Commentators are currently polarised around the future of the HR function. Some suggest that the function is about to enter a boom period as after several years of cajoling, organisations are placing far greater emphasis on talent management and putting strategic HR activities at the heart of the business. On the other hand, others believe that HR is still struggling to rise to the challenge and is destined to remain a transaction based cost centre for the foreseeable future. As with most things, the truth probably lies somewhere in the middle. This article explores the evidence for both perspectives and suggests that solving apparently intangible human capital problems is the best way for HR to profit given current circumstances.

1. HR - Boom or Bust?
Linking Behaviour to Bottom Line Performance
HR - Boom or Bust?
Commentators are currently polarised around the future of the HR function. Some suggest that the function is about
to enter a boom period as after several years of cajoling, organisations are placing far greater emphasis on talent
management and putting strategic HR activities at the heart of the business. On the other hand, others believe that
HR is still struggling to rise to the challenge and is destined to remain a transaction based cost centre for the fore-
seeable future. As with most things, the truth probably lies somewhere in the middle. This article explores the evi-
dence for both perspectives and suggests that solving apparently intangible human capital problems is the best way
for HR to profit given current circumstances.
The Case for Boom picture that executives are now firmly ment software this year compared to
focused on talent management as a last, along with a record growth rate
In examining the factors contributing to key, if not the top priority. for 2007 of 20%7.
the possible ‘boom’ scenario, there are
at least four underlying developments The Growth of Talent Management Rising HR Salaries
which contribute to this1. Software
Likely to be of greatest interest to prac-
The Talent Management Agenda The second development is the growth titioners is the increase in salary and
of the talent management software interim rates for HR professionals. Reed
The most significant development is market, suggesting that leaders are Human Resources reports an 11% rise
recent research conducted by Price paying more than lip service to the in salaries during 2007 and a 30%
Waterhouse Coopers (PwC) and “our people are our greatest asset” increase in the size of the interim mar-
McKinsey which suggests that talent mantra. Gartner defines such software ket. In similar fashion, agency Josline
management is now a major priority by saying that “most large companies Rowe reports a rise in interim day rates
for business leaders. PwC report that have implemented an integrated set of from £350 to £500. As with the soft-
89% of 1,150 CEOs agree that the peo- administrative human capital manage- ware market, such growth rates sug-
ple agenda is a top priority and a fur- ment applications. Now, these compa- gest that the intentions reported by
ther 67% believe this is where their nies are turning their attention to PwC and McKinsey are being translated
time is best spent2. Meanwhile, strategic talent management applica- into the market and show a genuine
McKinsey state that “By far the most tions to get more value from their commitment to act and recognition of
significant trend - cited by 47 percent investments in people.”4 As reported the value that HR can contribute8.
of the executives - is the intensifying by the Yankee Group, this market has a
battle for talented people. Shifting cen- CAGR5 of 26%, making the market The State of the Profession
tres of economic activity and increasing worth $4.0bn by 20096. The forecast
technological connectivity were the also seems to be holding good with There are a number of other trends that
next most important trends, each with Gartner analyst Jim Holincheck report- also suggest a positive future ahead for
34 percent.”3 Such data paints a clear ing more enquiries for talent manage- HR. The launch of the Human Capital

2. HR - Boom or Bust?
Management Institute along with believe the CIPD is relevant to modern only 25% of HR practitioners hold the
Jackie Orme, CEO of the CIPD speaking business leaders while Barry Hoffman, same view13. Also, in a similar vein to
of “the headroom to grow our role as a branch secretary for central London the thoughts above, 60% of managers
function” and that “this gives us said “The structure, constitution and and 51% of practitioners view HR as an
tremendous opportunity” suggests the operation of the institute should be administrative department.
profession is looking to develop itself. reviewed, there can be no sacred Meanwhile, PwC report on the top 10
Further to the rhetoric, PwC’s research cows.” barriers to change, of which 6 (as indi-
shows that between 2002 and 2006, cated by the *) are arguably the remit
the HR function has increased its HR The Verdict on Business Partnering of HR.
