As AI tools gain mainstream adoption and tech becomes increasingly inextricable from the world of work, HR digital transformation is high on the agenda for many organizations.
In Rewired: A McKinsey Guide to Outcompeting in the Age of Digital and AI 2023, digital transformation is defined as “The rewiring of an organization with the goal of creating value by continuously deploying tech at scale.”
In this rapidly changing environment, the HR function will need to undergo a similar “rewiring” to facilitate alignment between the needs of the workforce and the strategic priorities of the business.
Here I share real-world examples and best practices to help your HR team leverage the latest technologies and overcome adoption challenges.
What Is HR Digital Transformation?
HR digital transformation means strategically implementing digital technologies, tools, and frameworks to modernize the human resources function and optimize HR processes.
The goal of digital HR transformation is to empower HR professionals to offer better services, improve the employee experience, enhance efficiency, and support strategic decision-making within the HR department while promoting greater alignment between people strategy and the organization’s overarching business goals.
This transformation process involves shifting from traditional, manual HR processes to automated, data-driven, and technology-enabled solutions designed to remove red tape and increase the function’s effectiveness.
HR Digital Transformation Benefits And Use Cases
Adopting advanced digital technologies offers HR professionals massive benefits in terms of efficiency and efficacy across almost every aspect of the HR function.
Emerging technologies such as generative AI and machine learning are enhancing the capabilities of HR software including HR management systems (HRMS), HR information systems (HRIS), applicant tracking systems (ATS), and talent marketplaces.
Automation can significantly reduce the administrative burden and free up people professionals time to focus on more impactful, strategic work.
Here are some of the benefits and potential use cases of HR digital transformation:
Automation technologies are designed to eliminate repetitive and time-consuming HR tasks, such as payroll processing, attendance tracking, and benefits administration.
Workflow automation frees up HR teams to focus on more strategic and value-added activities, such as employee development and organizational planning.
Advanced Data Analytics
Leveraging employee data is crucial to gain insight into workforce trends, performance metrics, employee engagement and other HR metrics.
People analytics software can empower HR professionals to make better decisions and even forecast future business needs, such as talent demand, succession planning, and skill gaps.
With the advent of natural language processing, AI, and machine learning, it’s now even possible to analyze and glean insights from large sets of unstructured data to glean deeper insights and assess employee sentiment.
Leveraging AI for data analytics can also help remove biases, enhance speed and accuracy, reduce costs, and create better predictive capabilities than relying on traditional data analytics practices alone.
Technology provides employees with digital platforms or portals where they can access and update their personal information, request time off, enroll in benefits, and access HR-related resources—without the assistance of an HR representative.
HR software equipped with AI-powered technologies like ChatGPT can provide your employees and managers with chatbots designed to make employee self-service tools even easier to use, guiding them through your organization’s policies and procedures, answering benefits questions, supporting their growth and development and even providing them with real time coaching.
HR can leverage tools such as AI recruiting software to streamline the hiring process by making it easier to draft job descriptions, source talent, screen candidates, manage applicant data, conduct online assessments, and schedule interviews.
Generative AI can remove the onus of hiring leaders having to draft job descriptions and enable a higher level of consistency with your internal job listings as well as the external market.
Advanced ATSs can analyze resumes and applications to shortlist candidates based on predefined criteria, helping HR employees make smarter hiring decisions.
Digital technologies can also contribute to a better application experience for candidates, for instance by answering job applicants’ questions using HR chatbots.
This enables your TA team to spend more of their time assisting hiring leaders through the recruitment process, while still ensuring your applicants receive all the help and support they need to navigate the job search process at your organization.
Using HR tech to facilitate the employee onboarding process by automating onboarding workflows like employee information registration, document signing, benefits enrollment, training schedules, and task assignments. AI can even create a personalized onboarding experience by tailoring orientation and training programs based on the new hire’s role.
Automation can further assist as new hire information gets passed to your IT organization to ensure that on day one your new hires are set up with their computer, email addresses, phone systems and other tools needed to do their job.
