Staffing the Human Resource Function

In the past several decades, the human resource (HR) profession has evolved to become an integral component of the organization. As the HR department's role and the value HR brings to the organization continue to change, the way in which HR is staffed should also evolve.

This toolkit addresses actions necessary to develop a framework for strategic HR staffing:

• Understanding the characteristics of a strategic HR function.
• Creating an aligned HR structure based on HR strategy.
• Considering internal versus external HR responsibility sourcing.
• Staffing internal HR functions.
• Outsourcing HR functions, such as selecting providers and managing outsourcing relationships.
• Assessing the effectiveness of HR staffing.

Background

The role of the HR professional has changed dramatically along with the workforce and economy, and that evolution will continue as machines and technology replace tasks once performed by humans. Tomorrow's HR leaders will need to think bigger and broadly, and they'll have to be tech-savvy and nimble enough to deal with an increasingly agile and restless workforce. See The Future Chief People Officer: Imagine. Invent. Ignite.

Staffing the HR function to enable the HR department to play a strategic role requires an organization to do the following:

• Establish a framework for staffing that encompasses that objective.
• Decide which HR functions should be staffed internally and which should be handled externally.
• Select or develop internal HR staff members with the competencies needed to perform well in a strategic HR environment.
• Select and manage HR outsourcing partners who will provide HR functions efficiently.
• Evaluate key indicators of HR staffing effectiveness.

See Practicing Strategic Human Resources and 11 Reasons Why HR Professionals are Important... Now More Than Ever.

Developing a Framework for Strategic HR Staffing

To staff the HR function strategically, an organization needs to be aware of the essential elements of a strategic HR department in order to select an appropriate department structure and to determine which HR responsibilities are to be sourced internally or externally.

Understand the characteristics of a strategic HR function

Organizations that have integrated their HR functions to address the business strategy—and are considered to be world-class in HR—typically:

• View the transactional aspects of HR as an important—but not a core—competency.
• Outsource administrative and transactional HR work to focus on strategic HR work and reduce costs.
• Make significant investments to attract and retain top talent using effective employee recruitment and training programs.
• Use emerging technologies to facilitate integration with employees, customers and suppliers.
• Install web-based self-service for greater personalization and more efficient integration.
• Recognize the importance of consistent data availability for faster, more informed decision-making and improved service levels.

Create an aligned HR structure based on HR strategy

There are numerous ways to structure an HR department to meet its goals. The choice of structure should be based on a variety of factors, including the desired degree of strategic impact, the speed of change in the industry, the resources available to the HR department, the level of talent in the HR department and the HR strategies used by competitors.

Centralized: A strong corporate HR office that serves as a central decision-making authority and supplies HR services throughout the organization.

Decentralized: Autonomous HR functions housed in separated business units (e.g., by product line or geography) that operate and make decisions mostly independently of the other units.

Mix of both/matrix: A shared, centralized corporate HR body combined with other relatively independent, localized HR functions that benefit from both centralization and decentralization.

Outsourced: HR structures that primarily use external brokers and networks to perform the HR function.

Within the first three structures, common HR service delivery methods include:

Centers of excellence. Specialists in areas such as staffing, compensation, training, benefits and labor relations offer services across the organization upon request to executives in business units.

Shared services. Self-service or call center operations promote HR expertise and deliver improved services across the organization. This model relies on the division of HR tasks and expertise.

HR business partners. HR professionals operate as internal consultants assigned to heads of divisions or otherwise embedded within business units. Arguably, this approach can have the greatest influence on the organization's strategic success.

Research from Mercer indicates that high-performing HR functions incorporate facets of all three of these delivery methods.¹

Consider internal versus external HR responsibility sourcing

HR department staffing decisions should align with business operating plans and should be analyzed on a risk-versus-reward basis to determine what activities should be retained or outsourced.

Those activities that add the greatest value should be handled internally using highly qualified HR professionals, whereas "high-risk, low-reward" HR tasks are good candidates for outsourcing. World-class organizations combine HR outsourcing with internal HR design, invest heavily in designing new HR roles, and place emphasis on selecting, orienting and training staff.  

