Can Compliance be Strategic?
SteveLast night on the HR Happy Hour Show I tossed out the idea that perhaps to further the HR organization's ability to pursue more strategic objectives and more value-added activities, that the traditional 'compliance' related functions be spun-off to another part of the organization, (perhaps finance and accounting).
My (shallow) reasoning was simple: if HR departments are truly getting bogged down in compliance and and administrivia, why not spin off those functions to another department (or outsource them)?
Shedding those non-strategic processes, I proposed, would really empower the HR organization to focus on strategic planning, aligning the workforce and their skills and capabilities with the organizational objectives, and equipping line managers with the tools and abilities they need to succeed.
A win-win right?
Well, some of the guests on the show, China Gorman, Mike VanDervort, and others did not like the idea. They essentially said that giving up the control of these processes to accounting (or someone else) would not be a mistake and that HR has to own those processes.
So here is my question:
If HR needs to get more 'strategic' and compliance and regulatory issues are in the way, can you just outsource, spin-off, or otherwise de-couple them from the real value that HR can deliver to the organization?
Can compliance really be strategic?
You can listent to the entire conversation, and the rest of the HR Happy Hour 'Is HR Dead' Episode here:
Reader Comments (12)
Steve - I'm sorry I missed the show. Sounds like it was a terrific one.
It's been my belief for quite some time that HR will eventually split into 2 departments - one that focuses on adminstration and compliance, the other on strategy and education. What they will be called and who will own them...hmmm...don't know.
I'm still pondering that one.
Looks like you and I might be singing "Come on Get Happy" together for this one. ;-)
Steve,
Amazing work. You're changing the industry.
Anything that can be proceduralized (a process!!) will eventually be outsourced or automated. The enterprise creates value by going through the experiments, failure and learning that results in 'processes'. One of the reasons that HR has such low status is that it operates well understood procedures instead of creating value.
A process means that you can tell someone else how to do it. If you can tell someone else how to do it and they can do it as well for less money, it is common business sense to have them do it.
Well, compliance may not be strategic, but I don't believe that means it is good to outsource. In the accounting department they do a lot of compliance work for GAAP, SOX, Financial Reporting, etc - but I don't hear calls to outsource that (maybe I'm not hearing those calls, maybe they don't exist). There's nothing wrong with HR doing compliance work; it might not be strategic but if it is done poorly it will certainly gain a lot of attention. In my opinion, HR - and any other group that does compliance work - should get so good at compliance that it is not an issue.
So I'd question why are HR departments getting bogged down? I'd propose that much of what is getting them bogged down is in their control to resolve. It's just that compliance work isn't sexy, and you don't get points for doing it well. But you do get noticed if it isn't done well.
Steve,
Curious post – thought I would add to the discussion. Compliance is a core tactical necessity and no matter which way you slice it cannot be considered strategic. Applied to the overarching workforce strategy of the firm, however, compliance can be part of the tactical execution of workforce strategy. Specifically by enabling business partners to intelligently leverage every segment of the workforce. This inherently increases cost efficiency. A sound compliance policy ensures these gains in efficiency are achieved with minimal risk. I see no reason not to outsource, partners in this area are better equipped , and motivated, to establish bulletproof compliance strategies allowing HR execs to focus on the strategic development of the workforce against the major business objectives of the firm. We’ve written on the subject quite a bit recently www.seamlessworkforce.com
Joel Capperella
I have never worked in HR. I have only "consumed" HR as an employee with no staff, as well as a manager with staff. I have been in both a very large service company (3,500+emp) and a smaller service company (300 emp.) In both instances HR was the department that created tasks for me. Whether it was for legal reasons, or procedures/process within that specific company, my experience of consuming HR was all about doing something to help someone else (namely Ex. Mgt or the Gov) - not about fufilling any need I had. They were in both companies, very tactical departments.
And they measured success in a tactical way. I'm sure it was a function of the Senior Leadership - they looked at things like - turnover, law suites, etc - and thought as long as those numbers or events were acceptable HR was doing the right things. And their success was based on those measures.
My point of view is this:
1. Without a sound goal/direction/mission it is difficult to measure success.
2. In the abscense of measureable goals people will default to measuring what is easy and avialable (ie: forms filled out, numbers of people hired, turnover, etc.)
3. What is measurable becomes the accepted definition of the function and the mission of that function.
4. Therefore, HR became that which it measured.
Change the measurement and you change the mission.
Change the mission you change the focus.
Change the focus you change the activities.
Where I land is that as long as you use the administrative outputs as measures of success that will be your core function and will focus on it and assume no one can do it as well as you. You would never consider outsourcing your core would you?
If you stop using the administrative functions as success measures - but look at them as "maintanance" but not core - you can easily look for ways to eliminate and/or outsource them. Since you don't see those functions as core you don't care who does them - just that they are done correctly.
Think of the IT function in a company. Inititally it started as a support function to Accounting to help crunch the numbers - as technology become embedded in organizations it became a separate department to support all areas (very tactical still) - as technology started to change faster and faster, the IT function now became more strategic - based on how to "apply" technology for differentiation - versus how to support others using technology. Now IT outsources a lot of their functions - holding on to the thing that helps them be more valuable - application of technology to the business needs.
HR is similar in my mind. They are/need to make the shift from "supporting" to "applying."