staff to FTE ratio from 105 to 90, while
raising the number of managers and While Dave Ulrich’s work on Business Table 1 - Top Barriers to Change14
Top Ten Barriers % of
professionals as a proportion of total Partnering has been historically well
Firms
staff in the department by 5.9% to received within HR, more recent opin- Competing resources 48%
65.7%9. Such improvements have ion suggests a questionable legacy. Functional boundaries * 44%
been realised alongside an increasingly Research from Roffey Park has found Change skills * 42%
efficient HR department. HR depart- that half of 479 mangers found that Middle management 38%
ments are now 14.8% more efficient, business partnering was less than suc- Long IT lead times 35%
costing £1,110 to run per FTE in 2006 as cessful in their organisations12. Communication * 34%
against £1,275 in 2002. Opinion on the practice ranges from “if Employee opposition * 33%
you re-badge people without giving People issues * 32%
The Case for Bust them training and awareness, you are Initiative fatigue * 32%
setting them up for failure” to “I con- Unrealistic timetables 31%
While there are four factors that con- sider my role to be about adding value
tribute to the ‘boom’ of HR, there are to the business and understanding the What is the cause?
three factors that point towards the business model”. While the debate
‘bust’ side of the equation. about business partnering goes on, While people may debate the merits
Ulrich defended his work by saying “HR and likely outcome of the ‘Boom’ or
HR’s opinion of HR has been woeful at knowing the busi- ‘Bust’ scenarios, it is useful to under-
ness well enough. We still have people stand some of the causes and con-
Both formally and informally, there are in HR that cannot talk to board mem- tributing factors.
a number of diverging opinions as to bers when they start talking about
the current state of HR. While the CIPD cashflow or numbers. Equally, partner- A Macro Perspective
speak of “opportunity” and “headroom ing was not about how HR can get into
to grow”, PwC suggests that “the the boardroom, but what it does once There are a number of macro factors
future of the profession remains a mat- it's there.” that go towards creating today’s cir-
ter for speculation”10. Perhaps the cumstances and these are most simply
most telling comment comes from the HR’s Capabilities distilled via the PESTLE framework.
CIPD website where someone asks “I
would so dearly love to work for an With opinion divided about the state of • Political factors, similar to legal, out-
organisation that can see the connec- the profession and (arguably) its line the political will of the state that
tion between HR and day to day busi- modus operani suffering from a lack of has seen the championing of individual
ness running. Do these organisations wholesale acceptance, it is worth turn- rights. For example, the human rights
exist?”11 Such opinions become more ing our attention back to the research. act, corporate manslaughter legislation
stark when seen in light of practitioners McKinsey report that 58% of line man- and reaction to migrant workers.
views of the CIPD. An August 2008 sur- agers agree that HR lacks the capabili- • Economic influences include compen-
vey found that 61% of people don’t ty to develop talent strategies, while sation and benefits strategy, costs of

3. HR - Boom or Bust?
acquiring and developing talent, busi-
Diagram 1 - Micro Factors and their Relationship
ness model success and the impact of
Sponsorship of HR by the
economic forces on an organisation’s
business
objectives.
• Social elements include demograph- (High v. Low)
ics, changes in lifestyle and living
arrangements, the need to account for Perception of HR by the Type of work done
business
multiple generations of people in the
(Strategic Problem Solving v.
workforce and changes in society that (Positive v. Negative) Transactional Administration)
impact the workplace.
• Technological changes include greater
Nature of work done
availability of computing power and
(Integrated and Holistic v
software, the increased sophistication
Siloed and Fragmented)
and appetite for talent management
software, greater efficiencies through
systems, the relative maturity of the IT creating a resource based view of the While diagram 1 shows the relation-
industry, innovations and R&D activi- organisation in the process. Diagram 1 ships between the micro factors that
ties. illustrates a number of micro factors impact on HR, table 2 explores how the
• Legal issues include employment law, and their impact on one another. polarity of each factor plays out.
health and safety legislation, discrimi- Table 2 - Perspectives on Micro Factors
nation, competition law and related High Sponsorship of HR Low Sponsorship of HR
Acts of Parliament.