Learning and Development
Implementing learning and development programs grants employees access to training and career development opportunities, allowing them to upskill at their own pace.
Modern learning management systems (LMS) can recommend training and development opportunities based on an employee's current skills and career goals.
Skills are increasingly becoming the common currency of the workforce. AI has the ability to infer the skills your employees have from the courses they’ve taken, the projects they are involved in and other sources to build detailed skill profiles for your employee population.
This allows you to develop next generation learning and development programs designed to meet both the current and future needs of your workforce and business.
Performance management software helps streamline goal setting, track performance, conduct evaluations, and provide employees with continuous feedback.
AI tools can help facilitate 360-degree feedback by aggregating feedback from multiple sources, giving managers a more comprehensive view of an employee's performance.
Talent Management and Succession Planning
Talent management software can help HR teams make data-driven decisions, provide individual employees with career development pathways, and create detailed succession plans for key roles within the organization.
Digital HR technologies such as employee engagement software helps gauge workforce engagement levels and understand employees’ priorities.
Generative AI solutions can analyze both structured and unstructured data to provide meaningful insights to your leadership team for how to create a best in class employee experience.
This enables them to proactively implement initiatives that make employees feel supported, valued, and engaged—which, in turn, improves retention.
5 Best Practices For Your HR Transformation Journey
It’s clear that this wave of digital transformation holds both incredible potential and considerable challenges.
As such, any HR digital transformation initiative should aim to prepare HR teams for the coming workforce disruption.
This means that it should equip them to both take advantage of the opportunities automation presents and navigate the accompanying risks and challenges.
1. Align your digital HR strategy with organizational goals
Each HR transformation objective must follow from an overarching strategic business priority, whether it’s sourcing talent to scale operations, restructuring to accommodate a new business model, or ramping up L&D initiatives to improve employee retention.
Leverage your executive leadership team’s multi-year business strategy as your Northstar.
If your HR digital transformation does not enable your business strategy, you are not meeting the needs of your business.
Get all the key stakeholders (ideally C-suite members or their delegates) in the same room with HR leadership to evaluate your organization’s top long-term and short-term goals and determine how your HR digital transformation will enable those goals.
2. Define your objectives
These questions should inform every aspect of your digital transformation strategy.
Whether you’re trying to support a particular business objective (e.g. sourcing better talent), improve a specific aspect of the employee experience (e.g. streamlining expense claims), or simply trying to meet HR needs (e.g. improving productivity within the HR department itself) success is more likely when you know what it looks like.
Create an HR transformation roadmap outlining your long-term and short-term transformation initiatives and schedule key milestones to stay on track.
Review progress at regular intervals and continuously evaluate the impact of the changes you’ve made against clear KPIs.
For example, if you’re implementing a new applicant tracking system, you might have KPIs associated with reducing your average time to fill roles or your SLAs in getting back to candidates.
3. Avoid tech for tech’s sake
Resist the urge to “go digital” and throw money at a popular tool just because everyone else in your industry is doing it.
Any tech you implement should support your organization’s actual needs—and do so effectively. There’s also no point in implementing a tool that nobody wants to use.
A great approach is to allow your employees to help co-design the process with you.
Further, it’s important to have cross-functional business representation built into your project teams to represent the business needs of all parts of your organization.
This enables you not just to collect critical feedback from your employees, but also helps get their buy-in and jump starts the change management process.
Take the time to evaluate a variety of solutions and compare their features and user-friendliness, and don’t hesitate to take advantage of free trials.
If you need help deciding which tool is best for you, read our guide to choosing HR Software.
4. Fix—or redesign—broken systems first
While making small adjustments might boost efficiency in the short term, automating fundamentally flawed processes won’t fix them.
Instead, human resources leaders seeking substantial productivity gains should thoroughly reevaluate their operating models and redesign (or “rewire”) broken systems from the ground up before taking the plunge with a new piece of tech.
For instance, if you’re looking into implementing a new HRIS or applicant tracking system, it’s critical that you first evaluate and modernize your processes.
