THE CHANGING ROLE OF THE CHRO

SPONSOR PERSPECTIVE The datafication of HR is a leading business trend today and has the potential to change the game forever. With the workforce comprising an average of 70 percent of the typical company s expenses, it is no surprise that in today s increasingly competitive environment businesses are looking for the CHRO to play a more critical role in driving business outcomes. Yet the idea of HR getting a seat at the table is already more than 20 years old, and the vast majority of HR organizations still lack the workforce intelligence capabilities required to strategically analyze, align, and act on critical workforce issues. It is time for HR to get itself out of the IT backlog, stop waiting for new HR systems to be implemented, and enable its business partners, practitioners, leaders, and people managers with intuitive, collaborative workforce intelligence solutions. Visier delivers workforce intelligence solutions in the cloud that let leaders and managers: Analyze key business questions, going from data to insights Align on goals and strategies, going from insights to plans Act on decisions, going from plans to outcomes With Visier solutions, CHROs and their teams are able to: Create measurable business impact, by identifying and focusing on the most urgent workforce priorities Connect with the business, with a complete view and understanding of workforce costs Arm HR to act strategically, playing a key proactive and strategic role The new CHRO is an assertive, data-driven, strategic leader, who demonstrates business savvy, creativity, and innovation; takes on responsibility for contributing directly to business performance; and arms his or her organization with the solutions needed to be more proactive and fact-based in workforce decision making. Visier is proud to be enabling a rapidly growing number of the world s best brands in the datafication of HR. Visit www.visier.com to download key research papers and to learn more.

THE CHANGING ROLE OF THE CHRO Never have CEOs had to handle so much change so fast. The current business environment confronts them endlessly with perplexing decisions and opportunities. Talent needs can change from quarter to quarter, so quickly that some industries rely on contract workers for up to half of their workforce. 1 The resulting market for knowledge workers is hyper-competitive. These forces are reshaping the role of HR and putting pressure on the chief HR officer (CHRO) 2 to focus on business strategy. CEOs want HR to make, execute, and measure the success of workforce plans and decisions based on business outcomes. Human capital issues have gained importance among CEOs as growth has become a mandate, observes Scott Olsen, principal and U.S. leader of the PwC Human Resource Services practice. In the past, the fact that you could get the right people was a given. Now, depending on where your growth prospects are and where the talent pools are, you may not get the right people in the right place at the right time. The use of data and analytics is imperative in this quest. But new research by Harvard Business Review Analytic Services has found a large gap between what companies want from the CHRO for example, considering revenue, market share, and other business outcomes when making workforce plans and the capabilities that are necessary to deliver it. figure 1 At stake is the ability to hire and develop talent that is able to accomplish business objectives. FINDINGS SUMMARIZED Harvard Business Review Analytic Services polled 362 executives, including CEOs and CHROs. see Methodology, page 8. Among the key findings: Companies want HR to contribute strategically. Seventy-five percent say the most important challenge for the CHRO is attracting, retaining, and developing talent. Business leaders are split over HR s role. Among respondents with non-hr titles, more than one-third (39 percent) say that executives at their company believe HR should mainly focus on aligning HR with business strategy. But an almost equal percentage (38 percent) report their executive leaders still believe HR should mainly focus on its traditional role of managing benefits, compensation, and compliance. Lack of analytical skills is holding HR back. Respondents (24 percent) chose this as the biggest obstacle to using data to make effective strategy decisions. Executives aren t yet committed. While most say they want strategic, data-driven, and analytical HR, 34 percent say their companies have done nothing to help HR get better at it, and no more than 30 percent have taken any positive steps. THE CHANGING ANALYTICAL ROLE OF THE CHRO 1

