The Rise—and Potential Fall—of Strategic HR

The role of human resources has undergone a dramatic transformation. Once relegated to a back-office function focused on compliance and administrative tasks, HR was recast as a strategic partner and growth driver, in part because of the pandemic. HR leaders spearheaded critical initiatives, from employee health and wellbeing to return-to-office and workplace flexibility. This elevation from a support function to a strategic one was a watershed moment for the profession, bringing with it increased importance, influence, and pay.

But this hard-won ascension is now threatened by factors including:

• Shrinking teams and budgets. Organizations have moved away from the pandemic-era people investments, with chief financial officers reclassifying people programs as discretionary, making them targets for cost-cutting. Higher interest rates and ongoing economic anxiety in the c-suite have reinforced that reluctance to invest in HR.

• Lack of demonstrated ROI. HR hasn’t always been able to show clear returns on its initiatives, leading to skepticism at the executive level. “We made additional investments in our employees over the past few years and don’t have much to show for them—workers are not any more engaged or less burned out,” one chief executive privately mused to us.

• Shift back to compliance. Cost-cutting has crowded out HR's capacity for strategic partnership in favor of layoffs, policy writing, and compliance, like enforcing in-office attendance. 

• Misalignment with leadership. There's growing discord between HR executives and CEOs at some companies, particularly in navigating complex socio-political landscapes and shifting public and corporate opinions on workplace issues, from diversity, equity, and inclusion to return-to-office policies. 

• Risk aversion. HR leaders say their CEOs and boards are highly risk averse in the current climate of contentious elections, backlash cycles, and cancel culture.

• Burnout. After years of mediating conflicts between employees and employers, the acute stress has left many HR professionals exhausted, with some leaving the profession altogether.

• Skill gaps. Some HR leaders still struggle with the financial and operational complexities of their expanded roles. They don’t have the experience or training to fully move beyond their traditional compliance and benefits responsibilities to be a true strategic business partner for the CEO and board.

Despite these challenges, the most urgent issues facing companies remain people-related. Employee productivity and retention are top concerns for corporate boards according to our recent survey with the Financial Times’s Agenda, second only to the economy, and still ahead of artificial intelligence.

So what’s the path forward? For HR leaders to regain strategic influence while building skills and coalitions. Some suggested approaches:

• Taking the lead on workforce planning, integrating strategy, upskilling the workforce, generative AI, business intelligence, and budgets.

• Managing AI’s impact on the workforce and organizational culture through training programs that address adoption gaps, codifying guardrails and overseeing governance, ensuring responsible AI implementation, and evolving roles and responsibilities. HR can benefit from visibly experimenting with and leading the way in AI use itself. 

• Setting, measuring, and demonstrating the tangible ROI of HR investments, and in doing so helping the executive team see people as an organization’s biggest value multiplier.

• Becoming a well-rounded HR executive, a leader who possesses both strong business acumen and exceptional understanding of people. During the pandemic there was an emphasis on financial literacy and strategy, and some CEOs took leaders from other functions or those with MBAs and consulting experience and put them in charge of HR for the first time. Today, the top HR job requires an emphasis on both the soft and hard skills, integrating financial literacy with deep people insights.

• Building strategic partnerships by cultivating strong working relationships with the CFO and other executives to increase HR’s influence and protect critical programs. This also provides non-HR leaders with a more nuanced, long-term view of people programs and how they directly support the needs of the business.

HR leaders now facing this critical battle must prove their strategic value amid financial constraints, political turmoil, and eroding influence. The stakes are high, not just for the HR profession, but for organizations’ ability to effectively manage their most valuable asset: their people. 

This article was written by Erin Grau.

©2024, Charter Works, Inc. This article is reprinted with permission from Charter Works, Inc. All rights reserved.