In 2022, businesses find themselves amidst a heightened level of volatility than they were in the same period a year ago. Hardly anything has changed so far in 2023.
While December 2021 saw the remnants of a third Covid-19 wave in the country, which turned out to be benign and boosted confidence at the workplace, 2022 brought uncertainty with the war in Europe and resulted in cost-push inflation. The resurgence of Covid-19 in certain parts of the world over the last few weeks has added to the challenges. These issues have already led to a significant change in how organisations manage their people. In 2023, while the geopolitical tensions continue, the fight to manage people well also remains a critical matter; especially when layoffs are being announced all over the world.
If we rewind, for the last two decades, companies have been mixing HR business partners, shared services centres and centres of excellence, tuning these three to suit their requirements.
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This approach, which was started by management guru Dave Ulrich in 1996, has gone through its contortions. Management consultancy McKinsey spoke to more than 100 human resource chiefs and other senior personnel to identify five HR operating-model archetypes that are springing out due to dramatic changes in business and in the world—including increased geopolitical risks, hybrid working models and the rise of majority-millennial workforces.
Five emerging HR operating models
The new HR operating models are powered by two core elements: a strong, consistent data backbone and an intuitive and user-friendly service backbone.
This is an adaptation of the classic Ulrich model. Under this model, HR business partners develop functional spikes and take over execution responsibilities from centres of excellence (CoEs). Simultaneously, CoEs are scaled down to become teams of experts and selected HR business partners. They are backed by global business services and have a digital operations backbone. This model emerged as many HR leaders feel that the original model does not have what it takes to solve the new HR challenges with legacy CoEs restricting agile reactions.
Under this model, there are fewer HR business partners and there is a focus on counselling top management, while CoE professionals focus on areas such as data and analytics, strategic workforce planning, and diversity and inclusion. The resources freed up in the process are utilised for cross-functional projects. HR heads who lean towards this model believe that HR as a discipline needs to accelerate to keep up with the increased focus on execution apparent on the business side and not end up as a hindrance to rapid transformation.
Putting employee experience or EX first means allocating a large quantum of resources for “moments that matter.” For instance, HR, IT and operations experts could be entrusted with full responsibility to jointly plan, develop and roll out a critical onboarding process. As a result, HR becomes the driving force in bridging cross-functional silos.
Under this model, the head of human capital teams transitions HR accountability to the business side, including recruitment, onboarding and development budgets, thereby helping line managers with HR tools and back-office support. This requires difficult choices about consciously discontinuing HR policies that are outside the scope of mandatory compliance. Organisations playing with this model usually have a high proportion of white-collar workers, with a strong focus on research and development.
With this model, companies are using algorithms to pick talent, assess individual development requirements and analyze the key issues leading to absenteeism and attrition. This allows HR teams to provide employees with counselling services. As digitalization is spreading across business organisations, HR unit leads have been looking to use deep analytics, AI and machine learning to generate better outcomes. This model is being used by firms that employ a large proportion of digital natives.
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What’s driving these operating models
But let’s tell you the key shifts facilitating such operating models.
As the consultancy notes, the key for leaders is to “consciously select the most relevant of these innovation shifts” to help them transition gradually toward their desired operating model.
- Adopt agile principles to make sure that there is strict prioritization of HR’s existing capacity and swift reallocation of resources when needed, allowing a swifter change in the business and with people and how they work.
- Excel along the employee experience (EX) journey to win the talent acquisition derby in the era of the ‘Great Attrition’, twining both employee health and resilience.
- Re-empower frontline leaders in the business to create human-centric interactions, make things simple and place the decision-making rights back where they belong.
- Offer customised HR services to meet the expectations of personalization.
- ‘Productize’ HR services to build fit-for-purpose offerings with the requirements of the business in mind, and to bring total responsibility for those services through cross-functional product owner teams in HR.
- Integrate design and delivery with end-to-end accountability to address strategic HR priorities and clarify ownership.
- Move from process excellence to data excellence by using artificial intelligence and machine learning.
- Automate HR solutions to increase efficiency.
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But how should organisations transition their existing operating model into one of the new paradigms? The McKinsey team believes this should be a three-step journey.
HR heads along with the business leaders need to sync on the correct operating model for their firm based on business needs, employee expectations, organizational context, and the company’s core operating model. This could be a mix of operating models in some cases, such as large, diversified organizations.
Secondly, HR leaders need to prioritize the top most relevant innovation shifts that will move their function toward their chosen operating-model archetype. Lastly, teams need to work towards core milestones for each of the prioritized innovation shifts.