5 Types of HR Operating Models: A Full Guide
HR operating models is a topic that is dear to a lot of leaders’ hearts. Many organizations are constantly looking for ways to improve the way they operate and collaborate. In this article, you will learn what HR operating models are, different ways of organizing the HR function and various types of HR operating models, as well as best practices for creating an HR operating model.
What is an HR operating model?
5 types of HR operating models examples
– Business partner model
– Functional model
– Front-back delivery model
– Hub and spoke
– Federated model
HR target operating model
Agile HR operating models
HR operating model best practices
What is an HR operating model?
An HR operating model is the way the HR team is organized to deliver value to its internal customers and stakeholders. Effective HR operating models help HR deliver its services and value proposition to its customers in an efficient manner.
An operating model helps to answer questions like:
- Is the HR strategy set centrally by the corporate head office or by local teams?
- A local learning specialist wants to implement a new learning management system. What’s the procedure for getting this approved?
- The sales director of Florida threatens to leave if he doesn’t get a pay raise. However, he is already at the top of his range. Who approves this request?
The way these decisions are made has everything to do with how HR is organized to deliver value – a.k.a. the HR operating model.
Consider the following quote: “In 2009, Nike Inc. was in the middle of a reorganization. As part of this, the Global Talent Development (GTD) function was transformed from a highly fragmented and decentralized set of small learning teams to a global function providing a wide range of solutions. The mandate of this new function was simple and clear: to provide Nike employees with the leadership, management and functional skills they need to succeed in their roles”.
This example shows that Nike Inc. transformed from a decentralized operating model where local learning teams could set their own goals and use their own learning solutions to a global team. This team was able to set centralized goals, create one Nike experience, and build a reputation of Nike as a highly desirable place to work with great learning and training opportunities.
That is not to say that the initial model wasn’t good – it just offered a different set of benefits and focus.
There are multiple types of HR operating models, including the business partner model, a functional model, hub and spoke, or a federated model. Whichever model fits the organization best depends on the organizational context and business strategy, as well as the available budget.
A highly centralized organization benefits from a centralized operating model, and vice versa. Smaller organizations thrive with a more functional model in which a single HR professional fulfills different roles, leading to a fast and cost-efficient HR service delivery.
5 types of HR operating models: Examples
We distinguish five different types of HR operating models. The table below shows the different kinds of operating models.
Out of the different HR operating models, the business partner model is the most prevalent. Mercer, a consultancy firm, estimates the prevalence of the business partner model to be around 75% in North America, and 44% in Europe.
HR operating model types
(Right-click on the images to enlarge)
|Business partner model||Most prevalent model, operating from a centralized shared services and solutions (called centers of excellence) perspective with advisory or business partner functions within lines of business. Reporting lines are usual dual in nature with HR reporting into both business and a centralized corporate HR function. HR strategy is crafted across all the lines of business and technology is driven from a centralized perspective to create consistency, scale, and avoid duplication.|
|Functional model||This example is most common for smaller organizations and is similar to the business partner model, however similar functions and expertise are organized together into departments all reporting into a centralized HR leader. Technology and Strategy are driven centrally, and decision-making is largely driven from the top.|
|Front-back delivery model||The front-back model operates from a shared back-office function that the front office is able to leverage when required and in accordance with specific lines of business requirements. Strategy is based upon shared principles, yet within each line of business, a different strategy will be crafted that is more localized to that specific area. Technology is shared, however depending on need, other technologies could also exist within each of the lines of business.|
|Hub and spoke||The hub and spoke example acts as a centralized function that drives consistency, strategy, and shared technology/services. The different spokes are responsible for the localization of solutions based on set criteria such as geography, BU unit, or BU Vertical.|
|Federated model||The federated model operates as independent HR lines of business aligned to either a region or business unit. HR Strategy is set within each federation based upon set principles. Technology is usually shared to gain cost efficiencies through scale but federations do have the right to procure or buy their own solutions if it makes sense to do so.|
When deciding which operating model fits the organization best, make sure that it fits the way the organization operates. A highly centralized organization benefits from a highly centralized HR operating model and vice versa. The image below shows the different models from high centralization to high decentralization.
We will now briefly go through each of these models and list their advantages and disadvantages. This will help you understand which model fits your organization best.
HR Business partner model
The centralized HR operating model is the most popular and best-known model out there. Pioneered by Dave Ulrich in the late 1990s, HR operates in four groups:
- Shared services. This centralized team is the first point of contact for employees and managers. The team is responsible for administrating the transactions for day-to-day requests and inquiries. Employees access this online or via phones.
