Human resources (HR) have become pivotal in today's business landscape. As the business world evolves, HR management must continue transforming to ensure the effective and efficient management of people in a company or organization. This helps the business gain a competitive advantage and maximizes employee performance in service of an employer's strategic objectives. HR leadership team now focuses on optimizing performance, enhancing employee engagement, and navigating dynamic market conditions. With so many crucial business functions under the responsibility of HR, the design of an HR operating model is a critical factor in determining the success of an organization. HR operating models are frameworks that serve as the backbone of HR functions within an organization. These frameworks provide structure and direction to manage human capital, which will drive business success.

A well-crafted HR operating model will streamline processes, improve organizational efficiency, and ensure alignment with HR strategies and an organization's goals. This article will explore the five types of HR operating models, investigating their significance, differences, and role in shaping an organization's success. Readers will gain knowledge and insight about the different new HR operating models used in 2024 to make an informed decision when selecting the HR operating model that best fits their organization.

What is an HR operating model?

HR operating models are blueprints that detail how HR functions are structured and delivered within an organization. They delineate the distribution of HR responsibilities, resource allocation, and integration of HR systems. An HR leadership team needs to understand these HR models and choose the best one to fit its organization. Whether you choose a decentralized, centralized, or hybrid model, the chosen HR operating model will profoundly affect the efficiency of HR operations.

Why are HR operating models important?

It is a strategic imperative that an organization chooses the correct HR operating model. Selecting an HR operating model that best fits your business will give HR professionals the power to use HR as a strategic function that drives company success. These models will also foster employee engagement and drive performance within an organization. In contrast, if you choose an HR operating model that does not fit your business's needs, you will face many challenges. An ill-fitting operating model can lead to inefficiencies, disjointed HR processes, and HR efforts that are misaligned with an organization's strategic objectives. Let's explore the five types of HR operating models.

Traditional HR Operating Model

Before the modern HR landscape evolved into what it is today, the traditional HR operating model stood alone as the blueprint for a successful HR strategy. The traditional HR operating model has a centralized department overseeing all HR functions. In the traditional model, HR departments handle various tasks, including training, recruitment, performance management, compensation, and employee relations. This model's decision-makers are usually siloed within the HR department and have limited involvement with other managers or business leaders. Organizations that employ the traditional HR operating model are typically large corporations with established bureaucratic structures and hierarchies. This model also benefits organizations operating in highly regulated industries like healthcare, banking, and government. These highly regulated industries choose a traditional HR model to ensure compliance, security, and standardization across the organization.

Pros and Cons of the Traditional HR Operating Model

The traditional HR operating model has several components to leverage to help its HR department succeed. Its centralized nature allows for consistency with HR policies and practices throughout the organization. A centralized HR department can also help an organization develop expertise in different HR domains, allowing for high-quality and efficient HR service delivery. In addition, the traditional model allows for tighter control over HR processes with its centralized decision-making structure.

In contrast, this traditional HR model has some disadvantages that HR professionals should consider. The first disadvantage is the need for more flexibility. The conventional HR model's rigid structure can negatively affect agility and responsiveness to a business's evolving needs. Centralization can also create bottlenecks in HR processes, leading to delays that can frustrate employees. However, the most significant disadvantage is the increased risk of misalignment between human resource management and the organization's larger goals. Since all the decision-making is concentrated inside the HR department, there can be a disconnect between HR strategies and broad business objectives.

Shared Services HR Operating Model

The shared services HR operating model is designed to centralize certain HR functions within a shared services center while keeping other HR functions decentralized within business units. Routine administrative tasks such as payroll processing, HR inquiries, and benefits administration are usually sent to the central service center. This gives HR leaders more time to focus on strategic needs aligned with the business's organizational goals. These strategic HR functions usually include talent management, employee engagement, and succession planning practices. The shared services HR operating model has become increasingly popular today with many corporations across different industries. They use this method to streamline HR processes and enhance service delivery.

