HR functions tend to be vertical. To help business adapt and transform, HR must work horizontally, alongside the business as a true partner, ceding control and co-owning outcomes with other stakeholders.
Reframing the HR function
Most HR functions today are often isolated and vertical. While founded on solid principles, dating back to the Ulrich Model of the 1990s, these ideas have become rigid and sacrosanct, rather than remaining flexible and open.
"The speed of change in the world shows we need to empower people to be a lot more flexible, adaptive and project-oriented,” says Andy Lomas, Partner, EY People Advisory Services EMEIA. “But job architectures and hierarchies, typically codified by HR, are getting in the way and employees struggle to combine into new teams from old ones or collaborate temporarily.
“You might need to take someone from finance, procurement or supply chain, add a couple from HR and estates and legal and have a team running for a few weeks. Sounds easy, but enterprise structures often make it very difficult. HR needs to find new ways to help businesses adapt and simplify their structure to cope with change, and to do that HR must work horizontally.”
Consider “time to fill”, a key metric in talent acquisition, it refers to how quickly HR can get a person into a particular role. The reimagined HR function may follow a more powerful indicator: time to full proficiency of that hire in the role they were hired for. It is a short step from here to anticipate the value to the business if a new salesperson exceeds their sales targets in month six, rather than month 13.
Any function is at risk of getting caught in its own tower. HR has to make sure it’s getting out of that tower, getting out of its own way and really looking at bringing its expertise to business challenges and problems, rather than pushing that expertise into an organization and expecting everyone to adopt it.
This represents a fundamental shift for HR, which is used to measuring outcomes it can control, rather than those it can influence. Under the new way of working it will co-own employee experiences, promote employees in a way that goes arm-in-arm with broader business goals and establish how benefits should differ between the finance, research and sales departments, to reflect different motivations and business priorities. The horizontal people function is on the ground. It’s listening.
Technology is central to the evolution of HR, as it can now deliver people experiences that enable and inspire employees, at a price point that cuts costs. Many EY clients are already developing virtual agents/chatbots to handle common questions and Robotic Process Automation to complete transactions on behalf of employees, managers and HR professionals.
When a person has a baby, for example, they can text the HR team to say it’s been born. The chatbot will reply offering congratulations, asking for key details and adding these to the employee’s records to amend their benefit plans. Seamless.
“Clients may push back saying self-service is just a euphemism for cutting costs and throwing that work back into the business – and in the past that’s been true,” says Fox. “But the business, employees and managers do want self-service that works and which suits their needs better than HR helping them, just as online banking is more flexible and efficient than going to the branch.
“If you’re delivering self-service that actually works and giving people digital experiences they don't hate, you free the limited amount of capacity you have in your HR function to deliver the services the business wants and needs.”
Another example of how tech can be harnessed for inspiring experiences is in learning tools. Too often someone seeking information on how to have a difficult conversation with an employee, for example, or coaching for other aspects of performance, has to follow a trail of links into dark corners of the intranet. The latest tools, however, have what the person wants: ease and responsiveness, leading them right to what they’re seeking and suggesting relevant follow-ups.
These changes aren’t being made simply for the sake of “cutting fat”. It’s about reinvesting in people services that really matter to the workforce and creating long-term value for the business. The result is a function that is driven by analytics and data and delivers genuinely satisfying experiences – the same thing that a customer of the same company may readily expect.
Rethinking the HR operating model
The People Value Chain model: digital HR, people consultants and virtual global business services
EY has developed a transformative new operating model: The People Value Chain model, designed as an intentional departure from the Ulrich model, offering a powerful, evergreen, way of delivering employee services.
Hard-wired with the listening, innovation and people-consulting capabilities required to evolve side-by-side with a business, it represents the last time a people function will have to adopt a new model, as it creates a comprehensive, scalable foundation for everything that comes afterwards.
In this new operating model, the People Value Chain rests on three core components: the digital people team, people consultants and virtual global business services (VGBS).
