Is HR Ready to Face the Future?

Businesses and professionals who rest on their laurels seldom succeed in changing times — and lately change has been abundant.

The past decade in business has undoubtedly experienced a lion’s share of change, driven first by the unsettling burst of the tech bubble and then shaken vigorously by the Great Recession. Each event brought vast economic change and market disruption. Paired with increasing advancements in technology and globalization, the environment organizations now operate in is more complex and dynamic.

Is the human resources profession evolving in the areas that are most strongly associated with the function’s ability to contribute to strategy and organizational performance in this kind of environment? Since 1995, researchers at the Center for Effective Organizations at the University of Southern California’s Marshall School of Business have been studying this question. And the results suggest the profession may be changing more slowly than is ideal to keep up with the pace of global business.

To get to this conclusion, this article’s authors have been administering surveys to hundreds of organizations every three years since 1995. The surveys, which maintain similar samples and questions to ensure they are comparable, gather data from top HR leaders in organizations with more than 1,000 employees. They include measures of the role of HR in business strategy, change management and whether the function has been successful in making rigorous, data-based talent management decisions.

What HR Does
Overall, the HR function still spent about the same amount of time on being a strategic business partner in 2013 (27 percent) as it did in 1995 (22 percent) — a finding inconsistent with the levels reported in the many magazines and books on the subject. The best explanation for this difference is that the popular business press tends to focus on a very elite group of organizations pursuing progressive HR agendas and activities. However, that group represents a rarified picture of HR’s progress. It does not appear that such progress is the norm for the vast majority of organizations.

One possible explanation for this lack of change in HR activities might be the skills of HR professionals themselves. If HR skills are highest in traditional areas such as technical skills, interpersonal skills and teaming, rather than strategic planning, metrics and globalization, then HR may be perceived not to have the skills needed to execute more progressive strategies and concepts in concert with the rapidly evolving needs of the business, and it is less likely to get the ever-elusive “seat at the table” when business issues are being decided.

To determine HR leaders’ skill set, the CEO survey asked leaders and non-HR managers to assess them. According to Figure 1, in many skill areas the perception of both HR and non-HR managers is that the function is not highly skilled. The majority of skill ratings by HR leaders, for instance, average at or below three — neither satisfied nor dissatisfied — on a five-point scale, according to the researchers’ analysis. The highest ratings are in HR technical skills; the second highest are in interpersonal skills.

What’s more, HR gives itself low ratings on data analysis, metrics and cross-functional experience. The non-HR executives’ ratings show a similar pattern, with the highest ratings in the most traditional HR skill areas. This same pattern has emerged in each of the Center for Effective Organizations’ previous studies dating back to 1995. Overall, as the research shows, HR does what it has the skills to do: traditional administration and service delivery.

Surprisingly, in the emerging skill areas such as metrics, analytics, social media and risk — skills driven by trends in big data and collaboration — non-HR leaders report being significantly more satisfied with HR skills than do the HR leaders (Figure 1).

One reason non-HR leaders may be more satisfied with HR’s capability in emerging areas is that non-HR leaders aren’t as privy to the progress the function has made in recent years in contributing more directly to the organization’s broader business strategy. Related research at the Center for Effective Organizations has found that in many of these emerging areas, HR leaders feel their ideal role is leadership, but that their current role seldom lives up to that model. In other words, HR remains trapped in transactional areas, with little influence on the strategic direction of the business.

Another reason HR leaders may rate their skills lower than others is that the function has a self-esteem problem.

For decades, the business press has criticized the function by questioning its business savvy. This is evident by numerous articles published in Harvard Business Review, Fast Company and Forbes during the past three decades, with headlines such as “Big Hat No Cattle,” “Why We Hate HR” and “Fire HR.” Most recently, an April report in The Wall Street Journal highlighted how many companies are getting by without an HR function entirely — though these companies ultimately experience significant glitches as a result.

In some instances, the article shows, managers of other parts of the business are assigned to dedicate roughly 5 percent of their time to things like college recruiting and explaining retirement benefits. The article goes on to show how, with today’s increasing focus on talent, having an expansive HR function is worthwhile. But the fact that its existence is still questioned in 2014 is noteworthy nonetheless and, as a result, contributes to the overall self-esteem issue.

So, do the skills studied associate with important areas of HR performance? Satisfaction with virtually all the skills correlates significantly with HR’s role in strategy, and additional analysis shows the same pattern with HR’s functional effectiveness. Those HR leaders reporting higher skill satisfaction also report a greater role in strategy and functional effectiveness.

In particular, skills in strategic planning, sustainability and metrics have a stronger relationship with HR’s role in strategy than do the other skills — even though these skills remain consistently among the lowest-rated satisfaction areas. Therefore, the fact that skill levels are relatively low and have not changed over time may mean that HR is missing opportunities.

What Should HR Do?
As this research suggests, HR has to improve its skills if it wants to be more effective and play a more important role than it does. The problem is not in the administrative and soft skill areas; it’s those more intimately involved in the business, technology and data analysis. These are areas that can be improved in HR departments.

Rotating individuals from other parts of the organization — or hiring individuals with these emerging skills — is one way HR can begin to gain exposure to more business-focused skill sets. In the CEO survey, participants rated rotation in and out of the HR function as happening “a little” or “some,” despite the fact that both types of rotations were significantly associated with a stronger strategic role.

Organizations increasingly include new HR hires in their management rotation programs, which can include stints in functions like finance, marketing and operations. Additionally, organizations might also build cross-functional exposure into HR projects, such as having HR leaders work with marketing experts to design recruitment programs or work with supply-chain experts to design succession and development systems.

Some organizations even hire HR leaders from MBA or engineering degree programs and then provide the new hires with an initial rotation through HR functions to give them the needed HR expertise. It may make sense to hire HR leaders first for their data or strategy expertise and then train them to have enough HR expertise to apply those competencies.

Finally, it may be that HR needs to raise its self-esteem. Figure 1 shows that leaders outside of HR rate the function higher on most of the listed skills. Indeed, the asterisks next to seven of the skills show where this difference reached statistical significance. This is in notable contrast to what often happens when individuals evaluate themselves — they usually express a more positive view than others.

The Center for Effective Organizations research suggests that HR and non-HR leaders are at best moderately satisfied with the function’s skills, and that they are less satisfied with skills that are particularly relevant to the future of business and organizations. In other studies, the researchers at the Center for Effective Organizations have found that these ratings have not changed much during the past 10 years. Yet, when satisfaction with these skills is higher, HR has a stronger role in strategy.

Thus, improving these skills may provide a potent way for HR to enhance strategic influence, yet they seem stubbornly stuck in the midrange of satisfaction. It appears that it will take more than business-as-usual to accelerate the development of these skills, particularly those related to organizational effectiveness in an increasingly global and data-driven world. HR leaders may need to consider aggressive steps such as hiring HR leaders from non-HR academic programs or from functional areas outside the profession.

Perhaps even a new wave of HR professionals will need to be selected and developed first for their skills in area such as strategy, metrics and globalization, and then trained and oriented in the more traditional HR skills.

John Boudreau is professor and research director at the University of Southern California’s Marshall School of Business. Ed Lawler is a professor of management and organization and USC. Both are directors of the Center for Effective Organizations. They can be reached at editor@talentmgt.com.