Annual salary surveys from Robert According to the CIPD, training budgets
• Environmental factors consist of sus- Walters suggest that HR salaries are have fallen 2.5 times between 2004
tainability, impact on the environment, comparable to and sometimes higher and 2008, from £756 per employee to
than finance16 £297 while the number of training
an organisation’s carbon footprint, cor- days has remained steady at 5 days
porate social responsibility and the per- According to CEO Eric Schmidt, Google’s per employee per year18
famed 20% rule is as much about
ception of the organisation in the eyes
encouraging line managers to take There are just 5 HR Directors who serve
of its stakeholders. ownership of talent management as it on the boards of FTSE 100 compa-
is about creating new products17 nies19
Strategic Work Transactional Work
While this overview is brief, it is
designed to introduce some of the PwC state that “maximising the value Chris Bones, Dean of Henley Business
of organisational resources has never School has argued that "many organi-
external factors which have contributed been more challenging. Now, more sations have applied the business part-
towards the rise of the talent manage- than ever is the time for innovation ner model to enable HR to achieve its
and creativity. Keeping a watchful eye aims, when it doesn't fit them. By rele-
ment agenda. For a more detailed
on the turbulent world economy and gating the transactional to the back
analysis and a view of long term driv- responding effectively is critical to sus- office, we have devalued the one thing
ers, PwC’s report “Managing tomor- tainable business success.”20 that employees care about. HR needs
to restore the value of transactions the
row’s people: The future of work to personnel function.”21
2020” may be of further interest15. Integrated Work Fragmented Work
HP VP of Learning and Development Dave Lefkow comments “There are so
A Micro Perspective talks about the silos in HR organically many silos and disparate processes in
disappearing22 HR that the sum of its parts are often
greater than the whole. Which brings
While macro factors impact industries,
In terms of a shift towards integration, us back to at least the spirit of the
economies and society in terms of rais- Systematic HR writes “I think we’ve original question - who will step up
reached a point where functionality is and tie this all together?”24
ing awareness of HR and in particular
becoming much less important. As
the talent management agenda, micro we focus ourselves on the customer McKinsey builds on this when they
factors concentrate on internal issues, rather than internally on HR, write “silo thinking - focusing on the

4. HR - Boom or Bust?
Table 2 - Perspectives on Micro Factors (contrinuted) games against those with much more
experience who also get to set the
Integrated Work Fragmented Work
rules. Even if they do win, the victory
the shift is going towards integration interests of one part of the organiza-
may have extracted a large cost in
and customer usability”23 tion rather than the whole - not only
hinders the mobility of talent within a terms of losing the distinct perspective
company but also undermines the
and competence of human resources in
sharing of knowledge and the develop-
ment of interpersonal networks (or the process of becoming like other staff
"social capital") across the organiza-
functions… If all human resources
tion.”25
becomes is finance with a different set
Positive Perception of HR Negative Perception of HR
of measures and topic domains, then
Harvard Business School graduate Only 23% of executives believe HR cur-
Daisy Wademan Dowling writes “in rently plays a crucial role in strategy its future indeed is likely to be grim.”
business school, we were trained to formulation and operational results, as
seek out underappreciated investment reported by Deloitte28.
opportunities and to create value in Rather than trying to beat finance at
surprising places. Unlike our peers Fast Company writer Keith Hammonds their own game, as Pfeffer implies,
searching for bargains in private equity
states that “in a knowledge economy, focusing on the unique abilities of HR is
or at hedge funds, though, we see the companies with the best talent win.
