Rewriting the rules for the digital age
IntroductionFebruary 28, 2017
The accelerating rate of change in business, the economy, and society challenges both business and HR to adopt new rules for leading, organizing, motivating, managing, and engaging the 21st-century workforce.
The 2017 Deloitte Global Human Capital Trends report reflects seismic changes in the world of business. This new era, often called the Fourth Industrial Revolution1—or, as we have earlier labeled it, the Big Shift2—has fundamentally transformed business, the broader economy, and society.
We title this year’s report Rewriting the rules for the digital age because a principal characteristic of the new era is not merely change, but change at an accelerating rate, which creates new rules for business and for HR. Organizations face a radically shifting context for the workforce, the workplace, and the world of work. These shifts have changed the rules for nearly every organizational people practice, from learning to management to the definition of work itself.
All business leaders have experienced these shifts, for good or for ill, in both their business and personal lives. Rapid change is not limited to technology, but encompasses society and demographics as well. Business and HR leaders can no longer continue to operate according to old paradigms. They most now embrace new ways of thinking about their companies, their talent, and their role in global social issues.
We have developed a “new set of rules” to make sense of this changing landscape. These rules reflect the shifts in mind-set and behavior that we believe are required to lead, organize, motivate, manage, and engage the 21st-century workforce. While it is hard to predict which emerging business practices will endure, it is impossible to ignore the need for change. This report is a call to action for HR and business leaders, who must understand the impact of change and develop new rules for people, work, and organizations.
This report marks the fifth anniversary of our annual deep dive into human capital trends. This year, our survey included more than 10,000 respondents from 140 countries, fueling our analysis of the social, economic, political, technological, and cultural issues facing business and HR leaders and employees worldwide.
Forces for change driven by the digital revolution
We found a fascinating tapestry of issues as we looked at the survey data, spoke with clients, and interviewed business leaders around the world.
It is abundantly clear that technology is advancing at an unprecedented rate. Technologies such as artificial intelligence (AI), mobile platforms, sensors, and social collaboration systems have revolutionized the way we live, work, and communicate—and the pace is only accelerating. This causes stress for individuals as well as societies; research shows that employees and organizations are more “overwhelmed” than ever.3
Business productivity has not kept pace with technological progress. Data from the US Bureau of Labor Statistics and other sources show that productivity growth remains low despite the introduction of new technology into the business environment. In fact, since the 2008 recession, growth in business productivity (gross domestic product per hour worked) stands at its lowest rate since the early 1970s (1.3 percent).4 At the same time, companies themselves are being disrupted more quickly. For example, only 12 percent of the Fortune 500 companies from 1955 are still in business, and last year alone, 26 percent fell off the list.
The problem, illustrated in figure 1, is the ever-increasing gap between technological sophistication and the amount of work actually performed. The result is income inequality, wage stagnation, and social and political unrest around the world. Companies with low productivity now lose quickly to competitors, as most stock market valuations are driven by IP and services, not by physical or capital goods.
What causes this gap? We believe the problem comes down to human capital strategies—how businesses organize, manage, develop, and align people at work.
In his 2016 book Thank You for Being Late, Thomas Friedman refers to a graph created by Eric “Astro” Teller, CEO of Alphabet’s Google X division, which suggests that technology is increasing at an ever-faster rate while human adaptability rises only at a slower, linear rate.5 While we partially agree with his conclusion (we believe individuals do and will adapt to technology very quickly), we think that it is also critical to understand the relationship among the four interlocking issues shown in figure 2.
In figure 2, curve 1 illustrates the exponential rate of technological change. More than 50 years after the formulation of Moore’s law—which holds that computing power doubles in capability every 18 to 24 months—mobile devices, sensors, AI, and robotics affect our lives more quickly and more pervasively than ever before.
Curve 2 posits that individuals are relatively quick and adept at adopting new innovations. Deloitte research, for example, finds that US citizens now look at their mobile phones 8 billion times a day,6 forcing industries such as media, retail, transportation, and even restaurants to build digital products and services to capture individuals’ time and attention.
