2024 Human Resources Key Issues Research – Transcript

Tony DiRomualdo:

HR workloads are expected to increase by 7% – down from 10.7% last year. So the rate of increase is decelerating. Also, on a positive note, tech spending is anticipated this year to rise by 4%, which is compared to last year, which was only 1.7%. So the semi-good news is our workloads aren’t going to go up quite as much as they did last year, and we’re going to have more money to spend on technology to try to help us to deal with those increased work.

Announcer:

Welcome to The Hackett Group’s “Business Excelleration Podcast.” Week after week, you’ll hear from top experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to Digital World Class^® performance.

Gary Baker:

Human resources leaders are expecting to feel increasing pressure in 2024 in the face of global economic uncertainty and possible labor and skill shortages. And they’re turning to technology to help them improve efficiency and effectiveness. On this week’s “Business Excelleration Podcast,” we discuss The Hackett Group’s 2024 HR Key Issues research with Senior Research Director Tony DiRomualdo. Tony, welcome to the podcast.

Tony DiRomualdo:

Thank you, Gary. Glad to be here.

Gary Baker:

Tony, why don’t you start out just by giving us the 30,000-foot level – where are they starting from? What business and functional environments are HR executives expecting in 2024 – just to kind of set the stage?

Tony DiRomualdo:

Sure. So I’ll start with kind of the broader perspective across the business services functions. Our study identified five key concerns that were expressed, and the top one is inflation. And there’s still a great deal of concern over rising costs, even though we’ve seen certainly in the last several months the deceleration of inflation in many countries. Certainly here in the U.S. where I’m based and in much of the developed world, we’ve seen it go down. But there’s still concern over that, and that was the No. 1 concern.

The second concern, and again, by the way, these parallel what we were seeing last year as well – even though the environments, the economy seems to have been maintained – we’re still seeing the same kinds of concerns. So the second one is recession. Again, even though in places like the U.S. in particular, we keep getting very positive signs, and I think economists across the board – at least for 2024 – seem to be no longer predicting a recession, although there’s still a lot out there predicting it coming within the next two years. But that’s the second concern.

Third is worries around high interest rates. And that one, clearly the Fed in the U.S. and other central banks, we haven’t seen much in the way of cutting yet. And so again, they still have concerns over inflation. And even though everything’s trending in the right direction, we haven’t yet seen action taken to reduce interest rates. So the expectation is in 2024 that businesses are going to have to operate in a higher interest rate environment.

Fourth is shortages of skills and workers. And this is a chronic issue, and it continues even though labor markets have kind of settled down given all the disruption that COVID caused. We still have these chronic problems around getting people with the right skills or enough people and retaining those people and organizations. And so these are the top four.

And then fifth is competitive threats. Again, the competitive environment is very volatile and of course with some new technologies, for example, the Gen AI, ChatGPT and its competitors, and we’re seeing quite an arms race across industries to build these technologies into products and services. And so there’s angst around what these kinds of things are going to mean from a competitive standpoint.

Now in terms of … those are the threats shaping the environment. Amidst that, what we’re seeing is enterprise business objectives. Not surprisingly, revenue growth is the No. 1 objective for 2024, followed closely by margin improvement protection. Again, no surprise there. They’re always one or two in terms of our studies, going way back to the early 2000s when we initiated this annual study. Again for HR, they’ve got a focus on helping the organization to achieve both of those goals, supporting the talent agenda that drives revenue growth, and of course the talent workforce management agenda and their HR agenda that drives the margin protection and improvement.

Some of the other key things that businesses are expecting to do in order to respond to some of these concerns and potential risks as well as to achieve their business goals, the emphasizing top of mind process efficiency, process automation, working capital optimization, and consolidation to shared services. So these are all focused on kind of that bottom line and getting more efficient – getting more productive. So again, for HR, that means really running your operational ship as tightly as possible.

Gary Baker:

So clearly a lot to worry about and a broad range of issues. What about within the HR function itself? What are HR leaders expecting in terms of changes in workload, head counts and that kind of thing?

Tony DiRomualdo:

Yeah, very interesting. Again, this year the study confirms and quantifies what HR executives already know – they’ve got to find a way to do more with less. OK, so we’ve got some semi-good news and some bad news. The semi-good news is HR workloads are expected to increase by 7%, and the reason why that’s semi-good news is it’s down from 10.7% last year. So the rate of increase is decelerating, but it’s still significant. But also on a positive note is tech spending is anticipated this year to rise by 4%, which is compared to last year, which was only 1.7%. So the semi-good news or good news is our workloads aren’t going to go up quite as much as they did last year, and we’re going to have more money to spend on technology to try to help us to deal with those increased work.

Now, the bad news is last year head counts and budgets were pretty essentially flat. This year they’re dropping. So we’re seeing head counts drop by an average of 2% and operating budgets by 1%. So bottom line is, as always, it’s a squeeze for HR. We’ve got to be very prudent about how we allocate our resources so that we’re as efficient and as effective as possible in how we operate. And what we’re seeing by the way when we look at that workload and we look at how HR – what operational strategies they’re employing to address it more efficiently and effectively – we’re seeing a greater emphasis than ever on automation, self-service and global business shared services in that order.

