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From Current State to Future State HR

May 8, 2017

By Karla Hignite

Editor’s note: Click here for a detailed overview of specific steps taken as part of Penn State’s HR business process transformation.

This June, Pennsylvania State University HR employees will begin moving into their new 40,000-square-foot shared services center, marking the culmination of a five-year journey to fully transform the institution’s HR service delivery model to one that is more business-focused, flexible, accountable, and aligned by HR priorities across the university. For the first time, HR professional services, employee onboarding and training, and routine HR transactions will be located under one roof. But, the new model represents more of a hybrid approach rather than migration to a fully centralized operation, explains Susan Basso, vice president and chief human resource officer. “Whereas before every unit essentially had its own mini HR department, now only higher-level strategy and consultation will be embedded in colleges and individual units, and more routine transactions and services will be performed centrally.”

Beyond physical location, the university’s service model itself has undergone extreme transformation. From redesigning policies and business processes to updating long-outdated technology, the university is now in a position to align resources to greatly enhance customer service and fully leverage its strategic priorities for workforce readiness. The road to getting there hasn’t been fast or easy.

PHASE 1: TAKING STOCK

In 2013, Penn State set out on an ambitious journey to re-examine its HR enterprise with an eye toward making it more efficient, strategic, and compliant. The HR service model Basso inherited had, over time, become highly decentralized. “At the outset, I didn’t have a full grasp of who even reported to me,” says Basso, a complication exacerbated by the university’s 24 campuses located throughout the commonwealth.

Penn State’s HR business process transformation initiative began with a baseline “current state” assessment of HR operations to help map a framework for a future of improved service and efficiency. In addition to holding discussions with senior leadership, business partners, and HR staff, HR leadership retained a third-party consultant to review how much the university was spending on HR-related activity, who was performing the work, and the nature of that work, explains Basso.

The current-state analysis was not only eye-opening, but also eye-popping, says Basso. “Overall, as a community, we were spending only 3 percent of our time on anything strategic in nature.” Not only was the vast majority of HR work transactional, but the technologies employed to conduct those transactions were suboptimal and severely outdated. The assessment also underscored a highly decentralized HR model. While the university’s HR function was composed of 250 employees, as many as 1,200 individuals were performing HR transactions, resulting in inconsistencies and significant duplication of work, notes Basso. “This alone was exposing the institution to a high level of risk for potential noncompliance based on these disparate processes.” And finally, while approximately $70 million was being spent on personnel performing HR-related activities, the resource allocations were not seemingly deliberate or thoughtful, adds Basso. 

The current-state assessment likewise clarified the need for better technology tools and systems to automate processes and to free up employees for more non-administrative activities, notes David Gray, senior vice president for finance and business and chief financial officer. “The homegrown, mainframe legacy system Penn State had relied on for several decades definitely was not up to the task of running a modern-day human capital management function.”

Armed with these compelling findings, Basso worked with Gray and Nicholas Jones, executive vice president and provost, to build the case for why the university needed to dramatically change how HR conducted its business. “Exposing the duplication of efforts, lack of consistency, and tremendous institutional risk posed by every unit looking at policies and executing on them differently made for a pretty convincing argument,” asserts Basso. The draft plan for transforming HR called for more shrewd delegation of resources, both human and financial, and significant capital investment to modernize the HR technology infrastructure. All this would be required to accomplish flipping the HR enterprise from predominantly transactional to predominantly strategic in its mission, notes Basso. The early and full support of Penn State’s president and board of trustees to acquire the resources provided the momentum to move forward.

PHASE 2: DOING THE HARD WORK

The second phase of action, from July 2013 through December 2015, focused on designing what leadership envisioned as the “future state” of HR for Penn State. Areas identified for improvement included harmonizing policies and redesigning processes in conjunction with needed changes to organizational structure and technology. These areas became work streams, with teams forming to outline charters, develop project plans, map a new organizational design, identify processes ripe for automation, and detail strategic priorities requiring greater attention, including talent acquisition and management, says Basso.

As part of the streamlining effort, HR had a goal of reducing current policies and guidelines by about one-third. Yet, among the most impactful changes for the university would be the organizational shifts that required redefining responsibilities and realigning HR personnel toward a more strategic HR focus, says Basso.

In addition to a shared services component that would provide the engine for a robust menu of universitywide HR services, the envisioned redesign would align HR strategic partners and consultants with their respective colleges, campuses, and administrative units to work directly with leaders on such issues as workforce planning, employee engagement, and talent management. Technology would also take a front seat. Chief among the new tools and systems deemed important were a cloud-based solution for HR and payroll systems, a self-service portal for employees, and a learning resources network to support training and professional development.

