By Nathalie Bression, Tony DiRomualdo, and Harry Osle · According to The Hackett Group’s 2016 Key Issues Study, enterprise cost takeout is the most prevalent initiative on the

© 2016 The Hackett Group, Inc.; All Rights Reserved. | CR_2000194 HR Executive Insight I The Hackett Group I 1

The CHRO Agenda:

Continue to Close Gaps in Critical Capabilities Through Transformation

The Enterprise Context: Increasing Uncertainty and Risk is Driving Hedging and Cost-Reduction StrategiesOrganizations continue to face economic headwinds and other challenging conditions in 2016 (Fig. 1). Finding new sources of revenue growth remains difficult, resulting in pressure to protect margins through cost control. This in turn is straining business services functions’ budgets. At the same time, competitive pressure and a broad range of business risks are increasing, requiring transformation and innovation, not only to support growth, but also to fend off competition.

According to The Hackett Group’s 2016 Key Issues Study, enterprise cost takeout is the most prevalent initiative on the business agenda, followed by commercially-focused initiatives, product portfolio rationalization, and cultural change. These priorities confirm that many organizations are defensively oriented and expect they will need to self-fund innovation through savings achieved elsewhere. To support the enterprise agenda, HR functions must continue their efforts to increase efficiency, upgrade talent, improve agility, and ensure that their strategy is in line with that of the company as a whole.

HR Executive InsightStudy Results Analysis

January, 2016

Executive SummaryTransformation continues as the major theme of HR organizations in 2016, in a year otherwise broadly characterized by flat or declining budgets and headcount. Many plan major initiatives to overhaul key components of their service delivery models, aimed at upgrading the capabilities most needed to meet business and HR performance goals.

Key takeaways: • HR effectiveness is weakest in the areas that companies believe are the most essential to their ability to prevail in

the current business environment. The most urgent of these mismatches include HR’s ability to develop effective leaders and adapt talent management strategies to changing business needs.

• Projects related to technology and information make up six of the top 10 planned HR transformation activities in 2016. This reflects HR’s understanding that its future effectiveness depends on the ability to deliver more efficient, easier-to-use services and conduct increasingly sophisticated measurement and analysis.

• Other major transformation initiatives target the establishment of a more performance-based and customer-centric HR culture.

By Nathalie Bression, Tony DiRomualdo, and Harry Osle

Complim

entary Research

HR Executive Insight I The Hackett Group I 2© 2016 The Hackett Group, Inc.; All Rights Reserved. | CR_2000194

Overall HR staffing levels remain flat; budgets set to decline slightlyAfter a small uptick in 2015, HR organizations are resuming the pattern of flat-to-decreasing headcount (down 0.1% in 2016 from 2015) and budget (down 0.09%). Less than a quarter of participants in our study anticipate increases in staff (22%) or spending (24%); the percentage of companies that expect no change in headcount (43%) is roughly the same as those that expect cuts in budgets (46%) (Fig. 2).

How key issues data was gathered and evaluatedFor the 2016 HR Key Issues study, The Hackett Group gathered data on key HR issues in two important ways. First, we created two separate lists of HR key issues. One related to achieving overall enterprise goals; the other, improving HR capabilities and performance. Second, respondents were asked not only to indicate the level of importance of an issue or objective but also to rate their ability to address the issue or meet the objective. This combined perspective was used in our analysis to pinpoint the issues with the greatest importance that organizations are the least prepared to address.

FIG. 1 Key characteristics of the environment in which HR will operate in 2016

Source: Key Issues Study, The Hackett Group, 2016

Risk is increasing

Percentage of companies ranking as “high risk”

Percentage of companies with major initiative in 2016

0 10 20 30 40 50 60

Enterprise cost reduction

Sales and marketing strategyoptimization

Cultural change

Product/service portfoliorationalization

Working capital optimization

55%

48%

42%

38%

38%

2015 2016 PROJECTED (2017-2018)

COST/FINANCE CORE BUSINESS ORGANIZATION/TALENT/CULTURE

Intensifiedcompetition

Access tocriticaltalent

Cyber/information

security

Regionaldemand

weakness

Disruptiveinnovation

39%

27% 25% 27%21%

47%

34% 33% 37%27%

66%54% 53%

46%41%

01020304050607080

Cost reduction is a strategic priority


Few HR Organizations are Well-Positioned to Support Achievement of Key Enterprise ObjectivesThe study revealed that many HR groups are ill-equipped to help the enterprise accom-plish its strategic and operational objectives. Fig. 3 maps issues and objectives related to achievement of overall enterprise goals in terms of their importance and HR organizations’ ability to address them. It shows that several issues rated as highly important are ranked low on HR’s ability to address.

