"Day in the Life" HR Executive Interviews 2010

Summary Report

• INTRODUCTION
• PURPOSE
• PROJECT GOALS
• DEMOGRAPHICS
• APPROACH
• KEY FINDINGS
  • HR Trends
  • Notable Statistics
  • Reasons to Outsource HR
  • The Evolution of HR
  • Segmentation Detail
• CHALLENGES
• CONCLUSIONS

INTRODUCTION

The Human Resource Department, Inc. (THRD) is a consulting and staffing firm located in Cleveland, Ohio. Our sole focus is human resources, with core expertise in the development of Affirmative Action Plans, compliance services (for employment and wage and hour regulatory requirements); design of compensation and total rewards programs, and temporary human resources staffing.

Our vision is to be the leading regional provider to small and middle market companies who value a customized, highly effective and affordable approach to:

• Maintaining compliance with Affirmative Action requirements, employment practices and general regulatory requirements affecting the workplace;
• Developing and maintaining compensation and total rewards systems;
• Designing simple, effective performance management solutions; and
• Providing resources for short or long term HR staffing needs

PURPOSE

The purpose of our initiative was to better understand the driving issues faced by HR executives; and gain
insights which would allow us to better focus—and in some cases, recalibrate—our service offerings. Our
objective was to help position our organization as the HR service provider of choice in Northeast Ohio for
compliance, compensation and total rewards, and staffing.

PROJECT GOALS

The goal of this project was to help us achieve optimal alignment between external market needs and service offerings that best represent both the mission of our organization and our key areas of expertise. This included:

• Understanding driving issues for current and prospective customers.
• Understanding how HR decision makers are addressing these HR issues from the alternatives available.
• Identifying opportunities that address these market needs to help THRD invigorate its growth as a service provider.

DEMOGRAPHICS

Who Were the Participants?

Participants included key leaders and staff representing 16 employers. Organizations were selected to provide a representative sample of our market in terms of employee size and industry.

APPROACH

Interviews were conducted with these organizations. These "Day in the Life" interviews provided insight into a "typical day"—and the typical challenges faced—from the perspective of an HR decision maker. This process gave us insight into the pervasive challenges and the balancing act between administrative/tactical and strategic issues. It also gave us insight into the "buying" process employers use when they are seeking outside expertise or supplemental resources.

Subsequent to the interview process, extensive market research revealed competitive data regarding:

• Market perceptions of THRD and other service providers whose offerings are comparable to ours.
• Potential untapped opportunities in Northeast Ohio.
• Business needs from an HR perspective based on company size, industry sector, and the culture and philosophy of the human resources function within the organization.

KEY FINDINGS

Trends

1. Majority of companies have smaller budgets, less staff

• Cash flow is still king. Risk management is an essential skill.
• Increased scrutiny on executive pay.
• Growing focus on retaining employees.
• Increase in pay-for-performance salary structures.
• Increased focus on retaining employees by reframing compensation as "total rewards."
• Work/life balance, work-from-home flexibility, and differentiation of rewards as one size no longer fits all.
• Growth of Professional Employer Organizations (PEO) as outsourcing solution.

2. The pool of potential employees has grown

• More candidates applying for jobs, regardless of qualifications.
• Increasing numbers of workers postponing retirement.

3. Environment around expenses and legal getting tougher

• Conflicts of interest in executive compensation consulting.
• Health care costs continue to rise, government impact uncertain.
• Employment litigation expected to increase.
• Housing market accentuates reluctance towards relocation.
• Increasing attention to wellness programs for potential cost savings, in the context of ever. changing and confusing health care cost environment.
• Growing dialog around HR costs shifting to employees.

4. New challenges and opportunities for HR departments

• Environmental sustainability.
• Workplace aggression.
• Pandemic preparedness.
• Social networking as a recruiting tool, HR delivery mechanism, and employee compliance headaches.

