It's Not HR's Job to Be Strategic Page 1 of 4

Harvard Business Review

TALENT MANAGEMENT

It's Not HR's Job to Be Strategic by Sean Graber

OCTOBER 31,2014

Human-capital issues are top-of-mind for CEOs

around the world - but their regard for the HR

function remains perilously low: In a PwC study,

only 34% said that HR is well prepared to capitalize

on transformational trends (compared with 56% for

fInance).

Sadly, chief executives aren't the only ones with this

negative perception. It's pervasive in organizations

- and to make matters worse, HR practitioners

have inadvertently played into it. In its "State of

Human Capital" report, McKinsey found that

people in HR still largely have "a support-function

mindset, a low tolerance for risk, and a limited sense

of strategic 'authorship'" - all of which has led to

"low status among executive peers, no budget for

innovation, and a 'zero-defects' mentality."

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Though many HR managers would take exception to those fIndings, they do, overwhelmingly, want

more of a strategic voice than they have now. Look at any HR discussion forum, and you'll ftnd some

version of this question: How can HR get a "seat at the table" and become a strategic business partner?

I'm going to suggest that HR - at least in its current form - shouldn't be a strategic partner. A few

months ago, Ram Charan proposed splitting HR into two parts: one to oversee leadership and

organization, and one to handle administration. That was a useful conversation starter. But companies

should dice up the function even more fInely. Instead of grouping all the people-related activities

together under HR, businesses should organize them according to types of service provided - and

move a couple of them to other functions altogether.

Consider Deloitte's service delivery model, which divides activities into four categories: site support,

transaction processing, center of expertise, and business partner. In this model, the bulk of HR services

fall into the fIrst three categories, where a cost-cutting mindset makes a good deal of sense. Examples

include payroll, benefIts, risk and compliance, and labor relations.

But talent acquisition and learning and development are altogether different - and they should never be

done on the cheap. These areas fall under the fourth rubric, business partner, because their managers

need a strong understanding of strategic priorities in order to recruit, prepare, and engage employees to

meet them. These managers also bring a valuable perspective to the table. Together, they understand

labor market trends and instructional design, which can inform a company's strategy to "build" or "buy"

talent.

First let's look at talent acquisition. It's critical to bring in the right people to drive the business forward.

The thing is, the labor markets and relevant skills vary widely from function to function. Smart recruiting

requires an intimate understanding of the work to be done and the skills needed, as well as the function's

business plan (to forecast demand). That's the specialized insight required to develop the right sourcing

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and recruiting strategy. HR often centralizes talent acquisition in order to minimize costs, and that's

short-sighted. Saving a few hundred dollars per hire may seem like a quick win, but a bad hire can cost

more than $50,000.

For its part, learning and development should enhance employees' ability to further the company's

mission, mold future leaders, and build strong teams. But companies aren't seeing it as the strategic

opportunity it is - and that's because of its placement in HR. I recently spoke with an HR executive at a

Forttme 500 packaging ftrm in the Midwest whose anntla/budget for the entire high-potential development

program was $10,000. That is not a vote of conftdence.

You can see this low-value mindset play out in other ways. HR managers adore e-Iearning, for instance,

since. they have been conditioned to evaluate everything on cost and scalability. Indeed, according to the

Association for Talent Development, nearly 40% of corporate training in 2013 was delivered through

technology, and that number is projected to grow. Unfortunately, a lot of e-Iearning is just plain awful.

My company recently surveyed 525 Millennials (people born after 1979) to understand their views on

learning and leadership development. Though e-learning was among the most prevalent forms of

leadership training, it ranked among those with the least impact - and it was the least desired among all

other options. Tech-savvy Millennials are the most likely leaders-in-training to embrace e-Iearning, yet

even they don't.

Companies will really start feeling the consequences over the next decade. Millennial Branding and

Monster.com found that one-third of Millennials rank training and development opportunities as a

prospective employer's top beneftt. Cutting corners in this area may jeopardize employee engagement

and retention in a demographic that will represent 75% of the U.S. labor force by 2025.

A centralized HR department is ill equipped to address this. But embedding learning and development

- along with talent acquisition - within each business function can solve the problem because it will

shift the focus from cost reduction to value creation.

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By reorganizing HR activities along the lines of the service delivery model, companies can free their cost­

focused services to provide excellent support without having to grapple with illusions of strategic

grandeur. And they can empower the truly strategic services - talent acquisition and learning and

development - to create value without having to view every decision through a cost-cutting lens. At the

moment, business leaders are searching for a strategic partner to help them navigate the critical human­

capital issues that will make or break their companies. The time has come to give them not one partner,

but two.

Sean Graber is cofounder and CEO of Virtuali, a training firm that

helps companies develop and engage Millennial leaders.

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