Lack of skills hinders HR's attempts at business partner status

HR professionals' lack of strategic skills and competencies is preventing the function from becoming an effective business partner, pan-European research has found.

Mercer Human Resource Consulting's 2006 European HR Transformation Study surveyed more than 300 senior HR executives in Europe, representing 20 industries and 25 countries. More than 56 percent of the responses were from Western Europe, 26 percent from Southern Europe, and 18 percent from the emerging markets of Eastern Europe and the Middle East. Building on a similar Mercer survey conducted in 2003, the study is part of a global research project on HR transformation.

HR leaders surveyed estimated that just 15% of time was spent on 'strategic partnering' - the same figure as 2003, when the survey was last conducted.

The survey indicated that HR was strong in its traditional functional skills and related personal behaviours. However, there is now a growing set of skills required by HR that the function has yet to secure.

Some of these skills address the ability to improve customer service, manage projects and deploy technology. There are also skills in terms of business and financial understanding that are critical to HR's capacity to partner with the business.

In short, HR is weak in a lot of the skills needed to be an effective business partner, said Philip Vernon, principal at Mercer. "Europe's HR executives tend to agree that HR is exhibiting broader business and operational management skills, but there's still a very strong emphasis on HR's traditional expertise.

"A greater integration between those skills and a wider business and operational command is essential for HR's strategic future."

Line managers' approach to people management was also flagged as a concern by respondents. HR still has a "significant challenge" in working with managers to ensure they execute the organisations policies effectively, the survey said.

According to Mercer's recent European HR Transformation Study, more than 70% of European firms are transforming their HR function or have already done so. Changing organisation and business requirements are the principal drivers of the HR transformation process, which primarily seeks to align the HR function with business needs and increase its ability to support the overall management of people and improve business effectiveness.

For many HR functions, this transformation is a continuous process with no real 'end,' as the challenges of business alignment are ongoing. The top human capital challenges and the areas where organisations are asking HR to provide real value to the business are seen to be: talent acquisition and retention (60%), change management (40%) and leadership development (35%).

The survey responses indicate that transformation has been primarily about the relationships and approach to customer management, and about the way the basic HR service is delivered in terms of HR organisation structure, technology and service delivery strategy. There are other transformation initiatives such as process change, HR skills development and outsourcing, but HR transformation so far has consisted primarily of internal changes focused on how the HR operating model works.

"Through HR transformation in the past five to 10 years, a model of HR organisation has evolved. The survey results confirm this and suggest that 50% of HR functions in Europe are moving in some ways towards an HR organisation that is basically a three-legged stool, focusing on centres of expertise, HR service centres and HR business partners," observed Mike Theaker, principal for Mercer's HR Effectiveness business in Europe.

"Clearly there has been a lot of activity in the area of HR technology, but the degree to which these initiatives have delivered benefits remains to be established," added Mr Theaker. Contrary to 2003 survey results, technology is no longer seen by the function as a major barrier to transforming HR, which indicates that progress has been made in this area.

Engaging more with the business

Survey participants believe that there is a big shift in the perception the business has of the HR function. Well over half the surveyed organisations view human capital as a source of value - not a driver of cost - and more than two-thirds say that business leaders view HR as making a full contribution to business performance. HR is now actively engaged with the board of directors on a wide range of issues well beyond just remuneration, with primary focus on leadership succession and development, workforce planning and organisational change. Sixty-two percent of HR directors now report to the CEO, a significantly increased figure since 2003.

"HR is now much more clearly seen as a partner to business leadership than inferred in the results of the HR transformation survey we conducted in 2003," said Mr Vernon. "The 2006 survey indicates that HR sees itself as having increasing influence and giving more value to the business - a real positive product, at least on the surface, of the ongoing process of HR transformation," he said. This conclusion is evidenced by survey participants through: discussing significant business-wide issues (76%), being the owner of methodologies that drive change in the organisation (70%), and providing tactical support in translating business strategy into a human capital strategy (67%).

Barriers to effective HR transformation

However, for each organisation that has successfully driven transformation within its HR function, there are many that have not. "There are some contradictions in the survey results," added Mr Vernon. "HR leaders see a number of key barriers to HR's ability to contribute to the business, as 40% of HR's time is still spent on transactional and compliance-related activity whilst only 15% of time is spent on strategic partnering." These figures are exactly the same as in 2003.

One of the main barriers is the skills and competencies of the people in HR. The survey results indicate that HR is strong in its traditional functional skills and the related personal behaviours. However, there is a growing set of skills that now are seen to be required by HR that the function has yet to secure. Some of these skills address the ability to improve customer service, process and manage projects, and deploy technology. Additionally, there are a range of skills in terms of business and financial understanding and business alignment that are critical to HR's capacity to partner with the business. The survey results do not indicate that these are strong skills. In short, HR is weak in a lot of the skills needed to be an effective business partner.

"Europe's HR executives tend to agree that HR is exhibiting broader business and operational-management skills, but there's still a very strong emphasis on HR's traditional expertise, with its focus on recruitment, team and people skills. A greater integration between those skills and a wider business and operational command is essential for HR's strategic future," said Mr Vernon.

The survey clearly suggests that progress is being made, but that HR is concerned about both the capability and the attitudes of line management in its approach to people management and to executing the organisation's HR policies and processes. The function still has a significant challenge in working with operational managers to ensure an organisation's people management is improved in a way that really impacts business performance.