall short of meeting the changing HR needs of modern organizations.
Feel free to skip to the limitations of the Ulrich model section if you’re already familiar with all this.
What Is the Ulrich Model?
Developed by David Ulrich in the mid-90s, the Ulrich Model is a popular framework for structuring an organization’s HR function to improve efficiency and efficacy.
Particularly ubiquitous among large, customer-focused organizations, the original model splits the human resources function into four key roles:
- Strategic Partner: working closely with business leaders to understand the organization's strategy and goals and develop HR strategies that support them.
- Administrative Expert: managing day-to-day HR operations such as payroll and benefits administration.
- Employee Champion: working to improve the overall employee experience and promoting a positive work environment.
- Change Agent: leading or supporting change initiatives within the organization and helping to create a culture of continuous improvement.
In most traditional HR operating models based on the Ulrich Model, these four HR roles are typically translated into three roles that support the HR leadership team, namely human resources business partners (or HRBP), shared services centers (or SSCs), and centers of excellence (or COEs).
Role Definition Recap
Here’s a quick recap of what each of these roles entails. (Feel free to skip ahead if you’re already familiar with them!).
HR Business Partner or HRBP
A human resources business partner (or HRBP) is an experienced HR professional who works closely with an organization's senior leadership and business units.
An HRBP functions as a strategic consultant rather than an HR service provider and serves to align HR strategies with overall business objectives.
Centers of Excellence (COEs)
HR COEs or centers of excellence are centralized subfunctions within an organization’s HR function that provide specialized expertise, guidance, and support in key HR disciplines. These include recruitment or talent acquisition, talent analytics, and learning and development.
The goal of a COE is to drive best practices to improve HR’s critical capabilities and ensure that HR activities align with the organization's mission, values, and culture.
Shared Services Centres (SSCs)
An SSC is an IT-supported HR function that serves as a centralized point of service for multiple business units within an organization. It comprises the people, processes, and technologies needed to provide a range of HR services to employees, managers, and HR professionals.
The purpose of an HR SSC is to improve the efficiency and cost-effectiveness of HR processes by standardizing HR services, automating HR transactions, and reducing administrative workload. An HR SSC typically provides services such as payroll processing, employee benefits administration, HR information systems (HRIS) support, and employee self-service portals.
Limitations of the Ulrich Model
While the Ulrich Model has endured largely unchallenged for decades, it’s proving to be ill-equipped to deal with the constantly changing needs of organizations in today’s disruptive business environment.
Some of its core limitations include the fact that most HR business partners simply don’t have the bandwidth to stay up-to-date with the latest developments in HR, and, crucially, COEs often aren’t flexible enough to be truly agile and reactive to change.
This is especially relevant given the way job roles, teams, and reporting structures are changing in agile organizations. Any given employee’s responsibilities may change significantly from day to day or month to month.
For example, it’s increasingly common for agile companies to use temporary, cross-functional teams to run innovation sprints to identify problems or opportunities and prototype (and test) solutions. These teams may form for a week, a quarter, or a year before the collaborators move on to different projects.
HR needs to find ways to accommodate this more horizontal way of working. To do that, it needs more flexible and agile HR operating models than the hierarchies and role architectures of the past—and the Ulrich Model—allow for.
The Need For New Operating Models
Just about anyone working in human resources can attest to the fact that the role of HR has changed significantly in recent years.
As a result, the mandate of the HR function is shifting and evolving rapidly to keep pace with the changes in the world of work:
Spearheading workforce planning and recruitment
|Spearheading workforce planning and recruitment, with an increased focus on employer branding to attract and retain top talent|
|Implementing one size fits all benefits plans that meet the needs of most employees||Reviewing and adjusting employee benefits to individuals’ actual needs and priorities|
|Implementing HR software for administrative and record keeping purpose||Implementing HR software to digitize, streamline, and automate workflows and harnessing workforce analytics to benchmark and improve HR KPIs.|
|Providing company-specific orientations to introduce new employees to company culture||Facilitating employee onboarding processes that get new hires up to speed faster and more effectively|
|Leveraging annual performance management processes to provide feedback to all colleagues around progress against goals||Testing new, more effective performance management methodologies to better recognize achievement, develop potential, and match top performers to critical roles|
|Providing a broad selection of employee wellbeing resources to meet the needs of as many employees as possible||Delivering an outstanding employee experience that promotes employee health and wellbeing and combats workplace burnout|
|Empowering colleagues to ‘own their own development’ and giving them a broad base of resources to support||Driving effective succession planning at scale, promoting internal mobility, and developing leaders that inspire employees to do their best work|
|Leveraging annual engagement surveys to collect employee feedback and empower teams to drive their own changes||Taking intentional efforts to impact employee retention and boosting employee engagement levels|
|Creating role-specific learning and development programs||Cultivating a culture of learning that facilitates career growth and implementing learning and development programs to bridge skills gaps|
|Leveraging employee resource groups to empower employees to create more inclusive work environments||Actively fostering an inclusive and psychologically-safe organizational culture that emphasizes diversity, equity, and inclusion in the workplace|
As the mandate of the HR function continues to evolve, there is a clear need for new operating models that empower HR professionals with the strategy, resources, and flexibility to ideate solutions that create new value by balancing the organization’s priorities with those of its people.
