Splitting HR into two functions? Not practical for smaller organizations–but the problem it solves is very real.

July 9th, 2014
Written by: Elizabeth Richards

There’s an interesting article on HBR.org by noted business advisor and author, Ram Charan, titled, “It’s Time to Split HR.” http://hbr.org/2014/07/its-time-to-split-hr/ar/1. In it, he says,

I talk with CEOs across the globe who are disappointed in their HR people. They would like to be able to use their chief human resource officers (CHROs) the way they use their CFOs—as sounding boards and trusted partners…But it’s a rare CHRO who can serve in such an active role. Most of them are process-oriented generalists who have expertise in personnel benefits, compensation, and labor relations…What they can’t do very well is relate HR to real-world business needs…and they have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals.

My proposal is to eliminate the position of CHRO and split HR into two strands. One—we might call it HR-A (for administration)—would primarily manage compensation and benefits. It would report to the CFO, who would have to see compensation as a talent magnet, not just a major cost. The other, HR-LO (for leadership and organization), would focus on improving the people capabilities of the business and would report to the CEO.

Charan’s somewhat radical suggestion addresses an age-old challenge (one that by the way is not unique to HR): finding leaders who are great at strategy and tactics.

TPO was created nearly 20 years ago to address this exact problem: small- and mid-size businesses and non-profit organizations grow to a point where they need basic HR support (what Charan calls HR-A) to handle benefits, compensation and compliance. TPO is great at what we’ll call these ‘day to day’ HR functions.

But the CEOs, Owners, Executive Directors, COOs and CFOs of these same organizations also need help solving business problems and translating business priorities into people priorities (what Charan refers to as HR-LO.)  This is the area in which TPO’s consultants deliver unique value. Our team excels at the administrative aspects of HR but they are also trained to help identify business issues that impact people.  And people issues that impact the business.

Our clients tell us that by outsourcing their HR to TPO, they are in essence getting both HR-A and HR-LO in one solution—a powerful “one-two punch” they could not cost-justify on a full-time basis.

So we agree with the challenge Charan’s idea addresses—that HR needs to deliver business value.  But for the small- and mid-size organizations TPO serves, outsourcing their HR is a way to get both critical elements of HR: administration and strategy.