The Opportunities and Challenges Associated with Different Structural Models

Most people currently think of structural change in terms of introducing the so called 'Ulrich model' or the 'three-legged stool' (i.e., shared services, business partners and centres of expertise). However, this structure is really designed for large complex organisations, especially those with geographically dispersed operations, and even here there is much adaptation. Organisations might introduce only one or two legs, particularly choosing to have business partners. Certainly smaller organisations tend to stick with a single integrated HR team where all activities are combined. If the organisation is somewhat bigger/more complex, separate teams may deal with some or all the HR issues for particular locations or business units.

The advantages and disadvantages of using the Ulrich model are shown in Table 1.

Table 1: The advantages/disadvantages of the Ulrich model 

Advantages	Disadvantages
Cheaper because of economies of scale in a shared services operation	Costs creep back after the initial reduction. This may be for good reasons that the service offering becomes more variegated to fit different customer needs or as a reflection of the relative shift towards higher paid professional staff However, costs may arise because inefficiencies develop and are not tackled as they were in the initial set-up phase
Improved resourcing flexibility because of larger pool of administrative staff	Only true if co-located but poorer career development because step up to business partners and experts is difficult
Better knowledge transfer within the administrative team	Only true if co-located, but potentially poorer knowledge transfer with business partners and experts
Faster service through automation and/or simplification of processes	Managers complain at the transfer of work where the self-service technology is difficult to operate and where the tasks were once performed by HR
Better performance quality through better specification of process ownership and process re-engineering	Customers complain that shared service centres are often remote and that contact is impersonal or too standardised. Managers also object to the perceived loss of a single contact point now having to get services through multiple channels
More time spent on business critical issues because process standardisation and automation reduce the proportion of time spent on administrative activities	Though there is evidence to support this contention, there is also evidence that senior HR staff do not focus on the key issues as they are distracted by operational support to line managers
Higher HR credibility because administration is done better than before and the business partner role with its focus on a strategic contribution offers greater added value to the business	The question mark regarding this benefit arises from the business partner role — is it working properly?
It is easier to handle a merger with this model because of the separation of activities. Thus, service centres and centres of expertise can be combined and business partners retained to meet any revised business unit structure	No evidence to contradict this contention

As we have previously noted, structural changes are usually accompanied by some process modernisation (reductions in 'handoffs', removal of duplication or redundant steps and simplification and standardisation of tasks) and some technological improvement (i.e., employee/manager self-service and improved HRIS).

As can be seen from the list of reported advantages, many of these accrue not just because of structural change but because of what the reorganisation allows to happen: the development of new 'mindsets' about what HR exists to do; a focus on improving HR processes and investments in new technology.

It is also worth noting that the tensions described in Table 1 were also identified in People Management, which draws attention to recent research that questions the validity and effectiveness of the Ulrich model:

As HR has sought to become more strategic, value-adding and business-focused, the emphasis has increasingly fallen on the ideal structure for the function — a trend that has been particularly influenced by the writings of US academic Dave Ulrich.

His writings have built up the popularity of a three-legged model: an HR shared-service centre, centres of expertise, and business partners. In many large organisations, this model has replaced the integrated teams that previously carried out the full range of HR activities, from administration to strategic direction.

Though the three-legged model is often thought of as the norm, our research has highlighted the shortage of evidence — in the UK and Ireland at least — on the extent of its adoption and, more worryingly, on its effectiveness. 

The efficacy of the Ulrich model is also challenged in an article by Gratton, which concerns the perceived fragmentation of HR services after the Ulrich model had been adopted in an organisation:

During the past decade, we have fragmented the roles and responsibilities of the function. We have outsourced the lower value, operational work, and we are beginning to develop the staff profiling work that will enable us to act as 'employee champions'. We also putting the 'change agent' roles back into the stream of business to work closely with their line manager partners. Meanwhile, the 'business partners' are either going into the business or clustered around 'best practice centres' which may be located in different places…. this fragmentation of the HR function is causing all sorts of unintended problems. Senior managers look at the fragments and are not clear how the function as a whole adds value.

