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Redesigning HR

The days of an HR leader being a people person with soft skills have long passed. There are no soft skills, there is only business acumen. Every decision, plan, or process has to be aligned with the core business strategy… It is all about creating and delivering value aligned with the organization's
objectives. HR leaders must first be strategic business partners who just happen to manage the most valuable assets of the organization — its human capital1.

According to research by the Hackett Group, organisations with world-class HR outperform their peers. A typical large company with an average of 21,000 employees and world-class HR can deliver services at 23% lower cost compared with a peer group. Their HR mostly devotes their time to high value processes such as strategic workforce planning2.

In high performing organisations, HR is mission-driven and people focused. It plays a pivotal role in driving and enabling strategic change.

It transforms workforces, skills and organisation structures to harness opportunities and manage challenges. HR is an architect of high performance, a driver of agility and a lever for lifting workforce engagement. HR experts have a seat at the executive table and contribute to decision making to achieve
maximum business performance.

High impact HR understands the needs of the business. This is made possible by3:

  • a fit-for-purpose service delivery model:
  • linking with internal clients to connect people strategies to the business
  • prioritising the things that matter most to the business
  • a focus on higher value work, e.g. strategic workforce planning and talent
  • a strong focus on operational excellence
  • a commitment to simplifying processes and continuous improvement
  • effective use of outsourcing.
  • the right HR capability mix, including analytical and consulting skills
  • effective use of technology, including high levels of automation and
    self-service
  • a focus on measuring HR performance underpinned by data to contribute to strategic discussions.

What the APS needs

  • A HR function with a strong understanding of current and future workforce capability requirements.
  • A HR function that lifts productivity and impacts the bottom line by:
    • identifying and prioritising the workforce issues that are most important for business success, ensuring the greatest return from workforce investments
    • providing data-driven insights to inform decisions about people strategies
    • demonstrating its impact on business outcomes by using sound data and solid analysis to quantify workforce improvements such as productivity and engagement
    • successfully competing for talent by getting the basics right–attracting, challenging and retaining the best people.
  • A well-designed HR delivery model that focuses on what matters most to the business.
  • HR people with the right skills mix.

HR is at a crossroads. Once designed primarily as a compliance function, today's HR organization must be agile, business-integrated, data-driven, and deeply skilled in attracting, retaining, and developing talent4.

What we found

HR is being re-designed in the public and private sectors

According to research, the most effective HR functions devote most of their time to very high-value activities such as strategic workforce planning5.

Advances in technology have made it possible for HR to move away from manual processing activities and play a stronger role in guiding long-term business strategies. Yet a global survey by Deloitte University6 suggests that HR functions are generally struggling to make the transition from being sound administrators to trusted strategic advisors:

  • 42% of companies surveyed reported that the impact of HR on organisational success is weak
  • 85% of companies surveyed believed that HR needed to transform to meet new business priorities.

A number of public and private sector organisations are going through a process of re-designing HR functions and capability.

Singapore Public Service

The Singapore Public Service is driving public sector transformation in recognition of increased policy complexity, changing demographics and growing citizen expectations. As part of this effort, a program of work is underway to professionalise HR. Singapore's Public Service Division has partnered with
the Chartered Institute of Personnel and Development (CIPD) to help its HR teams play an active role in building a workforce that is 'future ready', highly effective, agile and resilient. A pilot group of 20 HR directors from the Public Service will have their experience assessed against CIPD benchmarks,
based on international standards of practice.

Telstra

Over a period of 12 years, Telstra has shifted from an HR model aligned to the industrial environment to a modern and strategic model. In the process, Telstra has moved to an HR delivery model comprising automated hubs, tactical advisors (for issues such as remuneration) and strategic partners. Telstra
has reduced the size of its HR function in a number of areas and upskilled those that have remained to make them more capable. Telstra continues to refine its HR model.

