In brief
- The current HR operating model faces challenges that limit HR’s contribution to the organization, such as narrow specialization, a one-size-fits-all approach, process-centricity, and neglected strategy.
- HR operating models need to evolve to address these challenges, becoming adaptable and versatile in the complex business environment.
- The Capability-Driven HR Operating Model is built on four core capabilities that are adaptable to various business needs and workforce diversities, empowering HR to drive value in different organizational contexts.
The dominant HR operating model has reached the end of its life cycle.
Initiated in the 1990s, the Strategic Business Partner Model has been a standard in HR for decades. However, a changing business landscape, digitally-driven customer channels, and the expanding scope of HR necessitate its reevaluation and adaptation for future relevance.
In this article, we provide our perspective on how HR operating models will evolve and propose the new, future-proof Capability-Driven HR Operating Model that we believe organizations should evolve towards.
The current HR operating model reality
When we look at the current HR operating model, we see four major challenges that limit HR’s contribution to the organization. Let’s take a closer look at these.
Challenge 1: Narrow specialization struggles to deliver integrated solutions
Current operating models are often overly dependent on the role of HR business partners who predominantly operate within the business and HR specialists who are internally focused and removed from the business reality, resulting in siloed work.
In our HR Trends for 2024 report, we introduced the concept of “Silos to Solutions” as the initial step towards transforming the HR operating model. The transformation should begin by dismantling functional silos. This shift towards solution areas will foster a more unified, consumer-like employee experience that aligns more closely with business needs.
Challenge 2: A one-size-fits-all approach fails to fit the business environment
HR operating models have been viewed along a curve of maturity. This implies that they started as a generalist model, matured to incorporate functional areas, and evolved into the gold standard of the HR Business Partner Model.
This thinking has led to the perspective that some models are seen as “better” than others. It reinforces the misperception that strategic work is more valuable than operational work within HR.
As any HR professional can attest to, this is not the case. Rather than perpetuating the narrative that transactional and operational work is less valuable, we should instead focus on matching the HR offering to what the business and the workforce require.
This approach would enhance HR’s agility and relevance, ensuring the operating models meet organizational needs rather than conforming to an idealized HR standard.
Challenge 3: HR operating models are too process-centric to accommodate consumer-like personalization
Current types of HR operating models are focused on functional efficiency and process excellence, often at the cost of experience. Today’s workforce expects a consumer-like experience when engaging with HR practices and processes. This requires a shift towards personalization over standardization, or at a minimum, a certain level of flexibility in how employees engage with HR solutions.
To accommodate these demands, the HR operating model of the future needs to deliver solutions in a multi-channel and personalized manner, using data and technology to drive a differentiated employee experience.
For this to happen, technology must become a key capability rather than just an enabler of isolated HR tasks and functions. Evidence-based and data-informed HR practices are also essential to optimize experiences and ensure they bring the intended value.
Challenge 4: HR strategy has been neglected in the HR operating model, reducing it to an activity as opposed to a core capability
Existing HR models have positioned strategy as an inherent activity of HR leadership. At best, they consider strategy a mechanism that aligns and coordinates the other parts of the model.
Given the changing complexity of the working world, we believe HR strategy should be more prominent, with a dedicated focus on ensuring the HR model is continuously aligned with the changing priorities of the business and external environment.
Elevating strategy leads to a progression in how HR defines its impact, measures its value, and aligns stakeholders around the HR vision.
Introducing the Capability-Driven HR Operating Model
Given these challenges, we propose a new HR operating model based on four core capabilities – the Capability-Driven HR Operating Model.
As we discuss later in this article, these capabilities can be organized differently depending on the needs of the business and operating context, yet they always form the basis of the HR operating model.
The four core capabilities are as follows:
- The HR Strategy is responsible for aligning HR priorities with business strategy and objectives. Within this capability, we also see an external market focus that ensures HR practice aligns with the latest trends where applicable to the business.
- Channels refer to the methods HR utilizes to reach its target audience. For example, relevant channels could be self-service, service centers, advisory, or face-to-face, depending on the needs of the business and how HR decides to market and distribute its products and solutions.
- Products and Solutions is an integrated capability that designs and delivers the HR products and solutions implemented through the chosen channels. Products could be practices, systems, processes, or platforms that deliver directly to the end-user. Solutions will be a combination of services, support, advisory, and expertise that tailor products to the needs of different stakeholders. Products and Solutions work together in an integrated manner and include a data-informed implementation focus. In practice, this capability will blend generalist and specialist skills in alignment with our perspective of a T-shaped HR professional.