FIGURE 1 VISION DOES NOT EQUAL REALITY There s a big difference between what companies want from CHROs and what they do. Percentage indicating how much they agree that their company s CHRO has each of the following characteristics. [1 = strongly disagree, 10 = strongly agree. Chart represents respondents answering 8, 9, or 10] 34 70 Use an accurate and complete view of workforce costs to evaluate decisions WHAT CHROs DO WHAT CHROs SHOULD DO 33 Talk about human capital in business terms 78 31 Use data and analytics to help make workforce decisions 69 19 28 Focus only on employee issues 27 45 Concentrate mainly on business outcomes These findings are very similar to what we see, says Josh Bersin, founder and principle at Bersin by Deloitte, who reviewed the poll results and compared them with a recent study of his own. 3 About 60 to 70 percent say analytics is third, fourth, or fifth highest priority. But the maturity for analytics this year has barely budged from last year s survey. People are talking about it. A small number are doing it well. But the vast majority is still struggling. We call it stuck in neutral. REDEFINING HR S ROLE Possibly as a result, there s a growing skepticism about whether HR should even lead the effort to align workforce strategy with business strategy. For more than two decades, business-savvy CHROs have talked about having a place at the table, another way of saying they are strategic partners with their CEOs. Some have earned it. Yet the onslaught of data and analytical tools, combined with the slow pace at which HR is adopting them, has accelerated the debate over whether HR can add strategic value. 2 HARVARD BUSINESS REVIEW ANALYTIC SERVICES

Top HR professionals already add strategic value, and the majority of the rest could be trained to do so. In a July 2014 Harvard Business Review article, 4 Ram Charan, an author and advisor to CEOs and corporate boards, argued that most CHROs have not proven themselves to be the business partners CEOs want. He wrote that it is time to split HR into two functions: one to primarily manage compensation and benefits, reporting to the CFO, and another, focused on leadership, organization, strategy, and improving talent, to report to the CEO. Today s HR staff would handle the compensation and benefits, Charan suggested, and the second team would be led by high potentials from operations or finance whose business expertise and people skills give them a strong chance of attaining the top two layers of the organization. Responding to Charan s article online, 5 Dave Ulrich, a consultant and professor at the University of Michigan Ross School of Business wrote that top HR professionals already add strategic value, and the majority of the rest could be trained to do so. Even now, Ulrich observed, most HR professionals seem engaged in helping their teams improve. Sometimes they are stymied by their own lack of ability, but I find that often they are also limited by senior leaders who don t appreciate the value they offer, he wrote. Respondents to the Harvard Business Review Analytic Services poll clearly expect HR to address strategic problems. More than two-thirds (68 percent) said their CHRO reports directly to the CEO, which is a signal that the company sees HR as more than the traditional manager of compensation, benefits, and compliance. Furthermore, when asked about the top challenges for HR in their companies, respondents chose attracting and retaining talent (75 percent), developing leadership capabilities beyond the leadership team (72 percent), and creating an agile workforce (57 percent) as most important. figure 2 All are challenges that bear on how well a company can achieve its business goals. However, that doesn t mean they think their current HR organization is capable of meeting these challenges. Harvard Business Review Analytic Services research uncovered a lack of analytic experience and skills in CHROs and their staffs. THE BUSINESS-SAVVY CHRO Companies want CHROs to be business-focused and data-savvy. But according to the poll, the majority of CHROs (60 percent) do not have much business experience. If you surveyed every company on the planet, 98 percent of CHROs come from HR, says Bersin. But in the bigger companies the new ones are not from HR. Bersin s research found that nearly 40 percent of CHROs hired within the past two years have business experience. To him, this indicates a trend. The Harvard Business Review Analytic Services findings suggest this more modestly. Nearly onefifth (16 percent) of companies have hired a CHRO with a strong background in business or finance, and 9 percent have hired a CHRO who has a strong background in data and analytics. THE CHANGING ANALYTICAL ROLE OF THE CHRO 3

FIGURE 2 HR S CHALLENGES ARE STRATEGIC The most important business needs for CHROs to address are focused on future workforce development and growth. Percentage that say the following are the most important challenges/needs that must be addressed by their CHRO and HR strategy. [Respondents chose up to three.] Strategies for attracting and retaining talent Developing leadership capabilities beyond the executive team 72 75 Creating an agile workforce 57 Reducing costs and/or improving productivity Enhance ability to take advantage of new market opportunities Competitive business pressures 12 16 18 25 Optimize operations geographically Gabrielle Toledano, executive vice president and chief talent officer at Electronic Arts (EA), argues, however, that the CHRO s background isn t as important as that individual s capabilities and strategic orientation, combined with an understanding of the company s business strategy and CEO priorities. A developer of video games, EA has a workforce of more than 8,500 employees. Toledano, who reports to EA CEO Andrew Wilson, fell into HR by chance. She studied modern thought and literature at Stanford and has a master s degree in education from Stanford as well. She started her career in a corporate legal department. Toledano s HR experience at various employers focuses on strategic workforce planning because that is what her CEOs and boards, including at EA, support. The great progressive CEOs demand strategic HR and thinking outside the box, Toledano says. I wasn t trained in HR. I didn t know the box. 4 HARVARD BUSINESS REVIEW ANALYTIC SERVICES

