Center for Effective Organizations

News

It's Time to Retool HR, Not Split It

John Boudreau's latest blog post for Harvard Business Review

Let's be clear. Ram Charan's recommendation is wrong. CEOs and organization leaders who read only his column (or worse, only the title) and split HR as he suggests, will make a serious mistake that will destroy value for their shareholders and constituents. While he may be wrong, he may also be as wise as Solomon.

Wikipedia describes the parable of Solomon from the Bible: "The Judgment of Solomon refers to a story from the Hebrew Bible in which King Solomon of Israel ruled between two women both claiming to be the mother of a child by tricking the parties into revealing their true feelings." In the parable, Solomon's suggestion to cut the baby in half motivated the baby's true mother to reveal herself by imploring Solomon to give the baby to the other woman, rather than see it killed. Everyone can see the harm in cutting a baby in half, so the maneuver works.

Splitting HR is also dangerous and counterproductive, but proposing it also points to the truth by vividly showing the challenge and importance of making leaders more sophisticated about HR and talent ("talent" includes human-centered capabilities, engagement, motivation, values and organization design).

The fact that splitting HR is dangerous and counterproductive has been well known for a long time, as shown by the quality and quantity of respectful rebuttals from my colleagues Dave Ulrich, Libby Sartain, Richard Antoine and many others, and by decades of research by my colleagues and me at the Center for Effective Organizations at University of Southern California and the Center for Advanced Human Resource Studies at Cornell University. Yet this evidence is apparently not well-known. A similar proposal to "Split Finance" would likely have been rejected out of hand by organization leaders (and Harvard Business Review editors), because it's obvious that the Finance function must fit the organization strategy and leader capabilities. Why is this so obvious when it comes to Finance, and so obscure when it comes to HR?

The right question is not whether it's time to split HR, but rather why are leaders so much less sophisticated about talent than about financial capital?

In the "The Capitalist's Dilemma," Clay Christensen and Derek van Bever suggest that leaders have been trained and socialized to their role as capitalists, and thus come to rely too heavily on familiar and traditional finance principles. That produces strategic missteps, because financial capital is increasingly commoditized, while talent is increasingly scarce and pivotal. Leaders must look beyond traditional finance systems to be more sophisticated about HR and talent. The "Split HR" column alludes to cross-pollination between HR and Finance, but tucking HR into the Finance function, as Charan suggests, is not the way.

My work with leaders from Finance, HR, and the C-Suite suggests instead that HR and talent decisions are optimized by "retooling HR" -- adapting financial and other management frameworks to HR and talent decisions. For example:

  • Retool leadership development using options theory and portfolio risk optimization.
  • Retool talent development using a supply-chain framework to optimize talent flows like IBM.
  • Retool performance management using engineering frameworks to optimize the return on improved performance (ROIP).
  • Retool total rewards using product design and market segmentation to optimize the "deal" and balance customization and standardization.
  • Retool employee turnover analytics by using inventory management frameworks that integrate employee acquisition, development and separation.

Retooling HR makes organization leaders smarter by applying their existing sophistication about finance, engineering, operations and marketing to HR and talent decisions. It does require that leaders reach across functional boundaries, but that's different than simply placing compensation and benefits under the CFO.

The elegance of Ram Charan's column is in revealing the troubling possibility that organization leaders might actually accept "splitting HR" as the solution to an important and complex issue. It shows the vital need to raise the HR and talent sophistication of today's leaders. The HR profession can and should commit to creating a higher standard of talent stewardship, and to provide evidence-based frameworks, as the ones I've recommended above, as the foundation.

I commend Ram Charan for his wisdom in provoking such a useful dialogue, even as I implore leaders not to "cut the baby in half" by splitting HR out of ignorance. Instead, let's retool HR, and accept the challenge to increase leader sophistication, and the quality of HR and talent decisions.

Crossposted from hbr.org

Click here for links to Ed Lawler, John Boudreau, and other CEO Research Scientist's blogs, Now Playing @ CEO

Sponsor Login

Need help logging in?

Now Playing @ CEO

Click here to learn more about our active research.


Upcoming Webinars

December 2 - 9am-10am (PT)
The New Frontier of Analytics: Going Beyond Data and ROI
Alec Levenson
Open to the public

December 12 - 9am-10am (PT)
Top-down, bottoms-up, outside-in, and from the middle out: Where traditional change processes fall short
Chris Worley and Sue Mohrman
Open to the public


CEO Awards

August 2, 2014
Academy of Management PTC Research Center Impact Award

November 6, 2008
National Academy of Human Resources Honored Organization