And what’s interesting there is three years ago it was global business services No. 1 that was being emphasized, self-service two, and automation three. Now automation for the first time is No. 1. And we define automation by the way as totally automating an activity or a transaction, where there’s no human intervention. Whereas self-service, it’s technology-enabled, but there’s usually a human being doing the work using the tool. It’s a combination of the two. So full automation is where the biggest emphasis and where we see where HR organizations are intending to steer the greatest part of the workload. And so they see, they predict overall an increase of 4.7%. That’s for work handled by automation. And 76% of all the respondents said that they anticipate increasing the amount of work that will be handled via end-to-end automation.

Gary Baker:

I know the centerpiece of this research looks at priorities and objectives for HR leaders. How has that changed for the year ahead and what can you tell us there?

Tony DiRomualdo:

Yeah, it’s a very interesting list of … we typically focused on the top 10. We actually ask about 35 different objectives for the year and ask people to rank them in terms of importance and their confidence in their ability to meet that objective. So just talking strictly in terms of importance Gary, No. 1 for the second year in a row is developing effective leaders for a changing business and workplace. And basically our view is in many respects companies live or die based on the quality of their leaders. And what we’ve been seeing over the last couple of years, the demands on leaders are enormous, and HR plays a pivotal role in making sure that the right people are in these critical roles, and that they’re up to the task. And so this is a huge challenge for almost every HR organization. It’s No. 1 this year in importance. It was No. 1 last year, so it certainly continues to be top of mind.

No. 2, and this was in the No. 5 slot last year, is creating and maintaining a high-performing organizational culture. We’ve heard a lot about culture in the last few years, and in our view, it’s really been sort of a stress test for organizational cultures, the environment, the volatility, the friction, the change – all of the pressures that organizations are facing. Having a healthy productive culture is really a game-changer and a differentiator. And so what we see is organizations with healthy cultures tend to be the most successful in navigating in highly uncertain, volatile environments like what we’re seeing today. Those who maybe have unhealthy or dysfunctional kinds of cultures or at least behaviors are not positive or inspiring. These, especially among leaders and managers, we see those organizations more likely to struggle.

So the challenge around culture is not only do we have high performance and getting a culture that enables high performance, but one that can sustain it. Because one of the things we’re seeing – and part of this is a cultural issue – is a lot of burning through talent or people suffering burnout, cultures that emphasize meeting goals, constant improvement on metrics, etc., to the point where they’re burning out their people. So HR, again, has a huge role to play here in helping organizations create and maintain a culture that can indeed sustain high performance. And that’s a lot around coaching leaders. It’s also a lot around the HR policies and programs that we have that drive performance in our workforce that drive a healthy culture. And also where HR is a part of interventions to address issues around culture and to evolve the culture.

No. 3, and this was No. 3 last year, is act as a strategic advisor to the business. We saw with COVID and after COVID, the stature of HR and its contribution in terms of how leaders perceive HR really rose. And I think business leaders are still relying on HR for guidance around the issues with the workforce, business issues where people make a difference and so on, workforce strategy. So this is top of mind for many HR organizations.

We have a couple of new issues – objectives in the top 10. For example, at No. 5 is align workforce planning and strategy to business planning. We did in late 2023 a study – an in-depth study on strategic workforce planning capabilities and processes in organizations. And what we found there is a clear correlation and connection between having a mature and robust strategic workforce planning process and having very strong business and talent outcomes. Now, unfortunately, most organizations – HR organizations – are immature in many of their capabilities around strategic workforce planning.

So it’s interesting that this issue of alignment to strategy and business planning is now top of mind, and it really connects to a number of other issues in our top 10 list that are related to talent. No. 4 is around attracting and retaining key skills and key groups. No. 7, No. 9 have to do with various talent acquisition challenges. And so whether it’s acquiring, retaining, especially key roles and scarce skills, having a strategic workforce planning and talent intelligence capability is something that really can improve HR’s ability to handle that issue – improve how they hire, how they onboard, how they manage, and how people are developed within the organization – again, to drive better business outcomes and better talent outcomes, better attraction of the right candidates, retaining the key people, and high levels of engagement and so on.

And then the last two at No. 8 and 10. No. 8 is improve employee, manager and candidate experiences. And that is another one – one of the two that are new to the top 10. And again, as we see employee and these other manager or candidate experiences tied to some of these talent issues, but HR is putting increasing emphasis on this to drive some of the things I was just talking about in terms of talent outcomes.

And then No. 10, but very important for a number of reasons, is leverage technology to improve the efficiency and effectiveness of HR services. This reflects areas in which HR organizations especially need to continue to improve their operational performance. And technology is one of the most important levers that HR organizations have. When deployed properly, it allows HR to focus more attention, more higher level resources, more quantity of resources on all these other issues I’ve been talking about. And it also leads to a much more satisfied employee and manager base.

