Creating a Digital, Agile and Business Focused HR Function

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 “To navigate the increasingly complex world of talent, HR needs to grow more quickly into a strategic advisor. More companies will need CHROs and they will need to have an equal voice alongside CEOs and CFOs in the most critical business decisions. In the coming decades of disruption, the management of talent will become the main differentiator of high-performing organisations, this requires HR 3.0.”

Perfectly summarised by our guest on this week’s episode of the Digital HR Leaders podcast, Keith McNulty frames the topic for this week's discussion – the journey to HR 3.0.

Keith leads the People Analytics and Measurement team at McKinsey and is also a prolific and renowned writer which saw him recognised by LinkedIn as a top voice in December 2017. Keith is a deep thinker and one of the most knowledgeable and visionary leaders in this space.

This episode is a must listen for anyone in the people analytics role, HR and business professionals interested in how people data can drive business outcomes and CHROs looking to build or scale their HR functions.

In this extract taken from their conversation, Keith and David discuss the disruption that the HR function has experienced over the last few decades and why this calls for a more agile approach to HR. You can listen to the full episode here.

We are in the midst of one of the greatest disruptions in history, relating to people. Whether we realise it or not HR has been undergoing this major transformation for a number of decades, which has seen us witness the transition of HR 1.0 to 2.0. Keith explains to David how this transpired:

“So, you see around the time that this disruption started which was actually in the late 70s. It's been going on a lot longer than people think. We also see that coincide with changes in the HR function. So, if you go back to the late 70s, HR was really just a back-office function there was almost no analytics involved, lots of paperwork, lots of Process Management. If you move to the late 80s and early 90s, we start seeing the beginning of a move towards a much more professionalised HR function and in particular more of a service provider to the business and I labelled that HR 2.0”.

A recent report by the McKinsey Global Institute forecasts that by 2030 around 15% of today’s work activities may be automated and between 75 million and 375 million workers will need to shift occupational categories. The growth of automation and the impact it is having on the job market is one of the key drivers for the change and evolution we’re witnessing within the HR function.

Keith comments that in order to operate “effectively, in a massively changing environment in the future, HR can't keep operating the way it has been in the past”. While he acknowledges “that there has been some movement” he also highlights that “if we look to the future and we see the size of this disruption, because it's only just beginning, and nobody knows when it's going to end. That disruption means that HR really has to step up even further.”

How can the HR function evolve to embrace HR 3.0.?

The service provider or HR business partner model is the most commonly adopted structure for HR functions at present, however as Keith rightly points out this needs to change:  

“How will we be able to understand and analyse? How will we be able to manage talent in this disrupted world where talent's going to move through businesses much more quickly? Where finding people is going to be a challenge and where retaining them is going to be even more challenging? There's going to be some major changes needed to the function to make that happen.”

It is safe to say that HR 3.0 is a significant step up from where most HR functions are currently operating, but it’s a necessary step to ensure that we’re prepared for the future of talent. But the question at hand, is really what does HR need to do, to be able to embrace the 3.0 model?

Keith McNulty explains that there are three fundamental changes to HR that are required in order to drive this change. These being:

  1. Becoming a more data-driven HR function

  2. Becoming a more agile HR function

  3. Building the business acumen of the HR function

1. Becoming a more data-driven HR function

Over the last decade or so, HR as a function has definitely taken steps to becoming more data-driven in its quest to provide greater insights to the business, with much excitement being generated around the topic of People Analytics.

The term first began appearing in google searches in 2005 and according to the Corporate Research Forum in a study published in Nov 2017, 69% of companies with 10,000 employees or more claim to have a people analytics team.

While the availability of data is definitely driving rapid change, maturity of the people analytics function and HR’s ability to leverage this data and the insights it creates, to become that strategic partner to the business, is still quite slow. In order for HR 3.0 to really embed itself as the model of the future, it’s imperative that people analytics drives the insight required for HR to be able to link talent to value and support the business in making data-driven decisions.   

2. Becoming a more Agile HR function.

The second fundamental change is the need for the HR organisation to become more agile. Historically, the term Agile has predominantly been used in the tech arena, to describe software development and the ability to get products to market faster. However, agile doesn’t just relate to the tech industry anymore, agile HR is about transforming how organisations hire, develop and maintain talent.  