As shown in curve 3, however, while individuals adapt to technology relatively rapidly, businesses and organizations move at a slower pace. The business practices of corporate planning, organizational structure, job design, goal-setting, and management were largely developed in the (first) industrial age, and companies must constantly revise them to keep up. The gaps between curves 1, 2, and 3 show the need for organizations to adapt to technology and lifestyle changes. They are a major focus of the trends discussed in this year’s report.
Finally, curve 4 represents public policy, including policies around income inequality, unemployment, immigration, and trade. These issues, which directly affect businesses through regulation, taxes, and legislation, adapt at an even slower pace. Laws and policies on topics such as minimum wage, trade tariffs, immigration, and education only shift after years of public debate. The gap between public policy and the other three domains results in imbalances and challenges for business and HR leaders.
Understanding these four curves, and the growing gaps among technology, individuals, businesses, and public policy, is now essential to effectively navigating the world of human capital. HR has a unique role to play: It can help leaders and organizations adapt to technology, help people adapt to new models of work and careers, and help the company as a whole adapt to and encourage changes in society, regulation, and public policy.
Rapid and disruptive change is not new
The current uneasiness with the pace of technological change is not new. The 1980s, for instance, saw a rapid rise in computing power that resulted in automated teller machines, online systems, and the IT industry’s rapid growth. The world adapted well as people gained new skills and new jobs.
Today, a new set of digital business and working skills is needed. As we discuss in this report, companies should focus more heavily on career strategies, talent mobility, and organizational ecosystems and networks to facilitate both individual and organizational reinvention. The problem is not simply one of “reskilling” or planning new and better careers. Instead, organizations must look at leadership, structures, diversity, technology, and the overall employee experience in new and exciting ways.
The 10 human capital trends
The trends in this year’s report identify 10 areas in which organizations will need to close the gap between the pace of change and the challenges of work and talent management (figure 3).
Trend 1. The organization of the future: Arriving now
Given the pace of change and the constant pressure to adapt, it is not surprising that executives identified building the organization of the future as the most important challenge for 2017. In this year’s survey, nearly 60 percent of respondents rated this problem as very important, and 90 percent rated it as important or very important. This level of interest signals a shift from designing the new organization to actively building organizational ecosystems and networks. Agility plays a central role in the organization of the future, as companies race to replace structural hierarchies with networks of teams empowered to take action.
Trend 2. Careers and learning: Real time, all the time
The concept of a “career” is being shaken to its core, driving companies toward “always-on” learning experiences that allow employees to build skills quickly, easily, and on their own terms. This year, careers and learning rose to second place in rated importance, with 83 percent of executives identifying these issues as important or very important. At leading companies, HR organizations are helping employees grow and thrive as they adopt the radical concept of a career described in The 100-Year Life.7 New learning models both challenge the idea of a static career and reflect the declining half-life of skills critical to the 21st-century organization.
Trend 3. Talent acquisition: Enter the cognitive recruiter
As jobs and skills change, finding and recruiting the right people become more important than ever. Talent acquisition is now the third-most-important challenge companies face, with 81 percent of respondents calling it important or very important. Our chapter on talent acquisition highlights how leading organizations use social networking, analytics, and cognitive tools to find people in new ways, attract them through a global brand, and determine who will best fit the job, team, and company. A new breed of cognitive technologies is radically transforming recruiting, which stands at the early stages of a revolution.
Trend 4. The employee experience: Culture, engagement, and beyond
Culture and engagement are vital parts of the employee experience, and leading organizations are broadening their focus to include a person’s first contact with a potential employer through retirement and beyond. Today, companies are looking at employee journeys, studying the needs of their workforce, and using net promoter scores to understand the employee experience. Workplace redesign, well-being, and work productivity systems are all becoming part of the mandate for HR.
Trend 5. Performance management: Play a winning hand
For the last five years, companies have been experimenting with new performance management approaches that emphasize continuous feedback and coaching, reducing the focus on appraisal. This year, companies are moving beyond experimentation to deploy new models on a wide scale. Even though HR technology tools have not quite caught up, new approaches to performance management are working, and they are increasing productivity and changing corporate culture.
Trend 6. Leadership disrupted: Pushing the boundaries
As companies transform and digital organizational models emerge, leadership needs change as well. Eighty percent of our respondents say that leadership is an important issue, and 42 percent call it very important. Organizations are clamoring for more agile, diverse, and younger leaders, as well as new leadership models that capture the “digital way” to run businesses. While the leadership development industry continues to struggle, companies are pushing the boundaries of their traditional leadership hierarchies, empowering a new breed of leaders who can thrive in a rapidly changing network.
