Do current HR operating models serve future needs?

Drivers that influence operating models

It’s essential to take a proactive approach and review processes, systems and structures to ensure they remain fit for purpose and aligned with the wider business goals. 

There are three main reasons for redesigning HR structures: 

1. As a reaction to internal or external factors: Whether it’s evolving the employee experience in line with changing workforce expectations or capitalising on advancements in technology, AI and automation, external trends and developments will have an impact on people processes and structures. For example, against a backdrop of digital transformation in the wider business (driven by new fintech competitors), NatWest Group has recently changed its HR operating model in line with new labour market expectations, leveraging digital technologies to deliver better employee experience. Its model is designed to align technical, specialist HR areas to key journeys within the employee lifecycle and eliminate functional silos within the people team.
2. To align with changes to the organisation’s strategy and purpose: An optimised HR operating model enables the people function to effectively contribute to organisational goals. To achieve this, Perry Timms, HR influencer and CEO of People and Transformational HR, suggests: “Instead of looking at HR as the starting point, we ask, ‘What are the business challenges we’re trying to solve?’ and then we assess how we, as HR, need to be organised to service those business challenges.” The HR model may also need to evolve with wider business transformation. For example, Peabody has changed its HR operating model as a result of a company merger, and Firstsource changed its structure to streamline its HR services in line with operational changes within the wider business.
3. To increase the efficiency of HR delivery: The need to transform may not be always be due to changes in business strategy. Instead, over time, small and gradual changes within the business may have resulted in the HR operating model being less fit for purpose, with inconsistent or inefficient processes or user experiences. An optimised model provides streamlined processes and efficient resource allocation. This can deliver cost savings, but, perhaps more importantly, is a key enabler for the function to maximise its strategic influence.

In addition to reviewing the HR structure, organisations could also think about the maturity of their function and future ambitions of what HR could deliver. For example, The Josh Bersin Company (2023) proposed a four-level HR maturity model to illustrate how HR functions can evolve over time, moving from a transactional compliance or cost centre function (level 1), through to a systemic and problem-orientated function that acts as a consulting firm to the business (level 4). Assessing the HR capability of the people function can also provide a benchmark of the current capability and identify development areas.

Current HR operating models 

The ‘Ulrich' model

First published in the 1990s, and by far the most widely adopted operating model within HR, is the ‘Ulrich’ model, also known as the ‘three-legged stool’ model. This proposes a significant shift away from HR as a generalist service to one that’s organised into three distinct areas: shared service centres, HR business partners (HRBPs), and centres of excellence (CoEs). Ulrich proposed four key roles for HR, dependent on the operational versus strategic focus of the function and how people- or process-oriented the HR activity is (see Figure 1). HR professionals can develop their skills in all four roles, or may be aligned to one specialised area, based on where they sit within the model. 

CIPD research from 2015 showcases Orion Consulting, who found that the Ulrich model improved the HR function’s operational efficiency, capabilities, commercial focus and alignment to the business. One of the areas most positively impacted was HR operations; however, in practice, many business partnering roles were too transactional. And yet, nearly a decade on, many HR business partners still grapple with the transactional and strategic demands placed upon them. 

Despite a number of other operating models, most people functions that we spoke to for this research largely structure their function on variations of the Ulrich model. Recent global research has also confirmed the three-legged stool model is still the dominant HR structure to date. But there are challenges regarding the model’s applicability. According to our case studies, McKinsey research and other articles, perceived limitations of current models include:

• the misinterpretation or misapplication of models, where they are often implemented as one-size-fits-all, rigid and inflexible structures, resulting in a lack of consideration for the business’s needs and context
• HRBPs leaning towards delivering more operational HR, leaving little capacity and lacking in skills to act as true strategic partners
• HRBPs acting independently from the wider people function
• detached and fragmented specialist functions and skillsets, leading to siloed working, segmented approaches to people issues, competing priorities and duplication of effort
• a lack of personalisation and employee-centred approaches to delivering HR services.

Given these identified shortcomings, is it possible to adapt models, or do we need to rethink them completely? Perry Timms suggests: “There’s something about detaching from an existing model that forces people to go: ‘I can’t just tinker here.’ I literally have to go: ‘Right, time out! Let’s think about [the structure] again.’”

To address these issues, several emerging models have been proposed that consider external influences and that attempt to alleviate the limitations of current operating models.

