Introduction Leading in the new world of work

Global organizations today must navigate a “new world of work”—one that requires a dramatic change in strategies for leadership, talent, and human resources.

In this new world of work, the barriers between work and life have been all but eliminated. Employees are “always on”—hyper-connected to their jobs through pervasive mobile technology.

Networking tools like LinkedIn, Facebook, and Glassdoor enable people to easily monitor the market for new job opportunities. Details about an organization’s culture are available at the tap of a screen, providing insights about companies to employees and potential employees alike. The balance of power in the employer-employee relationship has shifted—making today’s employees more like customers or partners than subordinates.

Many of today’s employees work in global teams that operate on a 24/7 basis. An increasing number of skilled workers in this new world work on a contingent, part-time, or contract basis, so organizations must now work to integrate them into talent programs. New cognitive technologies are displacing workers and reengineering work, forcing companies to redesign jobs to incorporate new technology solutions.

Demographic changes are also in play. Millennials, who now make up more than half the workforce, are taking center stage. Their expectations are vastly different from those of previous generations. They expect accelerated responsibility and paths to leadership. They seek greater purpose in their work. And they want greater flexibility in how that work is done.

For human resources (HR) organizations, this new world requires bold and innovative thinking. It challenges our existing people practices: how we evaluate and manage people and how we engage and develop teams; how we select leaders and how they operate. HR organizations now face increasing demands to measure and monitor the larger organizational culture, simplify the work environment, and redesign work to help people adapt.

For HR and talent teams, 2015 will be a critical year. As these forces gather momentum, we see 2015 as a time for creativity, bold leadership, and a fundamental reimagining of the practices HR leaders have used for years.

Our global research

Deloitte’s 2015 Global Human Capital Trends report is one of the largest longitudinal studies of talent, leadership, and HR challenges and readiness around the world. The research described in this report involved surveys and interviews with more than 3,300 business and HR leaders from 106 countries. (See the appendix to this chapter for details on survey demographics.) The survey asked business and HR respondents to assess the importance of specific talent challenges facing their organization and to judge how prepared they were to meet these challenges.¹ Using these responses, we calculated a “capability gap” for each challenge, measuring the difference between an issue’s importance and an organization’s readiness to address it.²

In this year’s report, we explore 10 major trends that emerged from our research, which reflect four major themes for the year: leading, engaging, reinventing, and reimagining (figure 1). We also present the capability gaps associated with each of these trends, and offer practical insights to help you address each of these challenges in your organization.

All the data from this research can be viewed by geography, company size, and industry using an interactive tool, the Human Capital Trends Dashboard. This tool, available at www.deloitte.com/hcdashboard, lets you explore the data visually to see how talent priorities vary around the world.

Leading in the new world of work: The 10 trends

Figure 2 shows respondents’ ratings of the importance of 10 talent challenges alongside their rated readiness to address each challenge.³ These data highlight substantial capability gaps in all 10 areas. Comparing these results to the data from last year, we see that the capability gap in many of these areas has increased in magnitude (figure 3), suggesting that the accelerating economy and rapid changes in the workforce have created even more urgency in the need to adapt HR and people practices around the world.

Based on the survey data, interviews, and secondary research, we provide more detail on each of these challenges and recommendations for how leaders can begin to address them in this report’s 10 chapters:

