Digital HR

The State of Digital HR in 2023: From Business Enabler to Business Driver

By Erik van Vulpen, Dieter Veldsman
The State of Digital HR in 2023: From Business Enabler to Business Driver
Digital HR

In brief

  • In recent years, the focus of Digital HR has shifted from automation to creating digital employee experiences, improving talent attraction, retention, and HR service delivery
  • The pandemic has sped up Digital HR maturity by 7 years, but HR’s impact will decrease if it does not double down on its digital agenda now
  • Innovation, agility, and dedicated digital HR teams will be pivotal in leading organizations into a digitally augmented future

HR is in the midst of a digital transformation fueled by an increasingly volatile and uncertain world that demands more adaptable and innovative solutions. As we evaluate the progress of Digital HR in recent years, it has not only become more resilient but also more innovative. Despite the encouraging data, unresolved challenges can potentially hinder the advancement achieved during the transformative period of the past four years.

While most authors may credit the Covid-19 pandemic for this shift in maturity, the journey toward Digital HR maturity pre-dates the pandemic by a number of years. Granted, the pandemic accelerated the transformation for most organizations due to the necessity of working remotely and in hybrid settings. Yet, the most successful organizations have started moving toward a digital-first HR approach since the early 2000s.

The adoption of new technologies, such as ChatGPT, Virtual, and Augmented Reality, and the rise of the Metaverse, is setting the tone for innovative HR models across the globe. Prime examples include the Vehicles for Change program that uses augmented reality to train new mechanics to meet the growing skills shortage in the US, Deloitte Digital giving a virtual tour as part of job orientation, and increasingly common virtual job fairs.

We believe that the future holds many opportunities. As HR, we need to make proactive decisions that will guide the next chapter of Digital HR innovation. In the past, digital was seen as a key response to the people strategy. However, in the future, the digital agenda will play a more significant role. In our view, it will set the tone for how impactful the HR organization can become.

It’s time for HR to take action.

The purpose of the research and summary of key insights

In this report, we provide an overview of four years of research conducted by AIHR on the Digital HR agenda and, specifically, how Digital HR maturity has evolved. 635 respondents participated from organizations across the globe with between 250 and 150,000+ employees. Data was collected between early 2019 and the close of 2022, encompassing well over 40,000 data points across four years.

The report presents five insights that are shaping the future evolution of digital HR.

Insight 1: Increased Digital HR maturity and strategic importance – but it’s starting to lag

Insight 2: A widening gap in Digital HR maturity between organizations of different sizes

Insight 3: Growing emphasis on the digital employee experience

Insight 4: Innovation culture and data quality barriers remain

Insight 5: An urgent need for a dedicated digital team for HR

We will explore each of the five insights by presenting the data from the study, providing an interpretation of the data to guide key decisions that HR needs to make, and, finally, offering recommendations for future adaptation by HR.

The State of Digital HR: 5 Insights

Insight 1: Increased Digital HR maturity and strategic importance – but it’s starting to lag

Our research has shown that the maturity of Digital HR has accelerated in the past four years. By comparing the growth rate of digital maturity pre-pandemic to its growth rate post-pandemic, our data indicates that the pandemic led to a 4.9% uptick in digital maturity between 2020 and the end of 2022. 

This means the pandemic has effectively accelerated Digital HR maturity by at least seven years.

Pandemic Effect on Digital HR Maturity

One reason for this increase is the growing importance of digital as a critical component of the people strategy. Before the pandemic, almost half (49%) of all organizations (strongly) agreed that digital is a key objective in their people strategy. By the end of 2022, this number increased to 63%, which is a marked 27% rise in the importance of digital.

Digital as Key Part of People Strategy

The CEO and CHRO drive most of this focus on digital. Our data shows a 7.2% increase in the degree to which the CHRO has a strong positive belief about the need to embrace a Digital HR strategy. While the CEO indicated a 13.2% increase in positive belief.

This signals a shift in business leaders recognition that Digital HR is a core priority and an integral part of business transformation, which has not always been the case.

Even though we still believe the CHRO should spearhead the drive toward Digital HR, CEO buy-in and support are crucial for securing the required resources, focus, and attention to move the digital agenda forward.

CHRO and CEO Drive Focus on Digital HR

This data indicates the growing strategic importance of digital HR. However, the question remains: Does it create business impact?

