How HR Organizations Can Improve Their Digital Proficiency
A well-proven but underutilized method for achieving digital change and transformation success.
Human Resources (HR) is increasingly becoming a digital function, but many HR organizations lack digital proficiency. They use technology, but do not work in a manner that fully embraces and delivers ongoing digital change and transformation. Thus increasing problems arise for organizations given the complex and fast-moving HR technology landscape. I will guide you through an exploration of why HR struggles to be digitally proficient, explain a model that has been shown to help HR organizations become digitally proficient (the Product Operating Model - or POM), and provide guidance on implementing this model based on my experience in the field. The following topics will act as our roadmap:
Why HR needs to become a more digitally proficient function
What it means to be digitally proficient and why making this transition is a challenge for HR
The POM model, and why it has proven to be an effective method for increasing digital proficiency
Guidance for achieving digital proficiency using the POM model - based on direct client experiences
Why HR Needs to Become a More Digitally Proficient Function
The HR function is under incredible pressure to become digitally proficient in order to deliver demonstrable business value and stay relevant in difficult times. As highlighted in Dr. Steve Hunt’s book Talent Tectonics, HR is having to juggle exponential digital change impacts while simultaneously being faced with a shrinking working population (e.g., 9 of the top 10 industrialized countries are struggling with shrinking workforces). The resulting disruption is massive and urgent. Many organizations are just struggling to stay alive. The average lifespan of S&P 500 companies has dropped from 60 years in the 1950s to less than 20 years today. Ironically, digital change is not just the problem, it’s also the solution for how HR can adapt and scale to help their organizations meet these challenges head on. And as technology becomes more ubiquitous and integral to the HR function, HR needs to operate more like digital natives and develop their digital proficiency. In order to drive necessary change, transformation and business value, they need the mindset, capability and capacity to incorporate digital solutions into their day-to-day operations in order to deliver digitally-powered HR solutions and services.
In my career, I have spent the past 25 years implementing HR technology solutions. Early on, I implemented HR technology for software companies, then shifted to working directly within the corporate HR function. I later moved to consulting with boutique and tier 1 consultancies, and then more recently launched my own digital HR consulting practice. I have seen the good, the bad and the ugly of digital change and transformation and, for the most part, success (or failure) comes down to the digital proficiency of the HR organization. Methods like the POM can help to build digital proficiency and effectiveness, but are insufficient when implemented in isolation. One client for example, despite introducing the POM model, was forced to hit ‘pause’ after going live with a parallel initiative involving the reimplementation of their core HR processes. They had under-invested in developing their target operating model and change management efforts. The process model was underdeveloped, the staffing model had not been adjusted for the new global workload demands, and the HR Business Partner, HR Operations and Compensation teams were not enabled with sufficient communications, training and support. So while it is important to consider leading tools and methods like the POM, organizations that are truly digitally proficient must adopt a holistic approach to planning and delivering their digital programs.
What Does it Mean to be Digitally Proficient and Why Does HR Struggle to Make this Transition?
Digital Proficiency refers to the digital mindset, capability and capacity to overcome common challenges and deliver digital change and transformation success. In this definition:
Digital mindset, capability and capacity encompasses the required culture, skills, abilities, methods and headcount to deliver the digital roadmap
Challenges is associated with complexities, capability gaps and/or absence of a disciplined digital approach
Digital change and transformation can be as simple as introducing minor digital changes like releasing a few features to improve the new hire onboarding process, or as complex as navigating a complex digital transformation - the continual realignment of the operating model, technologies, and organizational culture to more effectively deliver business value and employee experience (S. Sen, Digital HR Strategy)
Success refers to delivering target value (e.g., on time, on budget, employee experience, efficiency) and sustainable change (Boston Consulting Group)
Unfortunately, with most technology-centric programming, HR (and its partners) often miss the ‘non-technology’ components of digital change and transformation like the operating model, people, process and culture in their programming. Let’s explore why that is.
Why Making the Transition to Digital Proficiency is a Challenge for HR
When it comes to why digital proficiency is so elusive for HR, there are three key challenges that get in the way:
Digital HR transformations are complicated
HR generally lacks the capabilities and capacity to successfully deliver digital transformations
HR is often missing a unified and disciplined approach to consistently manage digital transformations
Let’s look at these in order.
(1) Complexity. Digital change and transformation is particularly complicated for HR. As highlighted above, organizations (and HR in particular) are under incredible pressure resulting from digital and demographic change. Shared service functions like HR, IT and finance are especially vulnerable given their dependence on information and data operations to deliver their services.
