What Drives Companies to Centralize HR?
CENTRALIZATION IS THE KEY
Nine months into the new century, with the rapid advances
in information technology, a tighter labor market with higher
recruitment and retention efforts by employers together with
an increasingly mobile workforce in a global market place,
the face of the Human Resources function has changed forever.
All these influences represent both challenges and opportunities
for all management functions and especially for Human Resources,
with employees skills and knowledge becoming the key
factor to success in todays very competitive marketplace.
HR Professionals are being asked to do more with less, to
do different work and to do it better, which puts them under
greater pressure to redefine their roles and reevaluate their
In todays business environment, the HR function must
not only be focused on the workplace but also the marketplace
and linked directly to the core business strategy. In order
to achieve this, the HR department should be an integrated
unit within the business and therefore centralized.
OPERATING HR AS A BUSINESS...
As a unit within a business competing in an increasingly
competitive world, HR should be operated more like a business.
Businesses have clear strategies, products and structures
to achieve their objectives.
According to Michael Mercer, industrial psychologist and
author of Turning Your Human Resources Department into a Profit
Center, HR executives must accept one essential fact of business:
that its purpose is to make money. Human Resources in the
future must be operated strategically as a business in itself
and not as a unit generating overhead.
In order to manage HR as a business, it must shift from a
traditionally more administrative function to a strategic
unit. Companies are finding they must reduce costs and increase
the contributions HR makes to the bottom line. By now, most
HR managers having realized that they are to help deliver
competitiveness, may have already asked the IT department's
help in order to speed recruiting and improve employee development,
performance management and succession planning. If HR is becoming
a profit center, costs need to be reduced and processes optimized
- this can only be achieved by having all key players work
at the same centralized location, which is essential for effective
communication as well as the awareness and commitment to the
above by all parties.
Human Resources Professionals, with the increased use of
IT, will focus on adding value to the organization through
the delivery, development and retention of human capital.
Ideally, HR should see itself as a customer focused business
(with the customer being the organization and the employees)
with support groups that exist to meet the customers
needs as efficiently as possible operating centrally
is necessary for all parties to be fully aware of the overall
strategy and to pull into the same direction.
The challenge then is clear: once aware of the overall business
strategy, HR needs to ensure that all structures, systems
and processes are favorable. Behaviors and attitudes which
block expansion and business goals need to be identified and
dealt with; and finally HR needs to reappraise employees skills
and development needs to facilitate the corporate objectives.
THE EFFECT OF IT...
Another factor producing the need for a centralized, smaller
and more efficient HR unit is the effect of technology on
human resources. How will new technologies affect the Human
Resource management profession? The American Payroll Association
predicts that within the next five to ten years, nearly every
working person will wear a small voice-activated computer
that will connect the wearer to a vast database of information.
The palm-sized computer will provide accurate, real-time answers
to almost every question and reduce the data entry function
within HR. Through a Web browser, employees can access and
update HR data from their desks or home, and line managers
can perform personnel-related tasks without the assistance
of an HR professional. Using Employee Service Systems, an
employee can change his or her address and phone number; update
beneficiaries after marriage, divorce or births; and report
new skills or degrees obtained. New technology will help create
new jobs and increase telecommuting. Human resource professionals
will fight with more than just what is (or will soon be) available
in terms of hardware and software. Technology will require
human resource professionals to stop thinking in terms of
months and years and start thinking in terms of weeks and
days. This implicates a change from being a support unit within
an organization to being a change agent in order to facilitate
the rapid pace of change introduced because of technology.
Human Resources delivery has to speed up to keep up with
corporate pace. For many, this means faster delivery of training
(including offering online training opportunities), focusing
on the increased job changes that a strong economy and technology
seem to encourage through stronger recruitment and retention
In response to the changing demands, HR professionals' relationships
with the IT department need to change as well. Traditional
HR departments need to be more IT-conscious and prepared to
bring IT into the HR community.
A centralized HR department will certainly facilitate this
change different units need not only to collaborate
more closely but they should also be located in proximity
of the IT department to cope with all these changes more effectively.
HR IN THE GLOBAL ENVIRONMENT...
Another factor influencing the structure of modern organizations
are economic trends. Globalization and an increasing number
of mergers and acquisitions are resulting in an increasingly
mobile workforce. Through "electronic immigration"
companies will be able to employ citizens from virtually any
country to work on projects. A global market of the "best
and the brightest" workers will develop, and organizations
will have greater access to it.
Cross-border mergers and acquisitions are creating transnational
corporations. In contrast to the multinational corporations
of the past, these organizations see themselves as world corporations
characterized by the fact that they are obligated to stakeholders
around the world. This means key competencies for human resource
professionals in the future will include the ability to successfully
integrate corporate cultures following cross-border mergers
and the ability to create organizations whose workers see
themselves in the global context.
Pressure will develop to set global standards. As barriers
fall between cross-border interaction, global standards will
make the exchange of information and the execution of company
policies, standards and objectives easier. For example, one
client has determined that 80% of its payroll business processes
are the same on a global basis so they are centralizing
their payroll operations to optimize that 80%, while employing
specialists to handle the unique 20%. At the same time, they
are creating global standards for HR processes and data that
will result in unprecedented management of their global human
Companies will have to be more transparent with clearly defined,
centralized, easily manageable departments, which are cost
effective and efficient. Companies will also be asked to make
more and more information available to their stakeholders.
Thanks to online investment and growing entrepreneurship giving
birth to hundreds of high-tech start-ups, stock investment
has seen a sharp rise. Company practices that could affect
stock performance will be scrutinized. This will affect organizations
as a whole, including HR which still is split in many organizations
into Employee relations, Payroll, Training, Benefits, etc.
Larger organizations may even have more than one HR department
that do not talk to each other.
THE NEW ROLE OF HUMAN RESOURCES...
So if the Human Resources function is to contribute to the
overall performance of the organization, it should be an integral
part of the management team developing strategy and improving
organizational performance. To be a contributor to the bottom-line,
HR departments need to be integrated into revenue-generating
business processes. For example as new products are
created, HR is involved in the process so that when the product
comes to market a sales-rep training program is already in
place. Or when a new product is being considered, HR actively
recruits people with the essential skills to form the new-product
Human resource departments have been acquiring new responsibilities
over the years. According to a survey conducted by SHRM (Society
for Human Resource Management) 39% of HR executives reported
one or more changes in their departments' duties within the
past year 1999. The role of the traditional HR function is
shifting and this involves structural changes as well. Only
by being and acting like a central unit can these new challenges
HR is facing be met.
So what are these new roles?
Based on its knowledge of the competencies of the organization,
HR can make a direct contribution in developing new strategies.
The goal is not to ask HR executives to become business experts
and to be trained in marketing, accounting, finance, etc.
(even though these skills are definitely useful for a long
term career in HR), but to create an HR corporation
that combines many different talents and skills to address
the overall human asset issues.
HR should also play a leading role as an internal consultant
to the ongoing redesign of the organization to achieve better
performance and increase profitability.
Undergoing changes almost always brings some level of resistance
- HR can help with the learning processes, develop new careers
and ways to give employees ownership of the changes and in
the performance of the company. The latter involves ensuring
that performance management practices (appraisals and rewards)
are integrated with business management practices.
Finally, HR professionals will have to be able to work cross-functionally,
being part of cross-functional leadership teams dealing with
HOW CAN THIS TRANSITION BE ACHIEVED
HR needs to treat the employer as a valued client that needs
both its administrative and strategic competencies to be a
profitable, competitive organization.
In order to satisfy this client, HR needs to:
and being one, centralized department is the key
and starting point to all of the above