Although people issues dominate the business agenda across the globe, few business leaders think that their human resources teams are up to the task of delivering on key strategic challenges.
New global research by Deloitte Touche Tohmatsu and the Economist Intelligence Unit has revealed increasing tension between organizations' needs and HR's ability to deliver, with companies still struggling to build an effective partnership between business and HR to tackle key challenges.
More than eight out of 10 of the executives questioned view people as vital to all aspects of organizational performance. Yet fewer than a quarter (23 percent) believe that HR can play a crucial role in strategy formulation and operational success.
What's more, half the companies surveyed (52 percent) do not have a chief human resources officer or equivalent executive to people issues, with only two-thirds (68 percent) expecting to have one in three-to-five years.
And further highlighting the low esteem in which many HR departments are held, a mere three percent of participants described their organization as world-class in people management and HR, while nearly half (46 percent) said that their capabilities are only adequate and need to improve.
"It's a stunning paradox that HR is not being looked to for leadership on the people agenda," observes Jeff Schwartz, a principal with Deloitte Consulting and co-director of the study.
"Many top company executives believe the HR department lacks the business insight to drive strategic initiatives around top priority issues, such as leadership, talent management, creating a high-performance culture and training and development.
Conversely, he added, HR departments have traditionally been primarily administrative, dealing with policies and procedures rather than strategic thinking.
"While HR executives agree with these priorities, they continue to focus on their core role of improving HR operating efficiency, building scalable HR structures that can support the company's growth – a 'dial-tone' level function that top executives already take for granted."
The upshot of this is that senior management often ignores HR even when apparently vital issues emerge. For example, almost two-thirds of executives (63 percent) said that they rarely or never discussed mergers and acquisitions with their senior HR team.
For it's part, however, HR functions do appear to recognize the challenge to be more strategic and are shifting their administrative transactions and other non-strategic activities to shared service centers or an outsourcing vendor.
As a result, both senior executives and HR professionals agree that the role of HR will change, with more than nine out of 10 expecting HR to be perceived as a strategic, value-adding function, not just a cost center, within the next three to five years.
"HR organizations globally recognize they have an opportunity to play a more strategic role, yet the question remains: has HR been taken by surprise by global demographic changes, a need for accurate employee data and strategic capability to tackle business leaders priorities?" said Brett Walsh, a Deloitte Consulting partner in London and co-director of the study.
"While the C suite's people agenda is clear, the roles that business and HR leaders will play in addressing the company's strategic people issues are not," he added.
"How business leaders approach the challenge - and how HR responds - will determine who takes the lead on managing People Strategy and HR Operations to address tomorrow's most significant people priorities."