As Keith explains, HR needs to evolve the way its structured:

“So instead of really swim lane service line type approach to HR there needs to be a combination of that with a much more generalist approach to the function”

Primarily we've seen agile methodologies widely applied to areas of Performance management, in a survey run by Deloitte in 2017 79% of global executives commented that agile performance management is considered to be of high organisational priority.

While we've seen agile greatly disrupt areas such as performance management, we’re only now beginning to see agile principles and real change be brought about to other areas of HR. One could argue that this filtration of agile into other areas of HR is as a result of HR taking an “agile lite" approach and applying the general principles without adopting all the tools and protocols from the tech world to enable them to learn quickly to be able to drive real change quickly.

As the HR function continues to diversify its workforce and work cross functionally, we've seen growth in the adoption of agile which could be attributed to this diversification. At the Bank of Montreal (BMO), for example, agile has really resonated due to the "the shift in tech employees joining cross-functional product-development teams to make the bank more customer focused."

As we continue to move toward more complex and ambiguous times, it is critical for HR functions to be able to adapt and embrace the changing needs of the business and the talent market. And as we know, having an agile HR model not only enables the allocation of resources to business priorities but it also increases business focus, efficiency and effectiveness.

3. Building the business acumen of the HR function

Finally, the third fundamental change required is the need for broader business acumen across the HR function. Business acumen refers to a keen and agile ability to understand, interpret and deal with business situations. Keith indicates that this is not required “from everyone, but from a much more substantial number of HR professionals than we have today.”

While our thoughts immediately turn to the notion of training when we consider up-skilling, it’s important to remember that many educational HR programs are still playing catch up and not focusing on the skills that HR professionals need to be successful in the future.

“There's not a huge amount of opportunities out there for people to take dedicated HR programs or dedicated HR learning that really covers a lot of this new stuff like analytics, agile…etc.”

In a recent study conducted by Insight222 and myHRfuture, we found that there is a distinct lack of high-quality training and educational material to support HR professionals learn the skills they need to prepare for the future of work and embrace HR 3.0. This was one of the core driving forces behind the creation of the myHRfuture Knowledge Academy, which is aimed at providing learning for HR professionals in these new skill areas.

What can you do to support your organisation embrace the HR 3.0 model?

Keith touches upon the need to bring new skillsets into the HR function to really embrace this new model of HR:

“if you want to have good people analytics bring in experienced psychometricians and other people that are familiar with analysing talent and people. If you want to be more agile bring in some Scrum Masters, listen to them, help them transform your business to a more agile way of working and the third part of that is the talent part, you need to start thinking about bringing in individuals who have a broader range of experiences in the business and not just people who are one hundred percent HR experienced. Bringing in individuals that have broader exposure, not completely replacing existing HR people, just enhancing them with those individuals would be a fairly transformative piece of work.”

In order for HR professionals to really thrive and succeed in this new business environment it’s important that they have greater familiarity with the wider aims of the business. This means building their knowledge of financial literacy, a better understanding of the internal environment, the external environment and having a greater political awareness around the way their organisation operates. While driving this change toward HR 3.0. is critical it is also very much “dependent on the HR professional themselves and the leaders of the business to really drive this change and make that happen.”

Online training on implementing People Analytics in your organisation…

If you’re interested in learning more about how to build a People Analytics strategy, then you might be interested in our online training courses on People Analytics. They cover a range of topics that walk you through the critical areas to include in your People Analytics strategy in more detail.

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Invest in your career and learn the HR skills of the future. The myHRfuture Academy provides you with an on-demand platform where you can get access to short, bitesized learning content to help you build knowledge in the skills that you need to prepare for the future of HR. Get access to exclusive content on People Analytics, Digital HR & HR Technology, Design Thinking, Workforce Planning, Consulting & Influencing and Stakeholder Management.


Ian Bailie is the Managing Director of and an advisor and consultant for start-ups focused on HR technology and People Analytics, including Adepto, Worklytics and CognitionX. In his previous role as the Senior Director of People Planning, Analytics and Tools at Cisco Systems, he was responsible for delivering the tools and insights to enable and transform the planning, attraction and management of talent across the organisation globally. Ian is passionate about HR technology and analytics and how to use both to transform the employee experience and prepare companies for the Future of Work.