To test these and other concepts and refine Penn State’s new proposed service delivery model, HR launched a series of pilots, starting with the university’s College of Arts and Architecture and College of Education. Initial work focused on streamlining processes and introducing new HR roles, including strategic partners and consultants to work directly with each college. At the start of the initial two pilots, Basso and Jones signed a memorandum of understanding and set up an appeals process through the provost’s office. “We essentially wanted to give the deans an ‘out’ if, for instance, they decided they didn’t like direction we were going,” notes Basso.

From the outset, HR leadership identified more than 70 individuals within these two colleges who were touching some aspect of HR work, including many non-HR employees. “Working directly with the deans, we removed and centralized the routine transactional activity and streamlined the number of HR employees to six individuals working directly with those two colleges through advising and consulting roles,” says Basso. HR leadership began evolving the model from there. “We knew that our ability to move forward with our future state model would rise or fall on the ability of our HR partners and consultants to deliver high-quality service,” says Basso.

From these initial two pilots, HR began working directly with four more colleges and eventually the entire finance and business division to reach the point where HR leaders felt they had the critical mass needed for a proof of concept. “It was bumpy at first, but we eventually got to the point where the deans who were part of the early pilots concluded that they would not want to return to the old model,” says Basso. “They became important advocates for what we were attempting.” For instance, when it came time to approach the provost to request transferring the HR-related budget from these units to HR, this was a slightly easier lift because the model had been proven successful within the pilots, explains Basso.

PHASE THREE: IMPLEMENTING THE FUTURE STATE

In December 2015, Penn State entered its final phase of HR transformation, starting a universitywide rollout of its future-state service delivery model. Central to this final phase has been implementing two primary technologies: a cloud-based human capital management system, and an HR portal. “What we are driving toward long term is for 60 percent of all employee transactions to be handled by employees themselves,” says Basso. This is in line with what many of today’s employees want, notes Basso. “We know, for instance, that the average millennial wants instant access to information and prefers a smartphone app for routine transactions like approving time and attendance requests. They don’t want to fill out paperwork.” So, Penn State is not only saying goodbye to its legacy mainframe system, but is leapfrogging into smart-technology software At the same time, HR leaders know that some employees prefer a more high-touch approach, so balancing that has been an important consideration as well, says Basso.

During the past year in particular, HR leadership has also focused heavily on the physical move to shared services, with different subgroups looking at all aspects of the move, including process flows, employee culture and engagement, design of the physical space, and workspace technology. All employees will have virtual desktops and be fully mobile, so this will be a whole new physical work environment as well, notes Basso. In fact, the entire 40,000-square-foot building will have only six offices. Everything else will be open collaboration space. “In the beginning, many were worried about leaving offices and moving to work stations and not having a permanent space, but now as we see everything coming together, there is real excitement mounting,” says Basso.

As the culmination of one of its first steps toward more strategic workforce planning efforts, the university recently finalized a large-scale voluntary retirement plan. As of June 30, 2017, 650 employees have opted to retire, reports Basso. “This represented a lot of work sitting with leaders, reviewing the demographics of our workforce, determining which positions to backfill, and considering our needs for greater diversity and inclusion across Penn State,” says Basso. “This is the kind of high-level strategic planning that we weren’t able to do before but that colleges and units can now access.”

Gray concurs. “The new model, both through a new organizational structure and with technology allowing much greater automation of routine service, has freed up HR professionals to spend time on critical priorities of recruitment and retention, efforts to diversify the university’s workforce, and evaluating compensation practices.”

Throughout this transformation, HR has not added to its total count of 250 designated HR employees, nor does it envision needing to do so, says Basso. HR has created new positions, and many of the existing positions have been transformed into higher-level roles, explains Basso. Today, Penn State is spending significantly less on personnel for the delivery of HR services. While new technology required a sizable investment, university leaders are beginning to analyze the return on investment as old legacy HR systems are being decommissioned and the move to a new shared service center is fully operationalized. And, while hard savings are not yet fully realized, HR efficiencies and freed-up capacity within the units is certainly an early outcome, says Basso. “Even as we continue to increase our strategic role, we anticipate being able to streamline the transactional workload by eliminating duplication through smarter use of technology.”

