HR Growing momentum toward a new mandate

Good news: This year’s Global Human Capital Trends survey shows an improvement in the HR organization’s skills, business alignment, and ability to innovate. But as companies change the way they are organized, they must embrace the changing role of HR as well.

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HR is under increasing pressure from business leaders to drive innovative talent solutions, improve alignment with business imperatives, and turn data into actionable insights. Is HR up to the task? Good news: This year’s survey and other research show an improvement in the HR organization’s skills, business alignment, and ability to innovate. While HR organizations have significant work to do, HR leaders are adapting more quickly now to changing business demands and stronger skills requirements.

  • HR’s role is expanding beyond its traditional focus on talent management, process, and transactions. HR is becoming an innovative consultant with a broader responsibility to design, simplify, and improve the entire employee and candidate experience.
  • This year, HR teams are more focused on innovation, analytics, and the rapid adoption of cloud and mobile technologies to make the work experience better.
  • Respondents’ rated readiness in the area of HR skills has increased 14 percent since 2014,1 and the percentage of respondents who rate their HR teams “good or excellent” has risen 6.2 percent. Companies with leading HR practices are now celebrating them publicly, raising the bar for organizations of all sizes.

Over the last several years, a cottage industry of business writers has made headlines by sharply criticizing HR. Some believe the HR function should be split in two.2 Others advocate doing away with it altogether.3 The typical complaint is that HR is too bureaucratic, too administrative, and not innovative enough; HR professionals are not well-aligned with the business and lack the analytical skills to make data-driven decisions.

Today, high-impact HR organizations are moving away from a “service provider” mentality to becoming valued talent, design, and employee-experience consultants.

Last year, Deloitte was part of that chorus. Our 2015 Global Human Capital Trends report concluded that HR needed an “extreme makeover.” We noted that HR skills were weak, companies were not spending enough on developing HR professionals, and HR itself was too focused on service delivery and not enough on building consulting skills.

HR-feature-imageWhile some of these complaints remain valid, this year we take a contrary view. In fact, we believe HR is turning the corner.

Our research shows that the percentage of respondents rating HR’s performance “good” to “excellent” has been trending upward over the past few years (figure 1). There has been significant progress in the areas of employee engagement, culture, analytics, and the adoption of cloud-based HR technology. While HR teams still face daunting challenges—particularly in leveraging design thinking, digital HR, behavioral economics, and real-time feedback—a new generation of inspired HR leaders is entering the profession, and the progress is real.

ER_3024_Figure 1. HR’s rated performance has steadily improved over the past few years

HR teams are on the move. Organizations’ readiness to deal with employee engagement and culture rose by 13 percent this year; their readiness in analytics jumped by 11 percent, and their readiness to address leadership development went up by 14 percent (see figure 2).4 Thanks to this progress, the percentage of executives who believe HR is “underperforming” or just “getting by” has fallen 11 percent over the last two years.

Figure 2. Increase in HR organizations’ readiness to address specific issues

Company capabilities in talent practices Percent change in readiness index from 2015 to 2016
Leadership development 14%
Employee engagement and culture 13%
Analytics 11%
Learning 7%

Note: See endnotes 1 and 4 in this chapter for an explanantion of the readiness index.

Three factors contribute to our positive conclusion this year:

  • HR is innovating—and improving: In 2015, 56 percent of surveyed companies believed their HR teams were innovative; in 2016, this rose to 60 percent. Companies in consumer products, financial services, professional services, and life sciences scored even higher.
  • HR is embedding itself and aligning with the business: In 2015, 58 percent of companies rated themselves positively in this area, and in 2016, this number increased to 64 percent.
  • HR is beginning to reskill: In 2015, 66 percent of companies were focused in this area; in 2016, this increased to 68 percent, with the percentage of organizations rating themselves “excellent” jumping from 11 percent to 15 percent—a 36 percent increase.

This progress, admittedly, is not consistent; our survey found differences in the rated importance of HR skills across the globe. Companies in Southeast Asia and Africa have a greater need to change HR skills, while countries such as Japan and Italy have not progressed as far in modernizing their HR functions. (See figure 3 for our survey respondents’ ratings of the importance of the changing skills of the HR organization across global regions and selected countries.)

ER_3024_Figure 3. Changing skills of the HR organization: Percentage of respondents rating this trend “important” or “very important”

While companies may be tempted to look at this progress and take their feet off the accelerator, this is no time to slow down. Only 17 percent of HR teams report they have a very good understanding of their company’s products and profit models; a mere 14 percent believe they are highly skilled at addressing global HR and talent issues; and only 8 percent have a very good understanding of cybersecurity issues.

This year, therefore, HR organizations should build on their momentum by tackling the remaining challenges.5 As companies change the way they are organized, HR must adapt its operating model as well.

Today, high-impact HR organizations6 are moving away from a “service provider” mentality to becoming valued talent, design, and employee-experience consultants. They are now deeply embedded in the business through senior business-partner leadership roles. At the same time, traditional HR generalist roles are being moved to highly efficient HR operations centers that are enabled by powerful mobile HR apps.

In this new model, HR professionals must be more business-oriented specialists, possessing critical new skills in the following areas:

As HR makes this major shift from compliance and service provider to steward and champion of the total employee experience, some companies are beginning to think about HR in new ways.

