The HR function has always been plagued by its inability to demonstrate a return on investment. Rarely taken seriously, for decades HR executives have been working to earn "a place at the table". It would no doubt be difficult to find a CEO today who doesn't acknowledge the value of people, because they intuitively understand that effective people policies and practices are good for business. Conversely, you can find many who still don't recognize the value of the HR function itself. I think you can sum up the prevailing attitude of today's CEOs with a short phrase one of the most accomplished and highly regarded HR executives in the US told me about her former employer - "They get people, just not HR".

A frustrated CEO once asked me, "Can you come in and tell me what kind of HR function I should have? How many people should be in it and what their responsibilities should be? How much we should be spending on it?" For him, the HR function was a veritable "black hole". Another told me, "You know, I don't know what they do down there but the things they work on, I don't care about and the things I care about, they don't work on".

This symptom holds true at many levels of management. The HR function often has less credibility with line management because HR leadership is not fluent in speaking the language of the investor/customer. This is the world line management must live in every day. Equally, line management doesn't understand the importance of intangibles, and the HR function isn't skilled at measuring and linking this value to total shareholder return. Too often, HR activities are not aligned with customer and investor requirements.

To be successful today, the HR function must link itself to desired business outcomes and eliminate those activities that don't contribute to achieving those outcomes. It must constantly monitor and change how well it is performing against these criteria, and be relentless in this process.

Global competition is driving business to become increasingly more efficient, and better financial controls provide stronger linkages to desired business outcomes. In today's environment, CEOs want a measurable return on each and every expenditure, and the HR function is no exception. Fortunately, with more and more administrative HR tasks being bundled and outsourced, the bright light of accountability is shining on the HR function as never before.

The inherent nature of the outsourcing process and dealing with an external service provider forces an organization to focus on exactly how the services they're purchasing will support their business objectives. The development of an RFP and the attendant Service Level Agreements (SLAs) and Statements of Work (SOWs) aligns the HR processes with the desired business outcomes. Business metrics and Key Performance Indicators (KPIs) can be applied to measure the performance of an internal HR department, but an outsourcing contract ties them directly to the amount the buyer will pay for the outsourced HR services. Last, but certainly not least, an outsourced relationship clarifies the process for measuring your return on investment.

Some 94% of large employers surveyed this year by Hewitt Associates reported they were outsourcing at least one human resources activity. Further, the survey revealed that by 2008 many of those organizations plan to expand outsourcing to include HR activities such as learning and development, payroll, recruiting, health and welfare, and global mobility. As the more administrative HR activities are outsourced, internal HR departments will shift their focus to becoming a strategic partner of the business.

In their most recent book, The HR Value Proposition, HR thought leaders Dave Ulrich and Wayne Brockbank outline a great game plan for today's HR function. They advocate the following steps:

1. Begin with an external focus - look at the external business realities like technology, economic and regulatory issues, workforce demographics and globalization and external stakeholders, investors and customers.
2. Next, of course, align HR resources through an internal assessment, measurement, and management of the function.
3. The focus should then turn to ensuring that HR practices add value that matters to the business.

Even a casual look at today's external business realities reveals that outsourcing at least portions of your HR function is a no-brainer in most cases. Next, an internal Feasibility and Strategy assessment will reveal exactly which activities should be outsourced, and which should be retained and possibly restructured internally. Third, selectively outsourcing the identified activities is a fast and efficient way to transform HR function to focus on achieving the desired business outcomes.

But outsourcing is only one part of the solution. Those activities and processes that remain in-house should be re-engineered and restructured to complete the transformation. HR leadership will need to adapt to the changing environment. Ulrich and Brockbank urge HR executives to focus on the value of intangibles. They suggest six actions to take:

1. Become investor literate.
2. Understand the importance of intangibles.
3. Create HR practices that increase intangible value.
4. Highlight the importance of intangible value to total shareholder return.
5. Design and deliver intangibles audits.
6. Align HR practices and investors' requirements.

Combining HR management best practices and outsourcing appropriate HR activities enables an organization to properly align its human resources function with its strategic business objectives.

For more information contact Ben Trowbridge at ben.trowbridge@alsbridge.com