Trend 7. Digital HR: Platforms, people, and work
As the enterprise as a whole becomes digital, HR must become a leader in the digital organization. This means going beyond digitizing HR platforms to developing digital workplaces and digital workforces, and to deploying technology that changes how people work and the way they relate to each other at work. Fortunately, the path to digital HR is becoming clearer, with expanded options, new platforms, and a wide variety of tools to build the 21st-century digital organization, workforce, and workplace.
Trend 8. People analytics: Recalculating the route
Data about people at work has become more important than ever, but the focus of people analytics has changed. Formerly a technical discipline owned by data specialists, people analytics is now a business discipline, supporting everything from operations and management to talent acquisition and financial performance. Readiness to capitalize on people analytics remains a challenge, however. Only 8 percent of organizations report they have usable data, while only 9 percent believe they have a good understanding of the talent factors that drive performance.
Trend 9. Diversity and inclusion: The reality gap
Fairness, equity, and inclusion are now CEO-level issues around the world. Executives can no longer abdicate diversity strategies to the CHRO or chief diversity officer. A new focus on accountability, data, transparency, and “diversity through process” is driving efforts around unconscious bias training and education throughout the business community. Despite these efforts, however, we see a reality gap. Issues around diversity and inclusion continue to be frustrating and challenging for many organizations.
Trend 10. The future of work: The augmented workforce
Robotics, AI, sensors, and cognitive computing have gone mainstream, along with the open talent economy. Companies can no longer consider their workforce to be only the employees on their balance sheet, but must include freelancers, “gig economy” workers, and crowds. These on- and off-balance-sheet workers are being augmented with machines and software. Together, these trends will result in the redesign of almost every job, as well as a new way of thinking about workforce planning and the nature of work. Change is already taking place: In this year’s survey, 41 percent of our respondents have either fully implemented or made significant process in adopting cognitive and AI technologies, and another 35 percent report pilot programs.
New game, new rules
The game has changed, and so have the rules. In this year’s Global Human Capital Trends report, we supplement each chapter with a table highlighting the shift from old rules, which dominated past thinking about how to run an organization, to a set of new rules, which define how leading companies now think and operate. These new rules reflect not only insights from our survey, but also our work with companies around the world that are setting the bar for performance in today’s global economy. They are the result of years of thought and practice, as well as our observations of leading companies in every industry, geography, and size.
Put directly: Any organization that is not playing by the new rules will likely fall behind. We hope these insights can serve as a strategic roadmap to help organizations to not simply adapt, but to thrive in the emerging business environment.
HR scorecard: How well is HR keeping up?
Each of the 10 trends we discuss affects the role of HR, which in turns leads to a serious question: How well is HR keeping up?
Over the past five years, we have tracked what we term the “HR scorecard,” which measures how well HR executives believe their teams can address the talent issues around them. This year, HR is struggling. Last year, 39 percent of HR teams felt their capabilities were good or excellent, but this year that proportion has dropped to 36 percent, below the capability we measured in 2015 (figure 5).
Why the slip backwards?
We believe that the HR function is in the middle of a significant identity change. Not only do HR organizations need to structure themselves for service delivery efficiency and excellence in talent programs, but they must now also focus on the employee experience, employee productivity, and the entire realm of work, job, and structural design. The new rules provide a mandate for many HR organizations to reorient themselves and focus their people on the changing human capital issues their companies face.
HR leaders are clearly being asked to step up to the challenge. The profession is lighting up with new ideas, and HR teams are rapidly using the new rules in some of the most innovative ways we have seen in years.
Join us: Riding the wave to its crest
Humans are marvelously adaptable. We have every confidence that even in these days of rapid change, leaders and workers will adapt, as they have in the past. The question is: Will organizations ride this wave or watch it crash over themselves?
The opportunity for leading organizations is not only to use these trends to guide business success, but to help pull society toward the crest of the technological wave—an important consideration when business is increasingly invited to play a social as well as an economic role. We invite you to join us on this journey.
Originally published at Deloitte Insights