If you have outdated job roles and responsibilities, over-engineered processes, unclear communication protocols, or even lack the right technical skills to support the new application, your foray into the new HR tech will be the HR equivalent of putting a bandaid on a broken leg.
Keep your employee experience in mind and ensure you’re creating simplicity throughout and not inadvertently retaining red tape that might negatively impact your employees and managers.
5. Take an agile approach
Taking an agile approach allows you to break down your overall HR transformation strategy into more manageable chunks.
Agile methodologies have been popularized within the technology community and can be applied to project management in many realms, including HR.
Agile is all about progress over perfection, taking iterative approaches to releasing new features to your end users, and collecting user feedback along the way to continue to refine over time.
Taking this approach allows you to be highly intentional about which features or enhancements you release to support your employees over time.
This enables a faster speed of delivery of new functionality to your colleagues and allows you to be highly conscious of your employee experience throughout the change by ensuring you do not overwhelm them with too much change all at once.
HR Digital Transformation Challenges
As exciting as emerging technologies are, there are potential risks and challenges associated with their implementation organizations.
Below are some challenges and risks associated with digital transformation that HR professionals will likely need to navigate.
As companies explore the potential gains of automation, many will redesign their operating models and organizational structures to better serve their new strategic priorities.
In this process, some degree of destabilization is unavoidable, especially as resources are rearranged and roles evolve.
It will be incumbent on HR teams to help foster a company culture that can easily adapt to change.
Resistance to Change
Employees and leadership may be resistant to adopting new digital HR tools and processes. It can be challenging to overcome this resistance and ensure that all stakeholders are on board.
Let’s face it, while change may be ‘the only constant,’ it’s never easy—especially when it impacts the way people work. In fact, a full 70% of change initiatives end up failing.
Effective change management starts with the whys and a deep understanding of the benefits of the transformation and how it will impact their work.
Learning and development is also a crucial part of your change management strategy. HR transformation will require your employees, managers, and HR teams to learn new tools and processes.
Further, your HR teams likely will need to pick up different skills as the expectations of their roles evolve to support the business in a different capacity.
A useful resource here: HR Change Management: Effectively Lead Change As An HR Professional
Choosing the right technology vendors and solutions can be challenging, especially in the highly saturated HR software market.
It’s essential that organizations carefully evaluate their options and make sure the chosen system 1) aligns with their HR goals and 2) integrates into their overall HR tech stack.
Vendor selection can be further complicated by data privacy and security concerns considering that HR data requires significant security protocols to protect employee information and comply with any regulatory requirements.
Organizations should consider the help of a third-party consulting firm in implementing major transformations if they do not have the in-house technical acumen to manage these idiosyncrasies without incurring risk.
Threat to employee morale
Automation is causing considerable uncertainty around questions like job security, which may result in workplace morale and employee engagement taking a hit.
Many employees will face new roles or significantly changed responsibilities. This holds the risk of undermining their sense of the value they contribute to the company—a sense of purpose that goes hand-in-hand with employee engagement.
As such, the HR function and people leaders will need to do everything in their power to foster a supportive environment that prioritizes the employee experience in the face of all this change.
HR digital transformation often requires a cultural shift in the organization. Employees likely will need to embrace a more data-driven, and agile mindset. This comes with new skills and new expectations.
According to Arbinger Institute, “Nearly half (46%) of all decision-makers and leaders report that culture drives improvements in areas critical to growth such as employee productivity, retention, and engagement as culture improves.”
Yet despite a strong ROI, shifting your culture can be quite a challenge.
One great tactic to help influence the culture of your organization is to build your rewards and recognition program around the key behaviors you are trying to drive within your organization.
Publicly recognizing leaders and employees who are early adopters of those behaviors and providing user testimonials can help provide your employees with role models for the shifting expectations within your organization.
Further, people managers must model the desired behaviors, provide support, and communicate the strategic importance of the transformation.
