It’s No Longer About Getting a Seat at the Table. Tomorrow’s CHROs Need to Lead Business…

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Nov 13, 2018

Pittsburgh-based Highmark Health generates some $19 billion in annual revenues and employs about 50,000 people across the nation. The healthcare company serves 50 million people in all 50 states. Highmark’s diversified portfolio includes businesses in health insurance, healthcare delivery, retail eyewear, and dental solutions. Like many companies today, Highmark Health has embarked on a broad digital transformation initiative. This transformation touches every part of Highmark, requiring new technologies, new skills for the workforce, and new ways of operating.

For example, one new Highmark program, ThinkUp, uses technology to centralize and standardize how Highmark engages with its various business units and many outside consulting firms — a now-streamlined process that historically happened in different ways across the decentralized Highmark organization. The anticipated value creation of this change initiative is expected to be significant.

While a company’s digital transformation is not surprising in itself, what’s surprising at Highmark is who’s leading the charge. The 3-year strategy is being driven not by a Chief Digital Officer or Chief Technology Officer, but by Larry Kleinman, Highmark’s Chief Human Resources Officer (CHRO).  

Much has been written about the traditional challenges HR executives confront in gaining credibility as strategic partners in the C-suite. Among the reasons HR and the business can become misaligned, with HR taking a back seat, are structural concerns. For example, HR may be tasked with performing “only” administrative tasks and get involved strategically only concerning employee engagement. Some reasons are cultural (e.g., HR leaders have historically been viewed as enablers and not strategic operators), while others may simply reflect a CHRO’s own aversion to playing a key strategic or business operating role.

CHRO as business leader

Highmark Health takes an innovative and optimistic approach to how it looks at the dynamic between HR and the business. At Highmark, a great HR leader is also (and primarily) a great business leader. HR leaders should bring an entrepreneurial mindset into the HR function, along with solid business experience across multiple organizations, because change isn’t just about integrating technology systems but rather managing the various impacts digital processes have on people.

As HR guru and author Dave Ulrich describes,

HR is not about HR. It’s about helping the business win. A good leader, in HR or anywhere, is somebody who makes others better. A good HR leader asks, ‘How do we bring our external promise to customers into a set of disciplines for internal employee behaviors?’ HR is focusing on the key outside metrics and driving behavioral changes internally to achieve [business outcomes].

This marks a shift in how many think of HR. Indeed, for HR to drive value it must behave not just as an enabling function but also as an operating function.

HR’s evolution in a digital, data-enabled world

Changes in labor demographics, technological developments, and fast-moving markets have come together in such a way that there’s never been a better time for the CHRO to impact the business in dramatic, value-enhancing ways. In Mercer’s Talent Trends 2018 survey, 26% of executives indicated that they expect significant disruption to happen in their industry over the next 2 years. Another 43% said that they expect moderate disruption. These big numbers show how much business and work are in flux. For HR leaders up to the task, today represents an historic opportunity to drive change.

We’re in a time of major transition for HR leaders that’s similar to what marketing leaders have experienced over the last decade — emerging technologies have provided access to data and tools that help marketing leaders take a much more data-driven, ROI-focused approach to their work. This data-driven transition has shifted marketing from an enabling to a truly operating function. Now marketing is a key business leader.

Like this evolution with marketing, many analysts point to a similar dynamic happening with HR where emerging people-related technology is helping a company connect the most critical work to the right people generating valuable data on capabilities and skills inside and outside the organization. This means HR is at a critical turning point — one where it has the opportunity to become a true data-driven business leader.

3 key behaviors of the strategic CHRO

Based on our collective experience leading and observing HR functions, developing technology tools for enabling and managing agile organizations at scale, and advising leaders in the Fortune 1000, we’ve identified three key behaviors that mark this important evolution in the role of the CHRO. These three behaviors will make today’s strategic CHRO effective in driving sustainable change across the entire enterprise.

1. Operating with a business-first mindset

The realities of business today require that the CEO, CFO, CHRO, and other leaders align around HR as a strategy function. The business-first CHRO (co-author Larry Kleinman, for example, started multiple businesses before entering HR) seeks to drive outcomes that are important for the overall business, such as offering a stellar customer experience that drives revenue growth. He or she begins planning and building from the starting point of those desired outcomes, then works backward, asking critical questions along the way:

  • If the company needs to move from doing X to doing Y, what skills, talent, and workforce structure are needed?
  • How might the company’s workforce be retrained, upskilled, and redeployed to drive growth?

At Highmark, the CEO, CFO, CHRO and executive leadership team meet monthly to review performance against their strategic plan.  The upside of the business operating in lockstep is pretty clear: better coordination and alignment leading to organizational efficiency and sustainable growth.

There are also examples of the risk involved when a business is not operating in this strategically-aligned way. At one large industrial company, a single business unit leader introduced a pilot program to engage employees for projects using, essentially, an internal gig marketplace technology. The problem? This program launched before HR had been brought up to speed on the business purpose and outcomes sought. When employees had unanswered questions around incentives, performance, and manager training, the initiative stalled. The company spent significant time, effort, and cost post-launch aligning HR with the business and getting the program (and the company’s people) back on track. The takeaway: Business-led initiatives involving workforce management run more smoothly when HR is bought in and engaged early.

