7/25/2015–I’m not sure why HR must exist as a separate/distinguished department/function. Or, I can’t reach my own conclusion of when a company has grown to a critical mass which necessitates an HR department.
A little research uncovers the birth of modern HR in business–around 1975. In that short period we have little figured out, compared to the “classic” departments finance, supply chain, and marketing. Finance concepts (balance sheet, sources vs uses of funds, income statement) are timeless. Supply chain basics (risk pooling, waste reduction, bullwhip effect) are eternal truths found on the 1st page of a Google search related to supply chain basics/fundamentals/principles.
But a similar search for HR basics doesn’t provide any clarity like the others. We “know” employees don’t leave jobs, they leave people (usu. their boss). We recently discovered salary isn’t the retention tool we thought it was–see “consensus”–but that may have temporal/environmental factors, rather than a fundamental truth about humans in orgs.
Even if fundamental truths about humans do play out as business implications, does an entire department need to manage how a business reacts to them? Or, is the business that proactively seeks ways to leverage these truths in absolute need of such a department? What are the fundamental truths of humans, at play in for-profit orgs? (Would it be different in a company of robots?)
It seems no such department is needed in a company of one or two people. The owner and single employee communicate only to each other; the owner controls all info shared and thus is a single source of training throughout the company. HR work is, however, being done. By definition, when she hired ee #2, she followed certain recruiting criteria, determined a benefits package, oriented the employee, decided what info to collect and how to store it. So when does that owner need a department?
In other words, when should an owner outsource these things? It becomes more profitable to the owner to have someone else do them when these activities are “better performed” by someone else, or done less expensively. If recruiting costs $5 to do it myself (with opportunity costs, direct/explicit costs all considered) I need to make sure one of two things is true before outsourcing: either the HR expert charges an amount which, combined with my recouped opportunity costs, is less than $5, OR the new hire is capable of increasing revenues or decreasing expenses in a greater proportion to the cost of outsourcing than the employee I would’ve gotten, in proportion to the $5 cost of recruiting myself.
Therefore, it seems to be the case that the point at which an HR department is justified (i.e. has sustainable return on investment) depends on the capability of current managers to perform HR functions.
Truly outsourced HR would make obvious sense during a time of heavy hiring, such as during holiday season, or when a merger happens as there would be best practices not likely familiar to a previously single–owner company.
What if a company only hires HR-capable employees? I.e. even finance, marketing, and supply chain managers are trained in recruiting, orienting, training, retaining, developing, paying, and firing people for their function? That company would need legal experts, certainly. They otherwise could perform those tasks within the context of achieving results–which is the entire purpose of HR departments as a “support” function (a.k.a. “staff” as opposed to “line”). True, effective HR gives no orders–only guidance, insight, influence/persuasion. But to pay $1 to HR for guidance and $1 to a manager for results suggests (or “only makes sense if”) paying $2 for a better manager wouldn’t provide as much benefit to customers. Taken to the logical extreme, it’s saying “we could either spend a million on an HR department or a million on our employees for HR training.” The issue is, companies spend $ training their HR department on HR skills, anyway. So why not train the customers of HR, since they are directly incentivized to achieve sustainable results? This even begs the question–is “legal” just an expensive Google search? If a manager–who has no ability to keep up with all relevant laws, nor reason to–has an issue which requires legal guidance, theoretically he or she could, by definition of “law”, get the true legal guidance they need via internet research (or calling the department of Labor). Thus, investing in a legal department is really just an efficiency thing, i.e. cost reduction. Granted, internal legal departments will have ability to interpret laws in context of the business. However, so would a 3rd party “industry expert” law firm, and they’d have no incentive to interpret the law in favor of the manager (other than to get future business, but the risk far outweighs benefits and violates the ethics most companies do uphold). So even legal seems better left off the payroll.
Again, I think, “how much does it cost to have an HR department? What could we do with that money instead that would sustainably increase revenues and decrease expenses?” If I could name one fundamental role of an HR leader which has these benefits, it would be “helping to set the strategy of the company”. If one person, right next to the CEO, is paid to evaluate the strategy from the perspective of how it leverages human truths, and how it affects recruiting, compensation, legal, employee relations, etc., that one person’s input affects subsequent training of the whole company, as well as their ability to share HR best practices with each other, instead of having to “go to HR”. Further, any direction from HR (initiatives) carry more weight when they come from this person and only/always through “line” management. Then, any disdain for new talent management initiatives is in context of the finance/supply chain/marketing manager, which would be the customer, anyway. In effect, the HR leader (CHRO?) is the HR department, and as such is a counselor to provide guidance in support of employees who are responsible for results. In this way, he or she accomplishes, totally, the purpose of HR.
QOTW–“The purpose of life is a life of purpose.” Robert
?FNW–What did I do well this summer? Relationships and results
11/28/2017 review–Over two years later, I now have a lot more HR experience than I did in 2015 when I wrote this. I’ve come to see clear reasons for incremental investment in HR capabilities beyond more traditional functions, as long as “HR capabilities” means “both leveraging and mitigating human nature in the workplace”. I also still feel a CHRO is rightly placed alongside the CEO, enabling alignment of human realities and the company’s strategy. A company needs focused development of HR capabilities and dedicated HR managers who always view the company through this lens.
Caution: this doesn’t mean we need specially-trained HR masters who “understand what makes people tick”. Rather, I’d currently say we need people who can acknowledge and communicate to managers what causes humans to adopt effective behaviors and to stop ineffective behaviors. HR work defined in this way can certainly be performed by employees from any academic background. Whomever makes up the department, HR’s purpose is to ensure the collective and sustained effectiveness of a company’s people vs the individual and immediate effectiveness that people managers ensure by tailoring those HR truths to each one of his or her direct reports. In this way, HR managers and people managers share responsibility for executing company strategy with today’s and tomorrow’s employee needs in mind.