- The HR Technology and Data capability encompasses the HR technology architecture and technology infrastructure, as well as the structuring and management of data, its governance, and application. Evidence-based and data-led practices are core to all HR activities, and as such, this capability delivers insights into all other HR capabilities.
Key considerations for applying the Capability-Driven HR Operating Model
The four core capabilities of the Capability-Driven HR Operating Model can be organized in various ways to best meet the needs of the business. The different variants determine how exactly the capabilities interact, how it delivers value, and it’s operationalized.
No variant of the Capability-Driven HR Operating Model is better or more mature than another. Rather, they provide different value-adds to the business and have strengths and limitations that HR leaders need to consider in determining what is fit for purpose.
Two considerations guide the selection of the appropriate variant.
Consideration 1: How diverse is the HR target audience?
The workforce composition continues to change, and with that, their needs. The HR operating model should adapt to workforce needs to enable a consumer-focused approach to HR practices and solutions.
Using the target audience as guiding criteria will require a shift away from traditional “functions” as the starting point for HR models and instead focus on “who is the intended consumer” of HR solutions.
To determine the diversity of the target audience, HR should consider the following:
- Do all employees do the same work, or are there differences between the nature of the jobs?
- Are employees co-located or working in a distributed manner?
- How is work done? Is it done asynchronously, or is everyone working at the same time and place?
- What is the background of employees? Do they speak the same language, or are they culturally diverse? Is the organization operating across multiple cultures?
These guiding questions will inform the type of solutions that will best address the workforce’s needs, as well as the extent to which different solutions will be required for different groups.
Consideration 2: Nature of the HR offering
The second consideration relates to the nature of the HR offering. A standardized offering that applies to all target audiences will require a different approach than a highly differentiated and broad offering. This implies that the more delivery channels, products, and solutions offered, the more robust the model will become.
4 Variants of the Capability-Driven HR Operating Model
By using these two considerations, we’ve defined four different operating model variations to show how the core capabilities can be organized to meet the needs of the business.
Variant 1: Standardized Solutions
A standardized HR offering delivered to a similar target audience
The Standardized Solutions variant delivers repeatable and consistent HR solutions to a target audience with similar needs.
This variant of the Capability-Driven HR Operating Model is appropriate where the HR offering is not complex, serves a homogenous target audience, and can be delivered through channels that all contribute to a single HR Strategy.
Delivery logic
The model delivers to the business through identified channels that all members within the target audience can access.
For example, this could entail essential self-service or face-to-face delivery with employees and leaders all accessing HR solutions in the same way.
Instead of traditional functional areas, one Products and Solutions capability combines expertise around key consumer needs. For example, “Awareness and Attraction” as a product and solutions area should integrate expertise from employer brand, talent acquisition, and employee value proposition and execute through the identified channels.
This model is supported by a centralized HR Technology and Data capability and is governed by a single HR Strategy.
How the model contributes value to business
Value drivers: Standardization, Quality, Efficiency
The strength of this model lies in its ability to deliver high-quality HR solutions in a repeatable and scalable manner. Given the high level of centralization, the model enables gaining agreement and alignment on critical decisions faster, simplifies implementation, and ensures resources are allocated to drive key priorities.
There is a high level of central control, and it is able to drive down costs and increase the efficiency of HR delivery over time.
Limitations
As the business becomes more complex, this model will not be able to deal with the needs of a more complex workforce, and aiming to do so will stretch current capacity to its breaking point.
Once solution areas become too many or too broad, this model will struggle to balance the execution of services with the design of new solutions, and in this form, can only deal with a few solution domains that are targeted, contained, and have clear outcomes.
What the Standardized Solutions model variant could look like in practice
GreenEco Solutions is an environmentally-conscious company specializing in sustainable home improvement services. They offer a wide range of energy-efficient products and services, such as solar panel installation, energy-efficient windows, and insulation solutions.
The workforce consists of technical teams, manufacturing teams, and back-office functions responsible for distribution, sales, and marketing. The workforce’s needs are similar, and the HR value proposition is standardized across all workforce segments.
They have adopted the Standardized Solutions Blueprint. The HR team comprises a small HR generalist team responsible for the day-to-day HR services in the different divisions. A shared “People Experience and Culture” solutions team operates across various business areas, and a small team is responsible for payroll, data, and basic employee self-service for aspects such as leave.
The HR team has one strategy and a single reporting line into Robert, the Head of HR, who forms part of the management team at GreenEco Solutions. Technology and data are centralized.
