Uphill From Here

HR executives report the majority of their priorities will be difficult to achieve in 2022.

By Harry Osle, Franco Girimonte, and Tony DiRomualdo

Two years after the COVID-19 pandemic began, HR executives say conditions are still not back to normal and they expect the fallout to continue. Respondents to The Hackett Group’s 2022 HR Key Issues Study remain most worried about cybersecurity risks, followed by supply chain disruption, commodity price spikes, and structural labor and skills shortages. On top of all that, The Great Resignation -caused by the abrupt rise in voluntary turnover brought on by the global pandemic -is expected to continue through the end of the year, exacerbating continued challenges in recruiting and retaining talent in the new hybrid work environment.

It’s truly a perfect storm of supply-side factors, pent-up demand, and governmental cash infusions. All of these components have triggered an inflationary wage/price spiral and have added even more stress to HR teams, according to the survey of 250 executives.

In contrast, one-third of respondents reported early in the fourth quarter of 2021 (before news of the Omicron variant broke) that business conditions for their company had stabilized, and over one-half expected stabilization in 2022. Most believed they’d have a hard time fulfilling more than three of their top 10 priorities this year.

Part of the reason for their pessimism is simple math: HR executives expected their budgets to decline by 0.2% and their departmental headcount to go down by 0.4%, even as their workload was expected to climb by 9.3%.

68% of study respondents have already broadly deployed next-generation, cloud-based core applications and an additional 24% have small-scale implementations in place.

Moving Ahead

Most executives say the best chance to meet their objectives is by accelerating adoption of new technology that can enhance the delivery of HR services. Executives expect their HR-related technology spend to increase by more than 9% this year.

Sixty-eight percent of study respondents have already broadly deployed next-generation, cloud-based core applications and an additional 24% have small-scale implementations in place. Business process management/workflow tools and data-related tools are well established, but robotic process automation (RPA) is still mostly being done at a small scale. Executives also feel they lack enough IT expertise on staff to accelerate the adoption of new technologies.

Overall, executives ranked their top HR priorities for 2022 in this order:

1. Act as a strategic advisor to the business. For the second year in a row, this aspiration remains top of mind, but HR staffers will need to upgrade their skills and support capabilities to succeed in this role.
2. Recruit and retain staff in key business positions with critical skills. As work changes, HR’s approach to recruiting and retention will need to change too.
3. Create and maintain a high-performing organizational culture. With so many organizations shifting to hybrid work models, many executives are looking to HR to understand how they can keep staff feeling connected and collaborating effectively.
4. Enable enterprise growth strategies and initiatives. As companies drive growth again, HR looks to supply them with the additional talent they need to win.
5. Improve talent management capabilities. Better talent management leads not only to better outcomes for individuals but to better business results. HR now needs not only to upgrade talent strategies and management practices but also to build advanced talent acumen among managers operating outside HR.
6. Monitor and increase employee engagement. The surprise of The Great Resignation has led many HR executives to realize they need to monitor employees’ attitudes continuously and closely.
7. Develop executives who can lead effectively in a changing business environment. Ongoing disruptions and transformations mean that managing change and helping staff become more agile are now key skills that managers need to hone.
8. Maintain employee well-being and resilience. Burnout and its effects on productivity and mental and physical health are so endemic that HR now says it’s essential to encourage managers and their teams to adopt healthier and more sustainable work practices.
9. Support enterprise digital transformation. The pandemic accelerated the digital transformation of many companies. Now HR organizations believe they must step up their game to make sure these programs are successful.
10. Align HR skills with changing business needs. As all companies rely heavily on digital technology, the idea that HR is a somewhat lower-tech business function is becoming increasingly untenable. In fact, HR leaders agree that wholesale adoption of technological solutions is now essential.

Interestingly, seven of these top 10 priorities represent human capital-related business and enterprise goals, an indication of just how focused HR executives are on driving the success of the entire enterprise. Two of those concerns relate to the company, while five have to do with enhancing the company’s human capital.

Beyond 2022, HR executives expect even greater challenges ahead. Many foresee a high likelihood of disruption within three to five years stemming from the normalization of work from anywhere (80% foresee a planning or execution crisis), integrated virtual and on-premises workspaces (75%), regular health and/or climate disruptions (67%), automated HR services (66%), or persistent, structural skills gaps that prevent execution of digital transformation (57%).

Where to Focus in 2022

Looking at companies’ current needs and the strategic opportunities beyond, there are four essential steps, all of which involve bringing HR and IT much closer than they have ever been in the past:

1. Double down on digital transformation. COVID-19 accelerated the adoption of digital technology in HR. Now, organizations have an opportunity to sustain their momentum by continuing to make smart, strategic technology investments.
2. Virtualize HR service delivery. As work goes online, HR processes must follow. HR executives need to stay abreast of emerging talent management practices in the new world of virtual work.
3. Put customers at the center of service design. Virtualization will require extensive redesign of HR service delivery. This presents a great opportunity to improve service for managers, employees, and job candidates, but only if the virtual service is thoughtfully designed.
4. Develop strategies to minimize the impact of structural talent shortages. For years, HR organizations have needed more tech acumen and data savviness. This year, higher turnover, wage pressure, and intensifying competition for talent will exacerbate current talent constraints. HR leaders will need smart offensive (acquisition) and defensive (talent retention) strategies to win.

In the past, the HR function stayed largely out of technology, IT, and other functions and the operational side of the business stuck to their silos, while HR specialists handled the human factors. HR professionals in 2022 need to know what’s going on in their company’s digital initiatives, and what opportunities they can create for HR. At the same time, however, the human side of the equation is as important as ever and arguably, even more important, given it is undoubtedly more difficult for a competitor to replicate a winning culture than a winning algorithm.

Over the next five years, the survey suggests that the HR team who succeeds will be the team who learns how to align the power of both the human and the digital.

Harry Osle and Franco Girimonte are principals at The Hackett Group and Tony DiRomualdo is senior research director for the organization.