Boards and human resources in the digital economy

Directors are spending more time with HR executives, to understand how their organisation is adapting to changing labour force trends.

The easy option for boards is to pigeonhole technological disruption to the workforce as a management issue. The board’s job is to ensure the executive team is abreast of trends in data, artificial intelligence and robotics – and what they mean for the organisation.

Another option is viewing workforce change as a subset of the board’s overall consideration of technology disruption. Workforce change, a human resources issue, is a secondary consideration to broader business-model and industry disruption. A topic that is seemingly too minutia for boards to conduct deep dives into.

But the case for boards to focus more on human resources issues is strengthening as technology reshapes the global workforce. Directors need to know their organisation can adapt to rapid workforce change and transform itself for the digital economy.

“Boards are spending more time on the effect of technology on their organisation’s workforce, as part of the broader business-transformation strategy,” says Alison Gaines, FAICD, General Manager, Asia Pacific, of Gerard Daniels. “They want to hear from the human resources executive about changing work practices in their industry and how they expect the company will adapt. Boards see this as a core part of their risk-management oversight.”

Boards have good reason to focus on workforce disruption. Most organisations are struggling to redesign themselves as their operations become more digital. Only 11 per cent of survey respondents in the Deloitte 2017 Global Human Capital Trends survey believe they understand how to build the organisation of the future.

Deloitte said: “High-performing organisations operate radically different from how they operated 10 years ago. Yet many organisations continue to operate according to industry-age models that are 100 years old or more, weighed down by legacy practices, systems and behaviours that must be confronted and discarded before true change can take hold.”

The take-out for boards is clear: as business becomes more digital, organisations must be redesigned faster than ever. Agility and adaptability have become critical sources of competitive advantage. But 70 per cent of CEOs say their organisations currently do not have the skills to adapt to disruptive change, Deloitte found.

The accounting firm says the concept of a career is “being shaken to its core”. The half-life of skills is rapidly falling; software engineers, for example, must redevelop their skills every 12 to 18 months – a trend that is quickly spreading to other occupations.

Young workers, the so-called millennials, are moving between jobs faster than ever and expecting their employers to provide different career opportunities and experience compared to previous generations. The challenge of managing millennials has implications for organisation talent development and long-term succession planning.

The global consulting firm, Accenture, says organisations are struggling to align performance-management and business performance. Only a third of its survey respondents believe that current performance-management systems support business objectives or help employees rapidly adapt to change.

“Organisations are spending millions of dollars and thousands of hours on performance management,” wrote Accenture. “But too few leaders are confident their approaches are supporting the workforce of the future or improving the performance of the business itself.”

Taken together, these findings suggest companies are struggling to align their strategy, people and skills in the digital economy. As custodians of organisation culture, boards need to understand causes of misalignment and how they affect strategy and value creation.

In response, companies are overhauling traditional career models and transforming corporate skills through new learning and development infrastructure for the digital age.

Deloitte says high-performing organisations are focusing on the overall employee experience; redefining performance management systems; developing younger, agile, digitally ready leaders; embedding data into more job functions; and creating a stronger internal culture of diversity and inclusion.

Everything is about attracting and retaining high-potential talent and helping them develop their skills and career faster – a trend that boards need to understand.

Elevation in HR role and exposure to board

Companies are pushing their human resources leaders to take on a larger role in digital transformation, says Deloitte. “Once viewed as a support function that delivered employee services, human resources is now being asked to lead the digital transformation sweeping organisations worldwide.” That involves designing digital workforces and workplaces, and digitising the human resources function to enable experimentation and innovation.

Gaines, an executive-search leader, says there is rising demand for senior human resources executives who have a technology background and can help lead an organisation’s digital transformation. “Certainly, in the most sophisticated roles, clients are wanting HR candidates who can work with big data and identify signals that help organisations better deploy skills or develop new ones in different markets and geographies.”

Korn Ferry senior client partner, Robert Webster, says there has been a steady elevation in the human resources function in large organisations. “Companies have progressively elevated the senior HR role and made it much more of a strategic role and a partnership with the CEO. The effect of digital transformation on the workplace will cement that trend and further elevate the interaction between the HR executive, CEO and board.” Webster leads the firm’s Asia Pacific Board Services Centre of Excellence.

Webster points to the trend of United States companies appointing Chief Human Resource Officers and ensuring the role is a key part of the C-suite. “The role might have a different title in Australia, but the trend is very much to have a human resources executive who understands the opportunities and threats of digital transformation on the workforce.”

Webster says technology-driven transformation is ultimately a matter for the executive team rather than the board. “Most of our clients are keen to have someone on the board who has greater expertise in digital disruption and there is generally higher demand for directors with a technology background. The key is for boards to have skills to ask the right questions for management about how they are preparing the organisation for this workforce change.”

Gaines expects higher demand for directors with a statistics background and who are data literate. “Boards have historically made decisions based on backwards-looking data. By providing contemporary data, technology is enabling boards to be much more informed about what is happening now and form a view of the future. Boards will become much more interactive with big data and use it to simulate situations.”

Gaines says the use of data in boardrooms will help directors better understand the organisation’s people, skills and culture, in real-time. “Boards will have a lot more human resources data and insight on how their organisation is adapting to the future of work.”

Clearly, human resources issues will occupy more board mindspace in the next five years as technology transforms the workplace. What good are bold strategies and transformation programs if companies lack people or skills to implement them, now or in the future?

And what happens if competitors are better able to develop new skills in response to technological change and develop a stronger culture of lifelong learning? How can the organisation ensure it is a fierce competitor in the war for talent?

That does not mean boards recruiting human resources experts as directors, forming new sub-committees or taking a hands-on role in the organisation’s talent development.

But it does mean elevating human resources discussions as part of the board’s broader risk-management focus and strategic governance – and having a clearer line of sight on the organisation’s human capital.