A brief history of HR

In my previous blog post, we looked at the big-picture trends and developments reshaping the economy. We saw how these are coming to bear on financial services, and in turn on the workforce and on HR.

In this post, I’m going make the case that this unique time of change is an opportunity for evolution that HR professionals must seize.

To see why, let’s take a quick look at the history of HR. As the chart below demonstrates, this history can be broadly divided into three eras of management thinking related to people management.

Management thinking  Taylorism Human Capital Organizational Agility
Economic focus Manufacturing and factory workers  Services and knowledge professionals  Technology and human-machine collaboration 
Job titles of talent professionals  Personnel Managers, Union Relations Managers, Welfare Managers Human Resources  ManagersTalent  Acquisition Managers, Compensation and Benefits  Managers Chief People and Culture Officer, Chief Talent Officer, Employee Experience Manager
Focus of talent professionals  Productivity and benevolent workforce welfare Growing profits and showing return on investment in workforce Creating a great employee experience and developing talent
Workplace culture Command and control Communication and the sharing of knowledge Collaboration and technology access
Key stakeholders  Founders and business owners Shareholders Customers, employees, suppliers, shareholders, and communities 

For much of the 20th century, what we now call HR was called personnel management and the manufacturing sector drove the economy. In the wake of the Second World War, most businesses were structured like the military, with a strong emphasis on hierarchy and obedience to the “chain of command.” (And by the way, the fact that most Millennials have not served in the military is an important and one of the least-discussed differences between them and other generations in the workforce.) Unions, also hierarchical organizations, were much stronger during this time.

Business leadership thinking was dominated by Taylorism, which is a management philosophy with roots in the 19th century. Taylorism sees workers as machines. The output of a worker, the thinking goes, can be maximized by breaking each part of their job into the smallest possible tasks, and then maximizing the efficiency of all those tasks.

The workplace was designed for machines and creativity was discouraged because it challenged efficiency. Personnel managers were tasked with minimizing the amount of time a worker needed to spend on a given task to maximize labor productivity. Managers also saw workers as fundamentally dependent and in need of strong, benevolent leadership.

This involved building and running programs aimed at improving the welfare of the workforce. Paid vacation, health benefits, training budgets, overtime, and more were overseen by personnel managers.

The rise of human capital thinking

Eventually the economic influence of manufacturing was eclipsed by the services economy. An educated workforce that could follow standardized processes and manage customer service relationships became a critical asset.

As this change took place, businesses developed a new and almost exclusive focus on growing shareholder wealth. Personnel managers now needed to show relevance to driving business profitability. Workers were no longer viewed as machines—instead they were capital assets, the return on which was to be maximized. This change was symbolized in 1989, which is when the American Society for Personnel Administration changed its name to the Society for Human Resource management.

Yet this was more than a name change. Instead of administering the workforce to maximize productivity, human resources professionals were business partners, with a seat in the C-suite. The profession focused on providing value to the business—and providing the data to prove it. At large firms, it also meant proving value to shareholders by boosting profits.

Remember the Business Roundtable letter discussed in the previous blog post? Jamie Dimon of JP Morgan Chase and other high-profile CEOs signed a letter declaring that the time of exclusive focus on shareholder profit was over. This is the period to which Dimon and the others are referring.

This focus on shareholder value led HR to see employees as capital and to focus on maximizing return on that capital. This had the benefit of securing HR’s relevance within the business for a new economic era. HR focused on gaining legitimacy and relevance by becoming closer to the business—not by pursuing the professionalization of its function, as their peers in finance did through the Chartered Professional Accountant designations.

Human Capital and #MeToo

When HR professionals became business partners, they adopted the interests of the business as their own. They were still concerned with employee welfare but on different grounds than in the days of personnel management.

For example, consider the #MeToo movement.

