The Hackett Group’s 2021 Key Issues Study reveals new Covid-driven priorities amid resource constraints and challenging business conditions. While adoption of digital technologies continues to grow, HR organizations need to close significant gaps in critical capabilities.
Our research found that HR organizations’ most important objectives in 2021 are also ones they are ill-prepared to address, based on the gap between the importance level of these goals, and current ability to address them (see figure below). Of the top 10 priorities, seven are assessed as critical development areas. This means there is a substantial gap between the objective’s importance and the ability of HR to achieve it. Two others represent opportunities for improvement. Moreover, six of the ten represent human capital-related business and enterprise goals, indicating significant potential to impact HR’s contribution to the business if not adequately addressed.
1. Act as a strategic advisor to the business
This issue jumped to number 1 from number 9 in 2020. The human consequences of the pandemic thrust HR into a prominent role guiding the leadership team, including the CEO and board through all aspects of the crisis. While some HR organizations rose to this challenge, our data shows that many fell short. HR organizations acting as trusted advisors leverage their talent to deliver consistency, agile behavior and a deep knowledge of the business. Most important, trusted advisors maintain a collaborative, proactive partnership with stakeholders to enable business success. In the new normal, HR is expected to continue to elevate the role of its business partners, although it’s concerning that less than half of respondents have specific initiatives planned to improve this capability.
2. Enable a high-performing organizational culture
The pandemic shift to remote working and socially distanced physical workplaces presents unprecedented obstacles to building and maintaining organizational culture and a sense of connectedness among employees. Serendipitous encounters are impossible when everyone is working remote. The artifacts of the company, even some rituals that reinforce culture are absent or constrained by social distancing. HR must step up its efforts to encourage leaders to increase their communications as well as increase culture-enhancing activities like virtual town halls, videos from staff and other ways of keeping the culture and connections among employees alive while most cannot be physically with one another. Nearly three-quarters of respondents have earmarked this area for improvement in 2021.
3. Align business and talent management strategies
The pandemic forced numerous companies to abruptly adjust their market and operating strategies. This necessitated a rethinking of workforce capabilities and a reassessment of the essential roles and skills needed to maintain business and operational continuity. With large segments of the workforce working from home or in socially distanced company facilities, HR has been challenged to adjust policies and programs to promote workforce wellness and productivity. Further changes will likely be necessary in 2021 as business strategies continue to evolve and a new hybrid working regime, with some staff together at company locations and others working remotely, takes hold. Two-thirds of respondents plan to take steps in the coming year to enhance capabilities to better meet this objective.
4. Improve HR agility
In 2020, many HR organizations demonstrated levels of agility they didn’t know they had. But relying on heroic acts is not a sustainable strategy. The task for 2021 is to embed agile capabilities into the fabric of the HR operating model. Making the leap to a more agile, responsive, intelligent, and innovation-driving HR operating model will not happen through incremental change. Rather, it will require bold thinking and broad transformation of the function’s culture, structure, people, platforms, and processes. Just 46% of respondents have plans to increase their agility next year.
5. Enable business strategy execution
Covid-driven disruptions have forced many companies to pivot their business strategies and rapidly launch new digital initiatives. The ability of staff to effectively execute the business strategy is often a decisive success factor. HR recognizes its role in developing leaders, building, and deploying a workforce with the right skills, and creating the organizational context to sustain high performance. To succeed, it must closely align with business leaders and supply relevant human capital insights to inform strategy formulation and decision making. Given the substantial shifts in many business models and operating context as a result of the pandemic, it is somewhat surprising that only 44% of participants have targeted this as an area for improvement.
6. Increase workforce diversity, inclusion and belonging
The need for organizations to fully embrace a broad spectrum of people, perspectives and talent is a top 10 priority in 2021. Business and HR leaders are scrutinizing all aspects of talent management and organizational culture to ensure fairness and equity of opportunity and reward. Failure to address this issue effectively will hurt the employer brand, the ability to attract and retain key talent, and ultimately, the performance of the business. More than half of the companies we polled recognize the need for substantial additional measures in order to make tangible headway toward achieving this goal.
7. Enable enterprise digital transformation
This issue returns to the top 10 for 2021. The pandemic accelerated enterprise digital transformation of market offerings, processes, and ways of working. HR organizations must step up their game in areas that can directly affect the success of these programs, such as leadership, culture, skills development, and change management. A healthy seventy-four percent of HR organizations have improvement plans focused on enabling continued digital business transformation.
8 Enable enterprise cost takeout and efficiency improvement
Many organizations were forced to institute drastic cost cutting actions in response to the impacts of Covid-19 on demand and revenue. A return to growth in 2021 remains uncertain for many industries and thus cost reduction will continue to be a priority. HR must take the lead in rooting out inefficiencies in its programs and operations. Moreover, it should make sure it remains prepared to play a lead role in managing staff reduction and redeployment processes and positioning the organization for recovery. Nearly two-thirds of respondents are planning to take actions to contribute to enterprise cost reduction in the 2021.
9. Improve talent management capabilities
Advanced talent management capabilities not only lead to better talent outcomes but drive business performance as well. HR recognizes the importance of increasing not only its own talent management capabilities but also those of people managers across the enterprise. Unfortunately, this is an area in which HR capabilities perennially lag. The Covid crisis forced HR to accelerate adoption of technologies enabling virtual recruiting, learning, onboarding and collaboration. This provides an opportunity to further improve these critical talent processes as well as leverage emerging AI-enabled data analytics capabilities to improve talent-related decision making and outcomes. Seventy percent of participants are aiming efforts at advancing critical talent management capabilities next year.
10. Improve HR analytical, modeling and reporting capabilities
Among each of HR’s top ten key issues in 2021, improving analytical, modeling and reporting capabilities was designated as having the lowest ability to address. Developing modern analytical capabilities is a complex process for organizations. Setting up a strong master data management program is the first, and one of the most critical, steps. Without access to extensive, trustworthy data, little can be gleaned from its analysis. HR must also carefully place resources with strong analytical skills and provide them with modern digital tools. Developing analytical skills is essential for strategic decisions, predictive insights and agile behavior. These can be developed internally and hired externally for highly skilled roles. While progress developing HR analytical capabilities has been slow, it is encouraging that 69% of organizations completing our study are aiming to tackle this persistent challenge.
While the challenges facing HR in 2021 may be daunting, the function’s response to the pandemic has raised its stock in the eyes of business leaders. This positions HR organizations favorably to make real progress toward building vital capabilities to enable the business and workforce to succeed in the coming year.