1. Culture and engagement: The naked organization. This year, culture and engagement was rated the most important issue overall,⁴slightly edging out leadership (the No. 1 issue last year). This challenge highlights the need for business and HR leaders to gain a clear understanding of their organization’s culture and reexamine every HR and talent program as a way to better engage and empower people.
2. Leadership: Why a perennial issue? Building leadership remains paramount, ranking as the No. 2 issue in this year’s survey.⁵ Yet despite the fact that nearly 9 out of 10 respondents surveyed cite the issue as “important” or “very important,” the data also suggest that organizations have made little or no progress since last year: The capability gap for building great leaders has widened in every region of the world.
3. Learning and development: Into the spotlight. This year’s third most important challenge⁶ was the need to transform and accelerate corporate learning, up from No. 8 in 2014. The percentage of companies rating learning and development as very important tripled since last year. But even as the importance of this issue rose, the readiness to address it went down. Only 40 percent of respondents rated their organizations as “ready” or “very ready” in learning and development in 2015, compared to 75 percent in 2014.
4. Reinventing HR: An extreme makeover. The fourth biggest issue was the need to reskill HR itself.⁷ This area also shows little progress since last year. Both HR and business leaders, on average, rated HR’s performance as low; furthermore, business leaders rated HR’s performance 20 percent lower than did HR leaders, showing how important it is to accelerate HR’s ability to deliver value as the economy improves. Perhaps because of these dim views of HR’s performance, we found an increasing trend of CEOs bringing in non-HR professionals to fill the role of CHRO.
5. Workforce on demand: Are you ready? Eight out of 10 respondents surveyed cited workforce capability as being either “important” or “very important” in the year ahead, indicating the demand for skills that is driving a trend toward greater use of hourly, contingent, and contract workers. This trend highlights the need to develop better processes, policies, and tools to source, evaluate, and reward talent that exists outside of traditional corporate and organizational balance sheets.
6. Performance management: The secret ingredient. One of the biggest needs in the new world of work is the need to rethink how organizations manage, evaluate, and reward people. New, agile models for performance management have arrived, and we see these new performance management models as a core component of this year’s focus on engagement, development, and leadership.
7. HR and people analytics: Stuck in neutral. HR should now make serious investments in leveraging data to make people decisions. People analytics, a strategy that has been evolving over the last several years, has the potential to change the way HR will work. However, HR organizations appear to be slow in developing the capabilities to take advantage of analytics’ potential.
8. Simplification of work: The coming revolution. Last year’s Global Human Capital Trends report identified the “overwhelmed employee” as an emerging trend. This year, the percentage of respondents who regard this as a “very important” issue rose from 21 percent to 24 percent. This heightened recognition is just the beginning of what we see as a long-term movement by companies to simplify work, implement design thinking, overhaul the work environment, and help employees focus and relieve stress. We are entering an era of “doing less better” rather than “doing more with less.”
9. Machines as talent: Collaboration, not competition. Cognitive computing—the use of machines to read, analyze, speak, and make decisions—is impacting work at all levels. Some believe that many jobs will be eliminated. HR teams must think about how to help redesign jobs as we all work in cooperation with computers in almost every role.
10. People data everywhere: Bringing the outside in. The explosion of external people data (data in social networks, recruiting networks, and talent networks) has created a new world of employee data outside the enterprise. It is now urgent and valuable for companies to learn to view, manage, and take advantage of this data for better recruiting, hiring, retention, and leadership development.

Six key findings

As we analyzed the data and talked extensively with companies around the world about these issues, we uncovered six key findings that paint a high-level picture of how organizations are approaching talent and work.

“Softer” areas such as culture and engagement, leadership, and development have become urgent priorities.

As the economy grows and skills become more specialized, the competition for talent has increased. This has driven culture and engagement, leadership, and development to the top of the human capital agenda. These challenges consistently ranked as the top three most important issues across regions (figure 4) and industries (figure 5).

Especially notable in these results is the prominence of culture and engagement. While leadership has been the top issue in past years, this is the first time culture and engagement has been viewed as the most important challenge overall. In fact, the proportion of respondents citing culture and engagement as a “very important” issue almost doubled this year, from 26 percent to 50 percent. Almost two-thirds of our HR respondents are looking at ways to update or revamp their entire strategy to measure, manage, and improve employee engagement.

Every program in HR must address issues of culture and engagement: how we lead, how we manage, how we develop, and how we inspire people. Without strong engagement and a positive, meaningful work environment, people will disengage and look elsewhere for work.

Leadership and learning have dramatically increased in importance, but the capability gap is widening.

As the economy recovers, companies see an accelerating demand for leadership at all levels, especially among Millennials.⁸ This may be one reason that the proportion of respondents rating leadership as “very important” rose by 32 percent over last year, and the capability gap is increasing. Yet, as noted above, improvements are not coming fast enough. Only 6 percent of companies feel fully ready to address their leadership issues, only 10 percent feel comfortable with their succession program, and only 7 percent have strong programs to build Millennial leaders.

Learning and development showed a similar pattern. On average, respondents’ ratings of the importance of this issue quadrupled this year over last year’s ratings.⁹ Moreover, while this issue had the smallest capability gap last year at -9, this year, the gap widened significantly to -28. This result suggests that, while technical and professional skills are a top priority, corporate training departments have fallen behind. Companies are struggling to redesign the training environment, incorporate new learning technologies, and utilize the incredible array of digital learning tools now available.

HR organizations and HR skills are not keeping up with business needs.

As previously noted, compared with last year, the capability gap for virtually every talent issue increased in magnitude (figure 3). Meanwhile, business leaders and HR respondents themselves continue to give HR borderline failure/barely passing grades. At a time when talent is indisputably a CEO-level issue, this should be setting off alarms in every HR organization.

HR organizations rated their teams the equivalent of a C-minus (an average of 1.65 on a five-point scale), showing almost no improvement over last year’s ratings. When we asked business leaders to rate HR, the score was even lower. Business leaders rated HR a D-plus (an average of 1.32 on a five-point scale), indicating their increased expectations.¹⁰

Given these poor grades, it is not surprising that only 5 percent of the HR leaders surveyed this year believe their organization’s talent and HR programs are “excellent” and only 34 percent rate them as “good” (figure 6). The rest—about 61 percent, or nearly two out of three—believe their HR solutions are barely adequate or falling behind. And HR’s self-assessment of its skills has hardly budged over the last two years. The upshot: As business is growing and changing exponentially, HR is improving at a much slower pace.