The changing digital landscape is also adding complexity for HR teams. Over my career I’ve worked on projects that employed various methods including waterfall, hybrid/iterative, and agile - or a combination of all three. I have seen technologies evolve from client server-based solutions (on premise) to web-based applications (e.g., software-as-a-service) to cloud computing (e.g., platform-as-a-service) and more recently to AI, machine learning and RPA (robotic process automation) solutions - or a combination of all four.
With all of these complexities simultaneously facing today’s HR organizations, it’s no wonder digital transformations have become so challenging and difficult to deliver successfully. Digital transformation success rates are now below 30 percent (Boston Consulting Group, Forbes). A success rate of just 30 percent may be acceptable if you are leading a net new innovation project. However, when it comes to failed transformations that disrupt HR operations, that undermine HR service delivery and brand, and which ruin the employee experience across the enterprise, no HR leader would agree this is acceptable.
So if digital transformations have such a high failure rate and there is so much on the line, why aren’t organizations doing more about their digital proficiency? This leads us to our next challenge - Capability.
(2) Capability. In a previous post I shared some of my research on risk factors that derail digital transformations. An interesting discovery from the research was that all 12 risk factors actually pointed to gaps in organizations’ INTERNAL capability to successfully deliver digital transformations - and NOT to external factors like implementation partners or technology vendors (as many these organizations would prefer to attest).
Let’s consider these risk factors/capability gaps in the context of the traditional digital transformation work streams (talent) that deliver these programs. They include the Digital Delivery Office (i.e., sponsors, Steering Committee, the PMO), Project Management, Change Management, Functional and Technical. When we map the 12 stack-ranked risk factors against the work streams, we can see where digital transformation programs are most likely to break down (see Figure 1). The Digital Delivery Office and Project Management team appear to have primary accountability for the Risk Factors with support coming from Change, Functional and Technical teams. (NOTE: the placement of the ‘x’s is a ‘best guess’ as to where accountabilities and responsibilities lie, but they are subject to change from one organization to another).
Figure 1. Where Digital Transformations Breakdown - Risk Factors by Work Stream
If capability gaps are a key challenge, the next question is how did we get here in the first place? This leads us to our third challenge.
(3) Discipline. As it turns out, shared services functions like HR, Finance, IT and Supply Chain have a long-standing history of outsourcing technology work going back to the free market or neo-liberalist movement of the 1980s. At that time, organizations started paring back their back-office functions like HR, Finance and IT with the understanding that, if it’s not a core competency of the organization, someone else is likely going to be able to do this better, cheaper and faster - with less risk. The net impact of this movement resulted in:
Explosive growth of the consulting industry over the past four decades
Reduced digital proficiency of organizations’ shared service functions
New tools and methods introduced every time a new consulting partner was engaged
Tacit knowledge acquired by consultants during projects walked out the door each time a project ended
Today’s HR function has simply not been given a fair chance to build a unified, disciplined approach to delivering digital change and transformation programs - one that is essential for success in the digital age. According to Tony Saldanha, author of Why Digital Transformations Fail, a lack of such a disciplined approach is the number one reason for failure.
The three key challenges - complexity, capability and discipline - highlight the fact that HR has been called upon to deliver problematic digital change and transformation programs under very challenging and changing conditions, and without necessarily having the right tools, methods and talent for the job. Senior leadership needs to reexamine, at minimum, its strategy and priorities, its governance and structure, its outsourcing strategy, its funding model and, perhaps most importantly, its digital operating model: how it delivers digital HR programs. We will continue with an exploration of how the POM may be an effective alternative to traditional digital operating models for HR teams to improve their digital proficiency and deliver more successful digital outcomes.
Digital Operating Models
According to CIO.com, a digital operating model is a “defined approach for aligning execution strategy to deliver customer value by leveraging digital capabilities and technologies for business success”. More traditional operating models are generally designed for more static and stable times and do not account for the high pace of change and disruption facing today’s organizations. They also do not account for the customer value proposition, innovation or partner and alliance considerations. Using this logic from an HR perspective, we need a digital operating model that:
is more agile, innovative and responsive to change
that puts more focus on the employee experience and delivering HR-driven business value
is more collaborative and inclusive of partners and alliances.