Queensland Public Service

To support HR professionals to be well positioned as strategic business partners, the Public Service Commission partnered with an external company to develop and deliver the Strategic HR Capability Assessment and Development (SHR-CAD) initiative. The initiative encompassed a fit-for-purpose strategic
HR competency framework that includes an assessment of capability through multi-rater feedback: self, supervisor and up to eight customers. Results from SHR-CAD have provided a baseline of HR capability across the sector and have identified capability areas for targeted development. The development of
a sector-wide development strategy is currently underway.

New Zealand Public Service

In New Zealand, the Government Chief Talent Officer is also the Head of Profession for Human Resources. This appointment aims to galvanise the HR profession, raising the level of capability, capacity and confidence in the HR function.


APS HR is not sufficiently focused on high-value strategic activities — some of this is due to capability gaps

According to research by the Hackett Group, "world-class HR organizations are distinguished by their commitment to operational excellence, their mastery of strategic talent management and their ability to act as true partners to the business … the key enabler is strategic workforce planning"7.

In the APS, HR models vary considerably by agency. However, as shown in the APS Strategic HR Snapshot8, evidence suggests that taken as whole, the APS HR function is not sufficiently focused on high value activities such as strategic workforce planning and talent management.


APS Strategic HR snapshot

Strategic Workforce Planning9

World class HR organizations … have largely completed building a sophisticated strategic workforce planning (SWP) process. Two-thirds of these organizations employ staff with advanced SWP skills.a

 

Talent and Succession Planning

One of the main differentiators of world class HR organisations is their proven ability to strategically manage talentb.

 


Strategic workforce planning is a particular area of ongoing concern for the APS. Data over successive years10 indicates there are ongoing capability and data gaps that can prevent workforce planning from moving beyond a budget-planning headcount approach.

Additionally, the APS's greatest weaknesses are in the areas that are most critical for shifting workforce planning from an operational to a future-focused strategic activity.

Weaknesses in critical workforce planning areas

  • In 2012-13, workforce plans were weakest in addressing critical future risks, e.g. scenario planning and workforce affordability11. These are two of the most technically difficult but critical components of strategic workforce planning.
  • In 2012-13, 68% of agencies reported that they had not formally analysed their existing workforce occupations. This information is a critical input to workforce planning processes to enable agencies to successfully shape their workforce to meet changing business requirements12.

Ongoing workforce planning data and skills gaps

  • In 2012-13, workforce planning was the most critical HR skills gap: 41% of agencies reported a moderate or severe shortage; 38% reported a limited skills gap13. Agencies with a workforce plan reported that skills gaps in areas such as statistics, data modelling and analysis were barriers to workforce planning14
  • In 2013-14, agencies reported common barriers to workforce planning included lack of specific workforce planning skills and insufficient data sets15.

Although recent data points to some improvement, workforce planning continues to be an area of concern. In 2014-15, 60% of agencies reported having a workforce plan in place for at least part of the agency, up from 35%16 the previous year. Agencies were also asked to rate the maturity of their workforce
planning capability. The highest proportion reported that plans were 'in development' to put systems in place to manage workforce planning metrics and ensure the workforce planning capabilities of employees17.

Lack of consistent HR data hinders analysis and strategic input

According to research, great HR functions prioritise the most urgent HR needs using data-driven insights, and use key performance indicators (KPIs) to demonstrate impact. "Without a clear, data-driven understanding of how the organization is leveraging its human capital, HR leaders have little to contribute
to big-picture strategic discussions"18. Leading private sector organisations regularly report against metrics that keep them in touch with strategic objectives. Metrics also provide a focus on ongoing HR transformation.

In the APS, a lack of insightful data limits HR's ability to provide meaningful analysis and contribute to strategic discussions. The quality and strategic value of metrics varies considerably across agencies depending on their HR systems.