To evaluate this, we analyzed whether HR IT strategy and solutions are designed to support business priorities. Here, our data shows an 8.2% increase compared to 2019, which demonstrates promising growth in aligning HR IT strategy and solutions with business priorities. 

Practically, this means that organizations leverage digital to ensure business continuity, employee well-being (which became a business priority during the pandemic), as well as productivity. It also shows that Digital HR is no longer merely an enabler for remote work and an efficient way to deliver HR services. It has evolved to become a driver of business objectives.

HR IT Strategy and Solutions Support Business Priorities

Additionally, HR professionals report a notable 12.7% increase in their contribution to the business between 2019 and 2021.

However, as the world recovers from the pandemic, the added value that HR delivers to the organization is not only stalling – it is decreasing.

Our data indicates that the value that HR provides to the business peaked in 2021 and decreased in 2022. This is concerning, as HR runs the risk of losing the gains made during the pandemic should organizations revert to the previous perspective of Digital HR being a “nice to have” and not a core business priority. 
Stalling HR Contribution to the Business

The bottom line

HR must continue to increase its digital maturity because it is critical to business success. Digital HR has evolved to become a business driver, impacting employee satisfaction and productivity, operational efficiency, and customer outcomes.

The data shows that digital HR maturity has progressed, both in terms of how technology supports the HR strategy and the degree to which technology helps HR support business priorities and creates impact.

But with expectations from employees to work with increasingly consumer-like HR solutions, stagnation is not an option.

In the past few years, organizations have been playing a game of catch-up, building the digital capabilities to support remote and hybrid work and ensuring full digital self-service. The next challenge is to define what’s next.

We’ve identified four actions that HR must take to further lead the digital transformation and stay ahead of the curve.

  1. Creating a Digital HR vision. HR has traditionally been seen as more reactive than proactive. Our findings confirm this view, as digital maturity only started to increase significantly after the start of the pandemic. We believe that HR should start leading the organization in digital HR to ensure that digital progress remains a top priority. To do this, HR needs to become proactive, create a vision of what Digital HR means moving forward, and execute on that vision. 
  1. Shifting the Digital HR perspective. A key challenge will be to shift the perspective that Digital HR is only relevant in enabling employees to work remotely when, in fact, it facilitates collaboration, engagement, and data-driven decision-making. HR runs the risk of digital progress being consigned to the pandemic and not given further priority for the sustainability and competitiveness of the organization in the future.

    This trend is present in the data as well as among our clients. Some of these have noted that investments in Digital HR now require significantly more justification than they did a year ago.
  1. Building a strong justification for investment in Digital HR. In our view, this justification lies in its capacity to impact employee productivity, improve operational efficiency through more streamlined processes, and ultimately deliver better customer outcomes by supporting the employees who serve these customers.

    Add to this the expectation from employees to work with increasingly consumer-like HR solutions, and it becomes clear that not continuing to invest will significantly impact engagement, the employee experience, and the overall credibility and perception of HR.
  1. Digital HR as a business driver. To do all this, HR will also need a mindset shift. During the pandemic, Digital HR was mainly a business enabler. Today, it has to evolve to become a leading business driver.
To take digital HR forward and continue driving business impact, HR needs to develop a digital HR vision. This involves defining what digital means going forward, creating a digital HR strategy and roadmap for the organization, visualizing what a digitally augmented organization will look like, and investing to reach that goal.

The future of HR lies in its ability to craft a digital-first people strategy that drives real business impact.

As part of the Digital HR vision, HR needs to go beyond the implementation of technologies and define how it will drive business impact through its digital strategy. They must also lead the charge in changing the mindset of the business to operate in a more digital way and fostering a culture of digital adoption. Both will drive value for the organization.

Based on our data, leadership support for a digital-first people strategy, which is an ingredient critical to success, has never been stronger for both the CHRO and CEO. With this momentum, HR has an opportunity to capitalize on and lead the organization. 

The pandemic transformed HR. It’s now time for HR to transform the business.

Reflection point

The increased support from both the CHRO and CEO for a Digital HR strategy is great news for Digital HR maturity. Here is an anecdote from our own experience that stresses the importance of this support:

The CEO of a large multinational group lacked digital savviness and refused to adopt many of the proposed technology solutions by his team. Because receiving an additional budget to fund these digital innovations was virtually impossible, the CHRO was forced to cut the budget across the HR department to fund digital development instead. This lack of support from the CEO led to limited investment and slowed down the progress toward digital HR maturity.

