4 Signs Your HR Function Is More Compliance-Based than Strategic

What factors separate a compliance-based HR function from one that operates more strategically? New research highlights changing priorities and practices that set strategic HR functions apart from others.

A significant differentiator is how HR purchases, deploys and governs new technologies. Rather than simply seeking new efficiencies or improved regulatory compliance, strategic HR groups view use of tools like sophisticated analytics software or generative artificial intelligence as a way to help their organizations make smarter talent decisions that drive competitive advantage.

According to the recently released Sapient Insights Group's 2023-2024 HR Systems Survey, strategic HR functions also distinguish themselves by taking a rigorous approach to change management, deciding who "owns" HR technology in their organizations and ensuring ethical use of AI tools.

On the other hand, compliance-based HR functions are reactive to events, while strategic groups proactively tie decisions and actions to overarching business goals, seeking to operate as partners rather than support staff.

Here are four main findings from the Sapient Insights Group study that highlight differences between the two types of HR functions. Almost 6,000 respondents from 53 countries participated in the annual survey.

Change Management

Strategic HR functions don't give lip service to change management. How HR helps manage the firehose of change initiatives that employees face is a sign of whether it is strategic or compliance-based. A study from the Harvard Business School found that the average employee experienced 10 planned organizational changes in 2022 - such as the replacement of a legacy technology system or a cultural transformation that created new ways of working - compared with only two such changes in 2016.

Many of those changes came in the form of new technologies introduced by the HR function. The Sapient study found that since 2020, there's been a 31 percent increase in the average number of modules used on HR technology platforms. Overall, companies now have an average of 371 different software-as-a-service (SaaS) apps in use throughout the organization, an increase of 32 percent since 2021, according to a study from Productiv, a SaaS intelligence platform in Palo Alto, Calif.

The Sapient study found many HR functions aren't investing in change management practices, leaving many employees overwhelmed and fatigued by constant disruption.

The study found that strategic HR functions regularly use these five best practices for change management:

• Dedicated management teams oversee change.
• They diligently create and track change management communications.
• C-suite members sponsor the change.
• Bottom-up planning is characterized by employee engagement activities and workers' voices being heard.
• Change management investment is supported by a strong business case.

Stacey Harris, chief research officer and managing partner of the Sapient Insights Group, said HR leaders need to rethink how much change they're introducing to their organizations in the form of new technologies and processes. Namely, those leaders need to better prioritize change initiatives and understand the toll that "change fatigue" can take on employees and organizational performance.

"I think HR and other organizational leaders need to start asking the question, 'Is all of this change necessary at once?' " Harris said. "Innovation that improves efficiency or productivity is important, but continual change in technology or processes does little good if it overwhelms and fatigues employees."

A recent Gartner study of HR leaders found that almost 80 percent reported their employees were fatigued from all of the change coming their way. This should have the attention of top leaders, according to the Gartner study's authors, because data shows change fatigue reduces employees' intent to stay with their employer by as much as 42 percent, while employee performance can decline by as much as 27 percent.

HR as Leader

When HR - and not IT - leads HR technology, it's more likely to be viewed as a strategic function. One of the most eye-opening findings of the Sapient study is that when the IT function leads or "owns" HR technology systems, human resources is 60 percent more likely to be viewed as compliance-based and not strategic.

"We saw a growing number of organizations in the study where IT now leads HR technology, especially in larger companies," Harris said. "We're seeing a shift where IT wants to take more ownership of cloud-based technologies in the enterprise, especially in regard to cybersecurity and artificial intelligence. As that happens, HR tends to lose some of its influence around things like data management and use of people analytics to inform business decisions."

That reporting structure can be problematic for how HR is perceived inside the organization, Harris said. "When HR technology is seen just as a tool for creating efficiencies or conducting transactions, and not as a tool for creating strategic business outcomes, then it becomes devalued in some ways," she said.

Limited Use of Data

The Sapient study found one of the top five characteristics defining a compliance-based function is prevalent use of reactive data management processes. Such an approach uses people analytics to address issues primarily after they arise, rather than a proactive approach that deploys data to anticipate problems before they happen and to shape future business decisions. Strategic HR functions have workforce planning processes that regularly include proactive business data, the Sapient study found.

The study also found that strategic HR functions track twice as many metrics as those that are compliance-based. For example, over 80 percent of strategic functions regularly track employee turnover and retention, 77 percent track key recruiting metrics, 71 percent track compensation metrics, 66 percent track employee demographics, and 55 percent track productivity and performance metrics.

Conversely, only 59 percent of compliance-based functions track employee turnover, just 50 percent track recruiting-related metrics and only 56 percent track compensation metrics, according to the Sapient study.

In addition, the study found that strategic HR functions often have "transformational" processes in areas like skills management and employee absence and leave. "This goes beyond simply creating an efficient or effective process to building one that's a best practice and a differentiator for a HR function," Harris said.

For example, companies in the Sapient study with transformational employee leave and absence policies viewed those policies as an important expression of company values and culture, Harris noted.

"Absence and leave touches everyone in an organization at some of the most vulnerable times in their lives," she said. "HR leaders we talked to for the study said that how they treat employees when they're going through those challenging times really shows who they are as an organization. They believe it's about treating employees as human beings first and knowing that things like productivity and performance will follow from that."

Ethical AI Use

The Sapient study found that HR functions viewed as having low credibility are 70 percent more likely to have no strategy for using AI ethically in their HR technologies. Ethical use of AI typically means being transparent about how the technology works and is being applied, controlling for bias, and protecting employee privacy.

Strategic HR functions are twice as likely to adhere to an ethics code of conduct in using AI in HR technologies than compliance-based groups, the Sapient study found.

Dave Zielinski is owner of Skiwood Communications, a business writing and editing firm in Minneapolis.