Even if the CHRO reports to the CEO that is no guarantee the CEO will support strategic HR, Toledano says. Some CEOs have never seen what good HR looks like, she says. I m lucky to have worked for those who have and who understand its value. In fact, despite their call for a business-focused, strategic CHRO, many executives outside HR still have a traditional view of it. When asked to choose from a set of statements describing how their executive leadership views the role of HR at their company, non-hr executives were evenly split. Thirty-eight percent said company leaders think HR should stick to managing workforce processes and ensuring compliance with workforce laws and regulations, while 39 percent said executives want HR to become better aligned with business strategy, so workforce planning takes business goals and outcomes into account. To PwC s Olsen, these results suggest HR is at the beginning of an evolution. Over time, he says, HR organizations will learn to contribute strategically by getting better at workforce analytics. I don t think there is much appetite for drastic measures, he says. This whole concept of strategic HR is relatively new. That s one thing. Second, data and information reporting for human capital has for a long time been a stepsister to customer data and finance data. We re in the first quarter of the game. There has not been enough time for HR to get it. Olsen says CHROs and HR professionals should aim to become experts at predictive analytics, so they can make workforce decisions that address future needs and with some reasonable predictions about how those decisions will impact business objectives. For example, Toledano and her team are refining their understanding of which skills, behaviors, and engagement scores predict performance, so that they can place individuals onto game teams with the collective capabilities that will lead to the highest likelihood of success. THE ANALYTICS GAP Companies appear to recognize that their HR teams are just getting started. Only 9 percent have gone so far as to assign workforce analytics to a different business department and only 6 percent have outsourced this function entirely. However, there s no question that executives consider their company s lack of expertise and investment in building it to be a problem. Only one-third of poll respondents reported that their companies have advanced analytics capabilities. figure 3 Meanwhile, they identified a lack of analytical acumen in HR (24 percent), inaccurate workforce data (23 percent) and a lack of investment in talent or systems for HR analytics (23 percent) as the chief obstacles to achieving it. Although one can find examples of HR professionals and entire HR departments who are capable with data, analytics, and strategic thinking, the function in general is hampered by a lack of accurate workforce data, analytical skills, and strategic planning skills, including the ability to explain to CEOs what the data say about the company s ability to achieve its goals with the talent it has or can get. Everything has hit HR at the same time in the past 12 months, Bersin suggests. The economy picked up. Workforce got more mobile. People started to lose top talent. Companies decide they have a leadership gap and that they have to do analytics. Analytics helps all those problems, but it takes many years to get good at it. It is a pressure point in HR, and a lot of companies are investing THE CHANGING ANALYTICAL ROLE OF THE CHRO 5

FIGURE 3 FEW COMPANIES ARE ADVANCED DATA USERS Only a third use analytics to manage and predict workforce needs. Percentage that indicated which statement below best describes the extent to which workforce-related data plays a role in their organization s decision-making style. [Respondents selected a single answer.] Workforce decisions are informed by regular operational reports Data is used only for critical workforce decisions On-demand data is used to analyze the workforce proactively Predictive analytics is used to analyze the workforce and make predictions 5 11 17 31 37 Analytics is used to create and monitor comprehensive workforce plans in it. But the vast market is still absorbing it. As a consequence, companies have made no clear commitment to addressing the barriers to datadriven workforce decision-making. When asked what they have done to address the obstacles, the most frequent answer chosen by one-third of respondents was nothing. figure 4 All other options, such as investments in software or training, were chosen by fewer than 30 percent. CONCLUSION: STRATEGIC HR REQUIRES WORKFORCE ANALYTICS The gaps between what the CHRO role is and what businesses expect it to be are clear, as are the gaps between the skills HR staff need and the skills they have. These deficiencies can be costly. Even a small error in predicting workforce needs could lead to overstaffing, cost overruns, and then layoffs, or leave a company far short of the talent it needs to seize market opportunities. Of course, HR must have quantitative skills. Ulrich argues they just need training. We know what knowledge, skills, and abilities HR professionals require to deliver business results, he said. When all is said and done, it s possible that HR is behind the curve merely because it is one of the last business functions to tackle analytics. Companies can t do predictive analytics before they have tools or solutions in place and have found a way to unify all their organizations disparate data (often located in numerous HR and business systems). Ten years ago, he observes, marketing was where HR is today, using intuition rather than data to make decisions. That changed quickly and most marketing people acquired the skills they needed. 6 HARVARD BUSINESS REVIEW ANALYTIC SERVICES

