Human Resources is facing major challenges that will change its function. In the two preceding articles, I described how strategic workforce management will affect the competency requirements for HR.
In the discussions about this, I was asked: What comes after that, when we have transformed everything? Where is the workforce of the future? For 5 years, I had the pleasure of doing HR for, among others, the nearly 8,500 employees in the purchasing and supply chain of a corporate group. Even back then, I thought to myself: HR can take a leaf out of the book of how purchasing organizes its work area! I would like to show you here what that could be in concrete terms.
The boundaries between inside and outside become blurred
First, a hypothesis: There are many indicators that suggest that the boundaries between the inside and outside of an organization will become increasingly blurred: Despite all efforts and proactive workforce transformation, the pressure to adapt due to technological and societal change will never be fully met with existing staff. The increasing division of labor in many industries is constantly reducing the depth of added value. The home office experience of the last few months is pushing employees further away from the experience of “belonging”. I know many people who also recognize this as an opportunity for autonomy. Digitalization is creating new value chains – entire highly specialized industries are emerging – such as AI consulting and data analysis as a service. Outsourcing, the focus on core competencies and the flexible purchase of expertise and workforce is becoming more obvious and easier. Increasing digitization is bringing more and more transparency to markets. This will generate a more differentiated demand.
This has many advantages for companies
Companies become more flexible and less dependent on fixed costs through clever management of different resource pools. Those who succeed in integrating external and internal resources without friction also tap into great innovation potential. We in the ‘classic’ industry have always looked enviously at the automotive companies. We had 50% vertical integration – they had up to 80%. When a car manufacturer builds a new car, the supplier delivers the entire dashboard with all the mechanical and electronic components to the assembly line. And the supplier not only built it, but also developed most of it himself – in close cooperation with the supplier industry.
Managing ecosystems of resources
I believe that the future of human resources will be to actively manage different ecosystems of resources. What we are doing today, for example by carrying temporary workers with us to some extent and occasionally using consultants, is only a very small, first step in this direction. In the future, we will have to manage the strategic competence needs of an organization through the systematic management of equally strategically selected resource pools. And the challenge is no longer just to find these pools on international markets, but to bring them into the company and retain them in a similar way to our own employee base. The big tech companies in Silicon Valley are already doing this with their developer communities. Your own employees must be focused on core competencies. And it’s important not to make any mistakes – like the auto industry’s oversleeping of the importance of battery technology. Teams of suppliers, consultants, or universities must be able to work together as effectively as if they were part of the same organization. Managing affiliation, corporate identity, competencies, intellectual property, performance and benefits must become universal. Employment conditions must be able to adapt to market developments. Management must be able to effectively reach and motivate not only its own employees, but also ‘external’ employees. Our German labor and collective bargaining law, which is strongly geared to affiliation, does not make things any easier in this respect. If HR organizations want to take on this strategic task, they would need to completely rethink the question of what human resources are and how to manage them!
Learning from Procurement
Modern, strategic purchasing organizations have developed strategies, competencies and an understanding of their roles that can be used as a guide:
- End-to-end: Strategically oriented purchasing organizations think in terms of complete value chains, from initial innovation to after-sales service and spare parts policy.
- Early involvement: In order to have this wide field of vision across all value creation stages and to be able to decide how suppliers can be integrated, purchasing needs to be involved from the very beginning.
- Sourcing Strategies: Today, purchasing organizations must have a good global knowledge of supplier markets and their maturity in order to find the right suppliers and bind them to the company. In doing so, risk management always plays a role in order not to become dependent on only one supplier.
- Negotiation strategies: Purchasing has – similar to sales – developed sophisticated negotiation strategies in order to be able to price services and to leverage economies of scale for larger quantities. By the way, a small myth is dispelled here: the times of Mr. Lopez in which the purchasers of automotive companies ‘fleeced’ small suppliers to the point of collapse and shifted all risks to them are over. Most of the buyers I know operate a very symbiotic supplier strategy.
- Supplier management: Cost transparency, e-sourcing, e-bidding, etc. are standard tools, but in most mature markets co-development, cross-company teams, mutual appreciation and respect are part of the culture of working with suppliers. Suppliers are systematically involved and the working relationship is systematically managed with a variety of instruments. This ranges from compliance and risk issues along the entire value chain to account management, in order to maintain the relationship on both sides and avoid disruptions.
- Innovation management: As mentioned earlier, in mature industries, more innovations often come from suppliers than from the company itself. 8 out of 10 is a number that is always in the air. To systematically exploit the full innovation potential of specialized supplier markets requires purchasing to be deeply (also technically) immersed in the matter itself.
- Make-or-buy: In my opinion, this is the crux of the matter. An effective purchasing organization (as in the automotive industry) must be involved in the decision as to whether internal or external resources are to be used for a product. This shows how important the role of purchasing is as a function at the decision-makers’ table.
What can HR learn from this?
First of all, I think it’s a question of attitude whether you, as an HR function, feel an overall responsibility for the business area/unit/department of the employees you employ. Then there is the question of whether HR really understands its own business strategy in such a way that it can make competent decisions about make-or-buy. Then you have to know your own supplier base well – and that goes far beyond temporary employment agencies, interim management and consulting firms. Where do we as an organization need core competencies – and where not. These competencies must be derived from the business strategy. By the way, this is a ‘waste product’ of workforce transformation. HR organizations can learn a lot from their procurement counterparts in terms of supplier market analysis, sourcing and negotiation strategies, and contract management. And there are a multitude of cooperation opportunities between purchasing and human resources.
However, this requires a different, more open attitude. Purchasing and HR are very close in many respects. Both are supplying functions, which, by the way, together represent almost 100% of the production factors of a company. In the end, it is a matter of really creating ecosystems together so that people – regardless of their organizational or personal background – feel comfortable, are treated fairly and a climate is created in which they can work together on an equal footing, free of hierarchy. This is where the human factor counts!
At least in this field should lie the strength of human resources, from which perhaps also purchasing can learn something.
I have supported HR concepts for purchasing organizations several times with my team and a consulting friend. Why not transfer the experience of purchasing to the HR organization?
If you are interested please contact me or us directly!
CEO and Partner Breitenstein Consulting