HR departments face a major gap between their current skills and future needs, according to a new study by the HR Research Institute. Today’s HR professionals are almost seven times more likely to be good at transactional tasks rather than strategic ones, even though HR must become more strategic within three years.
 

To bridge this gap, HR professionals must transform their departments while tackling challenges like generative AI, skills shortages, changing demographics, geopolitical uncertainties, and evolving legal and cultural landscapes.

This report reveals how top-performing HR departments succeed and offers best practices and insights for navigating these changes.

DID YOU KNOW?

• 97% of respondents believe HR strategic activities will be crucial to their organizations' success within the next three years.
• Only 43% say HR is an equal partner in their company’s strategic planning process.
• Only 44% rate HR as eight or above on a 10-point scale for preparedness to add value to their organization over the next two year

Today's HR Function and Its Struggles

HR professionals must meet the needs of multiple organizational stakeholders—employees, executive leaders, and HR itself. We asked respondents to rate their HR department on its ability to meet the strategic needs of the organization from the perspective of these three stakeholders.

Comparing the respondents who rate themselves eight or above on the 10-point scale, we find HR to be somewhat better at meeting the strategic needs of executive leaders (43%) and HR itself (41%), when compared to employees (30%). However, there is significant room for improvement in all three areas.
When asked which activities HR professionals are better at today, we found that just over two-fifths (44%) believe HR is equally good at managing both strategic and transactional activities, while about half (47%) say HR is better at transactional activities. A slim minority (7%) say HR is better at strategic activities.

Should HR be more focused on transactional or strategic activities over the next three years? Half of the respondents (51%) say both transactional and strategic activities will contribute to the success of the organization over the next three years. Just under half (46%) believe strategic activities will be more important, whereas a mere 3% think transactional activities will be more important.

Compared to low-performing HR departments, high-performing HR departments are 2.25 times more likely than low-performing HR departments to say they are equally good at both transactional and strategic activities (63% vs. 28%).

HR’s Strategic Capabilities

For HR to make a full contribution to business strategy, it needs a seat at the executive table when strategic planning takes place. This ensures that any strategic decision incorporates people-management needs and goals. However, HR is an equal partner and is involved early in the strategic process in only 43% of responding organizations. In about a third of organizations (31%), HR is asked only for talent-related input during the planning process. And, in 15% of organizations, HR is asked to develop a talent strategy only after the strategic plan is finalized.
How Good is HR at Driving and Achieving Business-related HR Goals?
We asked respondents to rate how well HR engages in a list of activities, ranging from 1 (not well) to 5 (very well).

HR professionals are most likely to say they do well/very well at maximizing employee experience (61%). A little over half also believe HR does well/very well in driving organizational success (54%), and two-fifths (43%) believe the same about their ability to maximize employee experience.

However, under a third (30%) believe they can plan well/very well for two years into the future.

Challenges Facing the HR Function

What external challenges will impact HR over the next two years? We asked respondents to identify their top four. They are, in order:

• economic conditions (e.g., GDP growth, inflation) (54%)
• talent shortages (52%)
• technological changes (such as AI) (43%)
• changing workforce demographics (40%)

What Can HR Do to Be More Successful?

What should HR focus on to improve its readiness for the future? The following section discusses important issues, initiatives, capabilities, and functional areas to focus on.

We asked about which HR initiatives will be key to achieving critical business goals. Respondents are most likely to identify developing and supporting a positive organizational culture as the most important initiative, as cited by almost three-fifths of respondents (56%).

This is followed by the need to enhance the employee experience (52%), and the need to build a strong leadership pipeline (47%), which is probably driven by various factors such as the need to adjust to changing workforce demographics, the early retirement of people reconsidering the role of work, and the need for career development to retain and engage employees, among others.

The Changing Importance of HR Functional Areas:

• In 2021, in the wake of the pandemic and social justice movements, three functional areas were statistically tied for the top spot—diversity, equity, and inclusion (43%), leadership development (43%), and change management (42%).
• In 2022, the focus shifted to the talent crunch, and employee retention was chosen as the most important by a majority of respondents (61%). While 2023 also saw leadership development as an important functional area, the most significant change has been in the decreasing importance of diversity, equity, inclusion, and belonging.
• In 2023, 38% of respondents reported DEIB to be a critical functional area, but in 2024, only a dismal 21% report it to be critical to organizational success over the next two years.

Finding: Experience and succession management technologies are most widely viewed as critical for future success

Technology budgets do not always directly correspond to what’s seen as most critical. While learning technologies are expected to receive the most tech-related investments, just over a quarter believe learning-related technologies to be critical to an organization’s talent management success.
Since the AI-based chatbot ChatGPT was released to the public in late 2022, the world has been abuzz about the topic of the latest artificial intelligence. More than half of respondents (56%) believe that one of the top three impacts of these AIs will be to increase the automation of HR tasks.

Just under half (45%) believe they will improve analytical and tracking capabilities. Standing third out of the top three impacts is a greater focus on the ethical use of AI for human resource management (41%).
 

 
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