can scale to become a common, disciplined approach to digital HR change and transformation
The POM is designed to integrate and empower cross-functional teams from business domains like HR (the ‘Product’ team), IT and Operations (the ‘Platform’ team), Finance and other functions to work more autonomously to develop and deliver digital solutions (products and services) over an extended period of time. Organizations should therefore designate a team responsible for productizing and continually improving the candidate and employee experience for such subprocesses the candidate application process or the new hire onboarding process. As a result, organizations adopting POM will deliver digital transformation initiatives more quickly and efficiently, launch software features and functions faster, increase developer accuracy and velocity (where applicable), and provide solutions that employees actually want to use - at the point-of-need. According to McKinsey the benefits realized by companies with integrated digital (e.g., HR) and IT operations models like the POM are:
30% less likely to face program challenges
50% less likely to have integration issues
60% more likely to say their investments in technology created business value
It is because of results like these that we are seeing the POM grow in popularity. According to McKenzie research, one-third of respondents say their organizations are already “integrated or fully digital”, and another third are in the process of achieving this. We are beginning to see this model appear in modern HR organizations.
Here’s how the POM varies from more Traditional Operating Models (see Figure 2).
Figure 2. Comparison of Traditional vs. Product Operating Models
Now that the POM has been both clearly defined and its benefits outlined, let’s take a deeper look into its components and how they work together as an integrated model to deliver digital initiatives.
Product (and Platform) Operating Model Components
There are a number of common components organizations put in place when setting up their POM (see Figure 3).
Products have their roots in the software industry and refer to a technology-enabled service, experience or solution used by customers (internal or external). In the case of HR, a product could be the sourcing or recruiting solution as experienced by candidates.
Product Groups are two or more Products that support the same end-to-end customer journey. For example, the Talent Acquisition Product Group could be comprised of candidate sourcing, recruiting and new hire onboarding products.
Pods. The foundational organizational unit of the POM is the ‘Pod’. A Pod is a self-sufficient, cross-functional team with end-to-end accountability for the design, delivery and maintenance of a product, experience or service over an extended period of time. There are two types of Pods. A Product Pod is focused on the end-to-end delivery of a digital product or service to an end-user community like employees or managers. In the case of HR, the Product Pod’s priority is improving or productizing the employee experience and delivering value to the business (e.g., improve efficiency, reduce costs). These Pods would reside within the HR Ops or Digital HR organization (refer to the next section for an expansion of this topic). A Platform Pod, by comparison, is a group of related technology assets, people and funding that provides platform services to one or more Product Pods. In other words, Product Pods supply and support the underlying technology needs of Product Pods. Platform Pods reside in IT and interface with the infrastructure services teams as appropriate.
Practices or Chapters. A Practice (also known as a Chapter) helps ensure consistent use of tools, methods and standards for a given digital job family like Product Managers, Business Analysts or System Engineers. The Practice is responsible for ensuring professional development occurs consistently within the job family.
Digital Delivery Office (DDO, PMO) ensures the right levels of executive sponsorship and alignment are in place to prioritize, fund and deliver the digital HR roadmap. The roadmap determines which HR products and services will be delivered and when. The DDO monitors progress and helps eliminate roadblocks. They also help mitigate dependencies and conflicts between Product and Platform teams (there will be a number of these in the early days of the POM). Project and change management teams are generally coordinated through the DDO as well.
Figure 3 is a summary table of key components for a Product (and Platform) Operating Model.
Figure 3. Product (and Platform) Operating Model Components
Bringing the Components Together into a Common Operating Model
A Product Pod or Team is a cross-functional group of between five and ten people responsible for the design, development, production and sustainment of a given digital HR product or service over an extended period of time. The Product Pod is led by a Product Manager. A Product Manager (always from the HR Product team) leads one or more Product Pods depending on the scope, complexity and maturity of each pod. A Product Pod will often have Business and Functional Analysts that are ideally part of the HR Operations team so they are closest to their HR customers and stakeholders (e.g., HR leadership, COEs, HRBPs). Depending on the scope, the Product Pod may also have team members from Platform teams (e.g. Platform Managers, System and Technical Analysts, System Architect, Developers), Legal, Regulatory, Diversity & Inclusion, Finance, Supply Chain, etc...