And within that, one of the things that we looked at in particular was [inaudible 00:17:11] organizations approaching the Gen AI category of technology, which clearly has been all across the news and top of mind in a lot of organizations. What we see in HR so far is a very cautious approach, and we would advise HR organizations to kind of pick up the pace. A lot of them are in a wait and see mode, waiting to see, well, what use cases are out there in terms of what are some leading companies doing? Or waiting for their key vendor to announce or to brief them on capabilities that are embedded in the product and whatnot. What we’re seeing with some of our leading-edge clients is going out and identifying high-value, low-risk areas to begin experimenting. Things like skills identification, writing up job descriptions, supporting, answering common inquiries to HR, support – those are things that could have huge impact on productivity of those activities and free up a lot of resources to address some of these other very key objectives that I’ve mentioned, Gary.

Gary Baker:

That’s certainly quite a long to-do list. We ask about how confident HR leaders are that they’ll be able to achieve these objectives. What do we see there?

Tony DiRomualdo:

Well to be perfectly frank, not as confident as they would like and really need to be. For example, those top five issues that I mentioned – whether it’s better leaders, culture, being a better strategic advisor, the attraction and retention, and the aligning workforce and business strategy – there we see significant gaps between how important HR executives rank those objectives and how confident they say they are that they’re going to meet those objectives. And then for the other top 10, the last five we see some moderate gaps. So confidence is an issue that definitely needs to be targeted in terms of these objectives. And these are all areas that we’ve got to take some steps to make sure we’re making progress in building our capabilities.

Gary Baker:

Well we’re coming up on time. Just to close us out, what guidance can you give HR leaders for how to improve their ability to meet these objectives in the coming year?

Tony DiRomualdo:

Sure. I mean, this is the bottom line. So there are a couple of things we would say, and I’ll tie them to some of these issues we’ve been talking about. The top two goals around improving leadership and culture are related. Good leaders create healthy cultures, and healthy cultures make it easier for leaders to be effective in helping organizations and to navigate change. So what we believe is HR organizations need to continue to make sure … keep pace, build their capability to help leaders adjust and adapt and improve their skill sets, and adopt new skill sets so that they can be successful in today’s business environment and workplace.

And last year we did a study on this topic. What are the new skills that leaders need in today’s environment? What mix of skills – not just new but traditional skills – that are really critical given today? And what we found was skills such as the ability to manage across remote, hybrid, on-premises work context; being comfortable with worker autonomy and flexibility; and being good at giving praise and showing appreciation – those are the top ranked new skills that we heard from the study that are most needed for leaders to succeed in this changing environment. And traditional ones like leading change and critical thinking, we’ve got to double down on that because those are even more important today than ever.

So one of the things that the study clearly I think revealed is that HR needs to adjust the methods it uses to develop leaders – to keep them on top of their game. And what that means is they’ve got to do more and leverage more with some of the new digitally enabled tools like simulations and augmented virtual reality and training tools. What we saw there for certain kinds of skills – behavioral, for example, and emotional intelligence types of skills – simulations can be extremely effective. And even though a minority of organizations are using them, those who have have gotten tremendous results. So we think that’s an area all HR organizations need to move into and explore.

A couple of other things that we would recommend, Gary, regarding the talent objectives, I think again, and this just underscores the point about strategic workforce planning, I mean, if there’s one thing in the talent space that HR organizations should focus on that would have the biggest bang for the buck, in our view, would be improving their strategic workforce planning capability. It means having a process that’s standard and clearly laid out, a good foundation of data – not just internal but external – and taking advantage of what increasingly you will have in your HCM system and other systems that HR has supporting talent, the analytical modeling, and reporting capabilities so that you can begin to do the deeper dives, and generate some meaningful and actionable insights from the data that many of these systems now make available.

And most important, in addition to those things, is upskilling HR staff, particularly the HR business partners to be more comfortable, to be able to advise at a strategic level, use data and develop the skills that support that interpretation. And talking about data and helping to infuse that in conversations with executives to support decision-making where talent issues are front and center. And so that means they’ve got to understand the business they’re supporting and have to be able to communicate very compellingly insights that strategic workforce planning process is going to generate.

And then lastly, but not least, the technology. Much more, I think we’ve got to be very prudent – perhaps more prudent than ever in terms of how we deploy the technology – and we’ve got to make sure we’re using it to be more efficient and productive, to be more effective, and to improve the experience. And that means when we look at HR organizations performing more tasks vis-à-vis automation – where we can do it better and drive down the cost – that’s going to provide the foundation. So start with your existing platforms. Are we getting the most out of what’s available? And then accelerate adoption where you do have additional funding for new tools and applications. As I mentioned before, with Gen AI in particular, this is an area we believe to prioritize for experimenting, as I said, in high-value, low-risk areas like creating or improving job descriptions, identifying and maintaining workforce skills data, and answering common HR questions. If you could have the technology, provide that – it can free up a lot of resources to do other things.

Gary Baker:

Great perspective, Tony. Thanks for taking the time to talk to us.

Tony DiRomualdo:

My pleasure, Gary.

Gary Baker:

Listeners can download the research we’ve discussed here today from the HR Insights page of our website, and we’ll also include a link to it in the show notes.

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