The People Value Chain: An operating model, answering the imperatives affecting the future of HR
1. The digital people team
In the new people function the digital component, the digital people team, may handle up to 50% of the total workload. For a global company with an HR team of 500 headcount today, that represents the equivalent of 250 headcount whose work is now digitized. Those individuals can then be redeployed to focus on valuable, problem-solving, project based or strategic work. The digital people team liberates the HR function and empowers HR leadership teams to invest in people experiences and services that will fuel the performance of the business.
The digital people team designs, adopts and shares a suite of innovative front-end tech-driven services, harnessing the latest in artificial intelligence (AI) and machine learning to make the employee experience better and to elevate the contributions of your best people professionals. The infrastructure is organized in five layers whose collective effort is greater than the sum of its parts:
“The COVID-19 pandemic revealed how much more organizations can digitize, and how people and employees will readily accept a more digital way of working,” says Lomas. “To save time and resources CHROs can now digitize a lot more functions that support employees, offering employees direct-access services, self-service digital portals, AI and chatbot automation. Considerably reducing the necessary hands-on control of those different aspects of employee services.”
The special power of the digital people team is that even while it’s transforming the employee experience, it’s also generating, harnessing and analyzing invaluable data that feeds back into the business and helps make things even better – for individuals and the organization as a whole.
2. People consultants
Under the modern HR construct, people consultants work alongside senior executives to unleash the human value that fuels business performance. They are exceptional collaborators who work seamlessly with other functions because business ambitions require skills from many domains.
Business partners and centers of expertise professionals handled aspects of this work in the Ulrich model. But EY research found that these roles were spending as much as 86% of their time on administrative and operational work – while commanding a premium. Instead of hoping for different outcomes from the same model, a more intentional intervention is required.
In the new model, the HR function automates most administrative and operational tasks via the digital HR team, leaving people consultants to listen, problem solve, innovate and work in agile sprint teams to introduce new products and galvanize existing services at the speed. Their value lies in bringing a powerful combination of people capabilities to business problems, rather than the depth of just one skillset.
Instead of high-cost permanent specialist teams that meet only periodic demand, people consultants will assemble in agile teams, with greater talent liquidity. So rather than paying someone to be remuneration director for equity compensation for 12 months of the year, for example, this role is structured as a six-week project and consultants, gig employees and contractors will be hired as experts to deliver it. It’s important to note that a reduction in workforce isn’t the end goal, better human value for the organization is.
3. Virtual global business services
Virtual global business services (VGBS) takes on the work historically handled by the field HR organization, the generalist tasks still handled by HR business partners and the administrative and operational tasks handled by the centers of expertise. Gone are the days where handling the repetitive, low-complexity, low-value HR work is all that could be done by this service delivery element.
VGBS and digital people team work72%
of HR work can be migrated to VGBS and the digital people team.
Exceptional employee experiences do not tolerate functional boundaries. Here, these tasks are combined in a cross-functional service environment with similar tasks from IT and finance, supply chain and legal, providing operational scale while reducing cost.
Historically, such functions would be located in a low-cost location to generate savings. VGBS represents the next logical step: aggregating these disparate services and making them virtual. VGBS delivers the same services to the business and its people, but with the automation, and therefore scale, to make a difference. It takes advantage of labor arbitrage while preserving the ability to deliver select services through virtual hubs in-country. A labor relations expert can work on the ground in Germany, for example, and be aligned with the central GBS service delivery element through a digital connection. These virtual spokes both dramatically expand the type of work that can be migrated to VGBS and creates confidence that the requisite country knowledge will be preserved.
EY calculates that the combination of VGBS and the digital people team can handle 72% of the work done by HR today. By using technology and operational scale to deliver these services, the rest of the service delivery model is liberated to add more value – building out a people analytics function, for example, or driving inclusive behaviors across the business.
Maximizing human value
Measuring the impact of a transformed HR function
The primary aim of the new people function is to contribute value in terms the business recognizes and respects. As it pursues this new value, the HR function has to find new ways to be accountable and measure its own success.
There are four strands to value that are recognized in the typical organization today:
- Financial value (revenue growth, market share, margins)
- Consumer value (which includes idea generation, R&D, patents)
- Societal value (sustainable development goals, resource efficiency)
- Human value (human capital deployment, culture, employee health)
The new HR function anchors its remit to the fourth value that affects all the others, mirroring the function’s own horizontal reach and creating a quadruple bottom line: human value. Everything in the business is wired to that human value, which serves as a pre-requisite to boosting performance in the other three.
