It’s Time for HR 3.0

Human resources functions of the future need to be more data-driven and agile to best deliver business results.
future of HR

Today we find ourselves in the middle of a turbo-charged version of Britain’s Industrial Revolution. Since the late 1970s in the U.S., GDP per worker has pretty much doubled, but average real wage is still exactly the same. All the signs are that this disruption is only just beginning. A recent report by the McKinsey Global Institute forecasts that by 2030 around 15 percent of today’s work activities may be automated and between 75 million and 375 million workers will need to shift occupational categories. My colleagues at MGI outline four priorities for policy makers and business leaders as they adapt to this disruption: Economic growth, skills upgrade, fluid labor market and transition support. The role of human resources is key in at least three of these priorities. But right now HR is nowhere near ready for such a massive change.

Don’t get me wrong — HR hasn’t been standing still. If we go back to the 1980s and before, HR could be described as a wholly administrative and industrial relations function — HR 1.0 so to speak. In the 1990s, an increasing awareness of the value of talent to organizations transformed the HR function into more of a business partner, with increasing professionalization of the field and greater use of analytics for reporting purposes — HR 2.0. But to navigate the increasingly complex world of talent, HR needs to grow more quickly into a strategic adviser. More companies will need CHROs, and they will need to have an equal voice alongside CEOs and CFOs in the most critical business decisions. In the coming decades of disruption, the management of talent will become the main differentiator of high performing organizations. This requires HR 3.0.

The CHRO of the future will need to preside over a function that is fundamentally better prepared in three ways. Firstly, HR 3.0 will be much more analytically sophisticated; people analytics and data driven decision-making will be at its core. Secondly, the HR 3.0 function will be more agile and more efficient, with fewer silos, swim lanes and specializations and a greater ability to deploy HR professionals flexibly across the human capital spectrum. Finally, to enable a more data-driven and agile operating environment, we will need the HR 3.0 professional, with skill sets more oriented around business acumen and problem-solving skills and less dominated by focused customer service and process management capabilities, both of which are themselves targets for future automation.

Practicing People Analytics

People analytics in particular has had a head start on the other elements of HR 3.0. The need for more sophisticated analytics around human capital first entered the business consciousness around 2010. Much excitement has been generated around the topic in recent years, often by data and technology that stand to benefit from a growing interest in this space. In the course of a decade or so, it’s fair to say that HR analytics has come out of the dark ages. Recent research by Bersin by Deloitte shows that over two thirds of organizations now believe they can generate solid reporting and have a consistent approach to the use of people data. While that’s certainly progress, it’s not very rapid progress. A recent study by the Corporate Research Forum concluded that more than half of organizations were very limited or worse in their ability to use talent data to predict and improve business outcomes.

For HR 3.0 to take hold, it is critical that people analytics can get to a point in organizations where it can help link talent to value. This will require much more than recordkeeping systems and dashboards. It will require a strong understanding of how talent dynamics can affect outcomes like recruiting, mobility and retention. It will require creative use of internal and external data. It will require a variety of domain expertise, such as statistics, organizational psychology and epidemiology. It will require integrated data across the employee life cycle and strong engineering of that data.

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The Bersin report also concluded that more organizations now have a people analytics team than do not — an important watershed moment for the field. In reality, however, the majority of these teams have not moved past very basic reporting around simple measures like headcount, attrition and employee engagement. Examples of more advanced people analytics teams do exist and serve as good examples of how to enhance the impact of people analytics in organizations. At McKinsey, we have made substantial progress in understanding individual skills and better matching them to roles, as well as understanding how talent factors such as diversity, connectivity and engagement can influence attrition, retention and other outcomes. At Google, the people analytics team has built a sophisticated understanding of high-performing teams, concluding that the team environment is more important that the individual constituents of the team. At Microsoft, creative use of email and calendar data has revealed the daily behaviors of effective managers.

There are others, too, and these more developed people analytics groups have a few things in common. They were birthed in an environment where a data-driven approach is part of the prevailing culture. They are resourced well and are well positioned in the organization to drive impact. They include a broad mix of skills including data scientists, organizational psychologists and “translators,” who act as data-savvy “account managers” for critical projects and use cases. It would be wise for CHROs to look to these organizations for inspiration as they try to embed analytics in their functions.

The New HR Function

Efficiency and agility will be critical to HR functions operating in a more unpredictable and complex talent market. Traditionally, leaders have considered it a more or less binary choice to have either a stable, predictable, efficient and lean function or a more well-resourced, dynamic and nimble function. There is no longer a choice to be made here; there is an increasing expectation to deliver on both.

HR leaders, like those in many other functions, need to embrace automation and process efficiency to create a lean backbone of critical administrative and process management functions, while cultivating a dynamic, nimble team that can apply itself to varied talent-related problems across the organization. The HR 3.0 function will more or less be comprised of 50 percent fixed staff — back-office shared services enabled by advanced automation, senior account managers, subject matter experts — and 50 percent “pooled” HR professionals who have the skills and business acumen to be deployed broadly.

A new breed of HR professional is required in substantial numbers to make all this happen. The successful HR 3.0 professional will be data-driven, business savvy, comfortable with unpredictability and ambiguity, and capable of thinking and communicating strategically. Pay scales will need to adjust to attract this caliber of HR professional, MBA programs will need to invest more time in human capital subject matter, and more teachers, professors and practitioners will need to contribute to building this new class of professional.

HR 3.0 is an exciting and challenging prospect, but one which is critical for the future of work. It’s a big step to take for a function which until not long ago was mostly administrative and back-office oriented, but it is also the final step in bringing talent strategy to the top table in companies and organizations. The first to move to HR 3.0 will enjoy substantial advantages in the rapidly changing talent marketplace we find ourselves in.

Keith McNulty is head of people analytics and measurement at McKinsey & Co. in London. To comment, email editor@talenteconomy.io.