Something similar happened at a bank that sought to introduce automation and robotics to boost productivity but failed to gain strategic input from HR for this “technology” initiative. When employees realized their jobs might be eliminated or radically transformed and understood that the firm had not adequately planned for these contingencies, significant disruption (turnover and lowered engagement) ensued. So often, technology initiatives have profound impacts on people. HR must be a strategic partner in understanding and mitigating that impact.

2. Driving change and innovation

HR is one of the few functions with an overview of the entire business, certainly the case at Highmark, and this comprehensive perspective is especially important during any broad-based digital transformation effort. At its core, transformation is about architecting, managing, and directing behavior change in people — not just about implementing technology, but changing the way people work. HR is perhaps best-positioned to manage this type of change.

At Highmark, the ThinkUp program is driven through a governance structure that starts with the CEO, CHRO, CFO and business unit leaders, and then extends into operating committees within each unit who have full decision-making authority and accountability. The CHRO leads an ongoing digital transformation that now includes some 500 strategic projects being vetted, 37 projects under way, and 13 already completed.

As part of its digital transformation process, Highmark came up with various solutions to redeploy and retrain its people to perform higher-level, more value-added functions. There are emerging tools available to companies like Highmark that enable rapid, value-adding deployment of talent —and access to external skills —in a landscape of accelerating change and increasing demand for specialized skills.

In fact, global HR consultancy Mercer believes the future of work will be open-source, with recruiting evolving from acquisition to curation. “The fluid [talent] pipeline of the future will be built by organizations that embrace the principles of open-source talent: collaboration, sharing and community-building.” Organizations like Highmark won’t need to “own” talent, when the capacity to “access” is becoming readily available.

3. Preparing to manage a human workforce augmented by technology

We see two different types of digital transformations: externally focused (for example, a shift to an e-commerce business model, connecting directly with customers using digital, etc.) or internally focused (for instance, digitizing internal processes, driving automation, etc.). For the latter, the most sophisticated HR leaders think about how their company can digitize processes related to getting work done and engaging their people. That’s exactly what Highmark is doing at scale.

At some companies, the push for digital transformation leads to the hiring of a technological visionary as CDO, but the required transformation goes beyond technology to encompass people — typically the focus of the CHRO and HR. It’s not that hiring a CDO is a mistake; rather, the pitfall is in separating digital strategy from HR strategy. Change requires an evolution in how we think and work as well as in the technology we use. One influences the other. It is only when the CDO and CHRO are aligned that a company is in the best position to holistically address the new challenges and opportunities created by the fast-changing consumer preferences. When organizations view digital transformation as “technology-only,” they confront problems with people who may quickly derail change efforts.

It’s clear to us that the CHRO is where business priorities and humans intersect. The word “automation” (frequently on the list of today’s business priorities) can create anxiety throughout a workforce, as people worry whether they have the requisite skills for today or the future. In our view, automation is less likely to mean job elimination for most people and more likely to mean job transformation. How will new technology complement one’s job or make it more efficient? How can people adapt their skills as technology does more? These are open and all-important questions  for years to come. This is where the CHRO helps manage the human impact of strategy, getting people ready to adapt in order to drive business growth, all the while reducing anxiety and related business disruption.

Blending people and technology is what success looks like today and tomorrow in HR and all areas of the business. Mercer’s white paper Delivering the Workforce for the Future offers the example of how Unilever is changing the way it hires. “Unilever now recruits through an automated screening platform using video interviews, where interviewees upload a self-filmed video. After the video is evaluated by machine-learning software, successful candidates are referred to in-person interviews.” Unilever now hires faster and smarter using fewer manual steps.

The future of work is about utilizing emerging technologies like AI and machine learning for workers in a way that allows each to do what they do best. For companies, these advances generate data and offer tools needed to connect their best people to the most important work ongoing in their business. For example, Catalant uses AI and machine learning to help global companies like Shell and GE match skilled in-house specialists with the various projects and business units that need those skills, as the needs arise.

The takeaway: CHROs need a business-first mindset

The CHRO’s role for today has expanded well beyond administering payroll and benefits. Effective CHROs need an entrepreneurial mindset to drive and impact key business outcomes, especially around crucial customer and employee behaviors.

The three key behaviors of the CHRO of the future, as described above, assume an important trait: a willingness by CHROs and their organizations to assume the business leader role. At far too many companies over the 70-year history of the HR function, the CHRO has been brought into business decision-making at the end of the process only to enable or implement.

CEOs need to reverse this dynamic to build the organization of the future. It starts with the CEO’s expectations of the CHRO role — hire for a strategic, business partner, not an administrative functionary. From there, CHROs may need to step into somewhat unfamiliar territory. This is the perfect moment for those who are willing to assume the role.

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