HR struggles with business demands

by 25 Jul 2007

SENIOR BUSINESS and HR executives agree on the key people issues that are critical to business success, but business leaders believe HR may be struggling to serve both the enormous strategic and operational implications, according to a global study.

The study found that 85 per cent of participants believe people are vital to all aspects of their organisation’s performance, and that number rises to nearly 90 per cent when looking three to five years ahead.

Yet, only 3 per cent of participants describe their current organisation as ‘world-class’ in people management and HR functions, and only 23 per cent believed HR currently plays a crucial role in strategy formulation and operational results.

Furthermore, the survey of 531 HR and non-HR executives indicates that senior business leaders perceive HR to be more focused on transactional activities –such as benefits and performance evaluations – and HR operating efficiencies, rather than high-level strategic people issues, such as leadership development.

In fact, when senior executives discuss people issues, HR oftentimes isn’t even mentioned. For example, just over half of the respondents still don’t have a chief human resources officer or comparable C-level executive dedicated to people issues.

“It’s a stunning paradox that HR is not being looked to for leadership on the people agenda,” said Jeff Schwartz, a principal with Deloitte Consulting, which conducted the study in conjunction with the Economist Intelligence Unit.

“Many top company executives believe the HR department lacks the business insight to drive strategic initiatives around top priority issues, such as leadership, talent management, creating a high-performance culture and training and development.

While HR executives agree with these priorities, Schwartz said they continue to focus on their core role of improving HR operating efficiency and building scalable HR structures –a ‘dial-tone’ level function that top executives already take for granted.

Regionally, respondents perceived the effectiveness of the HR function differently.

On an Asia-Pacific level, 65 per cent of respondents thought their HR function was effective in addressing the needs of their business, while just 28 per cent said HR plays a crucial role in strategy formation and operational success.

Only 25 per cent believe their senior executives have a full understanding of HR’s role and just 11 per cent thought senior executives highly valued HR’s contribution to their organisation.

However, 54 per cent of Asia-Pacific respondents said there was significant alignment between staff behaviour and their organisation’s strategic objectives.

The greatest workforce-related challenges facing these respondents were skills gaps in training (74 per cent), skills gaps in recruitment (66 per cent) and disengaged workforces (46 per cent).

The most critical people management issues were listed as talent management (79 per cent), creating a high-performance culture (75 per cent) and leadership development and pipelines (74 per cent).

On a global scale, the study found that many HR organisations already recognise the challenge to be more strategic and are shifting their administrative transactions and other non-strategic activities to shared service centers or an outsourcing vendor.

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