Digital World Class® HR: Bridging the Performance Gap With Gen AI – Transcript

Jessica Haley:                   

HR always has a lot on its agenda, and HR is always challenged with doing more with less, and we see that just as present today as we have in the last several years. We also see generative AI being a disruptor. So disrupting not only the market at large, but how HR is able to deliver today.

Announcer:                       

Welcome to The Hackett Group’s Business Excelleration Podcast. Week after week, you’ll hear from top experts on how to achieve Digital World Class^® performance.

Tony DiRomualdo:         

I’m Tony DiRomualdo, your host for today’s Business Excelleration Podcast, and I’m joined by my colleagues Jessica Haley, who’s a principal in our Global HR Advisory practice, and Amanda Newfield, associate principal, Global HR Advisory practice at The Hackett Group.

Welcome, Jessica and Amanda.

Amanda Newfield:         

Thanks, Tony.

Jessica Haley:                   

Thank you, Tony.

Tony DiRomualdo:         

Great. Today we’re going to be discussing the highlights from our Digital World Class^® research and some of the key learnings for HR organizations. I’m going to start with you, Jessica. What are some of the drivers that you’re noting that make Digital World Class^® important for HR?

Jessica Haley:                   

Thank you, Tony.

So when we think about the external forces at play today, definitely inflation is playing into it. We see a very tough market for many organizations, which then is carrying over into some of the internal challenges that are faced by many HR functions. When we think about the fact that for many of the organizations today, this is the budget season, and a lot of those discussions are taking place. And we anticipate that some of those are going to be some very hard conversations as HR always has a lot on their plate that they want to accomplish and are challenged internally with budget restraints in terms of not only the resources to get those things done, but the number of people to get those things done. In addition, externally, we see still a shortage of desired skills and particularly workers willing to do the jobs that are set forth and open today in the market.

Tony DiRomualdo:         

Let me turn it over to Amanda. Amanda, could you address what is Digital World Class® for our listeners, and how do we think about it at Hackett?

Amanda Newfield:         

Absolutely, Tony. Thanks for the question.

I think one of the important things to keep in mind when we think about Hackett’s Digital World Class^® metrics is the fact that it’s really looking at organizations across two separate axis, if you will. So a lot of times people immediately kind of go to how do we deliver services at the lowest cost and operational excellence, which of course is a factor in how we can deliver services, particularly services like HR, but it’s really more about how do we deliver at the lowest cost but driving the most value for the business as well? And that key factor of driving business of value, which is what really differentiates our Digital World Class® organization, because they’re not really only focused on driving stream levels of efficiency within the HR organization, they also want to make sure that they’re driving business value in the form of employee engagement – the ability to have people with skills that are needed in order to be able to accomplish business objectives.

We know quite a few things from our studies of our Digital World Class^® organization that make our Digital World Class^® organization differentiated in the market. Organizations with at least one Digital World Class^® business function – doesn’t matter if it’s HR, finance, or any of these other business functions – all have demonstrated ability to operate and achieve higher net margin, higher EBITDA margin, higher return on equity, and as a result, higher total share point return. That means that we’re really, again, driving business value and driving the execution of the business strategy.

Specifically, within HR, our Digital World Class^® HR organization operates at 32% less cost with 39% fewer HR FTEs. However, they’re still driving higher retention rates within their organization, as well as lower turnover within their organization.

Now, Tony, I know as our director of research, you’ve done a lot of research into why we’re seeing these kinds of results from businesses. I’d be interested to hear what are your thoughts around how HR organizations should strategize to excel and become this Digital World Class^® type of entity?

Tony DiRomualdo:         

Yes, I’ve been looking at that quite closely for several years, and I think the good news is that yes, Digital World Class^® performs at outstanding levels. And sometimes we see with our clients, they get a little bit intimidated; we’re never going to be that good. But when we begin to look at what are those practices that lead to this level of Digital World Class^® performance, actually many of those are very sound practices and practices that any organization, regardless of where they are on the capability or performance spectrum, can begin to adopt. They may not adopt all of the practices, but making progress with some of them is going to move the needle in terms of performance.

And when we look at overall what Digital World Class^® organizations and HR are doing, we see four key strategies. One is around what we call having an integrated organizational model for HR. Another is around their talent within HR and concentrating and growing talent that could add value to the business, so beyond what HR does within the function itself. Then there’s what we see practices around driving data insights or insights from data that can help the business, in particular managers, do a better job with talent, as well as drive

some strategic questions around how the business can use people to enable their performance.