Emerging HR operating models

Gartner

Gartner’s vision of the future HR operating model is underpinned by five key components:

• HRBPs becoming strategic talent leaders
• a pool of problem-solvers working in an agile capacity to solve talent issues
• agile support for CoEs
• people analytics evolving into human capital intelligence to provide more advanced analytical support
• the creation of an HR operations and service delivery team that includes shared services, people relations managers, HR technology and the talent data team. 

McKinsey

McKinsey has found five emerging HR operating models which are influenced by, and derived from, eight drivers or ‘innovation shifts’. It proposes five archetypes of operating models: Ulrich+, agile, employee experience-driven, leader-led, and machine-powered.

Currently, people leaders are most likely to say their current operating model aligns to the Ulrich+ (48%) and employee experience-driven (47%) archetypes. 

The Josh Bersin Company

Its systemic HR model emphasises interconnectivity across HR, requiring integrated teams and specialisms to work together, using real-time data and an operating system that delivers solutions to workforce segments. This operating system is based on a four R model: recruit, retain, reskill and redesign. According to its research, only 11% of businesses have systemic HR functions, operating like problem-oriented consulting firms instead of a supportive function to the business. 

Perry Timms

Timms’ vision for a future HR 3.0 model relies on product management thinking, and is set out in his recent article series. He points out: “A real focal point for us [HR] is that we have these consumables [products] that people can see are value creating. We’re not just [focused on] making sure we’re legally compliant; we’ve got to go so far beyond that.”

He argues that HR can advise, shape and guide the products and solutions it develops for the business and grow its impact: “If you’re a product manager, you don’t build a product that’s just enough to get by on the shelves. You build it so it’s better than everybody else’s product. [It’s about] elevating the things that we do.”

Timms’ model is also reliant on multidisciplinary domains, reaching beyond the typical HR domains within current people functions, such as system designers and people scientists. Professionalising these areas, he suggests, would offer far greater impact, influence and credibility and provide an alternative to arranging HR by functions aligned to the employee lifecycle. 

Common trends across proposed models

Clearly, a common theme across these emerging models is that people functions are no longer transactional support functions or cost centres that predominantly focus on recruitment. There are several themes that indicate a direction of growth and evolution for people functions. For example:

• The need for greater impact: People teams, however large or small, are striving to deliver more impact, have greater influence and contribute to the bottom line through their people strategy. More mature functions are building their capability and expertise to consult with the business and find people solutions to business problems.
• Development of multidisciplinary pools of talent: Creating developing teams that consist of multispecialist capabilities, as opposed to organising teams as functions (such as learning and development, organisational design, talent development) will reduce siloed working and duplication of effort. Increasing cross-collaboration across disciplines will also pool resources and improve problem-solving power.
• Making employees key stakeholders: In a competitive market for talent, employee experience and personalisation of the HR offering is a growing trend. By leveraging technology advancements and simplifying user journeys, businesses can modernise the employee experience and enable the workforce to interact more easily with HR services.
• The creation of agile and flexible models: Future models need to allow flexibility to adapt to changing business environments, workforce needs and people considerations.

How do people functions evolve their operating model?

In a recent CIPD podcast, Dave Ulrich was asked the all-important question: “What would your operating model look like if you were building it today?” His response was: “HR is about creating value in the marketplace, not just strategic value internally, but value for customers, investors and communities. It’s about the value that the HR services bring to the stakeholders of the company.”

In his recent work on HR value contribution, Ulrich identifies 10 dimensions of an effective HR function. Two of these dimensions focus on HR design (how the HR department is organised) and HR relationships (how HR goes about doing its work), suggesting that both elements play a critical role in HR delivering value to the business. 

In the same podcast, Natalie Shiels, Founder and CEO of Talenaut, and formerly Chief People Officer at Mosaic Group, advises HR functions to look beyond their organisation to understand the key disruptors that will impact on the business and, therefore, on HR itself. This further reiterates the earlier point on responding to external and internal factors. She suggests we ask ourselves: “How do these trends impact and change the way we think about our business model, products and competition? Do we need to revamp services? Do we need to restructure? Where do we redeploy capital and investment and where is that additional capital being taken from?” 

The CIPD viewpoint remains that there is not a one-size-fits-all HR operating model that is suited to all organisations. A people function should be built around business needs and requires a thorough assessment of the gaps in your current model and future vision of the function’s operating model, before building a detailed target model. You’ll need to consider the structure, specialist talent and HR capability (such as roles, responsibilities and skills) and other enabling factors (such as the use of data to drive decisions, HR technology and cultural change) to successfully embed any new model. 

We consider the critical elements of an effective operating model transformation over the next two articles within this series (publishing in July and August 2024).