HR Faces Tough Choices as Digital Transformation Redesigns Work

​HR executives are focused on capability improvement initiatives such as virtual working, the as-a-service deployment model, automation and artificial intelligence deployments, but a new study from The Hackett Group shows that HR budgets are flat, IT skills shortages will continue to cause havoc, and workloads will rise.

In short, HR executives will be asked to do more with less in 2022.

Published in February, the report relied on more than 250 HR, IT and other executives working at 250 midsize and large companies. The study focuses on the HR IT agenda and examines what HR leaders are facing in the coming months as they increasingly rely on technology to reduce costs, increase efficiency and improve the employee experience.

However, another story is unfolding on the financial front: Compared with 2021, the report notes that HR leaders can expect budgets to decline by 0.2 percent and headcounts to contract by 0.4 percent.

At the same time, HR workloads are projected to jump by 9.3 percent in 2022, compared with last year when the projected workload increase was 1.7 percent. HR technology spending will also rise to 9.1 percent compared with last year when respondents said they expected to see a 0.7 percent increase in HR technology spending.

The report's authors estimate that HR leaders must make up an 8.9 percent productivity gap and a 9.5 percent efficiency shortfall during the year, which will mean a sharper focus on technology to increase productivity, efficiency and effectiveness.

However, not every company is using HR technology in a way that will yield the best benefits.

According to Franco Girimonte, The Hackett Group's North American HR Executive Advisory Practice Leader, in a lot of cases HR may have a particular capability or tool that could improve the workflow—but very few people are using it.

"HR has not fully invested in the training and change management to make sure that the targeted users are in fact using the capability," said Girimonte, whose company conducts HR technology infrastructure assessments.

To move forward, 61 percent of companies identify enterprise digital transformation as their No. 1 priority, up from 53 percent in 2021. It follows that 67 percent of companies have embarked on major improvement initiatives to support enterprise digital transformation efforts that will digitize various aspects of human capital management in such areas as recruiting, hiring, onboarding, training and employee performance.

Another way of looking at the digital transformation numbers is that 33 percent do not have a major improvement initiative aimed at advancing or enhancing their company's ability to support enterprise digital transformation, said Anthony DiRomualdo, senior research director at The Hackett Group and a co-author of the report.

"There are a third of organizations out there that either feel they have adequate capability, or it could be that it's not an important enough objective; they've got more important priorities that they are focusing their improvement efforts at," he said.

While the pressure is on HR executives to achieve the objectives outlined in the report for 2022, such as supporting digital transformation, monitoring and increasing employee engagement, advancing HR leaders to the position of strategic adviser to the business, and improving talent management capabilities, respondents said they doubt they can attain most of them.

Regarding the technology that will drive HR planning, the report noted that HR organizations are adopting core human capital management (HCM) digital platform technology at a steady pace. Sixty-eight percent of respondents have already broadly adopted next-generation cloud-based core applications, and an additional 24 percent have small-scale implementations in place.

Seventy percent said they've adopted business process management or workflow tools, but 38 percent said these applications fell short of their expectations. Robotic process automation deployments are mainly small-scale adoptions within HR, and 47 percent of respondents said these implementations didn't live up to their expectations.

With regard to data-related technology, 71 percent have implemented data visualization tools and 63 percent have implemented data management tools. However, in both categories 29 percent of users said the technology fell short of their expectations. 

Another concern is that while 57 percent said they have a major improvement initiative to leverage technology to improve the efficiency and effectiveness of HR services, 43 percent don't have a major effort directed at this goal in 2022.

"It may be they feel they are already doing enough, it may be that they have other priorities or they are doing some initiatives, but not a major effort. They are just doing tweaks or minor improvements," DiRomualdo said.

Looking forward, the report's authors suggest four ways that HR can help deliver performance improvements while adding value to the enterprise:

• Double down on digital transformation. HR executives should use digital transformation projects as a way to enhance employees' ability to adopt new tools that contribute to employee productivity, enhance employees' experiences and advance the company's growth.
• Virtualize HR service delivery. Now that hybrid work is here to stay, HR executives have the opportunity to redesign work and completely decouple execution from the physical location. This requires digitization of processes and assets, cloud adoption, seamless remote provisioning of systems, data access, digital collaboration, and finding IT talent to manage the new world of virtual work.
• Put the customer—employees, managers and candidates—at the center of service design. Implementing digital transformation and virtualization to business operations requires an extensive service delivery redesign. Such a restructuring effort allows HR's stakeholders to be at the center of the design principle.
• Develop strategies to minimize the impact of structural talent shortages. In 2022, the war for talent will intensify as IT workers quit, wages increase and the shortage of IT talent persists. The report states that HR organizations will need to deploy an offensive (acquisition) and defensive (talent retention) strategy.   

Nicole Lewis is a freelance journalist based in Miami.