Research conducted by EY in the Nordics in 2022 shows that 79% of respondents stated that HR Directors in their companies were permanent members of their top management. Similarly, Financial Times and Børsen, recently highlighted the growing recognition of the HR function at top management level, describing two trends:
- That HR Directors are moving closer to top leadership within their organizations, increasingly becoming a standard board room function.
- The HR Director profile is rapidly becoming more strategic and business oriented.
While this might seem as promising news to HR professionals, the challenge with such announcements is that it feels as if we have heard it all before. In fact, since the inception of ‘Human Resource Management’ or ‘Strategic Human Resource Management’ in the 1980s and certainly since the concept of HR Business Partners and champions became popularized in the 1990s, we have heard demands, announcements, trends of HR having to be and moving closer to the business, demanding and increasingly getting ‘a seat at the table’.
So, are we seeing an actual shift in HR living up to being a truly strategic function, with HR Directors finally making their mark in the Executive Boards and Executive Committees, or is this part of a recurring, somewhat repetitive rhetoric?
Many business environments have seen a massive increase in volatility and uncertainty – Disrupted business models through digitalization, talent scarcity, rapidly changing cross-generational expectations and the impact of external shocks such as COVID-19.
Our Nordic HR Survey 2022 shows that 56% of respondents see a strong connection between the external shock of COVID-19 and HR becoming a more integral part of their business and leadership. 31% of the respondents also indicate that COVID-19 significantly increased their HR budgets.
Faced with a decreasing long-term certainty over outputs and processes, many organizations steer away from pure output and bureaucratic control towards an increased focus on culture and ‘clan control’ mechanisms to ensure organizational success. When talking to our clients we can see a trend among HR Directors to be less focused on topics such as cost reduction, service and process optimization and cross-functional integration (topics that have certainly been high on the agenda over the last decade) and to have an increased attention on topics such as the Re-definition of work; New work models; ‘Talent liquidity’ through flexible multi-sourcing options; Ensuring world-class employee experiences through the clever use of digital HR and active and passive employee listening strategies; Continuous learning; Upskilling at scale and speed; Diversity, equity, inclusion and belonging; Talent attraction and retention in hyper-competitive markets; Driving cultural transformation; Implementation of agile organizational structures and HR taking a central role in driving the ESG agenda.
What we see is that HR is currently pushing its activity scope into areas which are possibly more strategic, more business critical and significantly broader than the traditional HR domains, satisfying what we would call the currently ‘unmet people needs’ within businesses. Clearly this would explain why the profile of HR Directors has risen within organizations and why HR Directors appear to be moving closer to top leadership.
Yet, as we have seen in the decades-old discussion about the strategic position of HR, the key question of course is whether HR is ready for such a new role, and we would argue that the verdict for this is still out.
While 53% of respondents to our Nordic EY research indicated that they believed to have the resources needed to implement future strategic initiatives, the study also indicated that (1) HR is inundated with a myriad of topic areas believed to be strategically important (ranging from optimizing the benefits of the digital user experience platforms often implemented during the last decade; to playing a driving role in moving companies to ‘hybrid work’ models; to being a central player in companies’ ESG agendas) and (2) HR appears to have challenges prioritizing. Consequently, the majority of respondents to the Nordic HR Survey 2022 pointed out that they considered 20 out of 21 HR functional areas of very high strategic importance over the next three to five years.
Just navigating through this ‘maze’, getting the priorities right and ensuring the right level of skills, capabilities, competencies will be nothing short of a herculean task.
Meeting the expectations of the increased (and potentially renewed) attention by top leadership is an indisputable pre-requisite for staying competitive. HR must be elevated from being purely a support function into a strategic powerhouse, capable of following the high-paced volatility and increasing complexity in the market.
If, as often reported, up to 80% of technology transformations underperform due to an unengaged workforce, then putting ‘humans at the center’ of a strategy should be a must. If up to 85% percent of mergers and acquisitions fall short of expectations due to cultural differences, then equipping HR to play a vital role in any inorganic growth strategy should be self-explanatory.
It is essential that HR is sufficiently equipped to enable a culture of faster, devolved decision-making, to create a diverse and inclusive environment which emphasizes a sense of belonging, and to increase creativity on a grass-root level.
However, to do so, this requires a continuous upskilling and, in some cases, possibly an entirely new type of HR Director. HR Directors who have the closest of connections to the business, showing personal capability and credibility to engage Executive Boards and Committees on the above topics, being able to operate in an integral way in what has previously been described as the ‘Golden Triangle’ between CEO, CFO and HRD (nowadays possibly expanded to include CTO, CXO etc) – Demonstrating strategic business savviness, possibly acquired outside of the traditional HR career paths; Showing a thorough understanding of how their own function needs to continuously evolve as part of a changing business environment; Developing a holistic ecosystem perspective incorporating customers, suppliers, alliance partners, governmental players and possibly competitors in their thinking; And last but not least demonstrating the ability to critically self-reflect, continuously learn and upgrade their own leadership and domain skills and capabilities.