Do current HR operating models serve future needs?
We look at what’s driving change in HR structures, what emerging models look like and what to consider when evolving your current model
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We look at what’s driving change in HR structures, what emerging models look like and what to consider when evolving your current model
An HR operating model is a blueprint for how the people function delivers value to the organisation and its internal customers. This includes the structure of the function – how it’s organised, its hierarchy, its reporting lines and relationships between subfunctions – as well as its processes, systems, people and technology.
With business needs constantly shifting, it’s crucial that the operating model evolves to align with the organisation’s goals, vision and strategy. Indeed, according to Gartner research, 84% of HR functions have either restructured in the last two years, are currently restructuring or plan to restructure soon. But do HR models have enough flex to adapt to future needs, or do we need to start again?
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:
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.
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:
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.
Gartner’s vision of the future HR operating model is underpinned by five key components:
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.
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.
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.
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:
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).
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Rebecca joined the Research team in 2019, specialising in the area of health and wellbeing at work as both a practitioner and a researcher. Before joining the CIPD Rebecca worked part-time at Kingston University in the Business School research department, where she worked on several research-driven projects. Additionally, Rebecca worked part-time at a health and wellbeing consultancy where she facilitated various wellbeing workshops, both externally and in-house.
Rebecca has a master’s degree in Occupational Psychology from Kingston University, where she conducted research on Prison Officers’ resilience and coping strategies. The output of this research consisted of a behavioural framework which highlighted positive and negative strategies that Prison Officers used in their daily working life.
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