deepest discounts in the complex task And finding, nurturing, and developing likely to progress the agenda much fur-
of identifying, attracting, developing,
that talent should be one of the most ther, more quickly. With this in mind, it
and deploying people”26 important tasks in a corporation. So
why does human resources do such a is interesting to read of the stories in IT
Research from Deloitte finds that 82% bad job and how can we fix it?”29 31,32 and Marketing33,34 and their
of executives believe HR will be seen
chosen methods in advancing their
as a strategic, value adding function
within 3 – 5 years27. own agendas. It will come as no sur-
prise that ‘sticking to the knitting’ and
As can be seen from the information in in this particular basket exploiting your own competencies and
table 2, there is a wide spread of out- skills, rather than trying to beat some-
comes, opinions and research as to Human Capital efforts clearly move HR one at their own game is the key mes-
what influences and impacts HR’s role forward and help with talking the lan- sage!
within a business, the type of work that guage of business. While we shouldn’t
is done and the level of sponsorship throw the baby out with the bathwater, In terms of adding value and making
afforded the function. it is useful to recall Jeffrey Pfeffer who HR indispensable, this is no simple task.
wrote the following in 199730. There are statutory and legal obliga-
Human Capital Metrics tions to fulfil along with balancing
“Equipping human resource managers transactional and strategic efforts.
While influences on HR are many and with additional analytic tools and lan- Equally, recognising who owns and
varied, making the most of the oppor- guage is all to the good, as far as it then facilitating talent management is
tunity is likely to be of greatest interest goes. In the end, however, all one par for the course. Even more signifi-
to practitioners. While there is no short- accomplishes is being a more skilled cant perhaps is the notion that there is
age of focus in the profession on met- player at someone else’s game. By so no industry wide best practice model or
rics and human capital, it is worth doing, one buys into the ultimate sen- framework to follow, each organisa-
remembering that; sibility and reasonableness of the basic tion’s HR and human capital values,
measures and ideas in the first place; processes and resources are likely to be
• Better measurement of something this is often a mistake. Being skilled at unique. Even models such as
does not necessarily improve it or solve the wrong game is not a very promis- Accenture’s Human Capital
any problems ing strategy for either the company or Development Framework or Watson
• While human capital efforts are to be the human resources function. It is Wyatt’s Human Capital Index are far
applauded and encouraged, some have unlikely that human resources will ever from a one size fits all approach. More
warned against placing too many eggs be able to win playing the number encouraging is the fact that HR and in

5. HR - Boom or Bust?
particular, Learning and Development
Diagram 2 - A focus on high value
professionals are willing to try new and work, helping line managers solve
different approaches to advance their traditionally intangible problems
cause. The proliferation of tools, tech-
Sponsorship of HR by the
niques and approaches cannot be business Focus on high value,
understated, while a quick glance at traditionally intangi-
ble problems such as
the CIPD’s annual Learning and relationships, culture,
Development survey for 2008 details a group dynamics and
raising productivity
list of 14 different techniques with
‘most effective’ scores ranging from
53% to 1% with an average of
Perception of HR by the
20.7%35. This in itself is clear evidence Type of work done
business
of the fragmentation and unique needs
(High value work with line
(New problems solved,
of organisations. managers)
perception improves)
Solving Problems and Leveraging Nature of work done
the Opportunity
(Potential to create an inte-
grated approach to intangibles)
While experimentation is a good thing
and the apparent fragmentation of
value being provided by HR and its per- and practical way.
approaches arguably being evidence of
ceptions amongst colleagues rising as a
the silos seen in diagram 1 and table 2,
result. Diagram 2 illustrates this Taking this as a starting point, it is
focussing on solving problems that are
sequence of events. intriguing to see Emily Lawson of
specific to line managers and their
McKinsey talk of the fact that while tal-
teams is likely to yield the best results.