Although conducting business and managing a workforce involves many human resource activities, some HR functional areas are more critical than others to the organization's business strategies and operating plans. Organizations often prefer to maintain control over the following HR responsibilities, rather than outsource them to a third party:

• Performance management.
• Employee communication plans and strategies.
• Policy development or implementation.
• Strategic business planning.
• Compensation and incentive plans administration.

These HR tasks may require the most in-depth understanding of the organization's workforce and may be the most difficult for a third party to perform competently on the organization's behalf.

Conversely, HR activities that are primarily transactional or administrative are prime candidates for outsourcing:

• Payroll administration.
• External recruitment.
• Relocation.
• Benefits administration.

See Outsourcing the HR Function and Small and Large Employers Outsource HR Duties Differently.

Staffing Internal HR Functions

Turning internal HR into a strategic asset is a top priority for organizations. To ensure that HR functions are handled effectively, internal HR leaders and staff should already possess or should acquire competencies associated with strategic HR performance. Accordingly, those in charge of staffing the HR function should carefully consider the pros and cons of retraining existing HR staff and hiring additional staff with the needed level of HR competency.

Identify HR competencies for strategic human resource management

Competencies are individual characteristics, including knowledge, skills, abilities, self-image, traits, mindsets, feelings and ways of thinking, that achieve a desired result when used with the appropriate roles. With its unique focus on the global HR community, SHRM developed and extensively validated, with input from more than 32,000 subject matter experts, a model that identifies the competencies needed to be a confident, successful HR professional.

According to the SHRM Competency Model, nine competencies are most correlated with high-performing HR professionals. Although HR professionals will vary in their proficiency at these competencies based on their level of experience, expertise and opportunity to develop, they must develop and demonstrate each competency when staffing the HR function.

The identified competencies are listed below, along with a brief explanation of what proficiency in this competency may look like:

• Human Resource Expertise. The knowledge of principles, practices and functions of effective human resource management. Individuals at the highest level of this competency have a strong working knowledge of critical HR functions and incorporate an attitude of continuous learning, the application of best practices and the delivery of customized HR solutions.
• Relationship Management. The ability to manage interactions to provide service and support the organization. Individuals at the highest level of this competency demonstrate the ability to establish credibility in a wide range of interactions, develop healthy relationships that promote individual and organizational success, and build an effective internal and external network.
• Consultation. The ability to provide guidance to organizational stakeholders. Individuals at the highest level of this competency apply creative problem-solving to address business challenges and invite others to approach them with career and organizational concerns.
• Leadership and Navigation. The ability to direct and contribute to initiatives and processes within the organization. Individuals at the highest level of this competency build a collaborative environment where solutions are generated while conforming to organizational culture. This competency requires leadership that builds consensus while making progress toward change.
• Communication. The ability to effectively exchange information with stakeholders. Individuals at the highest level of this competency have a full range of well-developed communication skills that they use to effectively deliver critical information, gather information, and communicate with others of like and different perspectives. Communication is not limited to HR topics but rather encompasses the issues and concerns of the core business functions.
• Global and Cultural Effectiveness. The ability to value and consider the perspectives and backgrounds of all parties. Individuals at the highest level of this competency are culturally aware and demonstrate nonjudgmental respect for other perspectives. The ability to work cross-culturally is well-developed, as is the ability to improve others' openness to varying opinions and mindsets.
• Ethical Practice. The ability to integrate core values, integrity and accountability throughout all organizational and business practices. Individuals at the highest level of this competency have developed trusting relationships and are seen as credible because of their judgment related to confidentiality, consistently ethical behavior and ability to hold to a core set of values while making decisions under political and social pressures.
• Critical Evaluation. The ability to interpret information to make business decisions and recommendations. Individuals at the highest level of this competency have developed the objectivity and critical-thinking skills that allow them to make sound judgments based on keen analysis, best practices and an understanding of preferred outcomes.
• Business Acumen. The ability to understand and apply information to contribute to the organization's strategic plan. Individuals at the highest level of this competency have a strong understanding of the strategic relationship between HR and the core business functions. This understanding, combined with an understanding of the overall business environment and the various levers that affect the organization's success, make this HR practitioner a valuable contributor.