Operating Models For The Future of HR
HR transformation or evolution is unavoidable for organizations that want to remain competitive in the future of work.
A recent study found that more than 90% of chief human resources officers (CHROs) in the United States and Europe expect significant changes to the HR operating model within the next two to three years.
As HR grapples with its changing role, various new HR operating models are emerging.
Some of the factors these new operating models have in common include:
- An awareness of the growing need for agility and adaptability
- An increased focus on the employee experience
- The use of tech like workflow automation software and data analysis to augment HR’s capabilities.
But what does that look like, practically? How can we set up HR to enable businesses to deliver excellent end-to-end employee experiences?
Well, it depends on the business strategy HR is enabling and the size of your org.
Gartner argues that creating a flexible and effective HR operating model will necessitate four key changes:
- Dividing the HRBP role into more specialized roles
- Curating a pool of dynamic HR problem solvers
- Implementing next-gen COE to provide agile support
- Developing a robust HR service delivery and operations team
McKinsey has identified eight innovation shifts driving five operating model archetypes, namely Ulrich+, Agile, EX-driven, Leader-led, and Machine-powered. The image below provides a summary of these operating models.
But perhaps my favorite emerging HR operating model is EY’s People Value Chain Model, which I’ll describe in more detail below.
The People Value Chain Model
EY has developed a new HR operating model it calls the People Value Chain model. This operating model consists of three components, namely people consultants, the digital people team, and virtual global business services (VGBS).
1. People Consultants
These HR consultants are skilled collaborators who work closely with senior executives and other functions to nurture human value and unlock potential. Instead of relying on depth of expertise in just one area, people consultants’ value lies in combining people skills with business acumen.
Under the Ulrich Model, aspects of this work were handled by HR business partners and COE. However, EY found in its research that up to 86% of these (high-cost) roles’ time was spent on operational and administrative tasks that can be automated.
Under the People Value Chain Model, these tasks are handled by the digital HR team, freeing people consultants to drive real change by listening and working in agile sprint teams that actively problem-solve and innovate HR services. These short-term projects may be run by expert contractors and gig workers instead of high-cost permanent teams.
2. The Digital People Team
This team researches and implements the latest and greatest HR technology to design and deliver accessible digital HR services that support employees.
Some examples of tasks the digital people team might handle include
- Implementing cloud-based employee self-service portals
- Digitalizing and automating admin-heavy workflows
- Improving recruitment processes using applicant tracking software
- Harnessing artificial intelligence and machine learning tools (e.g. chatbots)
- Using software to survey and track employee engagement
- Leveraging data analytics for continuous improvement
Under the People Value Chain model, the tech-enabled digital people team may account for up to 50% of the total HR workload. This frees up HR professionals to focus on strategic interventions that improve the employee experience and drive business performance.
3. Virtual Global Business Services (VGBS)
The VGBS component takes a variety of disparate administrative and operational HR services and makes them virtual.
This virtual service environment removes functional boundaries by consolidating tasks involving functions like finance, I.T., supply chain, and legal, as well as numerous time-consuming, low-complexity, repetitive tasks formerly handled by COEs and HR business partners.
VGBS offers the ability to create and maintain a central global business services hub that consolidates the organization’s policies, services, and SOPs; while virtual “spokes” or in-country hubs store country-specific knowledge and facilitate localized service delivery.
By leveraging digitalization and automation, virtual global business services allow organizations to scale operational capabilities while reducing administrative costs.