In the early stages of establishing a POM in HR there will likely only be a few HR Product Pods as the model is introduced and begins to take shape. Such an approach is ideal as opposed to a ‘big bang’ approach (building out all pods at once), as it gives the teams time to implement change management and make the necessary operational and behavioral adjustments for the new model. Over time, as the model matures, there can be dozens of Product Pods - each representing a process (or sub-process) of the hire-to-retire lifecycle. A new or less mature Product Pod will require a lot of effort and investment to standing up a new pod. A more mature Product Pod on the other hand, will generally require less attention as the focus will have shifted to release management of a few features here and there. The delivery method will likely vary as well based on pod maturity. A new pod may involve the implementation of a new HRIS module requiring a combination of waterfall and hybrid methodologies, while a mature pod may be better suited for a more agile approach to support the release of a few system features on a bi-weekly basis.
Figure 4 provides a high-level diagram of the integrated Product (and Platform) Operating Model. Included are a list of responsibilities of the integrated teams to understand how they work together (and with their respective stakeholder groups) to identify, prioritize, fund, deliver and sustain digital initiatives. Product Pods (black triangles) are shown across the Product Teams sphere of influence to illustrate how each pod is comprised of different multi-disciplinary team members depending on the purpose and scope of each pod. For example, a Product Pod appearing only in circle ‘b’ might deliver bi-weekly feature releases that do not require input from either DDO or Platform teams. Whereas a Product Pod appearing in the middle of circles a, b and c might deliver the implementation of a new recruiting module - a high complexity project requiring team members from all three teams (and beyond).
Figure 4. Sample Product (and Platform) Operating Model, Illustrative
With a greater understanding of the POM components and how they work together, it becomes easier to appreciate how this model can improve HR’s digital proficiency. According to recent research, organizations that achieve higher POM maturity realize several business benefits over their peers with less mature models:
60 percent higher returns to shareholders
16 percent higher operating margins
38 percent higher customer engagement and 37 percent higher brand awareness
Higher levels of innovation (48% correlation)
Knowledge of the POM components and interactions in turn helps us to understand how it help organizations overcome the challenges of the three aforementioned key challenges. In terms of Complexity, the POM allows HR to decompose large sub-functions into more manageable products. So instead of managing large, complex and siloed project teams, they can empower smaller, cross-functional, self-managing Product Pods to leverage the right tools, methodologies and technologies to deliver appropriate solutions - quickly. POM provides HR with a digital operating model that is truly HR-driven and puts HR on the path to establishing digital HR as a core competency.
In terms of Capability, the POM provides several advantages. First, it brings accountability and primary responsibility for digital HR initiatives squarely into the hands of the HR function. The HR Product Manager, as leader of the Product Pod, is instrumental in achieving this. However the HR Business and Functional Analysts play critical support roles to making this a reality. By bringing digital into HR it also creates natural opportunities for HR to develop its digital proficiency (e.g. digital mindset and capabilities). Next, the nimble and responsive Product Pods allow HR to work more effectively in uncertain and changing conditions. It is much easier to pivot with the smaller sized Product Pod team vs. a large program team and associated Steering Committee that, together, can easily exceed 100 members.
Finally, for Discipline, the POM provides a formal mechanism for HR to insource key aspects of digital delivery: product roadmap, problem identification, business requirements definition, solution design, user experience testing and ongoing backlog/demand management. It allows HR to establish a standardized and disciplined (yet flexible) approach to digital delivery for all Product Managers and their Product Pods to follow. Since Product Managers and their Platform Pods are formalized and in place for an extended period of time, there is less reliance on third party support which means a lower cost model and a much smaller risk of knowledge loss as experienced by traditional operating models.
It would appear that the POM does provide a compelling alternative operating model for those HR organizations looking to overcome the key challenges, establish its digital proficiency and deliver more successful digital transformations.
Now that we have explained what the POM is and why it is beneficial to business and transformation outcomes, let’s examine implementation considerations from real life.
Guidance for Achieving Digital Proficiency Using a POM Model
Below are a number of lessons learned from implementing the POM based on direct client experiences.
Start small and scale. Changing your entire digital operating model at the same time as implementing a digital transformation program is like running two massive transformations at the same time; it’s too much change and disruption for the teams to absorb all at once. Both initiatives will suffer as a result. It may take more investment to implement the POM foundations first (Phase 0), but it’s worth it. Put the model in place first with a few Product Pods and then use the first digital initiative (phase 1) to bring the model to life. For example, if Phase 1 of your multi-year program is Core HR, you may first want to stand up organization management, job architecture management and position management Product Pods. As a result, you will be ready to establish early stage Chapters (for professional development and standards) and for your digital teams to grow into their new roles and responsibilities over the course of the first transformation initiative. It also gives time for the Digital Delivery Office to help navigate the challenges and friction points that will naturally surface. Once phase 1 is complete (and Core HR is live), conduct a thorough lessons learned exercise to further tune the model. Then, for each subsequent program phase, you will be in a better position to stand up and onboard of new set of Product Pods for Phase 2 implementation efforts.