At the whole-of-APS level, a lack of consistent data makes analysis of HR metrics difficult. Apart from the APS Employment Database which is updated monthly, the APSC primarily relies on an annual employee census and an annual agency survey to generate whole-of-APS data sets. This method means that
reporting on important indicators such as employee engagement is limited to a once-a-year retrospective snapshot, rather than driving a continuous focus on agreed APS priorities.

HR metrics that underpin business performance

"World-class organizations focus more than the peer group on what is most important to measure, as opposed to simply what it is possible to measure"19. Communicating meaningful performance measures allows HR to build visibility and trust with executive stakeholders. It is also critical to supporting
business agendas and strategic workforce planning.

Key metrics used by private sector companies to inform current and future business scenarios, and highlight potential areas of concern include:

  • recruitment and resourcing: time to offer, time to hire, spans of control
  • workforce profiles including life stage demographics, and gender and diversity ratios
  • internal mobility.

APS HR is relatively large

Currently, the APS HR function is relatively large at a median of 3.11% for APS agencies surveyed20 compared to a peer group median benchmark of 1.87%21. The largest proportion of APS HR (65.3%) work in business advisory areas, which are also referred to as value-added
services22. Appendix C outlines the methodology used to compare the size of APS HR with a peer group.

Currently around 21% of APS HR undertakes transactional services, specifically payroll and conditions. Outsourcing these transactional services would reduce the APS median HR size to 2.31%. This is still relatively large compared with the peer group benchmark.

In the APS, reductions in the size of HR could be achieved by outsourcing all transactional and some value-added services. Reductions may be further achieved by moving to expert shared services for some value-added services. Transitioning to this model would generally involve upskilling HR people with
strategic skills such as data analysis and consulting.


HR function as a percentage of total HR

HR as a median percentage of organisation size

 


Only do what matters most: streamline HR by shedding low-value activities, build specialist skills.

While additional public sector accountability requirements may account for some of this variance in size, recent experience in other public sectors and in the private sector indicates that some of this difference is structural.

  • In the UK Civil Service, acute pressure to reduce public spending has led to a transformation of the UK Civil Service's HR function.
  • Over six years, the core HR function has been reduced by approximately 50% to 4000 people23 which is around 1% of the Civil Service24. It is estimated that the size of HR would still be reduced by 25% if outsourced functions were brought back
    into the Civil Service.
  • Since 2009, the cost of HR has been reduced from £524 million per annum (or £1,060 per employee) to £257.5 million by 31 March 2014 (or £614 per employee), providing a reduction of 51%.
  • Now that the HR function is the right size and shape to deliver, the focus is on deepening capability and the quality of HR services.
  • A private sector organisation reports that over the last five years it has transformed its HR function. The size of HR has been reduced by 60% through outsourcing low value-add functions and only retaining staff with high-level specialist skills.

Leading organisations are extending shared services, outsourcing and upskilling HR

HR activities can be divided into three groups: transactions, business advice (also referred to as value-add transactions) and strategy. Technology is providing opportunities to re-design the way these services are delivered. This should lead to leaner HR functions, an improved customer experience and
enable HR to focus on strategic activities.

The shared services model has traditionally been used for transactional work such as payroll. This model is now being adapted to deliver business advisory services such as recruitment, industrial relations, compensation case management, and learning and development25.

There are a number of HR functions being deeply re-engineered.

  • The UK Civil Service's HR transformation included moving to a new delivery model comprising:
  • Central expert services for learning and development, resource management, employee policy and workforce planning
  • Outsourcing functions, including payroll, learning programs and staff surveys
  • Establishing business partners in agencies at a 1:1000 ratio.
  • The Department of Defence has implemented shared services for some HR functions. This has involved building client focused teams to support line managers, and introducing the role of HR Business Partner to work with senior leadership teams. At the same time, business processes have been improved.
  • The Australian Government Department of Human Services has a four-tier model that includes a self-help service for basic services, a People Advisory Centre for routine advice, dedicated teams for complex queries, and specialised teams for services requiring deep subject matter expertise.
  • The Shared and Common Services Programme is driving efficiencies in the APS by consolidating transactional and other common activities. The programme is reducing the number of providers delivering services to APS agencies and ensuring that the benefits of scale are being realised in the market. The
    model allows agencies to provide or receive services.
  • This review consulted with a range of Australian private sector organisations and other public sectors that are already transforming their HR delivery models by outsourcing functions and creating shared services. These organisations all reported that while new models reduced the size of HR, upskilling
    was required to ensure remaining staff shifted their focus to higher value work.