Notable Statistics

1. Modest average pay increases are expected for 2010

• 2.7% (Mercer)
• 2.5% (WorldatWork, Hay Group)

2. 92% of companies plan to hire this year, but 37% expect to do targeted workforce reductions (Towers Watson)

3. Outsourcing will continue to grow

• The HR outsourcing market in the US grew at a Compound Annual Growth Rate of nearly 10% from 2003-2009 (IDC)
• 34% of companies more likely to outsource than 2 years ago (Hewitt, 2009)
• Over half of all HR outsourcing transactions involve regulatory and compliance services (Everest Research)

The trends we identified during the course of this project—and in conjunction with the statistics noted above—support the notion that many organizations have a need to consider outsourcing some component of their human resources function. The market research also indicated that service providers like THRD meet specific needs in the market, in large part by being able to successfully reduce some critical "pain points." These pain points can be the result of the need for additional expertise in a variety of forms: expertise in a consultative capacity; for a finite project; for ongoing support or for supplemental interim on-site staff. A recent Hewitt survey points to the top reasons that organizations outsource HR.

Reasons to Outsource HR

Companies generally see outsourcing as an opportunity to cut costs, get access to outside expertise, and improve service quality. Seventy percent of companies also see outsourcing as an opportunity to focus on strategic HR functions, and to avoid the hassle of regulatory/administrative issues. The HR executives interviewed in the THRD project generally echoed these reasons cited in the Hewitt survey. Achieving cost savings by using outside sources when needed enables current HR staff to be reassigned to more strategic projects.

The Evolution of HR²

The changing role of the human resources function is likely one driver behind the shift to outsourcing. Over the past ten to fifteen years, HR has gradually evolved from its perception of itself as advocate and administrator to a strategic business partner—with the desire and need to have a "place at the table."

In Human Resources Champions, Ulrich describes the evolution of HR roles:

¹ Percentage of companies rating each a 4, 5 or 6 on a six-point scale. Source: Hewitt 2009 survey of 104 companies.
² From Dave Ulrich, Human Resource Champions (Boston: Harvard Business School Press, 1996).

Segmentation Detail

Although the desired state for most HR leaders may in fact be that "place at the table" the reality is that the organizational culture and its lifecycle influence the "focus" of the human resources function. The chart below illustrates the results of our research.

Though based on a limited set of data, our market research indicated that the "Yearners" and "Transformers" segments tended to take a broader, more strategic view of the HR function. This creates market opportunity for organizations like ours who are positioned to provide supplemental expertise through a flexible delivery model.

CHALLENGES

The key challenges are primarily improving what already works; tactical issues at smaller companies, and more strategic issues at larger companies. Smaller organizations tend to focus on tactical "blocking and tackling" in the HR function. While within larger companies, the HR department strives to be more strategically engaged with the business.

Looking Ahead

We polled our participants to determine optimism about 2010 business environments and HR budgetary projections.

Summary comment: 56% of the companies interviewed in the first quarter were optimistic about 2010.

Summary comment: 67% of the companies interviewed expected their 2010 to stabilize or increase in 2010.

What's Next?

The growing expectations that executives have of the Human Resources function will drive continued transformation in HR's role. HR has recognized both the need and the opportunity to be participants in organizational decision making and enablers of the company's ability to successfully achieve its objectives.

We expect to see HR leaders and practitioners continue to shift toward a strategic operating model through:

• Innovative approaches to re-engaging, attracting and retaining people in order to help achieve the company's business performance expectations;
• Building broader capabilities across other core functional business areas (i.e., finance, risk management, technology) to deepen their understanding of and connection to business strategy and operations; and
• Developing a fluid operating model that allows for focus on strategy while still meeting the service delivery needs from a tactical standpoint

CONCLUSIONS

The value of human resources is tied to the business—to its mission, its values and its strategy. Our value proposition as a service provider seeks to help HR executives maintain their line of sight directly to their stakeholders—managers, employees, customers and constituents. We strive to be recognized by our clients as a trusted extension of their human resources function, partnering with them to supplement their expertise or their staff as needed by providing flexible services that span from strategic to tactical; and working collaboratively with them so that they can free up their resources to drive key activities that are core to their business.

Our goals include enhancing awareness in the market place through a variety of tactical initiatives centered around continuing to develop internal depth and breadth of expertise in our core areas; making relevant, specific HR related content and collateral available to HR practitioners; building alliances with organizations where opportunities for complimentary services exist; and developing a subscription service offering designed to help organizations remain compliant with the myriad of ever-changing workplace regulations.

We look forward to continuing the successful implementation of our strategy in 2010 and beyond.

© 2010. The Human Resource Department, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. For additional information, go to www.thrd.com.