The human resources department — what was once quaintly called personnel — is changing. Rather than simply handling a company’s day-to-day tasks such as payroll and pensions, HR units are seeking to play a fuller part in the business, including strategic decisions taken at the very top.

The pace of change has been rapid. Jeremy Tipper, managing director of Capital Consulting, a recruitment outsourcing (RO) firm, says: “There has been a greater shift in HR in the past five years than in the past 50.” But this move towards a greater strategic role is raising an important question, namely: Is human resources up to the job? According to Martin Reddington, co-author of Transforming HR: Creating Value Through People, the trend in the 1990s was for business processes to be re-engineered with the aim of making them leaner and meaner. “Human resources wasn’t immune to this and came under the same pressure as other departments to demonstrate it could be more efficient and offer greater value.”

Behind this impetus were the pressures to make HR more cost-effective; to improve its services to the rest of the company; and to address the key strategic drivers of the organisation.

Companies wanted decisions to be taken more quickly, line managers to be more responsible and to have shorter lines of communication within their organisations. They were also keen to save money by automating routine administrative functions such as record keeping or payroll, which led to a fundamental review of what human resources departments actually did . . . and what they could do instead.

“If cost is the main driver, the company will introduce more automation or invest in a shared services operation, which is a centre of expertise dealing with queries then and there on the phone,” says Reddington.

Companies can also make use of “e-HR”, where employees carry out administrative functions themselves using IT, while remaining human resources staff are given a distinct role with the title of “strategic business partner”. Says Reddington: “If you haven’t got shared services and e-human resources, business partners get dragged down away from high strategic operations.”

Justin McAvoy, director of the RO consultancy Reflect, says: “A few years back, human resources was considered a mainly administrative role, handling personnel issues. But as the economy became more service-oriented, people became more important, so as a profession HR grew rapidly. It is now more strategic, it’s about adding value rather than just being a support function, and is increasingly getting representation at board level.”

It isn’t only internal pressures that have transformed human resources over the past few years. Reddington says change was hastened by outsourcing companies that asked businesses whether they were getting the best value from their in-house human resources departments. “That external process has caused internal reviews to take place and so new options have opened up in terms of outsourcing,” he explains.

Outsourcing, in its many forms, has become a popular way for companies to free their human resources staff to concentrate on subjects such as business strategy. “One of the reasons we get brought in is because recruitment becomes too big for the human resources department and we can free them up for other things,” says Tipper.

Measuring the value of effective human resources is not easy. But there are increasingly sophisticated methods by which a HR department can demonstrate its value to the company, such as increasing profit per employee. Says McAvoy: “Human resources has become better at measuring what it does.”

However, Professor Malcolm Higgs, director of the School of Leadership, Change and HR Management at Henley Management College, warns that there is often a gap between what is expected of a human resources team and what can be delivered. He recently advised a financial services organisation that wanted to engage talent and manage its people better and so needed input from its HR department at the highest levels. The chief executive admitted, however, that his HR staff were just not up to the task because they hadn’t had the opportunity before.

Higgs talked to the human resources team to ask them about business strategy and what they believed drove the business forward. “There was a deathly silence. They just couldn’t answer,” he says.

So human resources has a chicken-and-egg problem. Companies expect their HR departments to make an input into their wider strategy but they do not necessarily realise they need to invest in time and training to enable them to do so.

“There is no point in calling your staff ‘strategic business partners’ if they don’t know anything about strategy or the business and are not in fact partners,” says Higgs. “Companies are taking people trained in the traditional handmaiden or policing role of human resources and telling them to advise on company strategy. It is a huge struggle for them.”

As well as not being provided with the necessary training, such as an MBA or a business development course, staff who are labelled strategic business partners are often still busy dealing with employees’ grievances and disciplinary procedures, “when they should be fully focusing on what is driving the business”, according to Higgs.

His view is backed up by a recent report for the Chartered Institute of Personnel and Development, which said: “Outsourcing does not absolve human resources leadership from the responsibility for delivery of HR practices and performance in the company . . . outsourcing does not automatically mean that line managers will stop using local human resources people as the first line of support for queries and emergencies. In any major outsourcing arrangement, line managers will need to understand, accept and be trained to use the outsourced services.”

Higgs says: “It is a big challenge for businesses, but they have to understand the people implication. It is all about change.”

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