International thought-leaders Ram Charan and Dave Ulrich recently created a stir with their vigorously contested views on the topic of whether HR should be separated into two divisions: HR-A (for administration) and HR-LO (for leadership and organisation). Ulrich, a university professor, author and management guru, argues against separation.

While I have enormous respect for Ram’s wisdom, I believe CHROs have much to offer CEOs and can be better prepared to do so without splitting HR.

Charan ignores what I call the 20-60-20 rule. In HR (or finance or IT), 20 per cent of the professionals are exceptional, adding value that helps organisations move forward; 20 per cent are locked into a fixed mindset and lack either competence or commitment to deliver real value; and 60 per cent are in the middle. It is easy and fair to critique the bottom 20 per cent, but it’s not fair to paint the entire profession with this same brush.

The top 20 per cent today (and I hope more of the 60 per cent tomorrow) focus on three things: talent, leadership and capability, along with their attributes:

• Talent: delivering competence (right people, place, time, skills); commitment (engagement); and contribution (growth mindset, meaning and wellbeing) of employees throughout the organisation.
• Leadership: ensuring leaders at all levels think, feel and act in ways that deliver sustainable market value to employees, customers, investors and communities.
• Capability: identifying the organisation’s capabilities (called culture, system, process, etc) that enable organisations to win over time. These capabilities would vary depending on the strategy, but might include service, information, innovation, collaboration, risk, efficiency, change (adaptability, flexibility), culture change, learning, strategic focus, etc.

I strongly believe that excellence in talent, leadership and capability requires an ‘outside-in’, not ‘inside-out’, perspective. For talent, being outside-in means not being the employer of choice, but the employer of choice of employees that customers would choose. It means that effective leadership is defined through the brand promise made to customers and the intangible leadership capital that investors value. And that capability becomes defined as the identity of the firm in the mind of key customers.

Charan’s advocacy for a “talent” HR role actually limits the breadth of what HR can and should deliver. When HR professionals bring unique insights about talent, leadership and capability to the senior management dialogue, they add enormous value. I suggest that HR professionals are better at delivering in each of these areas than line managers who get moved into HR roles – the path Charan recommends.

Charan’s recommendation for splitting HR into two groups raises two concerns. First, it offers a simplistic structural solution to the fundamental challenge of increasing HR’s value to the business. Charan has reduced the HR challenge to a governance problem. Upgrading HR requires more rigorous redefinition of how HR can deliver value, how to develop HR professionals and how to rethink the entire system of HR.

Second, advocating the separation of the HR function into two groups can’t be a blanket solution to HR governance. The structure of the HR department should be tied to the business structure (a centralised business shouldn’t have divided HR governance, nor should a pure holding company). In diversified organisations, HR departments should be run like professional services firms. This approach offers the benefits of centralisation (economy of scale) and decentralisation (local responsiveness). In fact, many large diversified organisations have separated HR into three groups: the embedded HR generalists who work with business leaders on talent, leadership and capabilities; centres of expertise that offer analytics and insights into HR knowledge domains; and service centres that do the administrative work. All can be governed under the HR umbrella, just the way marketing and sales work together.

I suggest a holistic approach to helping the middle 60 per cent. This includes redefining the strategy (outside-in) and outcomes (talent, leadership and capability) for HR, redesigning the organisation (department structure), innovating HR practices (people, performance, information and work), upgrading the competencies for HR professionals, and focusing HR analytics on decisions more than data.

This is an edited extract from Dave Ulrich’s article ‘Do not split HR – at least not Ram Charan’s way’, published on the Harvard Business Review’s blog. View Charan’s argument for separation here.

Dave Ulrich is speaking at the 2015 AHRI National Convention. Find out more.