Half of organisations globally are in the process of transforming their HR function, new research has found.
According to a study for global HR practices, which polled close to 1,400 organisations across the globe – including Australia and New Zealand – HR functions are shifting from enhancing internal operations to maximising HR’s contribution to business performance.
The study, published by Mercer Human Resource Consulting, found that human capital strategy is set to become an increasingly important activity with 64 per cent of respondents tipping it to be a key function of HR in the next three years.
Operational excellence within the HR function, meanwhile, is becoming less crucial with 46 per cent seeing it as a priority for HR today but 32 per cent expecting that trend to continue in the next three years.
HR’s influence within organisations is also on the rise, the study found. More than two-thirds of respondents said HR leaders are seen as strategic partners, actively participating in strategy planning, with the same percentage reporting directly to the CEO, up from 54 per cent in 2003.
Karen Piercy, an HR effectiveness expert from Mercer, warned that the process of HR transformation is a journey with no logical end. “HR transformation is clearly a continuous process,” she said. “The first wave of transformation, which started 5–10 years ago, focused on improving technology and service delivery with the expectation that HR would transition to a more strategic role within the organisation. Today, HR functions around the world are challenged with delivering on this expectation – to make human capital strategies a reality rooted in improving competitiveness and profitability.”
While HR functions are increasingly seen as strategic partners, around 70 per cent of the function’s time is taken up with ‘traditional’ HR activities such as record keeping and compliance.
However, respondents said they are keen to spend less time on record keeping, and more time on strategic partnering.
“With all of the focus in the first phase of the transformation on HR operational effectiveness, remarkably little shift is seen in the overall time spent on transactional and strategic activities,” said Piercy. “HR functions need to make more significant changes in the way they are structured to achieve the desired strategic focus. For example, some organisations are considering a bifurcation of the HR function, essentially separating the strategic work of HR from transactional activities and managing them differently.”
According to the study, the skills of HR functions are holding the transformation and strategic importance of HR back. More than half of the organisations polled said the skills and competencies of their HR staff is one of the main obstacles to enhancing the overall role of HR.
Piercy said the finding calls for a focus on equipping HR professionals with additional business skills.
“In order for the HR function to move forward with its transformation, organisations must implement a talent strategy that arms HR with a range of skills, especially those that relate to finance and business, so that they can be more effective business partners,” she said.
In addition, there are a number of other challenges facing the HR profession globally. Acquiring key talent (43 per cent), driving cultural and behavioural change and building leadership skills (both 40 per cent) were all seen as key challenges.
Mercer also provided analysis of the Australian segment of the study and found that the major challenges to HR are building leadership capability (66 per cent), acquiring key talent (39 per cent), driving cultural change (38 per cent) and retaining key talent (36 per cent).
Australian HR executives also told Mercer that their organisations are experiencing significant change with consolidation through mergers and acquisitions activity, new business models and the need to be more customer centric as key changes.
Australian HR executives also argued that senior executives do not yet see HR as a strategic function, yet nearly half of those polled said their organisation spends more than 35 per cent of global revenues on annual human capital expenditures suggesting large investment without clear commitment. Mercer also found that while leadership development is clearly a key issue, there has been little progress since its last global HR practices study in 2001 and that confusion remains over who has accountability for it and the roles of executive management and HR.
It added that there is a clear need to demonstrate HR’s impact on business performance. Mercer said that in the two decades of debate over HR strategic partnering with the business, the function has not convincingly answered the question