Three ways HR can build capability for the challenges ahead

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HR departments face flat or shrinking budgets yet huge expectations are placed on them in terms of digital transformation and talent management. Dorothee El-Khoury from The Hackett Group discusses key HR challenges and how they can be addressed. 

The Hackett Group’s 2017 HR key issues report reveals much about the challenges and opportunities facing the HR profession now and into the future.

Based on a survey of executives from more than 180 large international companies, the results indicate that HR is at an important turning point.

HR services are under pressure. Never have expectations been so high. Sixty-nine per cent of surveyed HR executives believe that digital transformation will fundamentally change business talent needs, while also presenting an opportunity to improve HR performance metrics such as service delivery, costs, quality and cycle times.

The demand for digital skills is increasing and access to critical talent is a growing risk for business, progressing at the same pace as cybersecurity – up 20% in 2017 compared to 2016.

What’s more, it suggests that the current trend of flat-to-decreasing HR headcounts and budgets is expected to continue in 2017 and HR functions will not be granted additional budget or staff.

Overall, the number of full-time employees in HR is set to drop by 1.4%, one per cent more than last year.

HR budgets are expected to fall by an average of 1.6%, which is significantly more than last year’s 0.3% decrease.

The overarching HR challenge is the need to support the business process digital transformation successfully. At the same time, HR needs to reinvent itself to deliver self-funded, value-added services. Here are three ways HR can achieve this:

1. Technology

Leveraging technology is key to overcoming these challenges, yet less than half of all HR organisations that responded to the survey achieved mainstream adoption of critical technologies in 2016, The Hackett Group’s report found.

Fortunately, most HR executives recognise that this area needs urgent attention. Nearly 80% expect to increase adoption of critical technologies by 2020 through mainstream adoption of digital transformation technology, including software-as-a-service HCM platforms, mobile computing, social media collaboration and analytics.

This goal could be too optimistic though. Talent plans and technology strategies are falling behind the curve.

Only 47% of surveyed HR organisations have an HR digital transformation strategy in place, and a mere 55% of those believe that their strategy is aligned to business needs. Plus, only half believe they have the means, the budgets and the competencies to deliver their strategies.

This means that HR will need to launch realistic initiatives – and rally support from the broader business function and external partners – to help HR deliver the initiatives for which they do not have all the skills.

2. Talent management

The Hackett Group’s research lists some critical development areas for HR teams to address. To highlight one: HR executives are not satisfied with their teams’ agility in the face of changing talent needs.

They note specifically that they’re not happy in relation to innovation, digital transformation or improving the customer experience.

With regards to the HR function’s own capability developments, leaders recognise that their teams are unable to address internal gaps such as analytics, modeling, and forecasting.

This affects their ability to measure their contribution to business value, as well as their ability to adjust to rapidly changing business needs.

3. Learn from the outside in

To improve its performance and meet expectations, HR needs to look outside its function and partner with other business functions.

This will help align its efforts to serve wider objectives. HR can learn from the experience of other business areas.

For example, over the past few years finance has been investing in improving its performance management and analytical abilities. Most of the approaches and tools it has learnt can be shared and re-used.

Similarly, a structure built around global business services can be a precious lever to deliver efficiency and agility.

What lies ahead?

Talent-related change is the dominant objective for the greatest number of HR organisations in 2017.

The good news is that many more HR organisations plan to address their weaknesses in areas like technology, information capabilities and organisational processes.

However, the ambitious change agenda and flat budgets are a challenge. Without additional support, it’s doubtful that the resources currently in place will be enough to make all the improvements necessary to close HR’s substantial capability gaps.

About Dorothée El-Khoury

Dorothée El-Khoury is HR Practice Leader Europe at The Hackett Group
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