April 05, 2022
Three Themes Shaping the 2022 Human Resources Agenda
The past two years have brought unprecedented instability. Yet, when we conducted our latest annual Key Issues Study – during the fourth quarter of 2021 – some executives were already seeing and expecting smoother sailing. About one-third of companies reported stabilized business conditions. Over one-half predicted stabilization in 2022, and only 11% expected instability to continue into 2023 or beyond. That was before news of the COVID-19 Omicron variant, the reality of emerging inflation and talent risks set in, and the conflict in Ukraine.
In this article, we highlight results from the 2022 Key Issues Study and implications for human resources (HR) leaders in planning through uncertainty – during 2022 and beyond.
Understanding the enterprise priorities
Enterprise digital transformation remains the No. 1 priority, with 61% of companies having a major initiative on the 2022 agenda – up from 53% the previous year. In the face of talent challenges, companies have also stepped up their focus on diversity and inclusion initiatives. More than one-half – 58% – now have such initiatives, compared to just 35% two years ago. On the other hand, sales, general, and administrative (SG&A) cost optimization dropped further down the ranking – from third place in 2021 to fifth place in 2022. This is consistent with an observed shift in focus from margin preservation to growth.
The backdrop of disruption and rapidly evolving business conditions clearly influenced HR executives’ 2022 priorities ¬– illustrated in the image below. Seven of the 10 top HR priorities represent human capital business and enterprise goals, indicating a strong focus by HR organizations on their role in enabling the success of the overall enterprise.
Collectively, these 10 top priorities reflect four key themes.
- HR leaders are moving quickly to shore up capabilities for meeting objectives.
HR organizations are challenged to achieve their most important 2022 objectives, based on the size of the gaps between the importance assigned to these goals and HR’s confidence in their current ability to address them. Because most of these directly impact the enterprise and key aspects of the business, it is all the more important that HR upgrades its capabilities.
The good news is that HR recognizes these deficiencies, and a majority of organizations are launching or have launched major initiatives to improve these capabilities. In order to close capability gaps, HR organizations must take greater advantage of digital technology to improve their service delivery and insights, as well as upgrade talent strategies, programs, and processes to enable achievement of top enterprise and human capital business objectives.
- Digital transformation remains front and center, with a focus on service delivery model resiliency.
Already facing significant challenges and disruption due to the shift to remote and hybrid working, HR executives are preparing for another demanding year of having to do more without increases in staffing or budget. Accordingly, it will be critical to solidify and increase the resiliency of the HR service delivery model. This will require innovations in service delivery, as well as new workforce policies that can balance business needs with evolving employee expectations.
Overall, HR expects slight declines in budget and head counts, with workloads projected to jump by over 9% – creating significant productivity and efficiency gaps. A substantial increase in technology spending demonstrates a growing reliance on technology to increase HR productivity, efficiency and effectiveness.
The rate at which HR organizations are adopting core human capital management (HCM) digital platform technology remains steady, especially cloud-based systems. Business process management/workflow tools are also now well established. Robotic process automation (RPA) continues to make inroads within HR, although with mostly small-scale implementations.
For a majority of respondents, these core HCM technologies are meeting or exceeding expectations. The learning curve for RPA remains steep, however, with 47% of organizations falling short of realizing their business objectives for this technology.
Data-related technology adoption is widespread. Among study participants, 71% have implemented data visualization tools, and 63% have implemented data management tools. In both cases, the implementation experience has been mostly successful. Deployment of emerging technologies, such as chatbots/virtual assistants, is slower compared to other technologies. A slight majority of respondents believe these tools are meeting or exceeding expectations, but the realization of business objectives remains mixed.
Many HR organizations have 2022 improvement initiatives to enhance their use and adoption of digital technology. Yet, only about one-half have initiatives specifically related to accelerating digital transformation and harnessing data and insights from analytics. HR organizations will need to intensify their focus on these areas and pursue certain best practices to close the gaps in their ability to address them.
