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New Study: Human Capital Function Needs to be More Strategic

By Melissa J. Anderson

According to a new study by McKinsey and Company and The Conference Board, human capital is being held back by a lack of confidence and strategic foresight. There are few strategy related roles within HC, high administrative burdens, little authority within the organization at large, and “difficulty assessing deep strategic capabilities within the function and in outside hires.”

This is a problem, McKinsey and TCB say, because it hampers Human Capital’s ability to approach looming challenges for organization, in which they could truly make a difference. They write:

“They must cope with the uneven pace of global economic growth; the explosion of local, national, and international regulations; the continuing convulsions of the technological revolution; new and unpredictable sources of competition; and a geographic and skills mismatch that finds many talented workers far from the job openings they are best suited to fill.”

Additionally, they face a fierce talent shortage ahead. In fact, in the US alone, McKinsey’s analysis showed that there will be 1.5 million fewer college graduates than needed for 2020’s jobs. Human Capital is also facing issues like workplace diversity and employee engagement. “In recent focus groups, HC executives expressed frustration that, despite their best efforts and their many well-meaning initiatives, so little progress is being made,” says McKinsey and TCB.

Their challenges are clear. But how can the HC function develop the respect and strategic leadership it will need to approach these challenges?

Challenges for Human Capital

McKinsey and TCB laid out a host of challenge for Human Capital. According to the study, respondents listed their top three priorities for over the past year and the coming one were leadership development and succession management (63 percent), talent acquisition and retention (53 percent), strategic workforce planning (48 percent).

It’s worth noting that only nine percent said diversity and inclusion was a top concern.

Coming up, the named the same issues as above as their main concerns for the next two to three years.

Unfortunately, the study continues, they professionals in human capital are somewhat doubtful about their ability to handle these concerns effectively. “HC professionals are seeking ways to meet their priorities, but less than 40 percent of respondents express high confidence in their current approach or consider their efforts innovative.”

McKinsey and TCB would like to see Human Capital become more strategic. It outlines a few ideas for how it can approach the challenges of tomorrow. First of all, it should “anticipate and plan for the HC of tomorrow.” Secondly it needs to work on developing a steady pipeline of skilled workers that can become the leaders of tomorrow. Third, it work to energize the employees within HC around what they do and how it helps the organization. And fourth, HC should work to become more agile.

These are all well and good, but many of these require a shift not only in how HC operates, but also in how the rest of the organization views and funds the function.

Oncoming Opportunities

The McKinsey and TCB report suggest that by developing more confidence and gaining the respect of their coworkers, HC can help better meet the needs of their organization in a changing, global environment. The study explains:

“Human capital staff continue to have a support-function mindset, a low tolerance for risk, and a limited sense of strategic ‘authorship.’ These attributes often resulting a relatively low status among executive peers, no budget for innovation and a ‘zero-defects’ mentality that means they rarely take chances.”

One way it could do this, the report suggests, is by better utilizing technology that tracks metrics and data analytics, and programs that could automate much of the support-function work that Human Capital tends to get caught up in. This would move people away from “heads-down” transactional work, and free resources for more strategic leadership.

Of course, this is only half of the issue. Changing the way Human Capital professionals see themselves and behave is one part. But the way the rest of the organization relies upon, trusts, and funds HC is going to have to change too.

“The HC function alone cannot provide all the answers, and chief executives and their boards of directors will also need to “rewire” business strategies to include human capital considerations. Our hope is that these findings and recommendations will spur HC leaders to make the changes needed to start the profession’s journey to the true summit.”

By refiguring the way Human Capital approaches strategic business issues around talent, companies can gain the strategic advantage in a changing business environment.

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