Insight 2: A widening gap in Digital HR maturity between organizations of different sizes

Enterprises are leading the race toward digital maturity, leaving large and medium-sized organizations behind. Our findings show a significant difference between Digital HR maturity levels of medium-sized organizations (250-999 employees), large-sized organizations (1,000-10,000 employees), and enterprises (10,000+ employees):

  • In 2019, a Digital HR maturity gap of 7.8% already existed between medium-sized organizations and large-sized organizations, on the one hand, and enterprises, on the other.
  • In 2022, this gap increased by 12.6 percentage points. In terms of Digital HR maturity, organizations with over 10,000 employees are growing at 1.8x the pace of organizations below 1,000 employees and 2.1x the rate of large-sized organizations with 1,000-10,000 employees.
Digital HR Maturity Gap by Company Size

Unsurprisingly, this shows that the largest organizations are able to scale their digital strategy more efficiently by leveraging their resources and economies of scale to create digital advantage.

Our data shows a few possible explanations for why size plays such a significant role in digital maturity.

First, we see that organizational size influences the degree to which their people strategy is supported by digital. Enterprises report better alignment between the people strategy and digital enablement. One reason for this could be the more specialized nature of roles and focus within enterprises versus their smaller counterparts. The ability to connect the digital agenda to the people strategy outcomes is also more developed in enterprise businesses.

To put this into perspective, a medium-sized organization would take four years to reach the same level of digital maturity that enterprises are at today. However, as enterprises continue to evolve their digital adoption (and at a faster rate), medium-sized organizations will continue to lag behind. 

Level of People Strategy Supported by Digital Differs

A second reason is a skills gap between the three types of organizations examined. We measured scores on seven essential digital skills (we mention some of these in Insight 5). Over the four years of our research, medium-sized organizations improved their reported skill level by 3%, large-sized organizations by 5%, while enterprises saw a 13% increase on average.

Increase in Essential Digital Skills Level

These skills, which include the ability to match innovative HR solutions to business issues and the ability to explain analytical outcomes, are crucial for taking digital HR forward and creating the change and impact needed to move toward a digitally augmented organization. The data indicates that larger organizations have more access to the critical skills required to advance digital HR maturity.

We expected to find a third explanation for this phenomenon when looking at the available budget for organizations. Although our findings show that medium-sized organizations increased their investments more compared to other organizations (it was well below average before the pandemic), these increases alone will not be sufficient to close the gap.

Our research also indicates that in the future, budgets are expected to increase at a similar rate across all organizations. These developments will continue to benefit enterprises more, given the size of budgets as well as the ability to reinvest money saved by the efficiencies gained through digital.

The bottom line

The increasing gap in digital HR maturity between organizations of different sizes is concerning. It shows a divide that will become more difficult to address as time goes on. This could lead to medium-sized organizations reaching a ceiling in terms of their ability to become more digitally mature.

This trend is concerning because it impacts organizational competitiveness, talent attraction, and retention. Medium and large-sized organizations may struggle to keep up with the rapid pace of change in Digital HR and employee expectations. This affects their attractiveness as an employer and weakens their position in the ongoing war for talent with future-oriented skills.

Enterprises benefit from access to a larger and more diversified skill pool. Their increased digital maturity allows them to scale their digital strategy more efficiently and create digital advantage.

The skill difference between organizations will remain, with enterprises able to spend more time on developing talent, bigger budgets, and knowledge sharing in centers of expertise and communities of practice.

However, there is hope for the medium and large-sized organizations that are struggling to keep up. They can begin by leveraging their unique strengths, such as agility, flexibility, and innovation, to leapfrog enterprises by moving quicker, implementing faster, and pushing digital more aggressively as a business priority. While this requires a shift in mindset, with the right leadership, vision, and commitment, they can bridge the gap and lead the way to a more digitally augmented organization.

Reflection point

Part of the difference between the Digital HR maturity levels is the transformative impact that Digital HR can have on the business.

An HR leader of a team of 60 had one member who could automate processes and connect systems to automatically extract data and load it into dashboards. She told us that this one person automated the job of three of her team members and that she intended to hire at least five more with similar skills. With those skills, she told us, she would be able to reinvest in different skills for her team and add new capabilities that drive business impact.

