Lower Cost, Higher Value: Human Resource Function in Transformation

Article excerpt

The last few years have witnessed unprecedented changes in the human resource functions of American corporations. This radical transformation of HR functions has been instigated by a complex nexus of forces: pressures to reduce costs, higher expectations of customers, the constant drive to meet global competitive challenges, and opportunities offered by advancements in information technology. The mix of these forces accelerates the transformation of the HR function in ways not envisioned a decade ago.

Indeed, the HR function has been engaged in nothing less than a process of reinventing itself in many companies as evidenced by: 1) HR functions becoming both centralized and decentralized; 2) the roles and responsibilities of line managers and human resource professionals being redefined; 3) business needs receiving higher priority in the delivery of HR services; 4) many of the routine transactional activities of HR functions being automated, streamlined and reengineered, thus freeing HR professionals for strategic and managerial challenges; and 5) the ratios of HR professionals to employees decreasing.

To respond to these changes, many HR professionals are being retrained, redeployed, or outplaced. To understand this reinvention of the HR functions, this article explores the following questions:

* Why are these changes occurring so rapidly?

* How have leading companies managed the transformation of HR functions?

* What are the implications of these changes on HR professionals in the future?

Understanding the answers to these questions helps HR professionals anticipate and prepare for change. By studying how companies have transformed their HR functions, we can benchmark the evolving transformation of HR.

To produce specific information on how HR functions are being transformed, we interviewed more than 50 senior executives in ten major corporations: American Express, ALCOA, Baxter International, BT (British Telecom), Hewlett-Packard, IBM, Intel, Johnson & Johnson, Levi Strauss & Co., and McKesson. The interviews focused on the design and implementation of strategic HR activities and helped provide answers to the three driving questions of this article.

Why Are HR Changes Occurring So Rapidly?

A variety of factors - from global competition and economic recession to technological breakthroughs and deregulation - have forced many corporations to fundamentally reformulate how they can attain a competitive advantage on a level playing field (Ulrich and Lake, 1990). Concurrently, such considerations as cost reduction, customer satisfaction, and the need for flexibility, speed, and quality have remained the enduring criteria for corporate players on the global economic stage. Without doubt, however, the intense competition for a market edge in this recessionary period (occurring not only in the U.S. but in Japan and Western Europe as well) has intensified the critical nature of these considerations. The same set of criteria has driven change in HR functions. Collectively, these factors and standards have provided both a valuable opportunity and an urgent mandate for HR functions striving to meet decisive business challenges.

Cost Reduction

Until recently, human resource departments generally had a track record of expanding their staffs. As a result, human resource professional-to-employee ratios increased to 1/50 or 1/40 in the late eighties. However, in the nineties, the trend is reversing as many companies that had been successful have reported financial losses. A startling statistic is that 30% of the Fortune 500 companies reported financial losses in 1992. Companies like IBM and General Motors found their gross profit margins eroding rapidly as a result of price cutting, marking share losses, and shrinking markets. To reestablish profitability, companies like IBM are drastically cutting their overhead in management levels and staff administration. …