In Global HR Operations Which Structure is Best: Centralized or Decentralized?

HR management can be a challenge in any environment and in companies of all sizes. But when the company operates in multiple geographies on a global basis, management becomes increasingly challenging.

For businesses operating globally or seeking global expansion, determining what type of business structure they will put in place to achieve international objectives takes much consideration. One being should the HR function be managed centrally, or should HR resources be deployed across all locations to provide a more local focus? With significant variations in local customs and culture, a local management structure, or “decentralized” structure, seems logical.

David Reischer, an employment lawyer and CEO of LegalAdvice.com, says: “A decentralized HR structure is best for a global operation because the compliance with local laws and regulations is the biggest challenge.” Keeping up with changing laws, he adds, is always a struggle for global businesses. “A decentralized HR structure will best allow to learn and adapt to new laws and regulations,” says Reischer, which he calls “critical” to avoid audits and lawsuits. “A global business must have a decentralized HR structure to stay in compliance with all local, state, and federal laws,” he asserts.

Decisions should be based not just on complying with local country laws and customs. Other considerations come into play, chief among them consistency and efficiency in global corporate processes.

 

Global HR Variations Across Companies and Locations

At the end of 2016, Mercer conducted research on how HR functions around the globe were structured. Overall, they found that:

  • Only 15% of the companies they represented were entirely decentralized;
  • 50% were centralized; and
  • 35% were a hybrid of the two approaches.

There was variation depending on the type and size of employer—and by global regions.

With the exception of North America, and the Middle East and Africa, a blended a hybrid approach seemed to be most prominent globally.

Perhaps because of the complexity and variability inherent in global operations, a blended approach may be the best way to address the myriad of HR-related considerations in a global organization.

It doesn’t have to be an “all or nothing” approach, of course.

 

Taking a Global, Local HR Approach

Max Caldwell, principal in charge for The Hackett Group, says: “On the issue of centralization vs. decentralization in global HR operations, the current is flowing in both directions at once.” He explains:

  • In terms of aligning HR and business strategy, the focus is on pushing activity out from the center toward business units and geographies.
  • When it comes to core HR operations, though—like shared services and technology, along with global processes—organizations choose to centralize (or at least regionalize) to optimize efficiency and leverage.

In general, Caldwell says, “The trend is toward standardization to establish a more consistent, cohesive, and scalable HR operating model.”

A hybrid approach—also referred to as a global/local approach—can be a good model for establishing HR operations to serve the needs of employees in varying global locations. Deloitte described this approach in the article, “The Global and Local HR Function.” Company that decide to go with a hybrid approach, which can be more complex, can benefit from the international resources XpertHR offers to assist with both country-specific compliance issues and the establishing of standard HR systems.

Ultimately, Deloitte says, HR’s goal with global HR management should be to “combine scale and agility to optimize talent management in every market where the company does business.” Creating global standards helps to ensure consistency at a high level, while allowing for some local autonomy and oversight can best leverage and accommodate varying local needs, customs, laws and regulations.

It’s important, though, to not leave structure to chance. HR leaders should be strategic and thoughtful about which functions to centralize, which to localize—and how everything will be overseen and coordinated to ensure both efficiency and compliance.

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