These competencies can be developed and demonstrated by HR professionals at all levels, from entry to executive. SHRM provides vital information for measuring and improving these competencies in the Competency Model, as well as a more complete list of the subcompetencies supporting each, which will be valuable to any HR professional.

Decide Whether to Retrain or Hire New HR Staff

When an organization has identified the competencies needed by internal staff to enable the HR function to operate strategically, the next step is deciding whether to retain and reskill some or all of the existing staff. HR leaders commonly use formal competency assessments and interviews to decide which staff members to keep during a transformation of the HR function. Sometimes organizations determine that retaining the HR function in-house requires external recruitment, and it may necessitate staff reductions and severance to install new recruits with higher-level skills in areas such as talent management and workforce planning.

Typically, high-performing organizations have set higher competency standards, have been more likely to use formal assessment processes to evaluate internal staff and have been more willing to hire externally. These employers also consistently invest more than their counterparts in HR skills training, including consultative skills training, which includes teaching staff how to diagnose problem areas, assess the scope of the problems and contract with internal customers to facilitate change.

Outsourcing HR Functions

Many organizations use outsourcing as a key element in staffing a strategic HR function. Although most organizations in this model outsource discrete HR activities, some organizations have outsourced the entire HR function. Obviously, employers should not outsource HR responsibilities just because the staff does not like a particular aspect of the overall job. However, the many compelling reasons to outsource HR functions include:

• Enabling the retained HR department to eliminate transactional responsibilities and focus on more-strategic HR activities.
• Reducing HR costs.
• Jump-starting HR best practices that would take significantly longer if started from scratch internally.

See Outsourcing the HR Function and SHRM Human Resource Vendor Directory.

Despite the popularity and advantages of outsourcing, some organizations put a high value on the "human factor" in conducting their HR functions. Top reasons given by HR professionals for not outsourcing include:

• A preference for developing expertise in-house.
• A desire to retain control of HR functions.
• Concerns that outsourcing would negatively affect customer services to employees.
• Concerns that it would negatively affect company culture.

To avoid possible problems and achieve maximum value from outsourcing, organizations should:

• Create an overall HR service-delivery model that integrates outsourced and retained HR.
• Redesign HR processes and roles while upgrading retained HR staff's knowledge, skills and capabilities.
• Increase line manager and employee readiness to capitalize on HR's new roles and capabilities.

Selecting Providers

Providers of outsourced HR services should be carefully selected and managed. When evaluating potential HR outsourcing partners, each candidate should be assessed at a minimum on the following criteria:

• Financial stability, to ensure that the service provider will stay in business over the long term.
• Service record, so that the organization can depend on the outsourcer to address challenges and issues satisfactorily and in a timely manner.
• Cost, while always recognizing that initial savings should not come at the expense of long-term service and support or increased expenses later on.
• Technology leadership, to ensure that the outsourcer will be able to accommodate the organization's changing needs due to increased staff or geographic expansion.
• Legal compliance, to ensure the outsourcing entity meets all legal requirements, including privacy and security of personal employee data.
• Disaster recovery, to protect the data entrusted to the outsource partner and ensure that the data will be available to the organization, even if a technology malfunction, natural disaster or facility damage occurs.
• Training, to ensure the success of conversion to an outsourced solution.

Managing the Outsourcing Relationship

Outsourcing to the right vendor—and using that vendor correctly—can save the organization money in the long run. The key to successful outsourcing of HR functions is to successfully manage relationships with outsourcing partners, which involves working with vendors collaboratively to establish trust and open communication. This can be accomplished by creating a formalized statement of expected benefits that includes quantitative and qualitative targets and by using established practices that have demonstrated good outcomes.