Bersin says he wouldn t be surprised if, within ten years, most workforce analytics is performed by line-of-business executives instead of by HR. The tides are shifting pretty fast for people who don t have business experience, he says. The big companies want things to happen faster. With each technology generation, the analytical solutions are easier to use by either HR people or business executives, he notes. Meanwhile, Toledano believes there s still time for CHROs to prove their worth, and argues that many are already doing so. She advises they start by showing up at board meetings with more than a bunch of numbers. You have to explain what the data means within the context of the business, and ideally begin to use the workforce data for predictive analytics that help the business get ready for the future, she concludes. When other business leaders see the value in workforce analytics, commitment to extending its reach is likely to follow. FIGURE 4 COMPANIES ARE NOT INVESTING TO BOOST HR ANALYTICS Many are taking no steps to improve how data is used to make strategic workforce decisions. Percentage that say which of the following actions, if any, their company has taken or supported to improve HR s use of data to make strategic workforce decisions. [Respondents chose all that apply.] Allocated HR budget for analytics software/solutions Increased funding to develop HR analytics expertise Approved new data and analytics positions for HR Hired a CHRO with a strong business or finance background Hired a CHRO with a strong data and analytics background Moved workforce analytics out of HR 6 9 9 16 21 26 30 Outsourced workforce analytics None 34 THE CHANGING ANALYTICAL ROLE OF THE CHRO 7

ENDNOTES 1 Estimates of contract and other contingent workers in the U.S. range widely, in part because the U.S. Bureau of Labor Statistics has stopped compiling the numbers. Best estimates suggest between 30 percent and 40 percent at U.S. companies are part-time, contract, or other non-permanent employees. Anecdotally, some industries are known to be higher, with an average of 40 percent in Silicon Valley, and more than half at some high-tech companies. Most forecasts for contingent workers now come from the private sector. One recently cited forecast is Intuit s projection that contingent workers will exceed 40 percent of the workforce by 2020. http://http-download.intuit. com/http.intuit/cmo/intuit/futureofsmallbusiness/intuit_2020_report.pdf 2 CHRO refers to the top HR executive in the organization, whatever the title might be: CHRO, Executive VP of HR, VP of HR, Chief Talent Officer, etc. 3 Global Human Capital Trends, http://www2.deloitte.com/us/en/pages/human-capital/articles/ introduction-human-capital-trends.html 4 http://hbr.org/2014/07/its-time-to-split-hr/ar/1 5 http://hbr.org/2014/07/do-not-split-hr-at-least-not-ram-charans-way/ METHODOLOGY The Changing Role of the CHRO is based on 362 responses to a Pulse Poll conducted by Harvard Business Review Analytic Services. Harvard Business Review Analytic Services emailed an online link to 30,000 corporate executives on Harvard Business Review s qualified list. Respondents were excluded if they worked at companies with fewer than 500 employees. The statistical margin of error is 5.12 percent. The most commonly cited functional role among respondents is HR (18 percent). The majority (60 percent) are senior business leaders. Three-fourths of respondents work in companies that operate in more than one country, and 40 percent reported their companies are based in North America. HR departments are centralized for 66 percent of the sample. Just over half (55 percent) are employed at companies with more than 5,000 employees. Harvard Business Review Analytic Services asked the following experts to review the findings and discuss them: Josh Bersin, founder and principle, Bersin by Deloitte Scott Olsen, principal and U.S. leader of the PwC Human Resource Services practice Dave Ulrich, a consultant and professor at Ross School of Business, University of Michigan Gabrielle Toledano, executive vice president and chief talent officer, Electronic Arts 8 HARVARD BUSINESS REVIEW ANALYTIC SERVICES

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