The silver lining is that while the average HR scorecard has barely improved in the past year, organizations whose HR functions have made strides are reaping significant benefits across the spectrum of talent issues. Organizations whose HR teams rate themselves as “excellent” (5 percent) also far outperform their peers in every talent capability by between 40 and 60 percent, according to research.¹¹

HR technology systems are a growing market, but their promise may be largely unfulfilled.

HR’s self-assessed lag is taking place amid a steady increase in HR investment. HR spending grew by 4 percent in 2014 over 2013, with much of this growth dedicated to technology.¹²Further, according to this year’s research, nearly 6 in 10 companies are planning to increase HR spending in the next 12–18 months (figure 7).

Why is this money not resulting in improved outcomes? The widening capability gaps in areas such as learning and development, engagement and culture, and leadership, coupled with Deloitte’s client experience with HR technology, suggests that the heavy increased spending on technology has not been accompanied by similar investments in process and people. HR technology investments are critical—and the market for these solutions has grown by 50 percent into a $10 billion industry in the last five years.¹³ But when it comes to critical issues like learning, engagement, and the work environment, HR organizations have not transformed fast enough. Implementing new tools without redesigning processes and retraining HR does not solve talent problems. The lesson is not to stop spending on technology, but to make sure complementary investments are made in programs that redesign processes, develop new learning content and programs, and train both leaders and the HR team.

Talent and people analytics are a high priority and a tremendous opportunity, but progress is slow.

Analytics is on the agenda of almost every HR team we surveyed, with three in four respondents rating it as “important” or “very important.” But despite this interest, our research shows only a small improvement in analytics capabilities. Thirty-five percent of this year’s respondents reported that HR analytics was “under active development” at their organizations—just slightly more than the proportion of respondents who said the same last year (33 percent) (figure 8). And this year, only 8.44 percent of the respondents surveyed believe their organizations have a strong HR analytics team in place, a very slightly higher percentage than last year’s figure. These findings suggest that new vendor tools have hit the market, but teams are still not fully enabled, trained, or organized to succeed.

The role of outside data is now integral to an HR analytics solution. Data from social networks and external job sites is vital to understanding retention, engagement, and employee career needs. In fact, some executives have found that external people data is more accurate and useful than data inside the company. How can companies make sense of this sea of data, much of which is out of their control? More importantly, how can organizations transform this data into a strategic advantage on the talent front?

We see people analytics as an accelerating trend—part of a new set of critical skills for HR, business, and leadership. Companies that take the time and make the investment to build people analytics capabilities will likely outperform their competitors significantly in the coming years.

Simplification is an emerging theme; HR is part of the problem.

Last year, many executives were surprised to see the “overwhelmed employee” emerge as a significant problem around the world. This year, we decided to dig deeper by assessing how companies are dealing with this issue. What emerged was what we perceive as a potential revolution in the way companies organize and operate, all built around the imperative to radically simplify work environments, practices, and processes.

In this year’s survey, 71 percent of companies rated work simplification as an “important” or “very important” issue, and 74 percent believe their work environment is “very complex” or “complex” (figure 9). More than half have programs to simplify work to drive productivity gains and relieve unnecessary and counterproductive pressures on employees (figure 10). Some HR organizations themselves are working to simplify some of their procedures: Companies are starting to phase out traditional performance management processes, notorious for their burdensome nature, in favor of more streamlined approaches.

We believe that this is just the beginning of a major movement to apply innovative approaches and techniques like “design thinking” to simplify and rationalize the workplace of the 21st century.

A new playbook for new times

Growth, volatility, change, and disruptive technology drive companies to shift their underlying business model. It is time for HR to address this disruption, transforming itself from a transaction-execution function into a valued consultant that brings innovative solutions to business leaders at all levels.

Unless HR embraces this transformation, it will struggle to solve problems at the pace the business demands. Today’s challenges require a new playbook—one that makes HR more agile, forward thinking, and bolder in its solutions.

Our goal in this research is to give business and HR leaders fresh insights and perspectives to shape thinking about priorities for 2015. In a growing, changing economy, business challenges abound. Yet few can be addressed successfully without new approaches to solving the people challenges that accompany them—challenges that have only grown in importance and complexity.

Our advice is simple: Jump into the fray with enthusiasm. Seize ownership of these challenges and show leadership in addressing them. Make 2015 a year of bold leadership in helping your organization thrive in this new world of work.

Appendix: Survey demographics