HR News Beat: HR Focused on Digital Transformation, Less than Half Have Necessary Resources in Place
Despite another year of flat to decreasing budgets and headcounts, HR organizations are focused on helping their companies unlock the value of digital transformation this year, according to 2018 Key Issues Research from The Hackett Group, Inc. (NASDAQ: HCKT). But while most HR executives recognize the future potential of digital technology to transform the enterprise as well as HR roles and operating models, less than half feel their organizations have the resources and capabilities in place to execute and support their company’s digital transformation strategy.
The research also found that urgent shortfalls exist in HR’s ability to support critical goals, including developing executives who can lead in volatile environments and enabling business strategy execution. In addition, there are significant internal gaps, with limited ability to address some of the most critical development areas. On the upside, HR organizations are now targeting many of these same areas for improvement initiatives in 2018.
A complimentary version of the research is available for download at this link.
Overall, HR budgets are expected to decline by 0.7 percent in 2018, significantly more than the 0.2 percent actual decline in 2017. In the context of projected revenue growth of 3.6 percent, this creates productivity and efficiency gaps that HR must overcome. Adding to the challenge, HR staffing is expected to decrease by 1.0 percent in 2018, much more than last year’s actual decline of 0.1 percent.
Over 90 percent of HR executives in the study agree that digital transformation will fundamentally change the way HR services will be delivered over the next three to five years. In addition, 86 percent believe that digital transformation will drive improved performance in cost, quality, cycle time, and other areas.
But most HR executives don’t think they are fully prepared. Only 46 percent say they have the resources and competencies in place to execute their company’s digital transformation strategy. Although this figure is up somewhat over last year, it still indicates that a majority of organizations are still not yet ready to fully execute their digital transformation strategies.
Overall, the research also revealed that many HR groups are simply not prepared to provide capabilities critical to helping the enterprise accomplish its strategic and operational objectives. The research assessed HR’s ability to support the business agenda and achieve its own performance goals, and found large gaps in many key areas. The most critical among these is enterprise digital transformation, which jumped to the top of the list of key development areas in 2018, but where the study found that HR’s ability to address is very limited.
Development of executives who can lead effectively in a volatile business environment is another area that has been at or near the top of HR critical development needs for the past three years. HR organizations have significant room for improvement in bridging this leadership gap.
The research identified several other areas where capability gaps exist between strategic enterprise objectives and HR’s ability to address them: ensuring that staff have the right skills, behaviors and mindsets for successful business strategy execution; providing effective, programmatic change management; and supporting the retention of staff in key positions with critical skills.
“Suddenly, companies are getting much more serious about enabling digital transformation in 2018. But HR simply isn’t ready,” said Tony DiRomualdo, senior research director, Global Human Resources Executive Advisory Program, for The Hackett Group. “It must step up its game in areas that can directly affect the success of these programs, such as leadership, culture, skills and change management. And talent has been a top priority for some time, yet many HR organizations are still struggling to develop leaders who can succeed in today’s often frenzied and uncertain global business environment.
“Taken together, the gaps in these areas represent a tremendous challenge,” said DiRomualdo. “Unless HR can find a way to overcome these deficits, they are likely to hold back their company’s digital transformation efforts, and hamper their companies’ overall ability to compete.”
The Hackett Group’s research found similar gaps in HR’s ability to address critical capabilities within its own organization. The ability to mine, analyze, model and forecast human capital data to improve business and workforce decisions is a widely recognized priority, but most HR organizations have not effectively developed the skills, tools, and technology/data infrastructure needed. HR organizations are also finding it very difficult to respond to the volatility of the business environments in which they operate. Whether the issue is cost structure, service mix and value-added capabilities, or alignment to business objectives, many HR organizations lack the capacity to rapidly change their priorities, programs, and capabilities to keep pace with changing business demands.
Three other critical areas where HR’s own capabilities were extremely limited were also spotlighted in the research: talent management; HCM applications platform modernization; and HR staff skills alignment.
HR organizations appear to be focused on addressing their capability gaps in 2018, the research found. This encouraging trend started in 2017 — previously, HR’s priorities for change did not address areas with the greatest need for improvement. But with more than a dozen critical development areas and limited resources, it will be difficult for HR to make progress in all of them.
“HR organizations need to seize the opportunity that digital technologies offer to reinvent themselves and permanently elevate their role and status in the enterprise,” said Franco Girimonte associate principal and North American Human Resources Executive Advisory Program Practice leader with The Hackett Group. “To do this most effectively, we believe they should focus in three areas. Improving fundamentals like technology and process are a key starting point. At the same time, they need to take at least small steps to create or extend advanced capabilities in digital technologies, analytics, and more.
“Finally, HR must find ways to more effectively help the enterprise achieve its strategic goals,” said Girimonte. “Some good ways to do this include focusing on supporting the culture change that accompanies digital transformation strategic, and ensuring that people executing strategy within HR have the right skills, behaviors, and mindset. HR staff require exposure to business strategy and training in business acumen to deepen their understanding of the enterprise.”
The Hackett Group’s 2018 HR Key Issues research, “Enabling Enterprise Digital Transformation Takes Center Stage But Gaps in Critical Capabilities Persist,” is based on results gathered from more than 160 executives in the US and abroad, most at large companies with annual revenue of $1 billion or greater.
About The Hackett Group, Inc.
The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices digital transformation firm to global companies, offering digital transformation including robotic process automation and enterprise cloud application implementation. Services include business transformation, enterprise analytics, working capital management and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle and SAP practices.
The Hackett Group has completed more than 15,000 benchmarking studies with major corporations and government agencies, including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 87% of the DAX 30 and 59% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm’s benchmarking metrics, best practices repository and best practice configuration guides and process flows, which enable The Hackett Group’s clients and partners to achieve world-class performance.