On a recent visit to Finland to deliver a leadership program I took the opportunity to call in to see a number of other clients. An interesting fact cropped up. Three of the four companies I visited had recently restructured their HR function. In all three cases the dotted line relationship between the HR Vice President at head office and the HR Directors and Managers at business unit and country level was being replaced by a solid line. The local and regional HR professionals were now reporting directly to their functional head and no longer to the line of business manager.
Solid Line/Dotted Line which is more important?
Now Jay Galbraith the IMD professor, who wrote the book “Designing matrix organisations that actually work”, Jossey-Bass publishers, would say that this is not necessarily significant in itself. He refers in his book to a conversation with a person in Procter and Gamble about how they handled solid and dotted line relationships and which takes priority. He was told they are both solid! He considers the point academic and a holdover from previous times of line and staff relationships. In his view a better way of handling this is not is one manager or both managers more important in decision making but using responsibility charting and shared goals as a way of heading off any conflicts.
In the case of our clients in Finland the objectives for the changing of the reporting relationships were:
1. Alignment and consistency. To achieve better alignment and consistency across the company in each case in terms of HR policies and practices and people management instead of having different interpretations and approaches in each business unit or country.
2. Leverage limited HR resources more effectively. These are small and medium sized international companies and the second aim was to have the HR professionals wearing two hats. One being the implementation of the HR strategy or approach to support the People Management strategy giving life and enabling the delivery of the business strategy. The second was responsibility for a specific HR dimension on a corporate level – such as talent management or compensation and benefits policy – so that each of the professionals in the HR network are making a valuable corporate contribution as well.
To centralize or de-centralize?
The argument for centralizing support functions has been very strongly made by the experience of Procter and Gamble. The scale is different as they are a major global company and on a much larger scale of global business than our clients from Finland. However their experience in centralizing support functions and the added value they are able to bring as a result is well documented in an article in the McKinsey Quarterly from July 2008. It reported an interview with Filippo Passerini, head of P&G”s global business services, and highlighted the value added of major savings in back office functions, including HR, as well as being speedier in integrating a major acquisition – Gillette. Unfortunately the article is not bringing further insight for HR professionals on the people dimension of how P&G Global Business Services “has emerged as a strategic partner with the operating units of the global consumer products group by providing innovative solutions in consumer and customer interactions and in product development.” But it is well worth a read for the insight into the way they set up the Global Business Services and the thinking behind it.
Some practical comments on the issue of centralized versus decentralized surfaced in a discussion with a leading Danish HR professional, Nils Munck, who has been handling this issue in a number of leading international companies through his career. “The dilemma goes back to the “eternal” discussion about strengths and weaknesses of centralized vs. decentralized decision making. I have spent time running HR in a centralized set up. I have seen the advantages of consistency, shared systems and common values. Not to mention the P&G angle of cost savings. Problem is that if you don’t watch out, the savings get lost by decreasing task quality in the Shared Service Centers. I have witnessed that as well…. However, not even mentioning all the gains of a strong central base, I have also seen the challenges for the local ability to act swiftly and decisively on (market) changes. And the difficulty for Central to understand the global/local context. It will always be a balance: do you want to run a lean, centralized operation, which excels when it comes to the global projects and strategic implementation? Or do you want to run a costly, decentralized set up, which excels when it comes to custom made, effective quick responses to local market challenges? I guess the answer is that there is no right answer to the best set up. Depends on the company, the industry and the degree to which the company acts across countries and continents. People make the difference! Galbraith is right – make sure roles, responsibilities and objectives are clear, then the answer lies in the successful execution at all levels. Any operational People Management excellence will beat a not so flawless strategic/organizational set up.”
He went on to comment about HR reporting lines: “If the local HR Managers report to you as a Corporate SVP, HR, you better make sure, you do not slow down the business process locally by setting up useless and time consuming, centralized “HR Textbook agendas” that do not make any significant business difference. I would much prefer the HR managers to be part of a strong, local business team, making a difference. And then, again, it comes back to Galbraith: It really doesn’t matter who local HR reports to – just clarify roles, responsibilities and OBJECTIVES, find the way HR can best accelerate/support the business and start working as a global HR team.”
Alignment with flexibility
Back to Finland, they have opted for a more centralized HR approach as outlined above. In each of the cases the HR VP is a member of the management committee or executive management. They are intimately involved in the development of the business strategy. They have varying degrees of success in getting a people management strategy to be an important dimension of the business strategy. But they are making progress. In one case having specific objectives around people is an integral part of the business planning process. In another the business leaders are required to have a people management strategy as part of the business strategy and the HR VP facilitated this process.
They are intent on having alignment with flexibility. And Nils supports this approach “as part of this global teamwork the idea of having the HR professionals wearing two hats (supporting the People Management Strategy and anchoring one or more corporate HR dimensions) is excellent and actually another way of creating “alternative” Shared Service Centers. I prefer to call them Centers of Excellence, and they can live in any country within the company family – using modern technology to create the platform.”
One common theme was that in all three cases they are keen on further building the professional and business partnering competence of their HR professionals. Equipping them to take on more responsibility as well as stepping into a high value contribution role with the line managers and business decision makers. They operate lean HR organisations and the success and value added of HR is very dependent on the individual HR professionals stepping up in terms of not working harder but working smarter. They need to adapt and be a stronger presence and contribution in management meetings and they also need to be able to step up to think strategically about specific HR policy areas for which they are now responsible. This is work in progress but in all three cases the HR VP’s were talking positively and with confidence that they considered that their people will do it.
Join the upcoming open programs : "Becoming a High Performance HR Business Partner" 14.10.2013-16.10.2013 & "Facilitation and change leadership skills for HR professionals" 27.11.2013 - 29.11.2013