HR departments that embrace digital transformation will drive better results and spend less on labor.
That’s one of the key messages from a The Hackett Group research paper The world-class performance advantage. It highlights that high-performing HR organizations spend 18% more on technology and nearly 40% less on labor than typical companies.
But investment in digital technologies will not bring about transformation alone. Hackett identifies five characteristics that these world-beaters share:
- Digital transformation. It’s the key imperative from which all the other characteristics spring.
- Analytics-based decision making.
- Reallocation of resources from focusing on transactions to adding value.
- A customer-centric design and delivery to HR.
- Re-skilling the HR function.
Those HR units that have made those changes typically spend 23% less per employee than other firms and need 32% fewer staff to deliver a better service to their internal customers. Savings of $14m annually can be made for a high performing company with $10 billion in revenue.
But where you start on this transformation depends on each company’s individual strengths and weaknesses, according to Harry Osle, principal in charge of global HR advisory services at The Hackett Group:
If you look at the imperative to turn transactions into value, that does nothing unless you fundamentally change the transaction activities to more technology-enabled types of transactions. So they have to all work in unison, not one of these imperatives works on its own.
The starting point for the change depends on the individual company’s strengths and weaknesses, says Osle:
You could have a very good service delivery model in place already and not be embracing technology. You could have tremendous technology, but an organizational design and service delivery model that’s not focused on being customer centric. So it depends on where you are as an organization. Number one, you have to understand what are your strengths and weaknesses are as an HR function.
While all five imperatives are inter-related, Osle points out that analytics is dependent on the other four elements being right. With those elements in place, notes Osle, analytics is has the opportunity to make the biggest impact on the business:
At the end of the day everything else doesn’t matter. Operations and management couldn’t care less if your processes are correct, they couldn’t care less if you’ve invested in technology, they couldn’t care less if you have a customer-centric design and delivery. What they care about is: are you giving me the right information so I can make the human capital dimension of my business proposition easier?
In average performing companies, HR is often too focused on transactional work and not on activities that drive business results, such as analytics or devising a closely aligned talent strategy.
But to realize those gains in value added services, three pillars of formal service delivery model need to be in place: adopting a shared service model, centers of excellence and having HR business partners.
While this is the standard model in world-class HR organizations, only 20% of lesser performing peers have the same set up, according to the report, making it hard for them both to keep a lid on costs and deliver consistent service across the business.
The role of HR business partner “is key in managing the expectations of the business and for managers”, notes Osle. HR should either recruit or poach staff from key business units to work as HR business partners.
With so much of HR work has been automated and now carried out by employees and managers themselves through self-service, HR employees have more time to focus on more strategic business.
Hackett’s research uncovered that the HR world-beaters employed fewer managers and more HR professionals. These professionals are more focused on leading business change and 80% have staff who partner with business lines closely.
So that means HR staff generally need to build up analytics ability as well as creating a dedicated team of analytics experts.
Digital transformation requires adopting a cloud-based infrastructure and digital applications. But Osler cautions, it’s not a question of just automating what’s already there, but changing processes and approaches:
What best-in-class organizations do well is they fundamentally understand the part best practices play – the companies that do really well are those that leverage best practice from other organizations. If you do it the way you’ve done it before, it doesn’t make you any better.
Providing self-service to employees and managers is all very well, but unless those services are designed to meet their needs rather than make HR’s life easier, people simply won’t use them. And HR has to satisfy the needs of two groups, says Osle:
The employee base is one customer set and the other customer set is the business and managers. So there’s a compliance side to our business and there’s an employee advocate side to our business. No other function in the organization has that dual responsibility.
Having two types of customers means that service design has to focus on both groups, making it easier for employees and providing business partners to help manage the expectations of the business and managers.
The report estimates it takes up to five years to achieve digital transformation, but benefits can start to be felt after two years. So the message is simple – get started!
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