Some of the practices that help organizations obtain value from their outsourcing relationships include:

• Having a formal, written vendor-governance strategy. This document should detail what activities should take place at each stage of the vendor life cycle and provide a step-by-step escalation sequence of actions designed to resolve issues when they arise.
• Meeting vendors in person. This is especially critical at the beginning of the relationship but important throughout the life cycle. In-person meetings foster relationships and demonstrate the level of organizational commitment and investment.
• Defining service-quality criteria clearly. A service level agreement (SLA) is a part of a services contract that formally defines the level of vendor service. An SLA should contain individual metrics for evaluating service quality. Organizations should limit the metrics to a manageable number, identifying the most essential and reviewing them frequently.
• Striving for a mutually beneficial relationship. Vendors are in business to make a profit. Negotiating very low fees will almost certainly lead to poor service. Sometimes clients put themselves in an adversarial position with their vendors, which decreases the prospects for a harmonious and productive relationship.
• Sharing information openly and taking actions as needed. Clients often maintain an "issues log" describing problems, what caused them and how they were resolved. Sharing such information with the intent of preventing problems can minimize the risk of developing more-serious difficulties.
• Checking invoices for accuracy. Many HR outsourcing contracts have complex fee calculations, and consequently, billing errors may occur. Regular and thorough review of invoices reduces misunderstandings, errors and disagreements.

Evaluating HR Staffing Effectiveness

A key indicator used to measure the effectiveness of HR staffing is the HR-to-employee ratio. The staffing of an organization's HR function can also be evaluated by HR cost metrics, the return on investment (ROI) on outsourced HR functions, benchmarking comparisons or analysis of the competencies, and diversity of retained HR staff.

HR-to-employee ratios

The ratio of HR employees to all employees, referred to as the HR-to-employee ratio, is fundamental in understanding the relationship between the HR department and the rest of the organization. It can be a useful indicator of overall efficiency of HR services. This ratio measures the numbers of HR full-time equivalents (FTEs) for every 100 FTE employees in the organization and is useful when comparing the HR functions in organizations of differing sizes.

Organizations using the HR-to-employee ratio should keep the following points in mind when evaluating an HR department's efficiency:

• HR outsourcing typically drives an improved HR ratio.
• HR staff should identify nuances when comparing ratios across organizations.
• HR professionals should compare the HR-to-employee ratio in their organization with similar organizations. Larger organizations typically have smaller HR-to-employee ratios. Smaller organizations may need proportionately more HR personnel to cover the baseline of HR's critical functions.
• Different HR-to-employee ratios can be expected depending on the scope of the specific HR department in question. For example, an HR department that uses extensive HR practices, such as succession planning, training and organizational development to drive business results throughout all levels in the organization, may have a larger ratio than an HR department with a smaller range of responsibilities.
• The percentage of HR staff occupying different roles can be affected by several factors. For instance, when an increased focus on talent management, organizational learning and change management exists, companies may need more employees in supervisory roles. And fewer HR employees may be in professional, technical or administrative support roles based on the extent of decentralization within the HR department.

Other metrics

In addition to the HR-to-employee ratio, HR staffing effectiveness can be assessed in the following ways:

• HR costs. Calculations of HR costs take three forms: cost per FTE employee, costs as a percentage of revenue and costs as a percentage of total operating costs. Most computations of total HR costs include the complete compensation and benefits of HR FTEs, supplier costs, HR technology costs and corporate overhead costs. Though many companies still have costs of up to $5,000 or more per employee in HR administrative processes, world-class organizations are at or below $1,100 per employee.
• Outsourcing metrics. Some of the potential qualitative benefits of outsourcing include improved response times and increased employee job satisfaction. In contrast, the quantitative benefits of outsourcing focus on money saved by outsourcing compared with performing HR functions in-house. These benefits should be expressed in dollar figures and will ideally contain an ROI realized over a period of time. Calculating the ROI can help determine how long it will take to achieve a 100 percent return on an initial outsourcing investment.
• Benchmarking comparisons. An organization can compare its staffing effectiveness with similar HR functions in comparable organizations and with top-performing HR departments.
• Competencies of the HR department's staff. An understanding of the competencies that contribute to an HR professional's effectiveness allows an assessment of the strengths—and the gaps—for each member of the HR staff. This assessment then identifies opportunities for professional individual growth and increased impact of the HR department across the organization.
• HR department diversity. An HR department that reflects the diversity of its organization's workforce is better able to understand the differing perspectives and behaviors affecting the business.

See SHRM Benchmarking Reports and How can the balanced scorecard be applied to human resources?

¹ Shellenback, K. (2017). Mercer: HR Structures Today