In the late 1970s and early 1980s, many firms were struggling with the combined impact of high interest rates, growing international competition and shrinking productivity, which led to the demand for greater accountability in all functions of the company. The new human resource function was not exempt from this trend, and while methods for assessing the costs and benefits of HR programs were available, they were not widely utilized. Because of the lack of accountability, many commentators and executives began to view HR activities as nonproductive drains on overall organizational performance. A few even advocated that the HR function should be blown up and the activities should either be outsourced, allocated to the legal and finance departments, or given to line managers. Amid the criticism the external environment was also changing. Social and demographic trends (more women and minorities in the workforce, growth of immigrants, older workers and poorly educated workers) accelerated the demands for improving the quality of work life, for managing cultural and ethnic diversity, and for continual training and retraining.
As a result, during the ‘70s and ‘80s the human resource profession was put under the microscope. While many companies still viewed HR professionals as personnel administrators, a growing number of professionals were responding to their changing environment, and in their firms they were seen as people who were truly adding value to the company and giving the company a competitive advantage. As a result, about 15 years ago, many human resource experts began to urge HR professionals to adjust to the times by changing their role. The HR function, these experts felt, should add value to the firm in everything it does, and to this end they advised the HR function to move from transactional to strategic activities and to become strategic business partners. Human resource professionals must think of themselves as business people first and HR people second. HR professionals should be so well versed in the operations side of the business, these experts argue, that the HR department is taken seriously when it offers insights.
Today there is widespread agreement that HR professionals have indeed accepted the role as strategic business partner. The fourth iteration (2002) of the Human Resource Competency Study conducted by the University of Michigan Business School found that 43% of HR’s impact on business performance came from its strategic contribution. A smaller study conducted
in the same year by the Human Resource Institute (HRI) found that becoming a business partner and a strategic thinker had become the most important roles of HR professionals in respondents’ organizations.
Yet, there’s something elusive and ambiguous about this widely touted goal of becoming a strategic business partner. At a recent conference on the future of HR, a panel of experts was asked to define what a strategic business partner was. After much hesitation, they finally agreed with the statement, “I can’t define it, but I know it when I see it.” And although a
growing number believe that they’re filling this role, they don’t seem to be spending any extra time doing so, according to a study conducted by the Center for Effective Organizations. It found that a greater proportion of respondents (41.1%) said they were full partners in the development and implementation of business strategy in 2001 than in 1998 (29.4%). Although this statistic suggests HR is changing, the authors of the study do not believe so. Even though more HR professionals profess that they are strategic business partners, the expected increase in time devoted to this role is not reflected in the data from 1995, 1998 and 2001. “It seems that instead of responding to the calls for change, HR responded by maintaining the status quo” (Lawler and Mohrman, 2003).
Other studies also point out that becoming a strategic business partner remains an elusive goal for many HR professionals. In a 2002 survey conducted by the Society for Human Resource Management, respondents were asked to select the best description of the view of HR held by the executives in their organizations. Only 34% indicated that HR was viewed as a “strategic partner”. Helen Drinan, the former president and CEO of the Society for Human Resource Management, believes that the HR profession is at a crossroads. “If HR does not force its way into the heart of strategic planning in organizations, it will default to a technical and transactional dead end,” she said. She believes that upper management in most organizations is finally willing to recast HR into a role as equal business partner, but HR managers have to be willing and able to step up to that bigger role. “There is a seat at the table. Is that seat going to be filled by an HR pro or someone else?” (Drinan, 2002).
Given the immense amount of attention over the years to the need for HR to change its role in the organization, why has progress been so slow? It’s not because HR lacks the will to move in that direction; in an effort to free HR to become more strategic, traditional transactional activities have been either put online, centralized or outsourced. It’s not because of a lack of
knowledge; the competencies needed to transform the HR professional have been described in detail and made a top priority for most HR departments. And as the data above shows, it’s not for a lack of effort; more and more HR executives believe that they are being business partners.