FIG. 3 Issues and objectives related to achievement of overall enterprise goals, byimportance and ability to address


CRITICALDEVELOPMENTAREA

IMPROVEMENTOPPORTUNITY

WELLSUPPORTED

Low

Low Importance High

Mod

erat

e/H

igh

Ab

ility

to

ad

dre

ss

Containing andmanaging

benefits costs

Implementing organizationalchange more effectively

Increasing employeeengagement

Dealing with increased legal andgovernmental requirements

Integrating newbusinesses/acquisitions

Retaining critical staffand skills throughout

the enterprise

Enhancing the employment brand

Fostering innovationacross the company

Measuring and improvingworkforce productivity

Adapting talent managementstrategy and process to

changing business needs

Aligning workforce strategy withbusiness strategy

Improving howbusiness leaders

are developed

Dealing with talent/critical skills shortages

Enabling business strategyexecution

FIG. 2 Changes in HR FTEs and budgets for 2016


2%2% DECLINE 21-30%

DECLINE 6-10%

DECLINE 0-5%

NO CHANGE

INCREASE 0-5%

INCREASE 6-10%

12%

21%

43%

10%

3%7%22% increasing 35% decreasing

46% decreasing

INCREASE 11-20%

INCREASE 21-30%

FTEs Budgets

12%

25%

30%

2%

12%

7%2%

24% increasing

7%2%2%


The issues with the biggest importance and readiness gaps are:

1. Improving the development of executives who can lead effectively in a volatile business and organizational context: This issue jumped to the top of HR areas that are critically in need of development. Companies are stretched for good leaders and often confounded by the challenge of how to prepare them to successfully step into new management roles. HR plays a vital part in training high-potential staff so they can do so. HR leaders acknowledge significant room for improvement in their ability to support this effort.

2. Adapting talent management strategies and processes to deal with changing business needs: In 2016, this again tops the list of issues considered most important by HR organizations. The data also continue to reflect concern among HR organizations about their ability to respond to new talent-related needs. This shortcoming is com-pounded by HR’s isolation from corporate strategy-making, as well as its inability to anticipate future skills demand and supply, and weakness in talent management.

3. Enabling successful business strategy execution: No matter how elegantly crafted, business strategies cannot succeed unless they are properly executed by the entire organization. It is critical that people executing strategy have the right skills, behaviors, and mindsets. This is affected by several key HR responsibilities, including recruiting, training, strategic workforce planning, leadership development, performance manage-ment, and nurturing the organization’s culture. As business strategies become more fluid in response to changing markets and competition, the challenge will become even more difficult.

4. Dealing with shortages of talent and critical skills: Despite a slowdown in growth in emerging economies and tepid growth in mature ones, the supply of high-performing talent and candidates with critical skills is not keeping pace with demand. While there is debate over the severity of the problem and its causes, it is clear that strategies for recruiting, learning, and development at many HR organizations are not up to the task.

5. Aligning workforce strategy with business strategy: This remains one of the top critical development areas for HR organizations. Workforce strategy is an essential output of strategic workforce planning. Companies that can anticipate changes in the demand and supply of key skills are better positioned to develop talent strategies that enable them to seize opportunities and mitigate risks.

Taken together, these top areas critically in need of development represent a huge deficit in the capabilities that businesses require most from HR organizations.

Where HR Capabilities are Most Critically LackingMany HR organizations find themselves falling further behind because they are unable to keep pace with growing demand for more sophisticated, high-value capabilities (Fig. 4).


The most serous gaps include:

1. Increasing HR’s analytical, modeling, and forecasting capabilities: The ability to mine, analyze, model, and forecast data to improve human-capital-related decisions is a widely-recognized priority for HR organizations, but few have the skills, tools, and the technology and data infrastructure needed to capably perform these tasks.

2. Improving the quality of HR data analysis and reporting capabilities for decision-making: HR organizations also struggle to provide basic analysis and reporting of relevant data and insights to decision-makers. Underlying this gap is the lack of HR systems integration as well as missing and poor-quality data.

3. Increasing the ability to identify and plan for future demand and supply of skills: This is a core competency required by HR organizations to drive the effective manage-ment of talent throughout the enterprise. Being able to predict both future demands for skills and where to locate them increases HR’s capacity to recruit and develop tal-ent with skills aligned to the needs of the business.

4. Improving talent management capabilities: Many HR organizations have significant room to improve their performance of discrete tasks such as talent acquisition, learn-ing and development, succession planning, coaching, employee engagement, leader-ship development, and performance management. Furthermore, they lack the ability to execute these activities in an integrated fashion.