- Centers of excellence (CoE). These are the specialists who handle more complex situations. They offer services to management for implementing programs and policies for areas such as compensation, benefits, training, performance counseling, and staffing.
- HR business partners. These are strategic HR professionals who consult with line managers and give them strategic advice on people issues.
- HR leadership team. This is the strategic leadership team that designs the HR organization and ensures that HR is able to deliver on its people priorities.
This model is also known as the three-legged stool (with leadership on top, and the three legs consisting of business partners, shared services, and CoEs.
The three-legged stool enables a multi-tiered HR service delivery model. Tier 0 support provides employees and line managers with technology-enabled self-service support. When self-service is insufficient, Tier 1 support is provided by the HR shared services teams. If the issue is too complex, it is escalated to the next tier. Tier 2 support offers subject matter experts who have specialized knowledge and are working in the centers of excellence. This tiered system offers an efficient way of resolving problems.
Business partner model
|HR is positioned as a strategic partner to business and operates within the business structure||Can lead to slow execution if alignment between three pillars is not well managed|
|Allows for close alignment with business whilst allowing for the opportunity to leverage cost efficiencies through shared technology||May drive multiple priorities at the same time based upon the magnitude of business requirements|
|Model drives efficiency and quality of HR service delivery and aims to drive consistency and standardization of services and experience||HR business partners often go “native” and do not see themselves as part of HR. This can lead to an “Us” vs. “Them” culture within HR|
Functional HR operating model
In a functional operating model, HR is organized around different specialties, including recruiting, training, compensation, and learning. This model is most common in smaller organizations, which are often centralized and functional.
In the example structure above, the head of HR leads a recruitment manager, who is responsible for talent acquisition, and an operations manager, who takes on many of the responsibilities related to payroll, HRIS, and self-service. The administrative employees are located in the operations department. As the organization grows, they may add additional functional groups, like talent management, L&D, compensation, HR IT, and so on.
In this structure, the head of HR may take on most of the business partnering responsibilities in the organization, while much of the administration and specialization is happening in the different departments. This means that the business partner and shared service roles are not as clearly separated as in the business partnering model.
Functional HR model
|The structure creates clear focus and lines of responsibility in each function and between departments||Model may create silos and one-dimensional thinking|
|The structure creates consistent experiences and efficient delivery with a strong sense of standardization||The structure might struggle with communication between functional departments and can become too internally focused|
|The structure allows the building of specialized expertise quickly as specialists are grouped together||The HR function is detached from the business and can frustrate the business as they feel as if HR is fragmented and too many touchpoints exist for HR services|
|The structure is efficient and reasonably cost-effective||Model is less adaptive to business needs and struggles to deal with increasing levels of complexity|
Front-back delivery model
The front-back delivery model is similar to the business partner model as it also has business partners, shared services, and centers of expertise. However, it does allow for more localization by having different strategies within each line of business. Technology is shared and centralized, but depending on the local needs, other technologies could exist within each of the lines of business.
Front-back delivery model
|HR is seen as part of the business and closely aligned to that context||Model does lean itself to duplication of services and technology and requires continuous alignment|
|More flexibility in terms of solutions and service delivery which allows for HR to adapt to different department requirements more easily||The model can be time-intensive to manage and requires a lot of management and governance to ensure alignment between front and back office|
|The model allows for faster decision-making and more accountability is pushed to the front of the model that is closer to business||Model can create conflict between front- and back-office that results in inefficiencies and turf wars|
|Model can cater to a diversity of needs across a broader organization||Model can be expensive to operate if not tightly governed|
Hub and spoke
The hub and spoke operating model is similar to the front-back delivery model. The big difference is that in the front-back delivery model the hub drives strategy but allows for localization in the spokes. In the hub and spoke, the spokes influence the hub.
The different spokes are responsible for localization of solutions based on set criteria, such as geography, business unit, or vertical. The hub, meanwhile, provides shared resources and helps to optimize the spokes by driving consistency, strategy, and shared technology and services.
