Was Ram Charan Right About Splitting HR?

Two years ago, Harvard Business Review published an article written by Ram Charan, the world-renowned business adviser.

The article was called “It’s Time to Split HR."  It's purpose to recommend how best to improve HR and its capability to deliver  value to the business.

Charan proposed the elimination of the CHRO position, and the split of HR as we know it into two distinct strands.  The reason for the split? Most CHRO’s, he says, can’t “relate HR to real-world business needs. They don’t know how key decisions are made, and they have great difficulty analyzing why people—or whole parts of the organization—aren’t meeting the business’s performance goals. “

That sounds harsh, doesn’t it?  We’ll get to some of the rebuttals in a minute.

Charan proposed that traditional HR be split into the following two strands:

1. HR for Administration
2. HR Leadership and Organization

HR for Administration would handle – you guessed it – all the administrative, transactional stuff like compensation and benefits.  This sounds a lot like the duties of the HR Shared Service Center, doesn’t it?

This HR for Administration (“HR-A”) as Charan called it, would report up to the CFO.

HR for Leadership and Organization (“HR-LO”) would handle things like developing people, assessing how work gets done, and aligning talent and staffing with organizational objectives.  This sounds a lot like the strategic stuff that gets enabled through HR Transformation, doesn’t it?

“HR-LO” would report to the CEO, and would be staffed by high-potentials from areas outside of HR.  Areas like operations and finance.

The proposal was radical, and drew some opinionated response. More notable responses came from Dave Ulrich, and John Boudreau.

You remember Dave Ulrich.  He’s the Professor from The University of Michigan’s Ross School of Business who brought us “The Ulrich Model” for HR.

How does Ulrich say we should improve HR?

Ulrich’s response to Charan’s proposal to split HR was lukewarm, at best.  Shortly after Charan’s article was published in hard copy, Ulrich published “Do Not Split HR – At Least Not Ram Charan’s Way.”

In the article, Ulrich says, “I believe CHROs have much to offer CEOs and can be better prepared to do so without splitting HR.”   Rather than splitting HR, Ulrich recommends applying greater focus on the following two areas:

1. Improving the capabilities of the middle 60% of HR professionals. This is where the most untapped service potential of HR lies.
2. Taking an “Outside-in” approach, rather than “Inside out.” In other words, HR can best serve the business when HR sees the business from the outside customer’s perspective, instead of the insider operational manager’s perspective.

John Boudreau is a research scientist at USC’s Center for Effective Organizations, and a frequent contributor to CFO.com and hbr.org.  Boudreau published a response titled, “It’s Time to Retool HR, Not Split It.  His criticism of Charan’s recommendation was more direct.

How does Boudreau say we should improve HR?

“Let’s be clear. Ram Charan’s recommendation is wrong. CEOs and organization leaders who read only his column (or worse, only the title) and split HR as he suggests, will make a serious mistake that will destroy value for their shareholders and constituents.”

Instead of splitting HR, Boudreau recommends “adapting financial and other management frameworks to HR and talent decisions.”  For example, retool total rewards by using the principles that have proven to work in product design and market segmentation.  In other words, use methodologies that are effective in other functional areas of the enterprise, and apply them to HR.

So, what’s your position?

Split HR?

Improve HR through the middle 60% and a more “Outside In” approach?

Or improve HR by applying best-practice methodologies from other domains inside the organization?