In the world of business, many #MeToo stories begin with “I went to HR and nothing happened.” That HR was unable to hold the perpetrators to account was a feature, not a bug. Compared with their colleagues in legal and finance, who have a primary responsibility to their profession, HR’s ability to stand up when the company isn’t doing the right thing is weaker. HR had lost its professional independence in pursuit of power and influence as business partners.

The New Digital Age is the time to regain it.

HR for the New Digital Age

Taylorism and Human Capital thinking are still evident around businesses today. Many of our workplaces are still organized around vertical hierarchies and managing employees to narrow tasks and responsibilities.

These ways of working may have been effective in the past, but the knowledge economy and increasingly the technology economy requires interactive communication and collaboration.

The Institute of Management at Goldsmiths University of London recently conducted a study to explore whether new technologies automating jobs could make work “more human”. The research team found that augmented workplaces scored 33% higher on factors that made a workplace more human.

Automation makes work more human by enabling people to transfer simpler tasks and processes to machines, which allows reinvestment in people via self-directed learning cultures and skill development. People can now be more creative, solve complex problems, spend more time interacting with customers—activities that make us uniquely human.

But the influence of both talent philosophies is waning, for the simple reason that they do not fit well with the demands of business in the New Digital Age. We’re moving towards an economy dominated by technology—and the funny thing about the tech economy is that as technology becomes more capable and “human,” the more people-centric HR needs to be. This is reflected in the flood of new HR job titles such as Chief People Officer and Chief Talent Officer that are replacing the Chief Human Resources Officer title linked to Human Capital Management thinking and treating people as assets and resources.

Today’s business environment is changing faster than at any previous point in history. Employees today want less structured environments, less directive communication, more flexible work arrangements, more personal development and an employer that stands for purpose, not just shareholder value.

The key components of a collaborative culture at the most successful businesses of the New Digital Age are:

  • A bias towards collaboration and communication
  • A belief that the real power of knowledge lies in sharing it
  • A preference for openness
  • Unlimited access to technology with a focus on how the employee experiences that technology
  • The conviction that people can learn and that ability and intelligence are not fixed. (This is what Carol Dweck calls a “growth mindset.”)
  • The notion that people enjoy learning and will seek out relevant training in the right circumstances

To see why an HR function built with this philosophy is better suited to business today than one influenced by Taylorism or human capital thinking, let’s consider the impact of AI on business.

We’ve gone through a technology revolution in the last 15 years or so. Back in 2003, leading economic researchers believed that non-routine problem-solving and complex communication could not be automated.

Today, AI can identify patterns, sense emotion, and communicate with such sophistication that humans sometimes do not realize they are interacting with machines. In HR, AI can now be used to rapidly build teams, create talent pipelines for key roles, and solve critical business problems with the right mix of skills. Our latest research shows that 10 percent of all tasks in financial services could be automated by 2025—and that almost half could be augmented with technology.

A recent Accenture survey found that scaling AI is now a leading concern for most executives and that this scaling will change the nature of work by making workers “human+”—that is, empowered by AI along with their own abilities.

AI is poised to take over the repetitive, routine parts of many jobs. In some sense, these tasks—which were done by humans in the time of Taylorism—were always intended to be done by machines. This will free up the workforce to focus on the tasks that are truly “human” and require creativity, empathy, and judgement.

Like the other technologies behind the New Digital Age, AI is also changing in ways that no one can completely predict. It is impossible to know what AI will be capable of—and how it will change the way we work—in 10 or even five years.

In this environment, a flexible workforce that loves to learn is a key competitive advantage. Taylorism, with its emphasis on efficiency and hierarchy, is unlikely to create such a workforce. Human Capital thinking, which prizes that which can be quantified over all else, is also not a great fit for this environment.

In the new tech-driven economy, where industry lines are blurring, disruption comes from everywhere, and change is constant, the needs of the workforce and the needs of the industry are different. HR needs to invent a new way of thinking and a new way of working.

Join me for the final blog post in this series, where I’ll walk through my vision for the future of HR.

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