Skills shortages, employment loss, and the need to reskill
While AI promises to take over many human tasks, successfully adopting this tech requires talent with specialized skill sets. So far, the labor market isn’t keeping up with the demand.
According to a recent AI business survey by PwC, 79% of companies are slowing down their AI adoption (or intend to do so) due to skills shortages in AI and data science.
Reskilling is one solution to this challenge and serves the dual purpose of addressing talent shortages and mitigating the impact of job losses due to workers being displaced by AI.
Executives estimate that implementing AI-driven automation will necessitate reskilling some 40% of their workforce over the next three years, according to IBM’s August 2023 Augmented Work report.
As mentioned, digital transformation is often designed to free up your employees to do less manual work and focus on more strategic work.
This could mean re-designing your HR operating model to appropriately support this strategic work.
New skills mean new roles and new roles mean new organizational designs strategically created to support your new digital HR tools and processes and how your HR team partners with the business.
This will require you to carefully consider your budget and resource allocations and adjust accordingly based on the new needs of your organization.
Automation is often coupled with an investment in strategic HR roles, such as HR Business Partners, allowing your HR professionals to spend more of their time acting as strategic partners to the business instead of HR administrators.
As automation initiatives are implemented at scale, and automation-related headcount reductions become frequent headlines, organizations that fail to mitigate the social impact of their automation programs are likely to face public backlash and reputational damage.
While legislation establishing worker protections and outlining automation harm-reduction frameworks is somewhat inevitable, this is likely to lag behind adoption. This means early adopters will need to navigate “ethical automation” themselves.
This may include minimizing layoffs through reskilling, prioritizing internal mobility, and using mechanisms like outplacement to reduce the social impact of restructuring.
Toxic productivity expectations
In a recent What Works essay, Tara McMullin unpacks the idea that “labor-saving devices don't tend to save us labor or time.”
She references the work of historian Ruth Schwartz Cowan, which explores how 19th-century labor-saving inventions—like egg-beaters and washing machines—meant to free up housekeepers’ time instead shifted the goalposts by redefining what it was possible to achieve in the same amount of time.
McMullin makes a salient point: There is a real risk that, instead of giving us back time by reducing our workload, automation will further raise already unsustainable productivity expectations and contribute to burnout.
Over-employment and retaining exceptional talent
While some HR thought leaders are advocating that organizations find ways to incentivize employees to implement automation (e.g. Fridays off; bonuses), a growing cohort of workers are already automating much of their work without clueing in their employers.
While some may be using the freed-up time to create additional value or improve their work-life balance, some are using their increased efficiency to hold down multiple jobs simultaneously.
In over-employment forum discussions, there’s a growing tendency to view employers in a similar light to freelance clients.
Ethical and legal reservations aside, the fact that some individuals can pull this off without detection—sometimes for years—helps to make the case for outcomes-based compensation.
If a highly effective employee is consistently meeting or exceeding the requirements of their role (or roles), perhaps they should be compensated at a higher rate than their less efficient peers in the same role.
Organizations should do everything in their power to retain such exceptionally effective talent and earn their undivided attention by compensating them appropriately.
When fully engaged, such employees could prove invaluable in reimagining organizational operating models to reap the full benefits of automation. On the other hand, failing to recognize (and incentivize) such talent can have considerable opportunity costs in terms of human capital and innovation potential.
What HR Digital Transformation Means For People Professionals
With rapidly evolving technology becoming ever more entrenched in the ways organizations operate, HR systems must evolve apace to continue to serve their people as effectively as possible.
As business models and organizational structures evolve in response to tech’s advancing capabilities, many businesses will implement new HR operating models that can take advantage of these changes.
Per Deloitte, digital HR is not just about transforming HR operations but also “Transforming the workforce and the way work is done.” That’s to say, it’s not just about automating HR processes but also about designing new systems that reflect the changing reality of the workplace.
HR leaders will be tasked not only with finding ways to reap the full benefit of these tools but also with navigating—and anticipating—the risks and challenges to business presented by technological advances such as AI.
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