As Penn State nears the five-year mark of its initial current-state assessment, HR will likely survey its employees once again to mark the change in time spent on strategic activity, says Basso. “Transactional activity is still a necessary part of what we do and what has to get done for any organization, but it is not what drives an institution forward.”

AN EVOLVING MODEL

The new structure that Penn State has adopted realigns HR to centralize shared services while maintaining strategic advising and consulting activities within each college and unit. Among the lessons learned from the pilots that helped Basso tweak the service delivery model was the fact that college and unit leaders liked having HR partners who understood their particular business and mission. “We originally envisioned having consultants sitting in our shared services area and deploying them as needed, but we soon realized this would not work well for us, so we revised our model to locate consultants directly within the colleges and units where they could serve employees,” explains Basso.

The pilots also provided the necessary reassurance to college and unit leaders that taking back the HR budget and performance management function for the HR employees in their areas would not equate to micromanaging HR within their organizations or reducing their FTE capacity, says Gray. “Initial concerns centered on how to control individuals embedded within their units if those people did not directly report to them. Once deans and business unit leaders could see and experience the improvements firsthand, including a structure that was more responsive to their strategic needs, they were fine with the organizational changes.”

The one structural component of the model that is not yet fully resolved in Basso’s mind involves HR’s support of the university’s talent-related activities. For the past two years, individuals responsible for talent acquisition and management have been sitting within the various colleges and business units, and that has been working well, explains Basso. “At the same time, our original plan was to bring talent management into our professional services team to share in the work and development of overall institution strategy, so we are still testing this out.” One option is to allow talent professionals the flexibility to go back and forth between the talent-professionals team and the specific college or unit they serve. Regardless of where they physically sit or spend their time, one thing is certain, says Basso: “With shrinking and increasingly competitive talent pipelines, talent acquisition and management looms as a huge part of our future involvement as an HR enterprise.”

A TEMPLATE FOR FUTURE CHANGE

The benefits the university is already realizing as a result of a re-imagined HR function reflect a larger story of institution transformation that leaders envision for finding more effective ways to conduct all of Penn State’s business, says Gray. As within HR, a number of other core university services have suffered over the years from a high degree of organizational fragmentation, where policies have become unevenly enforced among various colleges and business units, explains Gray.

Other areas in need of transformation within the finance and administration arena include IT and campus public safety. With HR nearing full implementation, Gray suggests these other service areas will now get their turn. “We have tried to be thoughtful about pacing, waiting until we were well enough along with one new initiative before starting another so that our workforce has an appropriate amount of time to absorb the changes,” says Gray.

Penn State’s HR business process transformation is also providing a template for these other change initiatives the university intends to tackle, adds Gray. “For starters, we recognize the need to be intentional and ambitious, but also methodical. And, we now know the benefit of allowing time for pilot testing of our ideas to prove our concepts and tweak our initial ideas before moving to large-scale deployment.” Important to note is that the recipe for Penn State’s success has not simply been to add technology, says Gray. “If you don’t redesign the business processes and policies and implement an efficient service delivery, you will wind up spending a lot of money without much reward.”

Sustained communication has likewise been essential throughout the process, says Basso. HR leaders held their first town hall four years ago to lay out the vision for transformation. “I remember walking back to my office after that first town hall thinking this is going to be way harder than I imagined,” says Basso. “No one asked questions, but I could tell by the body language that this would not come easily.” Since that initial town hall, HR has been holding one town hall per semester. Fast forward to the most recent town hall and there is now so much engagement and excitement, says Basso. “People can see a future, and there is a clear line of sight for what we need to do to realize all these opportunities.”

What has proven hugely beneficial in securing employee enthusiasm was not only letting HR employees help design the space they’re moving into, but also letting them participate in that process. “We are starting to bring employees in one day each week to our current building to get them accustomed to working together and for anywhere between 10 and 50 hours of training on our new technology, customer service protocols, and so forth,” says Basso. “They have also been fully engaged and instrumental in redesigning our vision, mission, and the guiding principles for how we will conduct ourselves in the future state.”

This underscores another important point, notes Gray, and that is that engagement is absolutely crucial in a comprehensive effort of this scale. “The most effective and durable changes are done with people, not to people,” argues Gray. “Genuine engagement and collaboration will go a long way toward gaining acceptance and generating excitement if people feel a part of shaping the future versus having the future imposed on them.”

Karla Hignite, editorial consultant to NACUBO, is editor of NACUBO's HR Horizons; e-mail: karlahignite@msn.com