HR TRANSFORMATION

HR TRANSFORMATION is not an option

The way in which organizations manage people used to be relatively straightforward. For more than two decades, multinational companies generally adopted a combination of HR business partners, centers of excellence, and shared service centers, adjusting these three elements to fit each organization’s unique nature and needs.

Today, this approach—introduced by Dave Ulrich in 19961—is rapidly evolving. In interviews with more than 100 chief human resources officers (CHROs) and senior people leaders from global multinational businesses, we identified five HR operating-model archetypes that are emerging in response to dramatic changes in business and in the world—including heightened geopolitical risks, hybrid working models, and the rise of majority-millennial workforces.

These emerging operating models have been facilitated by eight innovation shifts, with each archetype typically based on one major innovation shift and supported by a few minor ones. The key for leaders is to consciously select the most relevant of these innovation shifts to help them transition gradually toward their desired operating model.

Eight innovation shifts driving HR’s new operating models

Today’s increasingly volatile, uncertain, complex, and often ambiguous business environment is forcing companies to transform at an unprecedented pace. The global COVID-19 pandemic and rapid evolution of workplace technology have accelerated the adoption of various alternative, hybrid working models—as well as new challenges in monitoring employee conduct and performance. The emergence of majority-millennial workforces has led to a profound shift in employee preferences. And the “Great Attrition” of workers,2 exacerbated by demographic developments in many parts of the world, has intensified existing talent shortages.

HR plays a central role in navigating this upheaval, creating a need for the function to rise to a new level of adaptability and responsibility.3 While every organization has its own trajectory and HR operating model, our interviews with senior leaders revealed that organizations are innovating in ways that are collectively changing the HR function from the “classic Ulrich model”:

1. Adopt agile principles to ensure both strict prioritization of HR’s existing capacity and swift reallocation of resources when needed, enabling a fundamentally faster rate of change in the business and with people and how they work.

2. Excel along the employee experience (EX) journey to win the race for talent in the time of the Great Attrition,4 enabling both employee health and resilience.

3. Re-empower frontline leaders in the business to create human-centric interactions, reduce complexity, and put decision rights (back) where they belong.

4. Offer individualized HR services to address increasingly varied expectations of personalization.

5. ‘Productize’ HR services to build fit-for-purpose offerings with the needs of the business in mind, and to enable end-to-end responsibility for those services through cross-functional product owner teams in HR.

6. Integrate design and delivery with end-to-end accountability to effectively address strategic HR priorities, reduce back-and-forth, and clarify ownership.

7. Move from process excellence to data excellence to tap into novel sources of decision making using artificial intelligence and machine learning.

8. Automate HR solutions to drive efficiency and capitalize on the power of digitalization in HR.

These innovation shifts are driving the emergence of new HR operating models, albeit with different degrees of influence depending on the nature of individual organizations. In analyzing the drivers, we identified five HR operating archetypes.

Five emerging HR operating models

These eight innovation shifts have enabled companies to rethink how they manage their people and the best way to do so. Shows the five emerging HR operating models we identified, which are all enabled by two core elements: a strong, consistent data backbone and a user-friendly, highly reliable service backbone. When asked which two archetypes best fit their HR operating model, 48 percent of people leaders attending a recent webinar selected Ulrich+, 47 percent EX-driven, 36 percent leader-led, 31 percent agile, and 6 percent machine-powered.

Ulrich+

This model is an adaptation of the classic Ulrich model, with HR business partners developing functional spikes and taking over execution responsibilities from centers of excellence (CoEs). In turn, CoEs are scaled down to become teams of experts and selected HR business partners. They are supported by global business services and have a digital operations backbone. Many CHROs believe the classic Ulrich model is not up to solving today’s HR challenges, with HR business partners lacking the skills and time to keep up with the latest HR developments. Inflexible CoEs limit agile reactions, while other organizational boundaries have steadily become more permeable. Multinational businesses with mature and stable business models are often the ones that experience these pain points.

HR leaders think excelling along the employee experience journey will have the most impact.

Which innovation shifts will have the most impact?, % (n = 128)

Excel along the employee experience journey

|

Empower the front line of business

|

Integrate design and delivery with end-to-end accountability

|

Automate HR solutions to drive eciency

|

100%

Move from process excellence to AI, big data, and machine learning

Offer an individualized HR “cafeteria approach

Put agile first

“Productize” HR services

Agile

This model calls for a smaller number of HR business partners, with an emphasis on counseling top management, while CoE professionals focus on topics such as data and analytics, strategic workforce planning, and diversity and inclusion. The freed-up resources are pooled to implement cross-functional projects. CHROs who favor this operating model believe that HR needs to accelerate to keep up with the increased focus on execution exhibited on the business side and to prevent HR from hindering rapid transformation. Companies are applying this and other agile methodologies when experiencing rapid growth or discontinuity.

EX-driven

This model is meant to help CHROs gain a competitive advantage by creating a world-class EX journey. Putting EX first means allocating disproportionate resources toward “moments that matter.” For example, HR, IT, and operations experts could be granted full responsibility to jointly plan, develop, and roll out a critical onboarding process. By creating a world-class EX, HR becomes the driving force in bridging cross- functional silos and in overcoming the patchwork of fragmented data and processes that many organizations suffer from today. The companies employing this model are highly dependent on their top talent, with a small set of clearly defined competencies.