As we have previously noted, not all organisations adopt the three-legged stool structural model. Indeed, report observed that among the organisations surveyed only 18% confirmed their restructured HR function incorporated all three elements of shared services, business partners and centres of expertise. The vast majority, therefore, had adopted either a partial Ulrich model (46%) or claimed to have no elements at all (36%). These latter cases reflected HR functions which had been conflated into single teams and the Ulrich descriptors were not recognised as distinct and separate channels of service delivery.

Informed by these observations, we now take the opportunity to examine in more detail the rationale and challenges posed by the introduction of shared service centres, business partners and centres of excellence.

Challenges for HR

Challenges remain for HR to truly deliver value. Using the Ulrich and Brockbank criteria set out would be a good starting point to frame a discussion on HR value add. Similarly, engaging colleagues in HR and other parts of your organisation in thinking through the four drivers of value presented — identifying what HR does well/ could do better would also be an excellent starting point. Whichever you use, the important point is that you do something to understand what stakeholders in your organisation value about HR and to identify what HR can do to raise its contribution. So that is the first challenge: Ask your stakeholders what they value about HR.

In our discussions with senior practitioners we identified four other challenges:

Challenge 2: HR must understand the critical drivers of success in their organisation. How do HR professionals see their world? When we talk about our organisations do we see them through an HR lens or a business lens? An example given to us by one of our practitioners referred to a meeting they once attended when a senior group of HR business partners were each asked to present their business unit to their colleagues to build understanding of the whole business. Clearly this is a worthy objective! However, what was presented focused on headcount numbers, payroll costs, organisation charts, spans of control and turnover. There was no focus on strategic goals, critical business issues, change challenges, leadership capability/bench strength, etc. This is a good example of changing the way we think about what HR is and ensuring that we understand what makes our organisation successful.

Challenge 3: We need to change the way we engage with our stakeholders. So many HR professionals still struggle with the notion of peer or upward challenge. HR pulls its punches and this is not healthy nor will this approach help us add value. As Frances Allcock (BBC) put it: 'we need to bring a way of thinking and working that is future orientated, commercially focused and data driven so that we change the conversations we hold with business colleagues. We need to be prepared to challenge, bring fresh thinking to the table and be courageous. Rather than undermine relationships, this approach will build relationships as it is based on getting the best outcome for the business and we all want that'.

Challenge 4: HR needs to shape and not just implement the change agenda. As we enter a period of unprecedented economic change and uncertainty, the ability of organisations to change quickly and purposefully is even more critical. Knowledge sharing, collaboration, creativity/idea generation and capture are also significant challenges faced by many organisations. We know that most change efforts fail to deliver the anticipated benefits because organisations do not get the people side right. So there is much to play for. We also know from our review of recent research that equipping HR professionals so that they are skilled to play this role remains a challenge.

Challenge 5: We need to keep working at delivering transactional and process value. For those HR functions that have already delivered significant savings, the ongoing challenges are to:

• keep refining the cost base to realise further productivity gains;
• assure data integrity through quality controls;
• deliver information in a 'manager-friendly' way;
• provide timely and accurate advice — whether through on line or help desk support;
• deliver real data insights;
• produce stronger, data driven, business cases showing how proposals will impact organisational performance (including financial impact).

We believe that there is still much to be done in driving process value. As generation X becomes generation V (virtual) this personalisation of processes will become even more important. Process value will not just be the domain of the HR function either, it will also challenge managers to create the climate (on-boarding, recognition, freedom to perform, releasing people's skills and talents, etc.) for people to succeed.

How might you respond to these challenges? Here are some suggestions:

• Think of your organisation, the context it finds itself in, its overall goals and some of the dilemmas you may need to work through, for example, you may be asked to reduce headcount and raise levels of employee engagement. Then use the four value drivers to identify what areas are most likely to drive value in the short and medium term.
• Consider who you are driving value for. As the Lepak research suggests there are likely to be multiple stakeholders and you need to think what matters to each. If you do not know, think about how you might find out, for example, if you do not normally get exposed to what investors want talk to investor relations or colleagues who may know.
• Think about relevant measures of value. This is not about 'measurement frenzy'. Identify a small number of lag (measuring the past, e.g., profit per employee) or lead (setting goals to be reached in the future, e.g., to be recognised as one of the top 50 best places to work within 3 years) measures.
• Engage with relevant people in order to identify how to move work forward in this area and how to put in place an appropriate range of measures.