By Nathalie Bression, Tony DiRomualdo, and Harry Osle
Transformation remains a main initiative for HR organizations in 2016, finds the 2016 HR Key Issues study from The Hackett Group. Many companies are planning to overhaul key components of their service delivery models in order to meet business and HR performance goals.
The bottom-line findings of this research are threefold:
1. HR effectiveness is weakest in the areas that companies believe are the most essential to their ability to succeed in the current business environment. This includes HR’s ability to develop effective leaders and adapt talent management strategies to changing business needs.
2. Projects related to technology and information make up six of the top 10 planned HR transformation activities in 2016. This reflects HR’s understanding that its future effectiveness depends on the ability to deliver more efficient, easier-to-use services and conduct increasingly sophisticated measurement and analysis.
3. Other transformation initiatives target the establishment of a more performance-based and customer-centric HR culture. I
n the current business environment, organizations continue to face economic headwinds and challenging conditions, including intensified competition, lack of critical talent, and cybersecurity. Finding new sources of revenue growth remains difficult, and this creates pressure to protect margins through cost control. At the same time, competitive pressure and a broad range of business risks are increasing, which necessitates transformation and innovation, not only to support growth, but also to fend off competition.
The 2016 HR Key Issues study found that enterprise cost reduction is the most prevalent initiative on the business agenda, followed by commercially-focused initiatives, product portfolio rationalization, and cultural change. These priorities confirm that many organizations are looking to self-fund innovation through savings achieved elsewhere. To support the enterprise agenda, HR functions must continue their efforts to increase efficiency, upgrade talent, improve agility, and ensure that their strategy is in line with that of the company as a whole.
After a small uptick in 2015, HR organizations are resuming the pattern of flat-to-decreasing headcount (down 0.1 percent in 2016 from 2015) and budget (down 0.09 percent). Less than a quarter of survey respondents anticipate increases in staff (22 percent) or spending (24 percent); the percentage of companies that expect no change in headcount (43 percent) is roughly the same as those that expect cuts in budgets (46 percent) (see Figure 1).
Findings from the study show that many HR groups aren’t prepared to help the enterprise accomplish its strategic and operational objectives (see Figure 2). Several highly important business issues are challenging for HR to address. The top issues with readiness gaps include:
1. Improving the development of executives who can lead effectively in a volatile business environment. This issue jumped to the top of HR areas that are in critical need of development. Organizations are stretched for good leaders and often don’t have the resources to prepare executives to successfully step into new management roles.
2. Adapting talent management strategies and processes to deal with changing business needs. A top issue in years past, HR organizations continue to express concern about their ability to respond to new talent-related needs. This shortcoming is com¬pounded by HR’s isolation from corporate strategy-making, as well as its inability to anticipate future skills demand and supply, and weakness in talent management.
3. Enabling successful business strategy execution. It is critical that the leaders executing business strategy have the right skills, behaviors, and mindsets. This is affected by several key HR responsibilities, including recruiting, training, strategic workforce planning, leadership development, performance management, and organizational culture.
4. Dealing with shortages of talent and critical skills. Despite a slowdown in growth in emerging economies and tepid growth in mature ones, the supply of high-performing talent and candidates with critical skills is not keeping pace with demand. The survey shows that strategies for recruiting, learning, and development at many HR organizations are not effective.
5. Aligning workforce strategy with business strategy. This remains one of the top critical development areas for HR organizations. Workforce strategy is an essential output of strategic workforce planning. Overall, these issues represent a huge deficit in the capabilities that businesses require most from HR organizations.
Most Serious Gaps
Many HR organizations find themselves falling further behind because they are unable to keep pace with the growing demand for more sophisticated, high-value capabilities (see Figure 3). The most serious gaps include:
1. Increasing HR’s analytical, modeling, and forecasting capabilities. The ability to mine, analyze, model, and forecast data to improve human-capital-related decisions is a widely recognized priority for HR organizations. Still, few have the skills, tools, and technology and data infrastructure needed to capably perform these tasks.
2. Improving the quality of HR data analysis and reporting capabilities for decision-making. HR organizations also struggle to provide basic analysis and to report relevant data and insights to decision-makers. Underlying this gap is the lack of HR systems integration as well as missing or poor-quality data.
3. Increasing the ability to identify and plan for future demand and supply of skills. This is a core competency required by HR organizations to drive the effective management of talent throughout the enterprise.
4. Improving talent management capabilities. Many HR organizations have significant room for improvement when it comes to performing discrete tasks such as talent acquisition, learn¬ing and development, succession planning, coaching, employee engagement, leader¬ship development, and performance management.
5. Aligning the skills of HR staff with the current needs of the business. Companies need more business-savvy HR staff members who are as comfortable discussing competitive strategies as they are compensation plans.
HR organizations will address several major shortcomings in 2016. Projects related to technology and information make up six of the top 10 transformation activities planned (see Figure 4).
The top five target important gaps in HR capabilities. Creating an HR technology roadmap and extending core HR applications involve major, multi-year technology implementations aimed at transforming HR service delivery and increasing the department’s analytics and reporting capabilities.
Many are also taking steps to complete the implementation of enhancements to their core human capital management systems and applications supporting talent management. Interest in improving HR performance management and increasing customer-centricity suggest that many HR leaders are making serious efforts to instill a performance-based and customer-oriented approach in their organizations. These usually large-scale efforts require years to fully realize, so it is encouraging to see a majority of respondents embarking on major change in their culture and operating methods. A key step in this direction will be to set business-relevant KPIs and report them regularly to stakeholders; this is also among the top transformation initiatives for 2016.
The most significant talent-related transformation activity in 2016 is improving HR leader-ship skills and business acumen. HR needs this expertise to effectively partner with and deliver high-value support to business leaders. Rounding out the list are process, organizational, service placement, and technology initiatives designed to improve HR’s efficiency and effectiveness.
HR organizations remain in a period of structural change. A great deal of work still must be done to build capabilities that the business needs in order for it to achieve its most important goals. The majority of these gaps are related to talent or technology. Realistically, it will take several more years to transform talent management capabilities, including technology, data platforms, and tools. But HR can start implementing change through:
• Technology. The future effectiveness of HR organizations will depend on their ability to conduct increasingly sophisticated measurement and analysis. Master data, technology architectures, business intelligence, and analytics platforms are essential to establish a foundation for high-quality data analysis. By working closely with IT leadership, HR will be able to create a long-term technology strategy and roadmap, including architecture and implementation.
• Talent management. Shift the focus of HR from performing talent-management administrative activities to delivering tools, templates, and data-driven insights that support front-line people management. Give priority to initiatives aimed at developing leadership skills among managers, including stretch assign¬ments, on-the-job training, and 360-degree feedback.
• Measurement and analytics. Allocate sufficient time and resources for building measurement and analytics skills in the HR organization and equip staff with high-quality analysis and reporting tools. Establish a center of excellence or other dedicated analytics group to fully leverage skills and tools across all areas of HR.
• HR skills. Address staff skills that are mismatched with new demands for business acumen, strategic thinking, and change management. Staff with these skills are in short supply so they must be developed internally or brought into HR from other parts of the business.
Nathalie Bression is a senior director, human resources executive advisory program global practice leader at The Hackett Group. Tony DiRomualdo is a senior research director, human resources executive advisory program and Harry Osle is the principal in charge, global human resources transformation and advisory services for the organization.