Companies like Airbnb7 and Deckers Brands8 are creating roles such as “chief culture officer” and “chief employee experience officer” to reflect HR’s new mandate. Following the establishment of offshored shared services in 2010, one energy company introduced a head of process center of excellence (CoE) to drive simplification, and later introduced a new head of HR analytics to drive better insights alongside investments in learning systems and training.9

Companies such as Philips and Nestlé are changing their learning and development functions to focus on “learning experience design.” This shift encompasses not just delivering learning programs, but creating innovative new learning environments.10

Commonwealth Bank of Australia11 and Telstra12 are focusing on “user-centric design” and design thinking to build new apps and new experiences for employees based on the new disciplines of digital HR. And many companies are switching to new “business-embedded” HR roles, responsible for being the “VPs of HR” for their organizations.

Part of this transformation includes HR teams implementing talent management for themselves. These development and leadership efforts include:

  • Job rotation programs, including moving HR people into the business and businesspeople into HR. Companies like Halliburton13 and Google14 now hire businesspeople for HR roles and give them aggressive rotational assignments so they can learn the HR domain and gain experience advising business leaders at all levels.
  • Developing internal certification programs, research groups, and developmental assignments to find high-potential leaders within HR and offer them breadth and global experience. UnitedHealth Group15 and Halliburton16 have adopted similar programs to speed up the development of HR leaders.
  • Attracting younger, Millennial HR professionals who intuitively understand the life, needs, and expectations of the new generation of workers.

One CHRO tells HR leaders to “spend their time where the company makes money.” Another believes that “half of our HR professionals will have MBAs within the next five years.” These stories reveal a quantum shift in the redefinition and reinvention of HR.17

As a profession and as a function, HR is turning the corner and is now accelerating in the right direction. Despite this progress, the speed of business change continues to increase, and in 2016, HR organizations must adapt faster than ever.

Lessons from the front lines

EDF Energy is one of the United Kingdom’s largest energy companies, employing more than 14,000 people. The company serves 5 million residential and business customers and produces 20 percent of the United Kingdom’s electricity.18

In an effort to optimize training, learning, and development, EDF Energy is introducing a sustainable framework for developing its current and future workforce by building a series of business line academies (BLAs) that provide professional education, personal development, and career development for employees in all the company’s major functional areas (HR, IT, finance, and other service functions). The first such academy was the HR BLA, which launched in May 2014.

EDF Energy’s HR BLA is supported by senior business sponsors from across the business and managed by a dedicated learning and development team. The company used a systematic approach to build a curriculum, assessments, and career models for the 500-plus HR professionals—including health, safety, and environment staff—employed throughout the company. While the curriculum is based on the competency model developed by the Chartered Institute of Personnel and Development,19 which describes the skills and capabilities needed for a wide range of HR roles, the content is specifically adapted to the needs of EDF Energy. The BLA includes an online learning platform, digital tools, competency self-assessments, career maps, and formal training programs (for example, course schedules, webinars, reading materials, and videos). The company assigns senior learning and development specialists to help subject matter experts develop custom programs to make sure all training investments are relevant to local business priorities throughout EDF Energy.

Now 18 months old, EDF Energy’s HR BLA has already saved EDF Energy significant money in ad-hoc training and education costs. It is an example of a new breed of HR professional programs starting to emerge that focus on keeping HR professionals up to date, giving them ongoing career guidance, encouraging them to collaborate, and making the HR function fully aligned and skilled in its support of business operations.20

Where companies can start

  • Understand HR’s changing mandate, mission, and role: Some elements of the mandate are new; others are consistent with past work. Understand the differences and act on them.
  • Rethink the HR structure: Are enough specialists and business partners embedded in the business? Are HR centers evolving from service centers to real-time operations centers that are efficient and operationally excellent? Is there a clear view on which skills the HR organization will need in the future?
  • Upgrade technology: More than 40 percent of all companies are embarking on a replacement of core HR technology with modern cloud systems. Is the organization far enough down that path and pushing mobile and app-enabled HR fast enough? Continue to leverage technology as a way to upgrade skills and move away from traditional HR transactional work.
  • Reimagine HR capability development: Companies should consider tailored development programs specifically designed to help HR professionals understand new roles and grow their capabilities to meet heightened business expectations. Rotational programs in both directions—from HR to the business and from the business into HR—are a critical part of this effort.

Bottom line

HR is turning the corner. Highly regarded HR teams are now actively building expertise in design thinking, new organizational structure and teams, and business-integrated HR. This is not a time for complacency, however, but for continuing to look in the mirror and ask hard questions. Is HR an exciting place to work? Is turnover declining relative to other functions in the business?

HR organizations and their leaders should invest further to build new capabilities. Without HR pushing itself to develop the skills it needs, it will not happen. HR’s future lies in its ability to evolve to improve culture and engagement, build a new generation of leaders, and leverage technology to implement digital HR and design thinking. Only in this way can HR enhance the employee experience and build the talent leaders the organization needs.

Deloitte’s Human Capital professionals leverage research, analytics, and industry insights to help design and execute the HR, talent, leadership, organization, and change programs that enable business performance through people performance. Visit the “Human Capital” area of www.deloitte.com to learn more.