There is an opportunity to re-design APS learning and development (L&D)

There is an opportunity to reduce the APS's spend on L&D.

  • In 2014-15, over $900 million in single and multi-year contracts for learning and development were recorded on AusTender26. This figure excludes on-the-job learning, coaching and mentoring. Additionally, AusTender does not record contracts worth less than $10,000.
  • The UK Civil Service has centralised purchasing for L&D contracts. As a result, it has removed duplicated products and reduced the number of service providers. Comparable clusters of learning programs are now 75% cheaper than they were five years ago for similar content; these cost savings have
    been confirmed by independent audits.
  • The Australian Government Department of Human Services has centralised L&D purchasing, reducing the number of service providers by over 1500.

The APS L&D business model allows agencies to duplicate spending on similar products, resulting in inconsistent products of varying quality for common topics.

The APSC's Centre for Leadership and Learning (the Centre) was established to improve the quality of capability development and to reduce duplicated spending on L&D through a 'build once, use many times' model. It works with agencies to centrally co-design the APS-wide leadership, core and management
skills learning products needed across the APS. Core and management skills products are able to be tailored to meet agency-specific needs.

In recognition that 70% of learning takes place on-the-job27, the Centre has shifted away from expensive classroom-based learning as the default option.

The APSC's work should allow agencies to direct their L&D spend towards agency-specific training, such as training people to apply agency-specific legislation. However, it is not mandatory for agencies to use APS-wide products and there is evidence of significant duplication of spending.

There is no suggestion that the APS move away from building capability. However, there is an opportunity to:

  • reduce the overall cost of L&D by removing duplication
  • achieve better value for money by taking advantage of collective purchasing power
  • improve the consistency and quality of L&D products.

Technology can transform HR performance and delivery

World-class organisations use common platforms and tools that provide consistent information needed for strategic workforce planning28. In the APS, the large number of HR systems is limiting the capacity to collect consistent whole-of-APS workforce metrics. While the APS Employment Database provides useful workforce statistics29, there is a heavy reliance on annual surveys for APS data. Agencies will always need to collect different workforce information based on their individual business needs. However, a greater level of consistency would support better whole-of-APS workforce planning
and talent optimisation.

Additionally, technology can be used to change the experience of HR customers. A number of Australian companies are taking advantage of mobile apps and chat functions to better support managers and employees.

  • Snowy Hydro is using self-service hubs for transactional functions such as leave applications and online chat for routine HR questions.
  • ANZ is currently re-engineering processes to improve the experience of HR customers and to streamline contacts with HR.
  • Telstra has introduced self-service hubs and mobile apps for its employees to manage HR transactions.

There is lack of clarity about the role of the APSC

There are differing perceptions about the role of the APSC and how it can best add value.

The Australian Public Service Commissioner has statutory functions in relation to the continuous improvement of workforce management, and APS capability and performance. This includes some regulatory functions. The APSC sees itself as providing support to agencies through leadership, guidance, advice,
networking, and encouraging agencies to apply flexible and innovative HR strategies.

However, there is a perception by agencies that the APSC releases complex guidance material and imposes red tape from the mountain top, while failing to follow up with further assistance. Agencies see that the APSC could offer greater support in getting the basics right and more active promotion of better practice by showing me how.

Agencies expressed the view that they would like to see the APSC taking more of a partnership role and collaborating with agencies to help solve problems and improve practices. It is important that the APSC offer different levels and types of support according to the needs of different agencies. Large
agencies with a service delivery focus have different operating environments and different needs to those that deliver policy. Large agencies also have different challenges compared to smaller agencies.