Pros and cons of the Shared Services HR Operating Model

The shared services HR operating model can have many advantages for an organization. It improves efficiency by consolidating administrative tasks in a shared services center. This consolidation can help an organization save costs with improved production efficiencies. Shared services HR operating models will also improve productivity in HR service delivery. The shared service model also enables specialization. Ensuring organizations attract specialized talent and

resources, increasing the quality of HR services. Another advantage of centralization in a shared service center is the standardization of HR systems and processes, improving consistency and compliance.

On the other hand, the shared services HR operating model has some disadvantages. With the decentralized HR functions, there could be a loss of local focus, with organizations with unique needs in different business units. With this model, HR departments can also face communication challenges with the fragmentation between the shared services and the decentralized HR teams. In addition, some employees who are used to another HR operating model may face resistance to the change.

Center of Expertise HR Operating Model

Another HR operating model commonly used in 2024 is the Center of Expertise (CoE) HR operating model. In this model, HR functions are embedded into specialized centers that focus on specific HR functions such as succession planning, compensation, benefits, employee relations, and talent acquisition. Each separate center of expertise has HR professionals with profound knowledge and experience in their respective HR domains. These centers provide guidance, support, and processes to fit the organization's needs best. They work closely with HR partners to ensure alignment with a business's strategic objectives. Organizations of various sizes and industries have started to use the CoE HR operating model. This model is best for organizations that want to enhance HR effectiveness while achieving strategic goals. Google, Amazon, and Microsoft are some industry leaders that use the CoE HR operating system. It helps them attract, develop, and retain talent in a competitive market.

Advantages and Disadvantages of Center of Expertise HR Operating Model

The CoE HR operating model gives the modern business landscape many more advantages. The first significant advantage is increased expertise in different HR domains. The CoE model enables organizations to use their specialized knowledge to determine the best solution. Another advantage of this model is its strategic support role for an organization. CoEs strategically drive employee performance with their expertise and guidance. The CoE HR operating model also allows for innovation. The specialized center of knowledge brings about innovation and continuous improvement in HR practices that keep them ahead of the current HR trends.

The disadvantages of the CoE HR operating model mainly lie in its complexity. It takes work to manage multiple CoEs. Careful coordination and resource management are crucial to the success of this model. Another disadvantage is the potential for silos, which are separate business divisions operating independently of each other, causing confusion and a lack of collaboration between divisions. The last major problem with the CoE model is resource constraints. To maintain a CoE HR operating model, investing in specialized talent, new technologies, and resources is essential. Smaller businesses with a limited budget may need help implementing and maintaining a Center of Expertise HR Operating Model.

Embedded HR operating model

The following model is called the embedded HR operating model. This model embeds HR leaders directly in business departments. They work closely with line managers and employees and have more of a pulse on the HR needs of the organization. Unlike the previous centralized and decentralized HR operating models, the embedded model does not have HR functions that are separate entities. Instead, HR professionals become a part of the business department they serve. It is one of the best ways to align HR practices with an organization's strategic objectives. This model is popular with several organizations. Typically, organizations that emphasize employee engagement are well suited with an embedded HR operating model. It enhances HR effectiveness and helps drive business outcomes for companies like Whole Foods and Southwest Airlines. They use the embedded HR operating model to provide customized HR support for different business units and foster a strong company culture.

Advantages and Disadvantages

The primary advantage of the embedded HR operating model is its alignment with the strategic objectives of the business. Since HR leads are integrated within the company's different departments, HR teams foster an understanding of the business's dynamics, helping them tailor HR strategies and solutions that meet the organization's goals. This model also calls for HR professionals to work closely with managers and employees, further cultivating an understanding of their issues, helping them provide personalized guidance, creating enhanced communication throughout the business, and eliminating confusion. It also fosters an organizational culture of communication, transparency, and trust.