And then lastly, it’s around digitally enabled delivery. We see concentrations greater focus in that area. So I think when we start with integrated organizational model, I think we look at that and also the digitally enabled delivery because they go hand in hand by enabling many of the aspects of what we deliver as an HR organization. It can fuel that integration and enhance that integration, as well as enhance the overall delivery and experience.

So what we see there are some key components of the organizational model. There’s the HR business partners – the part of HR that is facing and directly interacting with key business stakeholders. There is HR operations, where what we see a lot is the adoption of shared services or global business services models, which bring together people performing lots of the administrative and organizational tasks, as well as some of the value-added things we see in certain instances like analytics and those kinds of things in a very leveraged efficient way. As well as centers of excellence and technology in particular for delivering what we’ll call direct access or self-service to try to handle as much of the routine types of inquiries and activities that employees would come to HR for answers to questions about their benefits, issues they may be having, whatever that they can help themselves get the answers quickly.

In this day and age, a lot of that we’re seeing more mobile, where you can go to your phone and get that kind of information. And the same is true for managers helping them to handle many of the people management aspects that they work on. And the key thing there is having clarity around the roles and responsibilities across those entities, and we see that being a key practice. So those are a couple of things I would point to.

Lastly, when we talk about value-adding talent, and we talk about the data- driven insight, again, a lot of that goes hand in hand because it is developing HR staff that have a balanced mix of not just understanding HR processes and HR subject-matter excellence and expertise, but also the mix of interpersonal skills, business acumen, as well as analytical skills – being able to take data and insights from data and translate that for stakeholders, help managers make better decisions around how do we improve the productivity and performance of our workforce, for example, engagement and what not.

So those are the kinds of strategies that we’re seeing Digital World Class^® employ to drive the results that they’re getting. And many of those things can also be adopted by HR organizations regardless of where they are on the spectrum.

So moving on, I’m going to turn the conversation back over to Jessica and ask the question: Can you provide an example of what Digital World Class^® looks like in practice? Again, some real-world examples of some of the things we’ve been talking about.

Jessica Haley:                   

Absolutely. And referring back to when we were talking about external forces in the market today, one of the things that we see impacting the HR function is a shortage of skills and workers in the talent market.

One of the stories that we find very inspiring, it’s also part of our AI use case library that we maintain here at Hackett for our members, but it’s for a health care company. And for anyone who is aware of what’s going on in the health care sector, we all know that they have been faced with challenges from a talent acquisition standpoint, particularly since 2020 with the appearance of COVID. This particular organization found themselves in a state such that their costs around talent acquisition were constantly rising year over year. They were leveraging RPO vendors and contract recruiters quite heavily, and in addition to that, they were still not being able to meet the talent needs that they had.

Recruiters were also experiencing a larger volume of work and lower job satisfaction.

So this particular member really went back to the drawing board and leveraged what was available today with generative AI. And in doing that, they really had what we consider to be a breakthrough use case or case study for generative AI in the talent acquisition space. So what this particular organization did was that they really took the time to look at how they could leverage generative AI within their talent acquisition processes such that they could source better candidates, respond to those candidates in a more timely fashion, and fill the roles more quickly.

This particular organization, as I mentioned, they’re in the health care sector, so they are looking for usually nurses and in a traveling setting. So these are not nurses that are going to the same place. They’re going to be traveling to different locations. And what they found was that through spending roughly 1,500 hours, they were able to capture $1.4 million in savings. So they were able to save from an RPO vendor standpoint $1.4 million and another $1.6 million in contractors that they were using to supplement their own recruiters. The payback on this was a few weeks. So they spent 1,500 hours, but because of the volume of savings, they saw an ROI within just a matter of weeks.

In addition to that, they were able to reduce the time to fill. So their time to fill dropped from 65 days to 35 days. And in addition to that, this to me is the mind- blowing piece that really sets them apart in this talent acquisition space and moves them into that Digital World Class^® status. They not only reduced the time to fill, they were able to increase the job rec load for their recruiters and reduced turnover within their recruiting department. So less reliance on vendors, which means that you’re able to leverage your own in-house skills and talent, which know your organization and are better able to source and fill roles.

