HR needs to ‘step up its game’ to drive digital transformation

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Human resources professionals are focused on helping their companies gain value from the digital transformation of their workplace — despite flat to decreasing budgets and headcounts, according to a new report from consulting firm The Hackett Group.

While most HR executives recognize the potential of digital technology to transform businesses as well as HR roles and operating models, less than half think their organizations have the resources and capabilities in place to execute and support their company’s digital transformation strategy.

As part of its research, Hackett Group surveyed more than 160 HR executives worldwide, most at large companies with annual revenue of $1 billion or greater.

The report 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. Furthermore, there are significant internal gaps, with a limited ability to address some of the most critical development areas.

On the positive side, HR organizations are now targeting these areas for improvement initiatives in 2018, but they’ll have to do it with tight resources. HR budgets are expected to decline by 0.7% in 2018, compared with the 0.2% decline in 2017. In the context of projected revenue growth of 3.6%, this creates productivity and efficiency gaps that HR needs to overcome, the report said.

Adding to the challenge, HR staffing is expected to decrease by 1% in 2018, more than last year’s actual decline of 0.1%.

A large majority of executives surveyed (more than 90%) agree that digital transformation will fundamentally change the way HR services will be delivered over the next three to five years. And 86% think digital transformation will drive improved performance in cost, quality, cycle time and other areas.

However, most HR executives don’t think they’re fully prepared, with only 46% saying they have the resources and competencies in place to execute their company’s digital transformation strategy.

Three critical areas where HR’s own capabilities are extremely limited were also noted in the research: talent management; human capital management applications platform modernization; and HR staff skills alignment.

“HR needs to step up its game around leadership in digital transformation, and truly help businesses develop the teams they need to succeed in this new digital business environment,” says Tony DiRomualdo, senior research director, Global Human Resources Executive Advisory Program, for The Hackett Group.

“The skills mix companies have is simply different than the skills mix they need,” DiRomualdo says. “And the people with the skills are in high demand, and are being gobbled up by tech companies and others that are already on the cutting edge. Older line companies are struggling to change their organizational culture and environment, to find new ways of recruiting and retaining key talent so that they can successfully implement this digital transformation.”

There’s an increased sense of urgency in the enterprise around digital transformation, DiRomualdo says.

“Companies are feeling tremendous competitive pressure,” he says. “They understand they must change how they operate, become more agile, more customer focused, more innovative. They must learn to do small experiments with new technology, and see what works, then move forward.”

This requires a lot of changes to the workforce, as there are a lot of people issues related to that transformation. “Unfortunately, most HR organizations today are simply not equipped to take a prominent role in this type of transformation,” DiRomualdo says.

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