Centralised HRM: Clarity or chaos?

The Human Resource (HR) focus in any organisation is increasingly essential in facing business challenges. The Human Resource Department houses a wealth of experience and expertise in people development. The exact positioning of it, in relation to the enhancement of the service it provides has always been a point of debate.

Therefore, whether the HR department should be centralised or decentralised is well worth discussing.

A centralised personnel department could be of two forms.

i.The HR department of the organisation, which is called the Personnel Department in the conventional terminology.

ii.A division headed by a manager, reporting to a director in charge of Strategic Human Resource Management (SHRM), where the operational and administration aspects of HR are taken care of.

HRM revisited

Let’s refresh our minds on what HRM is. There are hundreds of ways to describe it. Dessler (2008) puts it across in a rather simple manner: The policies and practices involved in carrying out the “people” or human resource aspect of a management position. Interestingly, it does not talk about a particular department, section or a division, but it does talk about any management position.

Case for centralised HRM

Advantages of having a centralised HR department can be many as discussed below:

1. Effective handling of the “staffing” function

HR department is in charge of one of the main managerial functions, conventionally known as “staffing”. It has to “staff” the organisation with managers whose main functions are planning, organising, directing and controlling. Since the “staffing” function should be handled centrally, having a centralised Personnel department appears to be advantageous.

2. Effective coordinating role

A centralised HR department can play an effective coordinating role in activities relating to employees. The department led by the HR manager act as “the right arm of the top executive to assure him/her that HR objectives, policies and procedures that have been approved are being consistently carried out by the line managers”.

3. Higher resource utilisation

Having a centralised HR department can be an effective way of resource utilisation. Rather than several functional managers engage in similar activities such as recruitment and training, central handling can assign the best task to the best person.

4. Can be a centre of excellence

A qualified HR professional, with a wealth of experience, can head the centralised HR department, where he/she can ensure the high level of professionalism. It is much practical to groom a few dedicated HR specialists rather than infusing a dose of HR into every manager.

5. Necessity for policy making

The centralised nature of the HR department will ensure the consideration of all concerns in taking decisions that have an impact on employees. Setting policies require a panoptic view, and it is difficult to expect such a broad outlook from decentralised units.

As elaborated by Pigors & Myers (1977), a centralised HR department can contribute to the effectiveness of the organisation by assisting:

i. To formulate a policy for labour relations that shows understanding of employee needs and that is expressed in language that reflects courtesy and respect toward union officials and their legitimate organisational functions.

ii. To establish a complaint and grievance procedure that is fair, clear-cut, easy to understand, made known to all concerned, and prompt in operation.

iii. To ensure that all line managers understand corporate labour management policy and do their full share to interpret it in action when grievances are being processed and contracts are being negotiated.

6. Effective career and succession planning

Central handling of career and succession planning facilitates not only equal opportunity, but also recognition of human potential at all levels

7. Collective bargaining

The maintenance of a harmonious industrial relations climate needs a regular dialogue between the management and the employee representatives (union), which can be synergistically facilitated by a centralised HR department. Instead of different functional managers dealing with different sets of the employee representatives, a centralised role could be more advantageous in terms of sharing one message and understanding all across the organisation.

A centralised HR department can engage in the formation of joint union-management committees to explore particular problems as an additional way to develop ‘integrative bargaining’.

8. Diagnosing organisational health and wellbeing

As functional specialists, a centralised HR department is capable of monitoring significant indices of organisational wellbeing such as records of attendance and punctuality, employee turnover, disciplinary actions, industrial disputes, etc. Such information can be used to effectively diagnose any ailments in the system, structure, policies and procedures and in general the HR orientation of the organisation.

9. Effective facilitation of change management

A centralised HR department can play a role in assisting employees in overcoming the negative effects associated with rapid change, by developing common programmes. As Hiltrop (1998) observes, with the increase of change, there will be more stress and more skills. Assisting employees to cope up with the additional stress and thereby supporting the functional objectives being achieved through human output can be done.

Case against centralised HRM

Against such advantages, there are definite disadvantages also in having a centralised HR department. Such disadvantages can be described as follows:

1. Can lead to bureaucracy and inefficiency

Being the central body with people to deal with HR matters pertaining to an entire organisation, it might contain a series of non value-adding activities such as obtaining approval from the functional manager, passing it to the HR manager, sending back to the respecting department, etc.

This negative impact can be minimised to a certain extent by the efficient use of Information Technology, but the most effective way is to resort to a Human Resource Information System (HRIS) which negates the need of a centralised personnel department.

2. Overdependence on centralisation

As a line responsibility, every manager in the organisation has a role to play in socialising and training and development of people. With the availability of a centralised HR department, might be seen as a resource centre to be fully dependent on, neglecting the line responsibility. Instead of a facilitator, the CPD will become a faculty full of experts, which is an administrative burden.

3. Against the global trends

In the era of re-engineering and right-sizing, decentralisation of power and authority has become the order of the day. A single individual as the HR expert, coach, consultant and facilitator can play the ‘Big HR’ role as Watson Wyatt Associates called it in a seminar held in Colombo (1998), whilst the all functional managers can perform the HR functions in looking after their subordinates.

When such a concept is practical, cost-effective and efficient, there is no rationale of having a centralised HR department.

4. More biased to in-sourcing than to outsourcing

As Watson Wyatt Associates (1998) observed in its Colombo seminar, HR has to be repositioned as a strategic partner where the central activity will be consultancy. All additional activities can be outsourced, and the best practices can be adopted by ensuring a quality delivery. A centralised HR department, having a pool of internal experts of their little spheres, is a hindrance for such a strategic move.

5. Negative perception as a policeman in charge of hire and fire

A traditional personnel department, typically headed by an elderly non-practicing lawyer, has the imagery associated with discipline, punishment, and salary deduction, portraying itself as the “policy policeman”. A centralised HR department, though practicing HR, has a lot of the remnants carried forward from the past. Such a context leads to low image and a suspicious approach from employees instead of being a partner in employee progress.

Considering the above, it is evident that a centralised HR department has both advantages and disadvantages. In response to the rapid global changes, and the increasingly demanding strategic role from HR, a Human Resources Unit of a centralised nature with the optimum use of IT such as a sound HRIS is the need of the day. It will be, with the optimum, leanest number of cadre (ideally one), responsible for “Big HR” and play a role of a coach and a facilitator in ensuring the functioning of each manager in his/her “Small HR” role.

Relevance to Sri Lanka

In relation to Sri Lankan organisations, a significant shift towards decentralisation of the HR department can be evident, particularly in conglomerates. The reasons could be varying from one organisation to another, yet the dissatisfaction of the subsidiaries or sections of the way the centre is handling the HR function appear as a common reason. Whilst the centre remains more as a policy making and system designing body, the decentralised HR function can focus more on effective implementation of agreed HR plans.

Such a co-existence of a small centralised HR department, together with several de-centralised HR units, could be seen as a realistic solution for many pressing HR issues. It will also ensure speedy implementation on agreed actions while ensuring the well being of the employees and the achievement of the organisational goals.

(Dr. Ajantha Dharmasiri is a learner, teacher, trainer, researcher, writer and a thinker in the areas of Human Resource Management and Organisational Behaviour.  He can be reached on [email protected].)