Hub and spoke delivery model
|Oversight of spokes and avoiding possible duplication and optimal use of resources and knowledge||It is critical that spokes know when to draw on the hub otherwise duplication occurs|
|Provides scalability when business changes and adaption is required||Spokes can feel as if they do not get the required attention from the hub, or hubs can feel that they are balancing too many priorities across the various spokes and become overwhelmed|
|Cost-efficient model if structured correctly||The hub can become an on-demand service model, hubs have to show the same value as an external provider of services|
|Provides challenging and diversified work||Decision-making can be difficult, especially when it comes to defining ownership between hub and spokes|
|Creates a faster learning cycle and reusability of solutions, products and services||The model requires constant alignment with clarity of decision-making and accountability|
The federated model is a fully decentralized HR operating model. It operates as independent HR lines of business within a region or business unit. There could be a shared strategy, HR technology, and services but this is not necessarily the case. In this model, corporate HR predominantly plays a coordination role with the majority of service delivery being decentralized.
Major benefits of this model are the increased accountability and ownership as HR is located within the different business units and the flexibility it provides while leveraging scale through technologies and standardization.
|The model encourages accountability and ownership and HR is seen as a business function within each federation||The model can lead to duplication of resources and initiatives that need to be implemented across federations take a very long time|
|The model is flexible and adaptable to regional/BU requirements||If not tightly governed, the model will lead to conflict, duplication and can become expensive over time|
|The model still leverages scale through shared technology and shares certain costs between federations to save money||Model does require strong leadership oversight to ensure prioritization|
|Model does have a tendency to become everything for everyone as opposed to a tightly focused strategic direction|
HR target operating model (HR TOM)
A commonly heard term is the HR target operating model, or TOM. The target operating model is the HR operating model that the HR department is working towards.
An example is a growing organization looking to move from a functional model towards a business partner model. In this new model, business partners play an important, strategic role. In order to transition into this target operating model, the organization may have to hire one or two senior business partners, redefine job roles for managers, and educate all HR professionals about the target operating model.
A consultant often helps design such an operating model. The transition into a new operating model may take anywhere between six months to six years depending on the organizational size, complexity, and readiness. This is why you will often hear about the target operating model rather than the current operating model.
Agile HR operating models
The most prevalent HR business model is not without its critics. Specialists often operate in isolation, business partners don’t always fully understand the business reality, and with an increase in automation, the role of shared services may also fundamentally change.
We expect that in the future there will be a different, more agile HR operating model. HR will move towards a model that is less reliant on functional skills but instead focuses on multi-disciplinary skill sets. Traditional HR skills will be supplemented with direct input from the business, process automation skills, and data expertise.
This will greatly reduce the current, functional thinking in HR. HR will operate in a more project-based manner. This will also have implications for the HR leadership team. The common HR operating model will be less centralized and tightly controlled. Instead, it will move towards a more agile HR agency model, where more decentralized project groups implement solutions and technologies with direct contribution and buy-in from the end-user.
HR operating model best practices
When implementing an HR operating model, there are a number of best practices to follow that will improve your likelihood of success.
- Let the business strategy lead. An HR operating model should never be designed in isolation. The most effective operating model is a model that fits the business reality as well as the people strategy (which is derived from the business strategy). A highly decentralized group with multiple, independent businesses that each create their own people strategy will benefit from a federated model while a more centralized functional model will be much less effective.
- Don’t implement it alone. Choosing and implementing a new target operating model is a multi-year venture that requires the mapping of role and skills, as well as extensive communication, change management, and training. The most effective organizations work together with consultants who have experience in designing and implementing such models.
- Map critical capabilities. To make an operating model work, you need to understand the required competencies (or capabilities). If you want to have a strategic business partner as part of your model, you need to ensure that you have professionals with a high level of business acumen who can engage with the business on strategic topics. One of the common reasons why so many operating models are ineffective is that organizations forget to map the capabilities requires to execute on the way they intent to work.
- Enable the organization in the operating model. A common mistake that companies make is that they fail to enable the organization on the target operating model. A new operating model often involves changes in titles, responsibilities, and job descriptions. These need to be communicated and understood by everyone before they can be effective.
- Don’t confuse reporting structure with operating model. Reporting structures change frequently in organizations as new roles are created or as the team composition changes. A change in reporting line and change in operating model is not the same – the operating model is a deep-rooted change of how the HR model delivers services and should not be undertaken without due consideration for the effort required to drive this change.
With these best practices, implementing a new HR operating model will still be a daunting task, but you will be able to set your team up for success if you keep these in mind.
To sum up
As we’ve seen above, the five common types of HR operating models range from the highly centralized functional and business partner model to the decentralized federated model.
HR operating models are a complex topic. An effective model enables HR to execute the people strategy and realize the maximum value for the business. However, the model that works best will depend on the organizational context.