Define your capability and capacity needs. It is critical to get clear on the target state HR/IT roles and responsibilities (e.g., RACI) as well as your headcount needs and estimated start dates (based on your program roadmap). Do not hesitate to develop Service Blueprints that illustrate the new ways of working under the POM. They will not only help with your planning efforts, but your teams will find them to be an invaluable onboarding resource. Capability, capacity and program phasing drive your change/training and recruiting investments. So be sure to map them out clearly. For example, don’t hire all your Product Managers at the start of the program knowing most ‘Products’ won’t come online until year two or year three. Capability and capacity forecasts are key for your business case (see #6 below).
Invest in your Product Managers. By design, Product Managers play a pivotal role in the success of the POM. This role owns the entire product lifecycle from product roadmap to design, development, testing, launch and sustainment, backlog grooming and demand planning (e.g. feature requests or new project justifications). They straddle HR and IT domains so must be highly conversant with different domains (functional and technical), different methodologies (e.g. hybrid, agile) and different audiences (from analysts to executive level stakeholders). As such, they should be staffed, trained and rewarded accordingly.
Do not underestimate the change impact of the POM. New roles and changes to existing roles and responsibilities for both HR and IT is a lot of change to absorb. Many friction points will result; especially if traditional portfolios are at risk of shrinking. Executive sponsorship, alignment and communications are essential to success. So too is having a dedicated change team right from the start. They are critical for developing a change strategy and delivering stakeholder communications to help transition HR and IT teams to the POM and to neutralize friction points.
Stand up your Communities of Practice (COPs) from the start. When you bring the POM to life, that’s the perfect time to begin establishing your professional COPs. These groups are key to establishing repeatable leading practices and developing standardized tools, templates and processes for use across the Product Pods. Thus, you can ensure efficiency, consistency and quality across all products and initiatives. It is also a great forum for COP members to field questions and concerns and to reinforce learning and standards/policies during the onboarding process.
Build a case for the POM. You will most likely need a business case to enroll and align leadership as well as to justify the organizational investments needed to bring your new POM to life. In all likelihood, the POM is already operational in your organization in places like Sales, Marketing and/or Operations (the front office functions). Leverage what’s already in place and the champions behind it to help build the case for levering the POM to achieve digital HR proficiency . The POM value proposition for shared service functions like HR is critical to organizational success, particularly given the impact digital HR proficiency will have on delivering employee experience benefits (attraction, engagement, retention and employment brand) and broader business outcomes (e.g., efficiency, cost savings, capability and capacity). Your business case will need to account for organizational adjustments, including the addition of Product Managers, Business Analysts, and the associated change management efforts.
Remove as many dependencies as possible. By definition Pods are self-sufficient, self-managing teams that are accountable for the end-to-end design, development, production and sustainment of a given digital product or service over an extended period of time. As such, Pod team members will need the right access to the right resources, when it is needed. Unnecessary siloes, centralized decision making, and excessive risk aversion are behaviors we are trying to leave behind from the traditional digital operating models. Do not underestimate how difficult it is to leave the past behind! For example, avoid the tendency to require all Pod members (including technical) to attend all functional review discussions with system vendors. It is a waste of valuable resource time and creates unnecessary scheduling delays.
According to research by McKenzie, POM practices that best predicted higher performance (and should be prioritized) include:
product management practices that include employee centric ways of working and of measuring performance
enhanced interaction between teams
backlog prioritization
adequate funding
technical debt management
When implementing POM for achieving digital HR proficiency there are certainly many considerations to take into account. These suggestions should provide a useful starting point for further exploration.
Conclusion
To overcome the key challenges of complexity, capability and discipline, HR teams must develop their digital proficiency now more than ever. Moving to a product-based digital operating model like POM has been shown to have great promise for helping digital teams like HR address the challenges, and become more effective in the delivery of superior digital change and transformation outcomes.
The research and lessons learned also revealed that there certainly are challenges to consider before introducing POM to your HR organization. Building a business case and taking a graduated approach to introducing POM may be good considerations given the paradigm shift that they introduce. The change impacts are significant and should not be underestimated.
If you would like to explore how to develop your team’s digital proficiency, please email me at Kevin@DigitalHRx.com.
- Kevin Copithorne