Most HR Orgs Are Behind the Curve In Addressing Key Enterprise Issues

Most HR organizations remain behind the curve in addressing issues that are central to achieving the most important enterprise goals, including aligning talent strategies to business needs, dealing with critical talent and skill shortages and implementing organizational change, according to 2017 HR Key Issues research from The Hackett Group, Inc.

While some crucial development areas are targeted for major improvement in 2017, others – such as finding solutions to critical skills shortages, retention of key staff and strategy execution – will likely not receive the attention they need, according to the research.

In addition, most HR executives recognize the potential of digital technology of the HR function, but few think their organization has the strategies and resources required for successful execution in this critical area.

"The consistent finding here is that most HR organizations are simply too busy fighting fires to get out in front on strategic issues," said Global HR Advisory Leader Harry Osle.

"In many cases they are in reactive mode, with too much on their plate and an inability to say no to work that does not allow HR to become more strategic. If HR is truly going to deliver strategic value to the organizations, it must change this mindset.

“To build a real leadership position within the organization, it is essential that HR find ways to more effectively manage and prioritize its service portfolio, adopt proactive demand management techniques from IT and make headway on transformation and improvements in key talent areas."

Decreasing headcounts and budgets

The research found that the pattern of flat-to-decreasing headcounts and budgets in HR is expected to continue in 2017.

Overall, the number of full-time equivalent employees in HR is expected to decline by 1.4 percent, slightly more than last year's actual 1.3 percent reduction.

HR budgets, however, are expected to fall by an average of 1.6 percent, significantly more than the 0.3 percent actual decrease in 2016.

The Hackett Group's research found that in many key areas, HR found itself to have low ability to support key enterprise goals.

The most critical enterprise goals that HR organizations rated themselves least able to support were: adapting talent management strategies and processes to deal with changing business needs; dealing with shortages of talent and critical skills; implementing organizational change more effectively; improving the development of agile executives who can lead effectively in a volatile business and organizational context; and supporting enterprise innovation initiatives.

"Taken together, these critical development areas represent a huge deficit in the capabilities that businesses require most from HR organizations," said The Hackett Group, Global People & HR Transformation Practice Leader Dr. Scott Leuchter. "We only see one area where more than half of all HR organizations have major initiatives underway. That's adapting talent management, the most critical development area. In the others, far fewer are taking significant steps to close the other vital gaps in capabilities."

HR's ability to address its own internal capability gaps shows a similar shortfall. In several areas identified as most important, including improving talent management capabilities and increasing analytical, modeling, and forecasting capabilities, HR showed low ability to execute.

HR organizations are planning to address several major shortcomings in 2017, the research found. Talent-related change is the dominant objective for the greatest number of HR organizations in the study.

Other important initiatives take aim at weaknesses in HR technology and information capabilities and organizational structure/processes. But given the broad and ambitious change agenda and budgets that will remain flat at best for a majority of organizations, The Hackett Group's assessment is that it is doubtful that resources currently in place will be sufficient to make all of the improvements necessary to close HR's substantial capability gaps.

Most study respondents also believe that digital technologies will fundamentally change the performance and service delivery model of HR organizations over the next few years.

A large majority agree that new roles will be required and the talent and leadership needs of the business will be fundamentally altered. But far fewer think they are prepared to deal with this. Only 47 percent have an HR digital transformation strategy and 55 percent of those with such strategies indicate it is aligned with that of the enterprise.

Furthermore, just 34 percent possess the resources and skills necessary for successful execution today.

Digital technologies for HR 

The Hackett Group's research spotlighted several digital technology areas where HR organizations are planning to dramatically increase their mainstream adoption efforts in the next two to three years.

In cloud applications and software-as-a-service, less than half of all HR organizations studied said they have achieved mainstream adoption in 2016. But nearly 80 percent said they expect mainstream adoption in the next two to three years.

In social media and collaboration technologies, mainstream adoption is expected to grow by 3x in the next two to three years, to nearly 60 percent of all HR organizations.

Mainstream adoption of advanced analytics is expected to grow by 5x in the next two to three years, to half of all HR organizations.