Insight 3: Growing emphasis on the digital employee experience

HR’s focus is shifting from automation toward optimizing processes and creating a better digital employee experience. This shift brings about the personalization of employee solutions through digital, which is critical in modern employee value propositions

Employees are acting more like consumers. They demand HR solutions to provide a similar customer experience as modern digital services while expecting insights from shared data and information to be incorporated when engaging with the technology. 

The data shows a clear shift from automation to experience. The focus on automation to maximize efficiency that we saw in 2019 has given way to a more experience-focused approach. By leveraging analytics, organizations can optimize the employee journey, customize and personalize the employee experience.

Significant investments should be made into a digitally augmented and data-driven culture in HR to meet the evolving expectations of today’s workforce.

Digital HR Focus Shifts from Automation to Experience

This focus on experiences is a continuation of a pre-pandemic trend of the employee experience getting into the spotlight. Our data confirms that there have been continuous improvements, such as:

  • HR services are more easily accessible (an increase of 6.5%),
  • HR technology is more appealing and intuitive (an increase of 8.5%),
  • and complexity in processes is reduced (an increase of 4.7%).
HR Services Improvements in User Experience

Looking below the surface, however, we see that there is much left to be desired. Even though HR rates the digital employee experience 6.6% higher in 2022 than in 2019, HR still scores itself only 2.9 on a five-point scale on the quality of the Digital HR experience. We believe this is due to legacy systems creating a cumbersome experience in some instances and limited investment in the backend of HR systems.

This implies that a lot of focus, and rightfully so, has been on the front-end user, i.e., the employee engaging with the system. Yet, the HR professional’s user experience on the system’s backend has mostly been ignored. This will become a problem if not addressed, as it will significantly impact the capacity of HR system teams.

However, there is also good news. HR organizations are rapidly developing more technology-driven cultures. HR professionals report having a more data-driven mindset (19% increase), greater comfort in using design thinking (16% increase), and using multidisciplinary teams to solve problems (14% increase). These are positive leading indicators of an increased focus on a more digital employee experience based on sound evidence and good data practices.

Developing a technology-driven culture in HR2019 scores2022 scores% change
We have a data-driven mindset in HR2.73.319%
We are comfortable using design thinking to create IT solutions to HR problems2.52.916%
Project teams in HR are often multidisciplinary (e.g., HR, IT, Business, Finance)2.83.214%

The bottom line

Technology, data, and analytics have never been a core strength of HR. This is evident in our T-shaped competency assessment, where digital and data were the lowest-scoring categories in the self-reported questionnaire of 5,648 HR professionals.

However, the progress in improving these skills in the past four years has been remarkable. Not only do HR professionals report a more data-driven mindset, but they also increasingly leverage techniques like design thinking to prototype and test digital solutions before rolling them out at scale.

This upskilling is also reflected by the shift in focus from relatively simple digital innovation like automation, interview scheduling, onboarding and offboarding processes, and chatbots toward more complex and integrated digital experiences. These include some degree of automation but also integrated solutions, optimization of processes, and the optimization of experiences through data.

With emerging technologies such as the Metaverse, Augmented and Virtual Reality, and artificial intelligence, the skillset HR will require to seamlessly integrate these technologies into the employee experience is going to be significantly different than today.

In our view, the tremendous growth seen in these technology-driven practices will, over time, result in a superior digital employee experience. However, HR is not quite at the level it should be yet, and there’s a real risk presented should the HR skills development journey does not keep pace with these changes.

Enabling Digital Employee Experience

Poor digital employee experiences will lead to talent attraction and retention challenges, a failure to capitalize on existing skills and internal talent marketplaces, resulting in a lack of internal mobility. What’s more, HR services such as benefits, development and training, well-being initiatives, and global mobility support will have a lower impact due to a suboptimal digital employee experience.

To mitigate this, HR should capitalize on its momentum and continuously push to advance a digitally augmented organization and culture. This requires three things.

First, further strengthening critical skills like working with data and using design thinking so they become commonplace in HR. Second, removing some of the barriers to digital innovation (both of which are part of our next insight). And last, a dedicated digital HR team, which we will elaborate on in our final insight.

Reflection point

An HR leader shared her vision of a true digital employee experience: “We should never ask for anything twice. If we are a true digital shop with HR solutions on our shelves, we should be able to use our employees’ data with their consent to provide them with recommendations aligned with their preferences. Trends about when they go on leave, what benefits are best for them given their situation, and which courses will help them in their careers. This is real digital HR.” Which steps do you need to take to get there?