5. Aligning the skills of HR staff with the current needs of the business: Companies need more business-savvy HR staff who are as comfortable discussing competitive strategies as they are compensation plans. Staff with these characteristics continue to be scarce, while HR organizations have struggled to hire or develop HR professionals with both business acumen and HR expertise.

FIG. 4 Issues and objectives related to improving HR capabilities and performance by importanceand ability to address


CRITICALDEVELOPMENTAREA

IMPROVEMENTOPPORTUNITY

WELLSUPPORTED

Low

Low Importance High

Mod

erat

e/H

igh

Ab

ility

to

ad

dre

ss

Supporting end-to-endprocess management

Increasing ability tomanage future skills

demand/supply

Measuring HR performanceand business value

Developing HR functionfuture competencies/skills

Improving talentmanagement

capabilities

AligningHR skills withbusiness needs

Increasing HR’sorganizational agility

Meeting HR cost objectiveswithout impairing effectiveness

Retaining HR staff in keypositions and with critical skills

Leveraging technologiesto improve HR performance

Designing an effectiveHR organization structure

Improving working relationshipswith the business

Keeping the HR organizationconnected to customer needs

Improving HRdata analysisand reportingcapabilities

Increasing HR’s analytical,modeling and forecasting capabilities


The Broad HR Transformation Agenda in 2016: Over Half of Projects Involve Technology and Information HR organizations will address several major shortcomings in 2016. Projects related to technology and information make up six of the top 10 transformation activities planned (Fig. 5). The top five target important gaps in HR capabilities. The first- and third-ranked among these – creating an HR technology roadmap and extending core HR applications – involve major, multi-year technology implementations aimed at transforming HR service delivery and increasing the department’s analytics and reporting capabilities.

Many are also taking steps to complete the implementation of enhancements to their core human capital management systems and applications supporting talent management. Interest in improving HR performance management and increasing customer-centricity suggest that many HR leaders are making serious efforts to instill a performance-based and customer-oriented ethos in their organization. These usually large-scale efforts require years to fully realize, so it is encouraging to see a majority of respondents embarking on major change in their culture and operating methods. A key step in this direction will be to set business-relevant KPIs and report them regularly to stakeholders – also among the top transformation initiatives for 2016.

The most significant talent-related transformation activity in 2016 is improving HR leader-ship skills and business acumen. Staff need this expertise to effectively partner with and deliver high-value support to business leaders. Rounding out the list are process, organizational, service placement, and technology initiatives designed to improve HR’s efficiency and effectiveness.

Unlike 2015, when HR’s list of initiatives was quite ambitious, this year’s transformation priorities reflect a greater number of more narrowly-focused activities aimed at discrete improvements in capabilities and performance. This is a healthy sign, as our research shows that many HR organizations have struggled to win resources and support for their critical development needs. While modernizing core processes and technology can require years, it is important to continue taking incremental steps to make progress and build momentum.

FIG. 5 The top planned HR transformation activities in 2016


Develop HR technology roadmap

Improve HR performance management capability

Extend core HR application platform

Improve HR customer-centricity

Improve HR leadership skills and business acumen

Implement HR KPIs, information and reporting strategy

Reengineer HR processes

Improve HR data stewardship, data governance,master data management

Develop business partnering roles

Rationalize HR applications

Increase usage of centers of excellence

None Moderate Major

INFORMATION

ORGANIZATION/CULTURE

PLACEMENT

PROCESS

TALENT

TECHNOLOGY

0.0 0.5 1.0 1.5 2.0 2.5


Conclusion and RecommendationsHR organizations remain in a period of structural change. A great deal of work still must be done to build capabilities that the business needs in order for it to achieve its most important goals. The majority of these deficiencies are related to talent or technology. Realistically, it will take several more years to transform talent management capabilities and the technology and data platforms and tools. Here’s our advice to HR organizations working to achieve their priorities this year:

• Technology: The future effectiveness of HR organizations will depend on their ability to conduct increasingly sophisticated measurement and analysis. Master data, technology architectures, business intelligence, and analytics platforms are essential to establish a foundation for high-quality data analysis. Therefore, work closely with IT leadership to cre-ate a long-term technology strategy and roadmap, including architecture and implementa-tion. Recruit and train HR staff to assume greater responsibility for technology manage-ment and usage. Implement data and systems standards to enable evidence-based workforce decisions and integrated talent management. Finally, choose technology that facilitates data-sharing and workflow across multiple systems (HR and non-HR).

• Talent management: Shift the focus of HR from performing talent-management administrative activities to delivering tools, templates, and data-driven insights that support front-line people management. Give priority to initiatives aimed at developing leadership skills among managers. The most effective methods include stretch assign-ments, on-the-job training, and 360-degree feedback.