They also were able to increase because they were more efficient with what they were able to do, and they saw a decrease in turnover in the recruiting space. So at the time that they took on this initiative, they had roughly a 25% turnover within their recruiters, and they’ve seen that drop to 6%.

So really a breakthrough use case of generative AI in terms of what we see today out in the market and even within our use case library. They were able to do all of this with the skills they had largely in-house, leveraging some advisory, of course. They optimized their HCM platform, but largely all of this was powered through generative AI to enhance both their efficiency and their effectiveness.

Tony DiRomualdo: 

Fantastic. What a great story. Amanda, question for you. How do organizations who are early in their digital transformation journeys start to apply some of the strategies we’ve been talking about?

Amanda Newfield:        

I think one of the important things to keep in mind is that not everybody wants and even needs to be Digital World Class^®. Perhaps, maybe it’s just around understanding where you’re at today and wanting to improve within the context of your own business space. And we have quite a few clients that while Digital World Class^® organizations give us an idea of the type of best practices that we can implement and the type of processes or even capabilities that we want to implement, we still consider that as a guide to guide their own journey and their own kind of growth.

From a transformation perspective, it always starts with understanding where you’re at currently. Where are the places where maybe you’re out of line? A lot of organizations may choose to do some type of benchmarking, which is something that Hackett does offer, but we also have other avenues where other clients that have chosen other processes. So things around assessing the applicability of best practices and how they may be implemented within our organization, and even may drive value for the organization.

One thing that I always like to say, just because it is a best practice doesn’t mean it’s the best practice for your organization – that ability for us to help organizations assess best practices to determine the actual value to their organization specifically and the reality of whether or not they can actually and feasibly implement the best practice is important. But we also have these same conversations around capabilities. Where is your HR organization across all the different process areas of HR from a capability maturity perspective? Knowing where the gaps are and where you’re at today and the vision of where you would like your capabilities to be in the future is critically important because the next step of that process, once we know where we are and we have some type of vision of where we want to go, it’s being able to understand that and develop actual road maps that are guided by and aligned with business strategy.

So certainly being able to understand how HR enables the business to accomplish what it’s trying to accomplish from the perspective of the people or the talent that guides the accomplishment of those business goals, and then being very strategic and assessing how HR as a collective portfolio, not individual pillars within nature individually can drive value for the business. A lot of our clients are seeking advice from an advisor like myself to just discuss what their plans are, how they’re looking at their HR strategy and alignment with

business strategy, and how to evaluate programmatically their road map so they’re moving together toward an objective of driving business value for their organization.

And then thirdly, just like you mentioned Tony, it’s being able to understand and assess the tech infrastructure. That doesn’t necessarily create the change or do the things that we’re looking to do, but it certainly enables it and enables that modern experience that many of our employees are expecting from their employers today. And understanding where the gaps are specifically in that tech enablement is just as important. So we have clients that are partnering with us to assess their technology infrastructure, understand what’s performing well today, where they have opportunities for improvement, and designing technology road maps to ensure that they have the technology tool to be able to enable the strategies that they’re driving toward from a strategic perspective.

One great example of that is the journey into strategic workforce planning. That is a strategic interest that many of our clients talk about on a regular basis and something that really does require a tremendous amount of technology, especially from the data perspective. So being able to collect the data in one place is a core requirement. And then being able to analyze and assess that data and to drive insights and then be able to turn those insights into stories to be able to tell how our talent is capable of growing or developing, or how we need to refill people within the organization to be able to complete our strategic objectives as critically important, and we can’t do that without some type of technology enablement.

Finally, as we think about refilling HR itself and preparing HR, particularly the role of HR business partner and being more strategic, picking available learning. So looking to places where we can upskill on skills like business acumen, data storytelling, consultative skills and relationship management – all critical components of being able to make those incremental steps forward to some place that where you’re driving more business value for the business, and you’re doing it in a more efficient way.

Tony DiRomualdo:         

Great, Amanda. Lots of great advice and insights there.

Well, it looks like we’re out of time for this particular podcast. I want to thank Jessica and Amanda again for joining me and sharing their insights today. To our listeners, don’t forget to go to our website at podcast.thehackettgroup.com for more information about today’s Business Excelleration Podcast and upcoming podcasts in this series.

I hope you enjoyed our broadcast for today and look forward to seeing you again on a podcast in the future.

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The Hackett Group is a strategic consulting and executive advisory firm. Learn how we can architect your digital transformation journey, including Gen AI, at www.thehackettgroup.com.