HR Transformation Survey: A case for business driven HR - Deloitte

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Deloitte Consulting LLP (Deloitte Consulting) conducted a survey on HR transformation to better understandif and how some of our largest clients are bringing HR into the 21st century. It’s no secret that people issues areat the forefront of the CEO and Board agendas. Some of those drivers include the talent crisis, global workforcechallenges, leadership development, and risk threats. Deloitte Consulting surveyed more than 150 globalcompanies, each with more than $2 billion in revenue.Overwhelmingly, the majority of respondents are currently involved in HR transformation. At the same time,most respondents have a very modest and traditional view of what HR transformation means. We fi nd that tobe alarming. At most respondents, HR transformation is still about systems and processes. The business driversare still cost savings and effectiveness. These are not “bad” or unimportant drivers; they are merely solutions in avacuum. Transformation—despite the urgency, the competitive imperative, or the call to action from theC-suite—is still occurring slowly and is not occurring in the context of supporting a business strategy or helpinga company meet its business objectives. Never before has there been more pressure on or opportunityfor HR to step up. How HR addresses transformation is pivotal.Key fi ndingsThe Deloitte Consulting survey of global companies highlights thefact that HR transformation is very much top of mind for C-suiteexecutives. More than 84 percent of respondents are either currentlytransforming HR or are planning to do so.At the same time, when asked to identify the current businessdrivers for HR transformation, the overwhelming majority ofrespondents, 85 percent, cited cost savings or efficiency—thetraditional hallmarks of the HR function. This suggests that mostcompanies are focused on cost savings in an area that accountsfor less than 1 percent of corporate revenue, rather than ondetermining how HR can help support business strategy.As they have in the past, in our experience most HR improvementprograms still center on tactical initiatives, such as standardization,system implementation, and HR organizational restructuring.Figure 1. Focus of HR improvementsStandardize HR 66.0%Implement ITplatformRestructureHR functionChange HRcultureUpgrade HR staff/build capabilityOther18.6%29.9%2.9%2.9%29.9%45.4%57.7%0% 20% 40% 60% 80%Very few respondents indicated they are transforming HR so that itcan become a strategic business “partner” within the company. Only35 percent cite building HR capability as a transformation driver,and even fewer (30 percent) said transformation is driven by theneed to free HR to undertake a more strategic role. One could lookat this data and argue that while a majority of respondents take atraditional view of transformation, some enlightened companies arefocused on creating competitive advantage through HR. We wouldneed to see if this is an emerging trend through future surveys.At the same time, when they look to the future, C-suite executivesin general, and HR leaders in particular, want the HR function tobecome a strategic business “partner” within the company.When asked about future concerns, significant numbers ofrespondents cited the need for the HR function to address emergingstrategic business issues. We see this as a call to action for HR.Figure 2. Key Drivers drivers of HR TransformationtransformationFigure 2. Key Drivers of HR TransformationEfficiency –Efficiency HR cost –84.6%HR cost84.6%Effectiveness –Effectiveness Service–75.4%Service 75.4%Build HRcapability Build HRcapabilityFree HR forstrategic Free HR work forstrategic workCompliance 14.6%Compliance 14.6%Other 22.3%Other 22.3%35.4%35.4%30.0%30.0%0% 20% 40% 60% 80% 100%0% 20% 40% 60% 80% 100%
Outsourcing and transformationHow can HR functions that want to play a more strategic role preparethemselves to become a true business “partner” within the company?One strategy is to outsource HR administrative activities while retainingHR’s strategic capabilities in-house.Forty percent of the respondents that are transforming HR haveoutsourced or are planning to look at HR outsourcing as a key strategyfor delivering HR services. This is an increase of 15 percent from thecurrent base of companies looking at or outsourcing HR operationstoday. We are concerned about the markets capability to support sucha large increase in sales and delivery activities.The activities that are by far the most likely to be outsourced areroutine, administrative operations. At the same time, however, thesurvey shows that some respondents may be planning to outsourcestrategic HR activities, such as training and development, recruitingand staffing, compliance talent management, and global mobility. Themarket for these new and emerging HR services is less developed thanthe traditional core HR services areas and presents more risk to buyers.The key factor involved in the decision-making process were businesscase (32 percent), industry/peer benchmarking (19 percent), andtechnology/capability analysis (14 percent).Figure 3. HR activities most likely to be outsourcedCompensation/benefitsBasic HRadministrationinquiryShared servicecenter operations93.9%93.9%HRIS 87.9%Payroll 84.8%Training andDevelopmentRecruiting/staffing42.4%Compliance 36.4%Talentmanagement27.3%Global mobility 21.2%Employee relations 12.1%36.4%Strategic87.9%0% 20% 40% 60% 80% 100%Transformation triggersSurvey results indicate that most transformation efforts are more likelyto be launched in response to specific business events, rather than aspart of a strategic plan.Three business events trigger more than 50 percent of the initiativesto transform HR. The most common is the arrival of a new CEO orCHRO. Corporate restructuring (i.e., cost reduction) is a close second,followed by a merger or acquisition.Figure 4. 4. Primary triggers for for improving HR HRNew executive 24.6%CorporaterestructuringMerger &acquisition9.2%22.3%0% 10% 20%30%Different industries.Different types of transformation.The overwhelming majority of respondents in every industryare currently involved in HR transformation. However, the wayrespondents define HR transformation: varies from one industryto the next. For example, respondents in the technology, media,and telecommunications (TMT) industry, as well as those in thelife sciences and health care (LS&HC) industry are more focusedon making HR a strategic business “partner” than are otherindustries.Only about a third of respondents overall cited building HRcapability as a transformation driver or said transformation isdriven by the need to free HR to undertake a more strategic role.However, half of TMT respondents said transformation was drivenby the need to free HR to undertake a more strategic role, and52 percent of TMT respondents said it was driven by the need tobuild HR capability. Among LS&HC respondents, more than 50percent said transformation was driven by the need to build HRcapability. This high percentage is not surprising given the strugglethese companies have to fill job openings for nurses, pharmacists,and lab technicians.At the other end of the spectrum, public service (PS) organizationsare significantly less involved in transforming HR so that it canbecome a strategic business “partner” than are respondentsin other industries. Only 20 percent of PS organizations saidtransformation was driven by the need to free HR to undertakea more strategic role, and 20 percent said it was driven by theneed to build HR capability. Interestingly, financial services (FS)respondents also had a rather narrow view of HR transformation.Just 25.9 percent of them said transformation was driven by theneed to build HR capability.For more information about the people challenges and solutionsthat apply to your specific industry, please visit www.deloitte.com.
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