Insight 4: Innovation culture and data quality barriers remain

The increase in technology-driven practices should also indicate a shift in innovation culture within HR. However, the data tells a different story.

Despite a discernable increase in HR’s ability to innovate, there is still much room for improvement. On average, people score their department’s ability at a 3.1 on a five-point scale. 

In addition, there are barriers to innovation, which include immature data practices that remain a bottleneck and hold HR back.

Innovation and Agility in HR Need Further Progress

HR has become more comfortable using design thinking to create IT solutions (up 15%). It also innovates in a more agile way by building prototypes and testing on user samples (up 7%). Furthermore, there’s an emphasis on creativity and collaboration within the HR department (up 7%).

However, HR still has much to do when bringing these intentions into practice. There are some stark differences in dimensions measuring HR’s ability for digital innovation. For example, the function can have a greater impact by piloting technology before implementing it at scale (down by 1%; one of the few items in our data set that decreased).

HR’s ability to create an innovative culture% change between 2019 and 2022
We don’t implement a solution organization-wide unless it has proven to be successful as a pilot-1%
We actively search for ways to improve HR processes using technology2%
There’s an emphasis on creativity and collaboration within the HR department7%

HR professionals rate themselves progressively as more agile. We believe that this is because the pandemic has shown that HR has the ability to respond to change and adapt.

Again, there is still a lot of room for improvement. The majority of professionals rate themselves below average, and only 36% of respondents (strongly) agree with the statement that the HR professionals at their organization are capable of matching innovative HR solutions to business issues.

HR is still struggling with slow progress in HR data management practices, contributing to the perceived lack of agility.

  • Employee data is increasingly centralized in a central database (a 7% increase)
  • HR data is reliable (a 5% increase)
  • HR data is up-to-date (a 4% increase)
  • Accurate HR data entry is a top priority for staff (a 3% increase).

We had hoped for a more significant increase in HR data integrity. High-quality data practices would enable HR to better measure employee experiences. It is also a prerequisite for HR solutions to be credible, trustworthy, and engaging as they help HR drive a digital people roadmap and further improve the (digital) people experience. Data quality is a barrier to becoming more agile and digitally innovating, slowing down progress and growth.

Prioritizing HR Data Management

The bottom line

In today’s rapidly evolving business landscape, the ability to innovate and quickly adapt to changes is vital for HR to continuously support and drive value to organizations. As businesses increasingly rely on technology to enhance productivity, an agile HR approach enables them to quickly respond to changing workforce dynamics and embrace new digital tools.

Yet when asked, more HR professionals disagree rather than agree with their own (organization’s) ability to be digitally agile. Without action, this will prevent HR from further streamlining processes, optimizing employee experience, and continuing to create business impact. 

We’ve identified a number of barriers that HR needs to overcome to HR to adopt a more agile mindset.

  1. Immature data practices. Despite some improvements, progress in HR data management practices remains slow, reinforcing the perceived lack of agility. Prioritizing high-quality data processes is crucial to building robust HR solutions that drive a positive digital employee experience.
  1. Resistance to change. HR often faces resistance to change from both internal stakeholders, such as employees and managers, and external stakeholders, such as regulatory bodies, industry standards, and employee representation groups. This resistance challenges the adoption of new technologies, processes, and strategies that would enable HR to innovate more rapidly.

    Developing change management skills in HR teams is pivotal to managing resistance to change and ultimately driving digital adoption.
  1. Culture of experimentation. HR lacks a culture of experimentation, which may be explained by HR’s natural tendency to focus on compliance. Innovation is inherently uncertain, and an innovation culture requires HR teams and projects to take calculated risks.

    HR has to be allowed to fail and needs to build resilience and comfort to navigate uncertainty. That also entails moving away from “perfect first, high-quality” solutions. Incremental innovation is the way forward. Without acknowledging this, HR departments will stagnate in building a culture of experimentation.
  1. Lack of resources. Last, HR is still plagued by a lack of resources, including budget and staff, which results in HR professionals having to manage competing priorities and struggling to focus on strategic rather than operational targets. Building the Digital HR agenda into the annual HR budget can help strengthen the focus on what matters most and chart a clear path toward progress.
A technology-driven HR organization should actively look for ways to improve processes and pilot and test innovations before implementing them at scale. While this is starting to happen in HR, there’s still a lot of room to improve.

To further drive digital people practices in the organization will require HR to incorporate new domains of practice into their HR model and function. Moreover, HR teams need dedicated expertise and resources within the digital domain to unlock the potential that Digital HR holds for the future.