Benefits of the people value chain model
As mentioned, organizations that recognize people as “value centers, not cost centers” perform better than their competitors in terms of both employee engagement and customer loyalty, driving more value for the business in the long term.
As such, organizations that prioritize people strategy, effectively adapt to change, and build workplaces that inspire their people are better positioned to thrive in a world of work in which business success goes hand-in-hand with the employee experience.
The People Value Chain model offers a comprehensive, agile approach to balancing the needs of the organization with the needs of its people while harnessing tech to improve operational efficiencies.
EY estimates that, combined, VGBS and the digital people team can handle an astonishing 72% of HR’s current scope of work.
Delivering these services at scale with the help of technology can free up substantial HR resources that can then be redeployed to deliver value in other ways—such as spearheading DEI initiatives or establishing learning and development programs.
Selecting The Right HR Operating Model
Every organization is different, so it stands to reason that each organization’s best-fit operating model will depend on its specific context, business model, strategic priorities, and operational needs.
Some factors that influence which operating model is the best fit include
- Business strategy, organizational goals, and needs. A company’s stage of growth and broader strategic direction should go hand-in-hand with its HR strategy. The HR operating model should serve to answer both long-term and immediate organizational needs, whether it’s improving employee retention, acquiring top talent, upskilling/reskilling existing talent, or managing change. This is your north star!
- Size and organizational structure. A business with a one-person HR team will naturally have different operational needs than an enterprise with a large HR department and multiple HR managers. For example, a large enterprise with an established reputation or culture may need to weigh the need for consistency/homogeneity throughout the organization’s various branches against the benefits of more flexible (and agile) operating models.
- Geographic reach. Whether a company operates in a single geographic region, nationally, or internationally, will impact its HR needs. For instance, more geographically-dispersed organizations will likely prefer a decentralized operating model with localized hubs over a more centralized operating model.
- Workplace/workforce model. Companies with remote or hybrid workforces will have different HR operational requirements, e.g. a greater reliance on HR technology such as employee self-service portals.
- HR tech stack. An organization’s human resources information system (HRIS) and the capabilities of the tool(s) it uses can have an enormous impact on the way its HR function operates. For instance, many HRIS solutions can significantly improve HR’s efficiency and productivity by automating administrative processes. However, transitioning to a new HRIS can be a huge challenge in itself for some organizations with deeply entrenched HR software.
Some organizations may find that the best approach for them is to adopt a combination of multiple different operating models.
For instance, a multinational organization might transition its Ulrich-based shared services centers with a version of the People Value Chain model’s virtual global business services while retaining certain specialized (or localized) centers of excellence.
Transitioning To A New HR Operating Model
For many companies, making the change to a new operating model can be a daunting prospect.
For those organizations, it’s important to acknowledge that transitioning to a new model doesn’t have to mean a wholesale overhaul or instantaneous system redesign.
It can also be tempting to think that throwing the right tech at the problem will fix everything.
However, without a thoughtful analysis of the organization’s existing systems, employees’ needs, current HR shortfalls, and the role HR is to play in making the business’ strategic vision a reality—not to mention careful implementation and change management—even the most robust HR technology will only be a stop-gap measure.
Here are some best practices for effectively transitioning to a new HR operating model:
- Engage stakeholders from across the organization
- Give front-line HR a seat at the strategic “table” to align HR and business priorities
- Assess critical capabilities and identify areas for capacity-building
- Actively listen to employees to understand their needs and priorities
- Identify gaps and opportunities for incremental improvements
- Run sprints with cross-functional teams for a broader perspective
- Create an enablement roadmap with small, achievable milestones
- Adopt an agile mindset of implementing, testing, and iterating before launching at scale
- Measure the impact of changes through quantitative and qualitative data analysis and continue to make tweaks and fine-tune your operating model.
The world isn’t standing still, and neither should we. As always, best of luck, and l’d be interested to continue this conversation either in the comments or over in the People Managing People community.
Some further resources to help modernize your HR function:
- How To Attract And Retain Top Talent Through The Employee Life Cycle
- People Ops As A Product
- Key Human Resources Responsibilities: Creating Happier, Healthier Workplaces
- 40 HR Metrics You Should Track And Data Collection Best Practices
- 28 Forward-thinking HR books
- How To Elevate HR As A Strategic Partner Of The Business
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