Clear as mud?
Missed the show, Steve, but that discussion (not yet passionate enough to be an "argument") has been going on for awhile. The precedent is in Finance, which years ago split into a Controller function (accounting) and a CFO function (strategy).
And guess what? The Controller reports to the CFO! So it's not a matter, necessarily, of HR losing compliance (or outsourcing it) but simply separating it. I'm told a few companies have already done it, but as always, widespread adoption remains a future.
Steve - good post and good discussion here and on the show! No, I don't think compliance can be strategic but that's ok. Not everyone in HR will be strategic and not everyone will be great at admin and compliance, but both are needed to help make companies successful. And in my opinion, both would fall under the chief hr function.
Thanks all for the great comments and continuing the discussion (not yet an argument, as Bill pointed out).
@Sharlyn - Thanks, I really do agree that this separation not only makes sense, it is inevitable in many organizations
@John - Totally agree, if it can be defined and documented (like a cake recipe) then eventually someone else can do it better, faster, and cheaper.
@Steve - You are sort of echoing the points made by some of the guests on the show, that for HR compliance is a needed, even essential core function. That may be true, but there seems to be general sentiment that it contributes to the overall lack of respect for the discipline in general
@Joel - Thanks for the comments, I think you are right on the outsourcing points.
@Paul - Great analysis. I think you hit it, what we measure becomes the mission and what is seen as important. Change the measurements and the rewards to drive the change in behaviors.
@Bill - I love the comparison to the Controller/CFO split. I think that you and Sharlyn expressed what I was talking about in the show much more clearly that I did!
@Crystal - Thanks for acknowledging that some people in the HR shop are simply strong at these functions and are the right people to perform them. I don't believe there can be a blanket solution that will apply everywhere.
Thanks again everyone, great comments and discussion!
Steve,
At risk of sounding like a parrot (not a dead one,) compliance is a key role and domain of HR. You are the custodians of the company and the source of reference on what is and isn't permissible according to the law. You also have a role to monitor what is going on and sometimes step in. This will never be high in the list of popularity with the management as it is often confused with HR law rather than THE law. I agree with John that part of this process can be outsourced such as referencing, screening etc and sometimes it helps to use an external intermediary sometimes to resolve conflict or expert advice, but ultimately the need for action can be significantly reduced by having the right process engrained in the organisation and developing all levels of staff top down to understand and abide by process and law. Development, training and process is very much the domain of HR. Taking a pro-active approach to compliance is less confrontational, more enjoyable and rewarding. Be pro-active and take control over compliance rather than having to always be the one saying no.
Just my thoughts,
Bill
Bill - Thanks for offering your perspective on this issue. As you say compliance monitoring and reporting will never be all that exciting or popular, but it is certainly necessary. Perhaps as you say a more wholistic approach to these issues throughout the organization might reduce the overall burder to some extent. Thanks for listnening and contributing on the show.
Excellent post, Steve, and kudos to you for triggering a lively discussion both with this post as well as the HRHappyHour call. The comments on this post have been outstanding.
To me, being Strategic means helping to develop or amplify one or more of your competitive advantages. A fairly common attribute of something being Strategic for a company is when it shows how to effectively apply resources towards creating greater value for the company. It can say something like, “Look, we found if you apply more effort here, here, and here, you get a lot more results than just applying the same level of effort everywhere”. Beyond HR
showed this very well, especially by connecting strategic success to “pivotal” roles and competencies. Just as Bill Kutik pointed out the CFO/Controller relationship, they showed how various “decision sciences” (e.g. Finance, Marketing, etc.) have evolved from their corresponding profession (e.g. Accounting, Sales, etc.) by analyzing how the components are related and how they affect the whole.
Each evolution took time and didn’t happen overnight; organizational inertia is a fact and it is exacerbated by many factors, internal and external (e.g. regulatory environment). This is likely part of the “Is HR Dead” paroxysm; change is happening that is too slow for some and even too fast for others and they clash. Importantly, it seems each evolution was assisted when the leaders of the company could see real results and as a consequence, gave it due attention and incentives for adoption. A key component of that enables leaders “to see” is for the “lens” to be in terms they understand (and are themselves measured by). The basic terms are primarily in the language of Finance and showing the link between Financial results (or other “Scorecard” measures if you will) is demonstrated in the language of Analytics. Finance(!) had to do it (and was assisted by getting to define the rules itself), Marketing had to do it, IT is in the process of doing it, and so it is with HR as well.
Whether the compliance function and other/which processes remain part of it or not is very likely going to be specific to each circumstance and should be viewed in the context of the overall HR strategy. As some comments have pointed out, sometimes compliance is much less risky if handled in-house, but that might depend on what the cost is for violations, which isn’t just in terms of penalties, but can also include lost contracts, etc. On the other end, compliance could be strategic under certain circumstances if its impact and the way your company manages it offers you competitive advantages (e.g. monopolistic access to certain industries and skills, “regulatory capture”, etc.)
Mark - thanks very much for sharing your insights. As you say, what is truly 'strategic' and conveys a real competitive advantage to one organization is certainly very different for another. And there certainly is a very real aspect to this in situations where compliance (following the rules so to speak) positions a firm above its competition. Government contracts come to mind. Thanks for joining the conversation on the show and for continuing here, I really appreciate the support.