Reflection point

A CHRO of a global financial institution refused to share people analytics insights with executives in the business for more than 18 months as they believed that the “data was not right.” There may be some truth to this statement, yet we need to instill a culture of “good enough” as opposed to perfect so that we can circumvent innovation barriers.

Insight 5: An urgent need for a dedicated digital team for HR

As digital HR maturity increases, HR teams are investing in building their own in-house digital teams able to develop and configure software.

We have seen significant changes in the HR Technology landscape with exponential growth in this sector. This growth has led to a variety of new technology options available for organizations, which has ramifications in terms of the number of systems that are utilized internally.

With more specialized technologies coming to the fore, we see a larger need for in-house resources and skills to configure and support the employee experience across multiple systems. 

Unsurprisingly, larger organizations have more access to resources and skills, either within IT departments or fully dedicated to HR. The ability to build and configure their own solutions decreased for medium-sized organizations by 7%, while it increased by 4% for large-sized organizations and 24% for enterprises.

Investing in Digital HR Teams

The increase in cross-vendor cloud-based strategies leading to a more complex HR systems environment will only exacerbate the challenge of integrating different HR technologies. Organizations with the ability to aggregate different solutions into a seamless employee experience will become more successful. The pandemic also led toward more cross-functional integration of HR technologies with other systems such as Health and Safety, Facilities, and Productivity tools. 

Even though this is a positive move forward for employee experience, the level of complexity will require more internal collaboration between different technology teams, which includes HR.

We see a clear difference in the degree to which different organizations leverage multidisciplinary teams. Enterprises report significantly more use of multidisciplinary teams leveraging knowledge from HR, IT, Business, and Finance. They are also better informed about people strategy and current and upcoming projects.

Yet again, we see organizational size being a key influencing factor. Enterprises have invested more in internal resources that can customize and configure apps and software, while medium-sized organizations have been unable to do so. While enterprises report a 10% increase in integrating people processes through technology, compared to only 1% for large-sized organizations and 7% for medium-sized organizations. 

The bottom line

Our data shows an interesting dichotomy: both medium-sized organizations (250-990 employees) and enterprises (10,000+ employees) are better able to adapt to a digital world than large-sized organizations (1,000-10,000 employees). These are effectively stuck in the middle.

Several contributing factors could explain this.

As organizations grow in headcount, they require more complex technology solutions but often lack the corresponding investments in HR technology. Medium-sized organizations are still able to mitigate this challenge by using off-the-shelf solutions that address their needs. Yet, once they reach a certain size, these systems require more customization to be effective.

Enterprises have the scale and size to command customization from vendors. They also have the internal ability to configure technology to be effective within their landscape.

This is leaving large-sized organizations in a digital HR “limbo” where the solutions they have available do not meet the business need at this stage of growth. Still, the perception is that they have not grown enough to warrant further investment at this stage.

A practical example

Organization A is a medium-sized business with a relatively simple HR technology stack. They use a standard off-the-shelf HRIS, have a separate Applicant Tracking System, and outsource their payroll system.

As they grew, more systems got added. HR started to expand its scope, which led to acquiring a learning management system and basic reporting software. This was manageable, given the business size, volume of transactions, and team capacity. However, they have reached a tipping point and have now grown to what we categorize as a “Large Organization”.

At this stage, they bring payroll in-house, but they find that due to the inability of the Applicant Tracking System to integrate with the payroll technology leads to various manual work that happens outside the system to align databases and information. Various Excel-based sheets are kept up to date to facilitate this process with tight controls and regular “data clean-up” exercises taking place.

Organization A now starts appointing people to support all these manual processes and also deal with the rising number of employee queries that the basic self-service platform they have can no longer handle. The business needs to invest in more advanced technologies.

However, given the size of the employee base, it is difficult to make the argument for increasing the HR investment in technology significantly at this stage. So the organization remains in this “limbo”, characterized by manual workarounds, disparate systems, and a constant state of HR throwing people at the problem and not solving it through investment.

Once they have grown to the enterprise level, this investment becomes easier to justify. As the organization grows further, the new technologies exponentially improve their digital maturity and allow them to continue to improve and mature much faster.

This phenomenon, or the so-called proverbial “ugly duckling phase”, not only stresses the importance of a digital vision and strategy for large-sized organizations, but it also shows that they have to invest proactively in terms of digital technologies and resources to prepare for further growth.