There are some disadvantages to this model. Specifically, the potential for role ambiguity comes from HR departments that need help to balance their dual roles as HR members and members of their business unit, leading to potential conflicts of interest. This model also has limited scalability throughout the organization. This problem exists more for large corporations or companies that are geographically dispersed. The last disadvantage of the embedded HR operating model is the risk of isolation. Integrated HR teams can become isolated from the broader HR function with their dual roles, potentially limiting opportunities for professional development and knowledge sharing.

Global HR operating model

The last HR operating model used in 2024 is the global HR operating model. As the name implies, the global HR operating model addresses challenges multinational corporations face with their HR functions across geographic regions, cultures, and regulatory environments. This model focuses on standardization with HR strategies, policies, and practices to ensure compliance and consistency throughout the different geographical locations. It also provides accommodations to specific local variations wherever it's necessary. The global HR team aligns HR efforts with organizational objectives by collaborating closely with regional HR counterparts. The global HR operating model is primarily used by multinational corporations that operate in different industries, such as manufacturing, consumer goods, and technology. This model helps HR professionals manage their international workforce efficiently and effectively. IBM, Coca-Cola, and Unilever are some companies that have established a global HR structure to standardize their HR practices and ensure compliance with different regulatory requirements.

Advantages and Disadvantages

This model has many advantages for multinational organizations that need a global HR center. The first advantage is the standardization of HR practices. This will allow for consistency and compliance across different international locations. The next significant advantage is the alignment between HR processes and the needs of an organization. HR strategy should be in synergy with the global business objectives. The global HR operating model also facilitates knowledge sharing within the organization. Global HR departments will continuously share knowledge and practices with different business regions, which enables innovation in HR processes.

There are also some drawbacks of the global HR operating model. One is the increased complexity for an HR manager who works across multiple jurisdictions, which creates logistical challenges, cultural differences, and legal compliance issues. The bureaucratic nature of the global model can also cause resistance to change, especially from local stakeholders unaccustomed to different cultural practices. The last major disadvantage to this model is the need to invest resources to maintain its global infrastructure. It requires a significant investment in technology, talent, and resources.

How to choose the right model for your business

All of these will have different advantages and disadvantages depending on your organization's needs. When evaluating the suitable model for you, assessing the organizational structure and which HR functions will align best with that structure is necessary. Then, HR operating models will be evaluated, along with the organization's strategic growth plans and goals. Next, suppose your organization has different geographic locations. In that case, it's crucial to determine the scope of your business and whether global or regional HR will be needed. After that, it's time to ensure that the HR operating model you choose reflects your organization's culture and values. The last thing to consider when selecting a suitable model for your business is technology and resources. Find and evaluate the technology and resource infrastructure needed to support your chosen HR operating model.

Steps to follow the decision-making process.

Great, you chose the new operating model that fits your business the best. What's next? It's time to follow these steps in your decision-making process. Start with evaluating your current HR processes, structures, and resources. This will help you identify strengths, weaknesses, and areas of improvement. Then, you need to define your objectives. Clarify your organization's HR priorities and goals. Include factors like efficiency, compliance, strategic environment, and employee experience. Once that's complete, it's time to research and benchmark different options for your HR operating model, weighing the pros and cons and their suitability for your organization. After that, move on to engage key stakeholders and involve them in the decision-making process to ensure they buy in. Lastly, you must pilot and iterate the selected HR operating model in specific business departments before full-scale implementation. This allows time for an HR manager to refine the model and get employee feedback.

Conclusion

In this article, we discussed the different human resources operating models commonly used in 2024 that you should utilize within your HR transformation to make it truly effective. This includes the traditional HR operating model, shared service HR operating model, CoE HR operating model, embedded HR operating model, and global HR operating model. Each model offers different advantages and disadvantages depending on the needs of an organization. Selecting the best-fitting model is critical to optimizing your HR function and processes and using HR strategy as a part of your organization's business strategy. It's essential to be careful when evaluating organizational structure, business strategy, and geographic scope.

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