An agile transformation

A global financial institution underwent an agile transformation with a focus on IT delivery, supported by an agile HR operating model with 2,000 staff members. It first structured its HR function along the employee life cycle, aligning resources to the employee experience (EX) journey: when they join, work, develop, perform, and exit. The evolution to an agile model was supported by three HR innovation shifts:

— reducing the number of handovers by integrating run (servicing and operations) and change (product delivery) activities into “work streams”

— setting up work streams with end- to-end service responsibility (for example, design and delivery of recruiting), common goals, and steering

— allocating resources to agile pods with product crews for each work stream and agile ways of working

Projects that cut across multiple product crews were supported with a center- of-excellence initiative manager at the divisional level, and the stream-by- stream transition plan was phased over two years.

Leader-led

In this model, CHROs transition HR accountability to the business side, including for hiring, onboarding, and development budgets, thereby enabling line managers with HR tools and back-office support. This archetype also requires difficult choices about rigorously discontinuing HR policies that are not legally required. Too much oversight, slow response times, and a lack of business acumen in HR have led some companies to give line managers more autonomy in people decisions. Companies exploring this choice typically have a high share of white- collar workers, with a strong focus on research and development.

Machine-powered

With this model, algorithms are used to select talent, assess individual development needs, and analyze the root causes of absenteeism and attrition—leaving HR professionals free to provide employees with counsel and advice. As digitalization redefines every facet of business, including HR, CHROs are looking for ways to harness the power of deep analytics, AI, and machine learning for better decision outcomes. Organizations that are experimenting with this are primarily those employing a large population of digital natives, but HR functions at all companies are challenged to build analytics expertise and reskill their workforce.

Innovation shifts shaping HR model archetypes

While innovation shifts have shaped the traditional HR operating model and led to the emergence of new archetypes, not all innovation shifts are equal. Each archetype is typically based on one major innovation shift and supported by a few minor ones.

For example, a leader-led archetype is mainly shaped by the shift of empowering the leaders and the front line. At the same time, it gives more flexibility to the needs of the individual (the “cafeteria approach”) because leaders have more freedom; it also builds on digital support so leaders are optimally equipped to play their HR role. Alternatively, an agile archetype is strongly focused on adapting agile principles in HR, but it typically also aims to move toward a productized HR service offering and strives for end-to-end accountability.

Optimizing the employee experience

A global software company adopted a new business strategy to maximize the customer and employee experience, committing to a two-year transformation journey. Its first step was to mirror the customer experience for employees by identifying and revamping “moments that matter” along the employee life cycle. Three HR innovation shifts facilitated this: persona-driven HR services began following a customized approach; product owners took on end-to- end responsibility over HR concept, design, and delivery to deliver moments that matter; and HR, IT, and business operations combined into a comprehensive data function.

The critical decision for senior people leaders is to consciously select the most relevant of these innovation shifts to transition gradually toward their desired operating-model archetype. For example, the leader-led model puts business leaders, rather than HR, in the driver’s seat, allowing line managers to choose the right HR offerings for their individual teams. And for companies that decide to deploy machine-powered HR, the key is building and relying on deep analytics skills. This model uses integrated people data to make targeted, automated HR decisions.


Different operating models are based on different innovation shifts.
	Major focus	Minor focus

8 innovation shifts	1 Ulrich+	2 Agile	3 EX¹ -driven	4 Leader-led	5 Machine-powered
Put agile first to allow for speed and swift resource reallocation
Excel along the EX¹ journey to win the race for talent
Empower the front line of business to create human-centric interactions
Offer an individualized HR “cafeteria approach” for personalization
“Productize” HR services with the needs of the business in mind
Integrate design and delivery with end-to-end accountability
Move from process excellence to AI, big data, and machine learning
Automate HR solutions to drive efficiency

In large, diversified organizations, CHROs may find that different archetypes fit the differentiated needs of specific businesses better and may adopt a combination of HR operating models.

Transitioning to a target operating model

Transitioning to a future-oriented archetype is typically a three-step journey. First, CHROs and their leadership teams align on the right operating- model archetype for their organization based on the most pressing business needs, expectations of the workforce, the wider organizational context, and the company’s dominant core operating model. In large, diversified organizations, CHROs may find that different archetypes fit the differentiated needs of specific businesses better and may adopt a combination of HR operating models.

Second, HR leadership teams prioritize the three or four most relevant innovation shifts that will move their function toward their chosen operating- model archetype. When doing this, people leaders need to reflect on strategic HR priorities and, even more important, the shifts required to establish the operating model given its feasibility, the potential limits to the speed of implementation, and the magnitude of change. (Today, we find that the capacity to change the HR information system is often the most limiting factor.) For example, if a company is operating in a traditional hierarchical “command and control” way, the sole shift of HR into an agile archetype requires profound and demanding changes to ways of working, likely beyond only HR. Similarly, a business accustomed to a “high touch, concierge service” HR approach will find that a shift to a leader-led archetype is challenging and requires significant effort to implement.

Finally, teams think comprehensively about the transition journey, working toward core milestones for each of the prioritized innovation shifts individually and ensuring a systemic, integrated transformation perspective at the same time. This requires mobilizing for selected shifts, building new capabilities, and acting on an integrated change agenda in concert across business and HR.

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