So it has happened. After 35 years we have a government that has remembered that sometimes you need an industrial strategy. And at the heart of this strategy will be the need to drastically improve productivity. In this article I argue that organisations have become increasingly permeable – embedded in complex webs of business-to-business arrangements, collaborative business models, extended supply chains, relationships with governments and institutions, and arrangements with global cities and local economic regions. To improve productivity HR must respond and help restructure organisations accordingly.
We are on the cusp of another round of major competitive restructuring, driven by digitisation, the search for productivity yields, and a realignment of globalisation. Having for decades aligned itself with the internal business structure and strategic imperatives of the host firm, HR faces two fundamental challenges:
- It has to (rapidly) realign itself to the external networks and actors making changes in the real world in order to ‘intercept’ their intelligence and policy direction.
- It has to show some intellectual leadership inside the organisation by helping to build the structures – formal and informal – that will help ‘decode’ what has to be done in this changing world.
HR needs to appoint intellectual leaders (whose educational and functional background becomes a matter for secondary debate) who can lead a series of organisation effectiveness drives. I use productivity as an example, but the same principles could be applied to other capabilities such as innovation, digitisation/automation, skills, and so forth. We could be talking about a productivity tsar inside each organisation, an innovation tsar, a digitisation tsar, a skills tsar (think of the conversations these people would have with each other). Or better: a more democratic model of ‘insight network leaders’. Either way, HR needs to attract its own spiders in the centre of the web. Maybe they could be the equivalent to the professorial fellow concept. Maybe they are associated to the professional HR institutions. Wherever they sit, and whoever owns them, they must be connected into a much wider range of expertise, voice and opinion, and they have to be brokers of evidence.
HR should not be the only sponsors of these networks, but they should take the lead now while firms are in disarray. The adage ‘build it, and they will come’ springs to mind. If we don’t take the initiative, others will.
The productivity puzzle and HR
I base my arguments on analysis from the Centre for Performance-led HR. Trying to improve productivity, and its enablers, requires HR to solve a ‘multi-level’ and ‘horizontal’ problem.
Multi-level because different interventions are needed at national (macro), organisational (meso), and work or business process (micro) level. Horizontal because the solution sits ‘above’ and ‘across’ traditional management functions. The challenges can only be understood and solved through connections to, and co-ordination across, players beyond the organisation (partners, supply chain, governments). New combinations of technology, business model, organisation design, knowledge and people are emerging.
HR directors will also be forced to take a position on three debates raised recently by the Bank of England:
1. Are organisational strategies exacerbating growing income and wealth inequalities by favouring labour-intensive forms of production? Are firms concentrating employment in sectors where productivity gains are difficult to secure or measure?
2. Will national industrial structures follow suit, and gravitate towards permanent low-skilled low-wage industries?
3. Are organisations failing to collaborate with the external institutions that help build productivity?
- OECD data shows the decline in productivity is a global phenomenon, which began well before the 2008 financial crisis.
- Productivity comes side by side with three other developments (see right): permeable B2B collaborations; digitalisation of work and business models; and automation of knowledge work.
Solutions to productivity are inseparable from technical and organisational changes. For example, the Internet of Things is spawning new cross-sector collaborations, business models and B2B arrangements in the buildings, energy, consumer and home, healthcare and lifescience, industrial, transportation, retail, security and public safety, and IT sectors. Collaborators are monetising analytics, devices and licensing. The rise of machine intelligence threatens jobs further up the skills ladder, as many professions find their information work can be automated.
Solving problems on a new scale
Even with improvements in business analytics, only a handful of internal managers grasp productivity in its totality. However, the idiosyncratic nature of business models means each organisation has to find bespoke ways of delivering improved productivity (what I call its ‘productivity recipe’).
From research to reality
Why do we need to network HR outwards? In many sectors the challenges are daunting. Take the NHS. Planning assumptions foresee a continued squeeze on resources until 2021/2. Under a scenario of no real funding growth, meeting growing demands and expectations on the service requires productivity improvements of up to 6% per year, while also coping with future increases in pay, the extra costs of capital to improve the estate, and the costs of significant reductions in waiting times. Historically, productivity across the NHS has averaged 0.4% a year.
Working across all functions
In other sectors old mentalities are being changed. Supermarkets have to balance falls in productivity with customer centricity. Customers scanning shopping creates productivity gains by employing fewer people for the same goods passing through checkouts. But growth in online retail means productivity losses using staff to bag, load and deliver goods.
Productivity is also affected by digital technologies spanning e-commerce, mobile commerce, web analysis, testing, development and maintenance, social media, smartphones and apps, use of geo-locational social networks, and in-store digital ordering. This creates new multi-channel shopping, and new models of distributed commerce.
Or the fast food sector. To get customer centricity and productivity right firms are linking marketing, IT, corporate comms, HRM, and operations – changing the way they structure themselves to support the strategy.
We are redesigning the nature of business. We need to redesign the HR function. Build the insight network leaders, and the business will come.
Paul Sparrow was director of the Centre for Performance-led HR between 2006 and 2016, and is emeritus professor of international HRM at Lancaster University Management School