Human value is the cornerstone of creating long-term value overall. A focus on human value will build a better working world with an operating model that can evolve with the needs of the business and continually enable its people. It’s not only about what individuals bring to the business, but what the business delivers the other way.
“The traditional way of measuring the HR function was to look at how much the function cost, and to measure single data points around a specific process,” says Billy Soto Garayzar, People Advisory Services Principal, EY Americas. “Instead we have to start with what the business and workforce believes is important and work backwards. That's where the human value starts coming into play: HR surrenders its control at the center and instead aligns with other parts of the business. That’s when you start seeing the power of the human value, when you start gathering holistic insights through that lens.”
Human value represents a new focus in terms of metrics. This can be intimidating as it involves re-evaluating the whole measuring system that HR teams have built and relied on during the past 20 years.
Historically, HR functions may have measured workforce engagement every year or two. In the new model businesses will conduct regular employee listening monthly, at scale. As well as annual surveys, they will conduct lifecycle listening, in which questionnaires are triggered by employees’ actions at every stage of their journey – from onboarding to upskilling, promotion, termination and leaving the company.
The results can often be surprising.
“We like to ask our clients what year it feels like if you’re a customer of their organization,” says Fox. “Most clients will say: ‘Well, you can book online and answer queries by chatbot, so it feels like 2020.’ Then ask them: if you're an employee there, what year is it?’ They say, ‘don't even ask. 1998?’
Such experience data delivers deep insight into how the workforce is faring and what they’re feeling. This generates extra work in analyzing the data to draw practical recommendations, which means creating extra analytics to process the information. This is one example of a high-value task people will be free to do when more operational roles are automated.
By creating these indices, the HR function will be able to look for and identify trends that suggest strengths and weaknesses in its processes.
One client wanted to know why people found onboarding such a bad experience. Was it just because the laptops were late? When they dug into the data they realized it wasn’t: it was because the recruitment teams were exceptional and gave such a hands-on, leading-edge recruitment experience, that when it stopped the new starters felt forgotten. The company can now act on that information, so when people come on board now it's not a shock. And why's that important? It can take up to three months for someone to get up full productivity and if they start from a bad experience, it can have quite a big financial impact.
Marrying ‘X’ with ‘O’
Experience data (X data) doesn’t reach its full value alone. Its true power becomes clear when it’s married up with operational data (O data). O data can include just about any data point that is valuable to the organization internally (customer data, financial data, marketing data, supply chain data, HR data, etc.) and externally (market share, share price, brand awareness, net promoter scores, etc.). The value comes in the correlations found when analyzing the relationships between X data and O data.
Take a metric such as return on investment in talent (ROIT). This measures all the money a company puts into paying and motivating its employees, together with spend on running employee programs, against the actual dollar return those investments bring. Companies that publish their human capital deployment (HCD) metrics generate 2.5 greater ROIT on average.
“The good news is there's plenty of areas that reveal a correlation between operational performance and experience,” says Robert Zampetti, EY People Experience Leader, EMEIA. “Especially when you drill down into each business function. By taking, say, a metric of sales account performance and correlating it back to the experience and people side, you quickly reach an ‘aha!' moment. There's all kinds of things you can do with this data – but nothing at all will be done until you recognize it.”
This combination of X and O data is quantifiable and impactful. By managing and measuring experience and how it's correlating to KPIs of interest to the business, the HR function will be able to clearly demonstrate the value it’s adding – as well as setting benchmarks and targets against which HR leadership can constantly review and refine performance.
“Suddenly the same P&L owner who's wondering why they’re paying for HR starts realizing it actually has value,” says Zampetti. “HR has given that P&L owner an idea they can address, and how HR can help them do so. And they can measure it to see if it all made a difference."
This is a bold and challenging new model which seeks to fundamentally challenge the traditional ways HR has organized itself. In the past, HR often sub-contracted its thinking and requirements to IT. Today the function must now play a bigger part in the design of the digital platforms that provide services to, and gather this data from, employees. And it needs to follow the design thinking aspects of “Me, We, Here’’ in order to facilitate that.