Variant 2: Tailored Solutions
Delivering a consistent value proposition through various channels to a diverse audience
The Tailored Solutions variant of the model allows the delivery of a standardized value proposition to different target audiences. These audiences can be defined as different business units, employee types, or regions.
The variant is the best fit when the target audience HR delivers to is diverse, but there is consistency in the HR offering that will meet their requirements.
In other words, what HR offers is consistent, but how it is packaged and through which channel it is delivered can be tailored according to the preference of the target audience.
Delivery logic
In this model variant, the HR offering is largely standardized, but how it is delivered is tailored to the target audience’s needs. For example, all audiences might require talent acquisition solutions, but for sales, it is driven through mobile, while for the investments department, it is a high-touch experience.
This model has broad channel differentiation and will include channels such as self-service, service centers, and advisory capabilities. Advisory and execution capabilities will include a high-touch and personalized focus that enables tailoring and adaptation of HR products and services to specific audience needs.
The Tailored Solutions variant has expanded the number of Products and Solutions areas to increase the number of offerings available to the different audiences. Given its diverse channels, it has the ability to tailor a largely standardized offering to the needs of the target audience.
This model still draws from one centralized HR Technology and Data capability and is governed by one HR Strategy.
How the model contributes value to business
Value drivers: Consistency, Tailored
The strength of this model lies in its ability to adapt and be flexible in how delivery is tailored to the needs of the different audiences. This allows for expanding HR Products and Solutions over time and delivering them in line with audience preferences.
Employees get the experience of personalization, even though the model still aims to drive consistency and standardization in its design capability.
Limitations
The success of this model requires a clear understanding of the target audience and the ability of HR to adapt and integrate across traditional functional areas. More collaboration and balancing multiple priorities are key to success.
A clear people strategy has to be in place to prioritize what HR does and what HR will not do. This model also calls for significant investment in HR technologies to enable broader tailoring of solutions.
If not well governed, the model could become inefficient and sacrifice efficiency over the need to localize, leading to increased costs and possible duplication of efforts.
What the Tailored Solutions model variant could look like in practice
TechSavvy Solutions is a cutting-edge IT consultancy firm with a global footprint. Their people strategy is focused on three employee segments to support the business strategy: “in-country customer support employees,” “shared corporate services,” and “sales employees.” Their HR value proposition focuses on providing an exceptional employee experience and ensuring internal operational efficiency.
Across all segments, the HR team provides a comprehensive self-service offering, enabling employees to complete most transactional and administrative processes online and with the support of an HR chatbot.
For operational procedures and policies requiring human interaction, they operate a shared HR Support Center that employees can contact via an online channel or by phone.
Given the diverse needs at a country level, the TechSavvy HR team also has an advisory and execution team that localizes products and solutions to be adopted in each country. They operate one technology platform, centralize data, and balance the need for standardization with localization.
Variant 3: Localized Solutions
Providing a highly localized and broad value proposition to an audience with similar needs
This variant of the Capability-Driven HR Operating Model deconstructs HR into smaller, fully autonomous end-to-end HR teams within an independent business unit with their strategy. These HR teams will all have different capabilities depending on the needs of the business unit.
This model is the best fit when business units expect different HR offerings, yet there are certain similarities between target audiences that still need some standardization and consistency between business units.
For example, a retail product business will require a different HR offering than an Investment business, even though both might need access to leadership development or HR technologies.
Delivery logic
The business unit HR teams act independently and will have differing capabilities depending on the business needs. Across all business units, there are three shared capabilities that all teams have access to that form part of the Products and Solutions capability.
The first is “Governance,” which manages risk across all target audiences. Within this capability, a combination of employer relations, people risk management, and the creation of central policies and standards solutions will be housed.
Next, there are “Shared Services” that provide services across all HR teams. The goal is to create shared value and bring down the cost of service across the business. Within this domain, HR technologies, platforms, and systems will be housed, but how these services are used within the lines of business will differ.
Last, we have capabilities related to “Advisory”. These are specialist functions that aim to drive strategic priorities in partnership with the BU teams.
They are not expected to provide services to all BUs but focus on specific strategic projects. For example, Mergers and Acquisition expertise, Organizational Design, and R&D could form part of this section.
Where it makes sense to do so, HR Technology and Data will be centralized. However, this will only be done in line with the identified Products and Solutions that exist centrally.
