The way in which organizations manage people used to be relatively straightforward. For more than two decades, multinational companies generally adopted a combination of HR business partners, centers of excellence, and shared service centers, adjusting these three elements to fit each organization’s unique nature and needs.
Today, this approach—introduced by Dave Ulrich in 19961—is rapidly evolving. In interviews with more than 100 chief human resources officers (CHROs) and senior people leaders from global multinational businesses, we identified five HR operating-model archetypes that are emerging in response to dramatic changes in business and in the world—including heightened geopolitical risks, hybrid working models, and the rise of majority-millennial workforces.
These emerging operating models have been facilitated by eight innovation shifts, with each archetype typically based on one major innovation shift and supported by a few minor ones. The key for leaders is to consciously select the most relevant of these innovation shifts to help them transition gradually toward their desired operating model.
Eight innovation shifts driving HR’s new operating models
Today’s increasingly volatile, uncertain, complex, and often ambiguous business environment is forcing companies to transform at an unprecedented pace. The global COVID-19 pandemic and rapid evolution of workplace technology have accelerated the adoption of various alternative, hybrid working models—as well as new challenges in monitoring employee conduct and performance. The emergence of majority-millennial workforces has led to a profound shift in employee preferences. And the “Great Attrition” of workers,2 exacerbated by demographic developments in many parts of the world, has intensified existing talent shortages.
HR plays a central role in navigating this upheaval, creating a need for the function to rise to a new level of adaptability and responsibility.3 While every organization has its own trajectory and HR operating model, our interviews with senior leaders revealed that organizations are innovating in ways that are collectively changing the HR function from the “classic Ulrich model”:
- Adopt agile principles to ensure both strict prioritization of HR’s existing capacity and swift reallocation of resources when needed, enabling a fundamentally faster rate of change in the business and with people and how they work.
- Excel along the employee experience (EX) journey to win the race for talent in the time of the Great Attrition,4 enabling both employee health and resilience.
- Re-empower frontline leaders in the business to create human-centric interactions, reduce complexity, and put decision rights (back) where they belong.
- Offer individualized HR services to address increasingly varied expectations of personalization.
- ‘Productize’ HR services to build fit-for-purpose offerings with the needs of the business in mind, and to enable end-to-end responsibility for those services through cross-functional product owner teams in HR.
- Integrate design and delivery with end-to-end accountability to effectively address strategic HR priorities, reduce back-and-forth, and clarify ownership.
- Move from process excellence to data excellence to tap into novel sources of decision making using artificial intelligence and machine learning.
- Automate HR solutions to drive efficiency and capitalize on the power of digitalization in HR.
These innovation shifts are driving the emergence of new HR operating models, albeit with different degrees of influence depending on the nature of individual organizations (Exhibit 1). In analyzing the drivers, we identified five HR operating archetypes.
Five emerging HR operating models
These eight innovation shifts have enabled companies to rethink how they manage their people and the best way to do so. Exhibit 2 shows the five emerging HR operating models we identified, which are all enabled by two core elements: a strong, consistent data backbone and a user-friendly, highly reliable service backbone. When asked which two archetypes best fit their HR operating model, 48 percent of people leaders attending a recent webinar selected Ulrich+, 47 percent EX-driven, 36 percent leader-led, 31 percent agile, and 6 percent machine-powered.5
This model is an adaptation of the classic Ulrich model, with HR business partners developing functional spikes and taking over execution responsibilities from centers of excellence (CoEs). In turn, CoEs are scaled down to become teams of experts and selected HR business partners. They are supported by global business services and have a digital operations backbone. Many CHROs believe the classic Ulrich model is not up to solving today’s HR challenges, with HR business partners lacking the skills and time to keep up with the latest HR developments. Inflexible CoEs limit agile reactions, while other organizational boundaries have steadily become more permeable. Multinational businesses with mature and stable business models are often the ones that experience these pain points.