With the rise of machine learning algorithms can do much of the work in demonstrating success at delivering this value. But these new tools won’t run themselves. They will need to be set up and guided by experienced data scientists, which points to one invaluable area of investment that the new HR function has to make.
Me, We, Here: making HR transformation relevant to your audience
In the wake of the pandemic people may use the office, once the hub of all activity, only for specific limited activities. Framing the transformation through the lenses: Me, We and Here will keep your thinking focused on the outcomes likely to be of most benefit to your people.
- Me: The HR function of the future will be built on people-centered design, which means asking what the individual employee needs to operate effectively in their role and projects. These include personal desires, needs, aspirations and development.
- We: Here the focus is on the team or unit, how they operate and collaborate and how they are rewarded. The pandemic required people to work from a range of unusual locations, using a suite of remote collaboration tools, with continuously shifting roles and responsibilities. What happens to culture in these new conditions? How do you replace top-down management when everyone is dispersed? How are teams rewarded?
- Here: This relates to the enterprise environment and how people are affected by its physical, social, technological and organizational aspects. The key is to create human-centric, safe physical workspaces that promote health and engagement, provide an holistic technology experience, seamlessly remove friction and keep monotony at bay.
Evolving at speed
How to carefully lay the foundations for a rapid transformation
Change can be daunting at the best of times. But when the wider operating environment feels defined by uncertainty, that challenge can quickly become overwhelming. Organizations are often keen to skip choosing between operating models, and instead go straight to investing in technology to solve their problems. This may offer immediate pain-relief, but won’t be effective, especially if the problem isn’t properly considered before implementing the software.
What’s needed instead is time to understand what inspires and drives the workforce, and what matters to the business in terms of value creation. In as few as six weeks an organization can identify what service delivery model it needs for the future. It can provide an enablement roadmap of how the function is going to achieve that, how tech investment will fit into the plan and what value it’s going to create for the wider organization.
By including stakeholders from across the business in the design process, the HR function will achieve far broader adoption of the new ideas, because people were involved and engaged from the beginning.
After the initial sprint comes the next phase of the project: identifying and prioritizing further opportunities for sprints to design, build and roll out innovative, engaging services and products across the business. This is about fast-build cycles of a few weeks each, getting things to an 80% solution before testing, gauging reactions, tweaking and finally scaling it for full deployment.
This will enable the organization transform for weeks at a time, not months, delivering value all the way through the implementation, rather than waiting for two years and measuring success retrospectively.
Start from where you are
The strength of the sprint model is that it allows companies to identify where they are in their transformation journey, and to clearly define a strategic vision around where they want to go. Only then will a business be able to migrate that function intentionally over time and deliver value along the way.
But every team can transform. For some clients it's about channeling their energy into tech, because this creates the capacity to do higher-value work. Others may now need to build and introduce new people services, to build out a capability area they haven't historically invested in.
What’s common to all businesses, regardless of the starting point, is that they’re set to experience a huge transformation in their people functions. HR operations and shared services will become virtual global business services. Centers of excellence will become people consultants. HR technology will become the digital people team. And HR will return to adding great value to the organization and its people.
For HR functions that hadn’t already begun addressing their stasis, COVID-19 made a couple of things apparent. First, improved workforce flexibility and employee services were sorely needed. Second, their adoption was easier than many had anticipated.
From a pandemic and the ensuing disruption, something more positive is emerging: a vision of HR driven by powerful automation, offering the seamless, customizable services its employees want and delivering the genuine value that organizations need to sustain them into the long-term.
Traditional HR is dead. The workforce is ready for transformational HR.
To activate at scale the strategically relevant and impactful people experiences that fuel consumer, financial and societal value, HR must abandon the comforts of a vertical silo and operate horizontally across the enterprise. It needs to be plugged into the “messy middle” where people experiences are created or destroyed every day. It must be the thread that weaves together strategy and operations, liberated by digitalization to enable agile team formation and instant-access people services. Our reimagined HR operating model – The People Value Chain – has three critical components that can drive this transformation: digital people teams, virtual global business services and agile people consultants.