Proposed actions

11. Agencies to ensure HR has an equal seat at their executive table

For HR to be a genuine business partner and architect of high performance, it is important that HR has a voice in strategic business decisions.

HR experts should be in a position where they can inform and contribute to business decisions, including through high quality data analysis. HR input should be considered alongside other significant strategic enablers such as the Chief Finance Officer and the Chief Information Officer.

12. Assess agency HR delivery models to align them with the needs of the business

There is an opportunity for the APS to make choices about the way HR supports the business.

Assessing the HR delivery model will provide an opportunity to ensure that HR activities, including activities that result from additional levels of accountability in the APS, are as efficient and effective as possible. Assessments should be completed within twelve months. Using an assessment model
or tool will help agencies:

  • identify where efficiencies can be gained by moving to alternative delivery models for business advisory activities such as recruitment, industrial relations, compensation case management or learning and development
  • make active choices about which activities or parts of activities should be kept in-house versus delivered externally
  • plan for future HR capability and technology needs.

There are a number of tools available. An example follows30.

13. Transition to alternate delivery models for all non-strategic tasks

To make the most of economies of scale and other efficiencies that can be achieved by moving to alternative HR delivery models, agencies will need to identify where it makes sense to join together to deliver functions through shared services or expert hubs.

The APSC should act as a point of coordination responsible for:

  • reviewing the results of agency HR model assessments
  • challenging agency perceptions about which functions could
    be delivered differently
  • identifying opportunities for agencies to work together or implement shared service hubs
  • connecting agencies with better practice to drive continuous improvement for HR functions that are not transitioning to alternative models.

The APSC will monitor transition to new models and report progress directly to the Secretaries Committee on Transformation.

New HR delivery models will most likely lead to a different HR capability mix and a reduction in the size of the HR function, aligning with the Smaller Government agenda. The experience in the UK Civil Service indicates that reductions in the size of HR will generate substantial savings over time. Significant
savings will not be realised immediately as a successful transition will require an upfront investment in much needed strategic capability and technology.

14. Invest in people–conduct a HR skills audit and get the right capability mix

A move to a more strategic role requires HR to have a greater understanding of the business and the way it supports organisational strategy. This will change the mix of HR skills required. A more business-focused HR function will require more specialised HR professionals who are business and technology
savvy, and who have the top skills and knowledge in their field. They need to be deep specialists who understand:

  • business strategy
  • policy design
  • talent optimisation
  • behavioural economics.

15. Invest in technology–improve workforce data and enhance the experience of HR customers

The APS should invest in HR technology to improve HR data and inform better people decisions. The investment should be closely aligned with the selected future delivery model. Where it makes sense to do so, the APS should also consider moving to an APS-wide IT system for select HR functions, e.g. talent
management.

The APS should look to embrace technology that can add to its understanding and management of its workforce, as well as provide a more compelling, consumer-like experience for its employees. Investing in improved HR systems can:

  • improve workforce metrics
  • enable both employers and employees to better manage their HR interactions
  • manage recruitment, talent, online learning, employee communications, engagement and workplace wellness
  • provide a better employee experience including real-time responses
  • support alternative delivery models, e.g. outsourcing low value activities.

16. Review the model for APS L&D

The APS L&D model should be independently reviewed. The review would aim to:

  • quantify the APS's current L&D spend
  • estimate the scale of duplication across the APS's L&D spend
  • identify and cost alternative models to
    • move to consistent and high quality L&D products for common topics
    • remove costly duplication and make better use of the APS's collective purchasing power.

