Why the CHRO will take the lead … OR: Talent, Not Technology, Is the Decisive Factor in the Digital Age!
Do you work in HR? My deepest sympathy!
If you do, you are likely to find yourself viewed with sympathy and pity in many German companies – especially in large corporations. In particular, the move from some other function (such as sales/finance/controlling) to HR is frequently regarded as a step down on the career ladder. “What did you do wrong?” was the question asked of a colleague who moved from marketing to HR.
In the last few years especially, the status of the HR unit and simultaneously of the head of HR has in many ways worsened rather than improved. For instance, we see a specific executive officer position for HR in only a very limited number of DAX 30 corporations. In many cases, all that is left is a “work director” whose primary tasks revolve around questions of co-determination, i.e., the coordination with works council and labor unions. And I do not know of a single CEO in a DAX 30 corporation who has risen from the ranks of HR.
The dominance of the CFO ...
Who currently reigns instead in corporations and companies in Germany? The finance people! In these days of maximum orientation to capital markets (... a capital markets expert once said to me: “The Germans are much more dependent on the capital market than the Americans ...”), pedantic controllers and finance experts and a “focus on figures” are the absolute rulers. Everything has to be packaged in KPIs, scorecards, and dashboards. Every investment, every project must be backed up by a business case – and during restructuring projects, the effects of OPEX and CAPEX weigh in much more heavily than employee satisfaction, customer orientation, or pride in the company. If we look at the past ten years, we see that companies (particularly the large ones) have been characterized by strict management of the “bottom line” (i.e., the cost situation); profit has risen because of heightened efficiency (and not from new, innovative products that would show up in the top line, i.e., revenues). I have already written about the consequences in my article on Innovation Culture.
In this kind of environment, HR performs primarily an administrative function – dominant responsibilities are the interaction with social partners, the guidance of restructuring (in the sense of managing excess resources), and the most efficient performance of operational HR processes (such as employment contract issues, payroll statements, performance management). The “Dave Ulrich 3-Role Model” that has been implemented in many enterprises frequently enjoys no more than a wallflower existence – the “HR Business Partners” who are supposed to be a strategic part of business “at a peer level” are either overwhelmed by operations in daily business or have too little contact to the company’s actual business. HR as a partner at peer level – often wishful thinking rather than reality.
… and the growing importance of the CIO/CDO ...
Simultaneously, another CXO species is gaining in importance: the chief information officer (CIO) and the chief digital officer (CDO). In an age in which everything is tagged with “4.0” and many companies have their sights set firmly on only one goal (“just do everything digitally”), many IT staff members and ICT experts are suddenly stepping out of the shadows where they once worked, leaving behind their previous “nerd status” and turning into the true rulers of the company. It is not only that “IT speech” and the accompanying professional jargon remain a closed book for many – and even more so the intricacies of programming language or database structures (cf. article on Computational Thinking) – but that IT and ICT competence has become vital for the survival of the many companies that are still living in the analog world. In these times, when the software company TESLA outpaces traditional carmakers, Google, Facebook and WeCHAT (China) dominate the communications market, and a company like Netflix is reducing traditional media corporations to irrelevance, “digital know-how” is the most closely guarded treasure, especially in German corporations. Programmers and data analysts (a profession that did not even exist just a few short years ago) are paid dizzying salaries and fiercely recruited because of their scarcity.
The IT and ICT department is suddenly performing the most important function in the company – the days when IT systems were adapted to lovingly designed business processes and organizations (BPM) are gone. IT companies and their software solutions have long dictated the ways processes and organizations are designed so that time-consuming and costly “customizing orgies” can be avoided (example: SAP). Dear finance people and controllers, prepare for the approaching winter: future CEOs will come from IT!
And what will shape the future? Talent rather than IT will make the difference ...
Does this mean that digital competence, programming experience, and an IT background will dominate the future profiles of executive officers? It might appear that way when we look at the tech stars in the USA or even in China – from Mark Zuckerberg to Hasso Plattner. IT people are dominant today in the ring of champions and will take their place on the thrones of large companies and corporations in the not too near future, pushing aside the finance people.