How the model contributes value to business
Value drivers: Localization, Flexibility, Autonomy
The strength of this model lies in its ability to localize HR offerings and provide highly personalized HR solutions to its stakeholders.
The model drives autonomy into the lines of business. Since it does not imply agreement across all verticals, it’s possible to make decisions faster and independently.
Limitations
The model leans itself to duplication and a lack of standardization, which makes the governance capability important. The shared capabilities have limited decision-making power, and managing the tensions between shared and business unit teams is challenging.
Overcoming this requires a stronger sense of collaboration and continuous dialogue about the value offerings within the shared environments. In this model, creating consensus and standardization of some areas will be slow, needing extensive engagement with stakeholders.
What the Localized Solutions model variant could look like in practice
UnifiedFin Solutions is a financial services group. They operate five independent businesses within the group, each focusing on a different product suite for their market.
Each product business has an independent HR team with its own HR Head reporting to the business CEO. Business HR teams act independently of each other, and they build the capabilities applicable to their business.
For example, the retail business has a fully-fledged training team, while the savings business has its analytics team but limited training capability. Each business unit has its own HR strategy.
At a central level, they have a team responsible for governance and risk, reporting to the Group CHRO. In addition, they also have an organization-wide services capability responsible for vendor relationships of shared technologies and platforms, as well as negotiations on behalf of all the business units for discounts and optimizations.
For scale and cost benefits, the central team is also responsible for payroll across all five business units. They have a small unit of merger and acquisition and organizational design specialists that act as advisors and get deployed into specific business units for projects where their skill sets are required.
Variant 4: HR Ecosystem
Delivering highly differentiated solutions to a diverse and unique audience
The HR Ecosystem model variant applies when HR teams start operating in highly complex organizations with federated structures or in an environment where various between-business-operation agreements exist.
HR must work across multiple entities, brands, or even in an advanced state to partner and provide solutions to multiple organizations that decide to share HR services between them.
This variant is the best fit where audiences are very diverse, and each expects unique HR offerings. However, there still exists some relationship between the different entities that require coordination at a high level.
Delivery logic
In this model variant, HR has fully enabled HR teams within businesses, shared products and solutions that operate across the ecosystem, and the ability to share resources between businesses.
A central HR team plays an essential strategic coordination role across the ecosystem. It works with the various businesses to identify which products and solutions should be built centrally and where independent HR teams should take ownership to build these capabilities.
How the model contributes value to business
Value drivers: Accessibility, Independence
The strength of this model lies in its ability for diverse businesses to access shared resources and solutions. This could allow “smaller” businesses to benefit from access to solutions within the broader ecosystem that they would not be able to independently afford or employ while also being able to flex their capability up and down as necessary.
Given the high level of independence, this model also allows for complete customization of solutions within the lines of business. It gives full autonomy to HR teams to make independent decisions that are faster and more aligned to the needs of their specific audience.
Limitations
This model necessitates significant collaboration between different parties, and the commercial model that underpins the model is complex. High levels of trust and cooperation are also essential, with independent HR teams being willing to share resources, knowledge, and expertise as well as collaborate with the central teams in specific initiatives.
What the HR Ecosystem model variant could look like in practice
Frontiers is a media group that employs more than 400,000 employees worldwide. As part of the group, they have various independent business lines operating under their brands with fully-fledged HR teams. Each team is responsible for its own HR strategy and building capability required for its business.
However, they had identified the need for certain shared products and solutions to be developed that would apply to the entire group. They created a Corporate University across all businesses that provides leadership development programs and opportunities for all senior leaders across the group. At this level, the Group team also aligns with specific vendors to deliver blended experiences.
The Corporate University also plays a role outside of the Frontiers Group. Frontiers are incubating a new developing start-up business, which they co-own with a public sector institution. It also provides basic development services to this company, as they cannot afford these services at this stage.
Within the ecosystem, two business units have created a shared high-volume recruitment team that delivers services specifically to these businesses with similar recruitment requirements.
Final words
As the world of work becomes more complex and business models evolve to remain competitive, so should the HR operating model. We propose an evolution that solves the four key challenges we see today that, if not addressed, will impact the ability of the HR organization to deliver value to the business.
Our Capability-Driven HR Operating Model is designed to be adaptable and versatile. It offers a range of configurations for its four core capabilities, ensuring it can be tailored to meet the unique needs of various target audiences and the specific requirements of HR products and solutions requirements.
The Strategic Business Partner model has served us well as HR professionals, but we believe the time has come to explore a new frontier that accommodates the complexity, expectations, and needs of the modern HR organization.