While the focus on high value work ent management has changed much
Efforts in this direction have already
with line managers may need some over 10 years, there are currently no
begun with attempts to develop line
education time in terms of acknowl- definitive answers for organisations36.
managers being reported by 72% of
edging the difference between transac- Given McKinsey’s reach and resources,
respondents to the CIPD L&D survey36.
tions and more strategic input37, this this arguably legitimises the existence
Similarly, 86% of line managers are
type of work ultimately benefits both of the boom scenario while leaving
involved in determining L&D activities
HR and the business. By equipping line unanswered the means of fulfilling its
and 49% of practitioners believe that
managers with the skills and informa- potential. For those who like to rise to a
line managers will have more responsi-
tion to proactively manage their own challenge, has there ever been a better
bility. Such an approach, while perhaps
teams and reports, the HR function per- time to be a HR practitioner?
in contrast to the more traditional focus
meates and extends throughout the
on the development of ‘management
organisation in a far more meaningful
populations’ is likely to see greater
Four Groups Ltd
5 St. Johns Lane
London
EC1M 4BH, United Kingdom
Tel: +44 (0) 20 7250 4779
Email: contact@fourgroups.com
www.fourgroups.com
© 2008 Four Groups Ltd, 5 St. Johns Lane London EC1M 4BH, United Kingdom.
All rights reserved. No part of this document may be reproduced without Company Number: 4650494
express written permission from Four Groups Ltd. VAT Number: 817 7962 85
Registered in England and Wales

6. HR - Boom or Bust?
Footnotes and references Coopers, 2008 25. The people problem in talent man-
agement, McKinsey Quarterly, May
1. At the time of writing, October 2008, 10. ibid 2006
the effects of the credit crunch, poten-
tial recession and the need for govern- 11. http://tinyurl.com/4h8xzm - 26. http://tinyurl.com/3kybfv
ments to provide financial support to Registration required
banks makes it difficult to be optimistic 27. Aligned at the Top. How business
about future economic conditions. That 12. http://tinyurl.com/442wo3 and HR executives view today’s most
said, the trends and observations with- significant people challenges - and
in this article are likely to endure and in 13. Making talent a strategic priority, what they’re doing about it, Deloitte
some circumstances, increase in signifi- McKinsey Quarterly, January 2008 Touche Tohmatsu, May 2007
cance.
14. Managing tomorrow's people: The 28. ibid
2. Managing People in a Changing future of work to 2020. Price
World, Key Trends in Human Capital, A Waterhouse Coopers, 2008 29. http://tinyurl.com/477e7a
Global Perspective. Price Waterhouse
Coopers, 2008 15. ibid 30. Jeffrey Pfeffer , 1997. Pitfalls on the
road to measurement: The dangerous
3. The organizational challenges of 16. http://tinyurl.com/4tu2r9 liaison of human resources with the
global trends: A McKinsey Global ideas of accounting and finance. Human
Survey, December 2007 17. http://tinyurl.com/5g8l4e - Start Resource Management, Volume 36
the video from 47:05 for relevant seg- Issue 3, Pages 357 - 365
4. Talent Management Application ment
Suites Can Enhance Workforce 31. http://tinyurl.com/4wzgn8
Effectiveness, Gartner, June 2005 18. http://tinyurl.com/3rstnn
32. http://tinyurl.com/3nzhua
5. CAGR – Compound Annual Growth 19. Managing People in a Changing
Rate World, Key Trends in Human Capital, A 33. http://tinyurl.com/4rfo4r
Global Perspective. Price Waterhouse
6. http://tinyurl.com/3nm2h2 Coopers, 2008 34. http://tinyurl.com/43judx
7. http://tinyurl.com/47movd 20. Managing People in a Changing 35. CIPD Learning and Development
World, Key Trends in Human Capital, A Survey, April 2008
8. While salary rises and market growth Global Perspective. Price Waterhouse
is undoubtedly positive, it is unknown Coopers, 2008 36. ibid
how much of this for the development
of HR practice and how much is due to 21. http://tinyurl.com/4bmknl 37. http://tinyurl.com/4lfl35
companies needing to reduce head-
count. Given that GDP growth in 2007 22. http://tinyurl.com/3sz45b - Start
was 3.1% and is currently at 1.4% for the audio from 18:19 for the relevant
2008, assuming the former would not segment
be unreasonable.
23. http://tinyurl.com/3evgt8
9. Managing People in a Changing
World, Key Trends in Human Capital, A 24. http://tinyurl.com/45vt2u
Global Perspective. Price Waterhouse