An early investment in a dedicated digital team is a great starting point to focus on getting large organizations “unstuck” and finding new solutions for this phase of organizational growth. Granted, investing in Digital HR capacity can seem excessive, and with a looming recession, organizations will be cautious about spending. However, in our view, investing in this capability now will yield cost savings and other productivity benefits that will help organizations through the difficult time ahead and position it favorably for the future.

A dedicated digital team will help to streamline Digital HR efforts, integrate with business processes, and represent the HR technology and digital perspective in the HR leadership team. To create a digitally augmented organization that can compete in the market, HR must lead the way and incorporate the same type of thinking in people solutions.

From a priority perspective, we recommend that the Digital HR team should focus on the following:

  • Automation of HR operations and integration into the line of business systems, 
  • Managing and integrating the HR tech stack while being aware of cyber security and risks, 
  • Closely collaborating with the people analytics team to leverage data and analytics to improve the digital employee experience and drive business performance, 
  • Enablement of HR and the workforce on digital tooling, and
  • Creation of a strategy and roadmap for digital HR.

A successful team will increase HR’s impact on the organization and improve productivity for both HR and the business. This team will work closely with the IT department to align and integrate HR technology solutions with the broader technology infrastructure while also bringing more digital perspectives into the HR executive conversations.

Reflection point

A financial services client has built a Digital HR team within the HR Technology function that has access to skills such as DevOps, Scrum Masters, Developers, Testers, and Quality Assurance Specialists. This team sits alongside the People Analytics team and is governed by the Digital HR Executive, who is able to bring the analytics and the building of new technology solutions closer together and represent this perspective on the HR executive board.

The Digital HR team has a dotted reporting line into the IT organization, while the People Analytics team closely partners with Business Intelligence functions that reside across the broader enterprise. By doing so, the teams can integrate HR technologies and analytics with core business systems and priorities, increasing the impact and visibility of digital HR and people data.

Three shifts to capitalize on future Digital HR opportunities

The future of digital HR is full of opportunities. For organizations to capitalize and gain competitive advantage through digital, it will, however, require three medium- to long-term shifts that will underpin the insights discussed earlier in this report.

Shift 1: Upskill the HR team to become data-driven and digitally agile

Even though we have seen steady progress, HR upskilling and reskilling should continue in terms of embedding a data-driven and evidence-based approach toward all HR practices. Furthermore, we believe there is work to be done in terms of two specific areas, as identified in our T-shaped competency and skills model for HR:

HR Competencies
to Develop
Data literacyThe ability to analyze, interpret and communicate people data to derive actionable insights, inform decision-making, and assess HR’s contribution to achieving strategic business objectives. 
Digital agilityUtilizing technology to increase the impact of HR and preparing the organization for the adoption of digital practices. 

Shift 2: Explore new HR operating models with digital as a core capability

To achieve digital maturity, organizations should build their operating model around digital as a core capability and not as an enabler. This will require a shift in how HR currently operates, as well as bringing in new skillsets to form part of the HR organization and having digital represented as a strategic voice on the people agenda. 

Shift 3: Create a digital mindset and willingness to experiment within HR

The digital journey will only be successful if HR is able to become more willing to experiment, adopts a mindset of openness to learning, and is not afraid to take calculated risks.

The digital agenda will require HR to move away from traditional process-driven and compliance-orientated mental models, toward a model of exploration, outside-in thinking, and ultimately placing the employee at the center of our designs.

For Digital HR to fully mature and achieve its potential, Digital HR teams will have to embrace experimentation and user-centered design and become digital experience experts that put employees first.

About the Authors

Erik van Vulpen
Erik van Vulpen is the founder and Dean of AIHR. He is an expert in shaping modern HR practices by bringing technological innovations into the HR context. He receives global recognition as an HR thought leader and regularly speaks on topics like People Analytics, Digital HR, and the Future of Work.
Get in touch:
Dieter VeldsmanChief HR Scientist
Dr. Dieter Veldsman is an organizational psychologist with 15+ years of experience across the HR value chain and lifecycle, having worked for and consulted with various organizations in EMEA, APAC, and LATAM. He has held the positions of Group Chief People Officer, Organizational Effectiveness Executive, Director of Consulting Solutions, and Chief Research Scientist. He is a regular speaker on the topics of Strategic HR, Future of Work, Employee Experience and Organisational Development.
Get in touch:
Go to Top