Accelerate digital transformation:
- Assess current HR technology capabilities and identify key gaps with HR priorities.
- Utilize the capabilities of existing platforms, and then accelerate the adoption of new tools and applications.
- Deploy chatbots and RPA to automate routine activities and free up staff to use analytics to drive executive decision-making.
- Leverage direct access to information and tools to drive workforce productivity.
Harness data and insights from analytics:
- Start with a comprehensive data management strategy and governance mechanisms.
- Build data architectures to enable data access and reporting across HCM systems.
- Leverage existing analytics and reporting capabilities fully, and then start mastering advanced techniques.
- Train staff at all levels in the basics of data analysis and storytelling.
- HR must continue transforming its organization to meet objectives.
HR organizations continue to struggle to keep up with the persistent need for upgrades in a wide range of critical capabilities. At present, few have the capacity to implement all the improvements needed. Critical development areas include acting as a strategic advisor to the business and improving talent management capabilities. It is encouraging to see that many HR organizations have initiatives planned in 2022 to improve these areas. However, this is not so when it comes to aligning HR business skills with changing business needs, with only 39% of companies having an improvement initiative planned for the coming year.
As HR works to upgrade its capabilities, it must manage the unprecedented increase in voluntary turnover that is occurring in response to the COVID-19 pandemic, generally referred to as the Great Resignation. It is impossible to know how persistent this trend will be and how profoundly it will impact business. But in 2022, there is no escaping it, and HR organizations must develop specific talent retention strategies to mitigate its impact.
Fixing these and other internal HR function shortcomings will take a multiyear effort, making it essential to have a long-term action plan aimed at addressing the full range of improvement opportunities. While the priority should be closing the most critical gaps, it is also important to devote attention to the following high-leverage best practices, which can produce improvements across multiple critical development areas.
- Help business leaders translate the business strategy into a people strategy.
- Prioritize transformation initiatives.
- Maintain relationships at senior levels in the organization.
- Elevate the role and upgrade the skills of HR business partners, and arm them with data to make strategic decisions.
- Document expectations and measures of success.
Transform the operating model:
- Change the HR operating model to align high-level HR business partners with business leaders, focus centers of excellence on creating program innovations and effective implementation, and deliver a positive employee experience through digital channels and shared service centers.
- Evaluate the current organization structure, assess existing HR processes, and rethink HR roles and skills to identify transformation priority actions.
Close skill gaps:
- Target staff weaknesses in business acumen, change leadership, strategic thinking, data savviness and customer-centric design.
- Encourage exposure to different parts of the business through stretch assignments, participation on cross-functional teams and mentoring.
- Rotate staff through key positions in HR or via assignments and projects that enable exposure to a range of HR subspecialties and processes.
Disruption will continue – but HR organizations are preparing
HR executives cited the transition to virtual working as the most likely disruptor to their operating model, with the as-a-service deployment model, automation and artificial intelligence as the most likely disruptors to their operations. Many HR organizations are actively planning for these and/or already executing response plans. More than one-half are currently executing plans to address a persistent, structural skills gap that is preventing digital transformation, while most others are now in the planning stage. Forty percent are executing programs related to work-from-anywhere norms and integrated virtual workplaces.
Sharpen your focus
It’s clear the turmoil of the past two years is not coming to an end – at least yet. The research findings above represent a very broad and ambitious agenda. HR leaders will need to be laser-focused – making sure they are investing their time and resources in the areas most critical for elevating their value to the enterprise.
So, where should you focus? That, of course, will depend on your specific needs and operations, but based on our work in the market, we believe the following four areas apply broadly to most HR organizations:
- Double down on digital transformation
- Virtualize HR operations
- Put the customer – employees, managers and candidates – at the center of service design
- Develop strategies to minimize the impact of structural talent shortages
Collectively, action in these areas creates agile organizations that can weather continuing change.