• Measurement and analytics: Allocate sufficient time and resources for building measurement and analytics skills in the HR organization and equip staff with high-quality analysis and reporting tools. Establish a dedicated analytics group to fully leverage skills and tools across all areas of HR. This may range from a single person in small or midsized HR organizations to a center of excellence staffed by a team of people in large, multi-business enterprises.

• HR skills: Address staff skills that are mismatched with new demands for business acumen, strategic thinking, and change management. Staff with these skills are in short supply so they must be developed internally or brought into HR from other parts of the business. Properly designed on-the-job training experiences and informal coach-ing are the most effective methods for building these skills in HR staff.

Related ResearchMeasuring Up: Using Metrics to Take HR to the Next Level of Performance, The Hackett Group Book of NumbersTM Research Series, Vol. 19, No. 2

Talent Management Solutions for Leaders of Business Services Functions, Hackett Briefing Book

“Building and Enhancing Strategic Workforce Planning Capabilities,” March 2015

“Developing the People Management Skills of Leaders,” May 2015

“What Top Performance in Talent Management Looks Like in 2015,” September 2015

“Becoming Unstuck: A Strategy for Closing HR’s Most Urgent Skills Gaps,” March 2015

“How Top Performers Excel at Succession Planning and Management,” December 2015


About the Advisors

Nathalie Bression

Senior Director, Human Resources Executive Advisory Program Global Practice Leader

Ms. Bression has over 20 years of human resources experience with a focus on general HR management, talent management, performance management, process improvement, HR shared services, compliance and employee relations. Her experience includes analysis and utilization of HR-related data and analytics to help organizations identify strategic priorities, design and deploy efficient and effective processes, implement

service delivery models, and conduct overall HR management. She also has deep expertise in integrated talent management and overall strategic HR support to business units and functional groups. Ms. Bression is certified by the Society for Human Resource Management both internationally and for North America.

Tony DiRomualdo

Senior Research Director, Human Resources Executive Advisory Program

Mr. DiRomualdo has over 25 years of research and advisory experience in the areas of HR, IT and business strategy. His work has focused on areas including talent management, workforce planning, recruiting, learning and development, employee engagement, leadership, performance management, and HR outsourcing and technology. Mr. DiRomualdo has directed several ground-breaking global studies, producing insights and

tools used by major corporations worldwide. He is the author of numerous Hackett reports and case studies and has published several articles in prominent business and academic publications including MIT Sloan Management Review and Chief Learning Officer magazine. Before joining The Hackett Group, Mr. DiRomualdo headed his own research firm and ran research programs at major management consulting firms.

Harry Osle

Principal in Charge, Global Human Resources Transformation & Advisory Services

Mr. Osle has more than 20 years of experience in human resources and transformation. At The Hackett Group, he advises clients on leveraging HR best practices, organizational alignment, optimization and automation, project management, needs analysis, and total quality management. An expert in HR strategy development, service delivery model design, benchmarking, and HRMS selection and implementation, Mr. Osle has

been quoted in numerous print and online publications including HR Executive, HR.com and WSJ Online.


For more papers, perspectives and research, please visit: www.thehackettgroup.com. Or to learn more about The Hackett Group and how we can help your company sharply reduce costs while improving business effectiveness, please contact us at 1 866 614 6901 (U.S.) or +44 20 7398 9100 (U.K.).

The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices

implementation firm to global companies. Services include business transformation, enterprise performance management, 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 EPM and SAP practices.

The Hackett Group has completed more than 11,000 benchmarking studies with major corporations and government agencies, including 93% of the

Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30, and 51% 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. It is

this intellectual capital that enables The Hackett Group’s clients and partners to achieve world-class performance.

Email: [email protected]

www.thehackettgroup.com

Atlanta +1 770 225 3600 London +44 20 7398 9100 Sydney +61 2 9299 8830

Atlanta | Chicago | Frankfurt | Hyderabad | London | Miami | Montevideo | New York | Paris | Philadelphia | San Francisco | Sydney | VancouverThis publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.


http://www.thehackettgroup.com/#_blank

http://www.thehackettgroup.com/business-benchmarking/#_blank

http://www.thehackettgroup.com/business-performance-management/#_blank

http://www.thehackettgroup.com/working-capital-management/#_blank

http://www.thehackettgroup.com/working-capital-management/#_blank

http://www.thehackettgroup.com/global-business-services/#_blank

Documents

By Nathalie Bression, Tony DiRomualdo, and Harry Osle · According to The Hackett Group’s 2016 Key Issues Study, enterprise cost takeout is the most prevalent initiative on the