17. Clarify the role of the APSC

In diversified businesses such as the APS, it is important that there is clarity about the role of the central HR function compared with the role of HR in business. There is scope for the APSC to develop more of a consulting role, to assist where professional skills gaps exist in agencies, and act as
a professional facilitation hub to encourage networking and the sharing of information. The APSC can adopt practices that:

  • assist agencies to embed skills and better practice using a 'show me how' approach
  • identify where best practice and areas of excellence exist, and encourage agencies to leverage and promulgate high performance
  • encourage cross-collaboration with agencies and the private sector.

1 Konchak, M. in Hispanic Executive, April/May/June 2013. Available: http://hispanicexecutive.com/2013/in-what-ways-does-hr-now-function-as-a-strategic-business-partner/.

2 Hackett Group, "The World Class Performance Advantage: How Leading HR Organizations Outperform Their Peers", HR Executive Insight Management Issue, 2014, p.1.

3 Adapted from Hackett Group, op. cit., and Boston Consulting Group, Creating People Advantage, 2015.

4 Deloitte University Press, "Reinventing HR: An extreme makeover", Global Human Capital Trends 2015. Available:
http://dupress.com/articles/introduction-human-capital-trends-2015

5 Hackett Group, op. cit., p.1.

6 Deloitte, The High-Impact HR Operating Model, 2014, p.1.

7 Hackett Group, op. cit., p.7.

8 It should be noted that the Snapshot captures whole-of-APS aggregate data. 2014-15 data is not available for all data points.

9

  1. Hackett Group, op. cit., p.3.
  2. Ibid
  3. Australian Public Service Commission, State of the Service Report 2014-15, unpublished data.
  4. Australian Public Service Commission, State of the Service Report 2012-13, p.160.
  5. This includes agency Capability Reviews up to June 2015. It excludes three reviews that are designated cabinet-in-confidence.
  6. Australian Public Service Commission, State of the Service Report 2014-15, unpublished data.
  7. Ibid
  8. This includes agency Capability Reviews up to June 2015. It excludes three reviews that are designated cabinet-in-confidence.
  9. Australian Public Service Commission, State of the Service Report 2012-13, p.124.

10 Note: There are variations in the specific data gathered each year in the period 2012-2015. Collectively, the data points indicate ongoing gaps.

11 Australian Public Service Commission, State of the Service Report 2012-13, pp. 124-125.

12 Ibid, pp. 133-134.

13 Australian Public Service Commission, State of the Service Report 2012-13, p.132.

14 Ibid, p.130.

15 Australian Public Service Commission, State of the Service Report 2013-14, p.159.

16 This covered 73% of the APS workforce.

17 Australian Public Service Commission, 2015 Agency Survey, unpublished data.

18 Boston Consulting Group, op. cit., pp.4, 18-19.

19 Hackett Group, op. cit., p.6.

20 Shared and Common Services Programme, 2015. HR data is from a survey of 49 APS agencies with an average staffing level (ASL) of just under 1,300 people for 2014-15.

21 Boston Consulting Group. HR size (including the OHS function) is benchmarked against a group of peer group entities with 2,500 employees or less.

22 Shared and Common Services Programme, 2015. Value-added transactional HR as a proportion of total HR.

23 This figure represents about 80% of people in classic HR functions. It excludes people in teaching functions such as the tax academy or defence academy.

24 Based on a UK Civil Service of 430,000 people.

25 Deloitte, The High-Impact HR Operating Model, 2014, p.2.

26 Contracted values and length of contract on AusTender are estimates and may not match actual agency spending or contractual timeframes.

27 Lombardo, M. and Eichinger, R., The Career Architect Development Planner, Lominger Limited, Inc., 1996.

28 Hackett Group, op. cit., 2014.

29 For example, headcount, engagements, separations, workforce diversity, workforce location, classification and employment type.

30 Sample HR assessment model adapted from Boston Consulting Group, HR transformation approach, Available: www.bcg.com/expertise/capabilities/people-organiszation/hr-transformation-approach.aspx; Mercer, It's time for the next generation HR service delivery model 2012; Deloitte, The high-impact HR operating model, 2014.