Ready for the next level?

The role of Human Resources (HR) departments within organizations has long been discussed in business and academics. On the one hand, there’s a demand for HR to have a “seat at the (C-suite) table” in order to have a say in strategic business decisions. On the other hand, there have even been ideas to abolish HR entirely. In times of global geopolitical and socioeconomic challenges and transforming industries with changing business models, HR as a function has been put in the spotlight once more. In recent years, HR departments had to learn to quickly react and master uncertainties, adjust priorities and develop innovative solutions to address both employers’ and employees’ needs – such as implementing urgent working from home arrangements during the Covid-19 pandemic. Furthermore, HR has been put in the driver’s seat to proactively translate socioeconomic trends into workforce-related measures. Tailored offerings and programs along the candidate and employee journey require a strong strategy and good fit with the company. “One size fits all” approaches are no longer sufficient to ensure that an employer remains competitive enough to attract and retain employees in a world of global talent shortages. A resharpening of own priorities, value drivers, and self-understanding in Human Resources is therefore essential.

In the second half of 2024, Porsche Consulting conducted interviews with 27 key HR leaders across a diverse range of industries and company sizes from the DACH region (Germany, Austria, Switzerland). The aim has been to capture their voices on current trends and developments within HR. This impulse provides insights into their views of the future and derives key recommendations for action.

Higher demands for HR departments

HR has more tasks than ever on its plate and must continue to manage urgent challenges, ranging from ensuring employees’ safety in countries affected by geopolitical challenges to handling individual retention cases. However, their performance is evaluated based on how well they execute the people strategy that is derived from the general business strategy. Porsche Consulting’s analysis shows that CHROs possess a profound understanding of global trends and the business strategy and are guided by the key question as to how an integrated people strategy can enable business success in an employee-focused economy. This results in higher demands – understanding and translating business needs into a coherent people strategy requires a high level of entrepreneurial thinking. At the same time, adding sustainable value by effectively managing everyday tasks, including challenging ones, requires a strong and highly skilled data-driven HR organization. While HR organizations are heading in the right direction to increase their influence, there is still room for improvement.

For certain areas such as organizational management and strategic workforce management, responsibilities and tasks of HR and other business units are often not yet clearly defined and assigned. This is confirmed by the analysis, highlighting that organizational transformation is one of the top strategic fields and priorities. At the same time, over a third of participating HR organizations are either not involved or only partly involved in organizational changes. The extent of HR involvement is usually not defined in a standardized approach – often it simply depends on the preferences of the involved business unit. Therefore, to secure and increase HR’s impact, it is of key importance to make the effort to take the lead for upcoming HR related topics, as otherwise, business units may proceed without a commonly aligned approach and only after-the-fact HR involvement. Sitting in the driver’s seat includes establishing the target direction based on a realistic forward-looking HR roadmap, prioritizing most important strategic topics, and deprioritizing others transparently and in strong agreement with the business.

Robust digital HR infrastructure as key enabler 

One must-have priority for HR to be ready for the next level is its own digitalization journey. There is still an excessive burden handled manually, and irrespective of the companies’ size and maturity, CHROs continue to be very much involved in operational matters and decisions. HR still lags behind in terms of digitalization; the usage of digital data and artificial intelligence applications is not as advanced as expected. In a mature HR organization, the high capacity required for manual work needs to be freed up for more customer-centric topics requiring a human touch. Therefore, a seamless and robust digital HR infrastructure serves as key enabler for a future-ready HR organization and is a fundamental prerequisite for efficient HR work.

Soon it will become even more important to meet additional legal and regulatory reporting requirements, such as on corporate social responsibility, and to ensure data-driven reasoning. To what extent data is currently being considered for decision making depends on the priorities of the management, the ease of data availability, and the usability of the applications. It is also influenced by the data affinity within HR, which is generally still very low. Moreover, there is a lack of key performance indicators (KPIs) related to the people strategy, while interviewees report increased incoming requests to measure HR success. Therefore, data literacy needs to become an HR core competence. Building up a data-driven HR organization enhances credibility through data-based reasoning and provides a solid justification for HR efforts and accomplishments with strategic relevance.

HR transformation as top priority for CHROs

Almost all HR organizations analyzed adhere to three main organizational pillars while incorporating adjustments and implementing agile components. The first pillar comprises HR Business Partners (HR BP) strongly cooperating with business units on all workforce related topics. The second consists of Centers of Expertise (COEs) with specific focus on key areas such as learning, compensation and benefits, recruiting, and leadership. Finally, HR Service Centers are efficiently managing operative topics. Therefore, the areas originally summarized by HR thought leader Dave Ulrich in his 3-pillar model remain a solid foundation for an HR organization. This fits well with the increasing need for specialized services. In addition, agile working methods are tested as integrated layers across pillars to provide more flexible project assignment; they typically do not replace existing pillar models. A key strength of the pillar model is seen in clearly defined roles and responsibilities contributing to greater consistency, efficiencies, and strong expertise. However, clearly defined ownership of topics also increases the need to manage interfaces between potentially occurring silos.

At the same time, the majority of participating HR leaders report being on an ongoing journey of HR transformation. With most HR employees still focusing on operational tasks, they are strongly affected by increasing automation as part of the digitalization journey. Complex business situations characterized by talent scarcity and increasing legal and regulatory requirements call for an additional focus on HR BPs and COEs. These roles have strong consultancy and deep topic expertise, e.g., to build a future-ready framework for compensation and benefits, attracting talents and fulfilling business requirements. Therefore, the continuous development of strategic HR business partnerships remains of paramount importance. Their ability to advise in strategic C-level discussions and convince with data-driven reasoning needs to be further strengthened. Moreover, skills in organizational development and project management are seen as increasingly important competencies within their scope. 

The insights make it obvious that HR is on a continued transformation journey including changing responsibilities of key HR roles and their mind and skill sets. Yet, holistic HR learning and development journeys with upskilling and reskilling to close the gaps in strategic and entrepreneurial abilities and create a new self-understanding are often still missing. Therefore, the continuous improvement of the operating model built on a comprehensive target picture of key HR value drivers and a derived holistic learning approach requires the special attention and appreciation of CHROs. It is their responsibility to ensure the HR organization is capable and effective – no one else in the company has HR development on the agenda.