But let’s look ten years ahead. In what corporate environment will we be operating then? Many of the long and complicated IT implementations for business functions and operations will have been completed by that time. Companies will seize the best IT solution – strictly in line with “The winner takes it all” paradigm of the digital age. Processes and work procedures in companies will become more and more indistinguishable because – as mentioned above – IT/ICT will ultimately dictate the organization and processes (and not the other way around). At the same time, outstanding digital products, especially innovative disruptive solutions and services, will determine success or failure. And being among the leaders will be possible only if you are successful in recruiting and retaining long-term the talented people who are absolutely tops in their fields. These people will have more to offer than simply outstanding technological skills; they will be especially characterized by a high level of social intelligence and creativity. Skills that must be determinedly fostered and developed in the company – whether through appropriate training and coaching programs or through a working environment and agile work structures that encourage creativity and inspire (key term here: New Work) – an innovation culture that enables “ongoing re-invention of oneself” will be the difference. And these talented people will perform enormously demanding tasks and, thanks to AI and automation, be unbelievably productive because any work that does not generate added value will be handled completely by robots/computers.
… the HR role will make the difference ...
And this, in my opinion, is the wake-up call for HR. After all, who, if not HR, should be in charge of the rigorous management of talent and the creation of the culture described above? HR’s responsibility will not be limited to the management of talent, but will play an active role in shaping the company’s working culture – whether through the coaching of employees and managers as digitalization proceeds apace, in the development of agile organizational forms, the provision of advanced training opportunities for specific individuals, or the advising of top management in the creation of a working culture that encourages innovation and is simultaneously productive. HR as the guide of digital transformation in companies and the guardian of the greatest treasure of companies in the 21st century: the high-potential employees!
… and must undergo massive transformation in preparation for this role!
This is a historic opportunity for HR and the chance to position itself finally as the strategic partner for business that Dave Ulrich describes in his three-legged-stool model.
But what prerequisites must be in place for this to happen? As I see it, HR representatives should ask themselves as a minimum the following questions if they are to be among the leaders in digital transformation in companies.
1. Do we have the right skills on board?
Understanding the paradigms of the digital age is just as important as creating transparency concerning high-potential people and their development within and outside of the company. Simultaneously, HR staff members must be able to co-manage actively the much-vaunted “digital transformation.” This means that HR units will in the future have to bring along IT/ICT skills coupled with high-level analytical skills and expertise in project management. Traditional HR qualifications (such as labor law, psychology, compensation and benefits) will not disappear, but they will definitely decline in importance. And operational HR processes of the future will be almost completely automated or taken over by bots (cf. Future of Personnel Management) because the same guiding principle will apply here: the emancipation from tasks that do not generate added value and thus, in a way, the “humanization of labor,” and a more strategic positioning of the HR department. In the chart below, we have made an initial attempt to illustrate traditional HR products and skills in terms of strategic relevance and potential for automation:
From this starting point, a structuring of the skills in HR (based on Google) offers a sensible approach:
2. Putting your own house in order: Do you set a good example in your unit for the realization of digitalization?
The next logical question is this: Do you actively drive digitalization in your own department (HR), and are you already making determined use of the opportunities offered by modern technology for HR? This is not limited to the unrelenting automation of HR core processes (e.g., payroll, some elements of recruiting, management of certificates and letters of reference), but extends in particular to the use of analytics and big data applications as well. Topics that in Germany are often moved to the back burner because of the complexities in co-determination that are involved. They are, however, badly missed opportunities because the determined use of the base data about employees available in the company contributes to adapting working conditions to individual needs.
Free yourself from operational dead weight and do not leave any loopholes for hiding behind routine tasks.
3. Are you already the leader of the New Work movement in your company?
Thanks to accelerating digitalization and the related enhancement of flexibility in working conditions (in terms of time, place, nature of work), there is an opportunity to harmonize employee desires for meaningful work (generating added value) and enhanced personalization with the aims of the company for greater productivity and employee satisfaction. This type of working culture that focuses on agility, flexibility, individuality, and democratic leadership structures is often broadly known as “New Work.” In many cases, these topics are still driven forward in isolation by single functional positions such as real estate, finance, IT, or strategy. You, acting in your role as HR, should seize the chance to act as the cohesive force and to become the creator of a new, innovative working culture.
There are already plenty of successful and encouraging examples in many places, some of them, such as Airbnb (where the HR division has repositioned itself around Mark Levy and committed to the “employee experience”) or Netflix (whose HRBP spends almost 80% of its time with interviews and coaching its talented employees) in other countries. There are also good examples in Germany, however, such as the unit “Digital & Innovation” at Deutsche Telekom that is driving the digitalization of the working culture and providing important starting points for a culture of innovation.
In summary, I can draw on my experience to determine the following strategic thrust for the successful positioning of HR in the digital age:
This is not intended to be a complete and final presentation, but food for thought to spark further discussion.
This is my conclusion: A golden age is coming for HR, and the CHRO will in the future be the decisive voice in the company – as the mover of digital transformation and the guardian of the high potentials, the company’s most important assets! This will demand massive transformation of the HR function at many levels – there are plenty of good examples even today.