Methodology
This report is based on interviews with 25 senior HR leaders conducted between October and December 2024. Participants included Chief People Officers, HR functional leaders, and consultants ranging from early stage startups to established public and private companies. Interviews were structured around four core questions exploring upcoming priorities for 2025, key business challenges, opportunities for People Leaders, and concerns.
Key Themes
1. Economic Uncertainty Impacting HR Investment Decisions
Market conditions are creating tension between business needs and cost-cutting imperatives. IPO slowdowns and shifting investor focus toward profitability are forcing companies to reevaluate HR investments and operations. AI startups are capturing the majority of funding, creating additional pressure on non-AI ventures to demonstrate unique value. Companies are delaying major decisions until Q1 2025, with many adopting a wait-and-see approach due to post-election uncertainty and changing market dynamics.
2. Foundational People Processes Need Modernization
The pandemic's disruption of workplace processes has left lasting gaps in core HR functions, particularly in onboarding, communication, and collaboration. Current HR technology landscapes are fragmented and poorly integrated, while remote/hybrid work models lack clear frameworks and processes. This foundational gap is hindering companies' ability to build high-performing and engaging cultures, and from leveraging new technologies effectively.
3. AI Adoption in HR Remains Limited but Promising
While HR leaders express curiosity about AI's potential impact, actual implementation remains fragmented and experimental. Most organizations are in early stages, primarily focusing on automating basic tasks through third-party tools. Only a small number of companies are proactively redesigning jobs to leverage generative AI and integrating future-ready competencies into their HR processes. This limited adoption mirrors broader organizational trends, with McKinsey reporting that 82% of companies are still in the experimentation phase.
4. People Manager Role in Transition Amid Pressure Towards Greater Efficiency and Productivity
Organizations are actively reassessing the role of mid-level managers, with some reducing numbers to increase spans of control while others invest in upskilling existing managers. There's a notable struggle to define clear expectations and capabilities for managers in the evolving workplace and those reducing management layers face potential leadership gaps that require cost-effective solutions for upleveling remaining managers. This divergence in approach reflects broader uncertainty about optimal management structures in the new world of work.
5. DEI Evolution Toward Business Integration
The DEI narrative is shifting from a social/political focus to a business-driven approach, with organizations integrating these principles into core systems and processes. Companies are moving away from isolated interventions toward a more holistic, "all-inclusive" approach that considers a broader spectrum of diversity beyond traditional categories. This shift represents a strategic evolution rather than a divestment in DEI initiatives, emphasizing the business value of inclusive practices.
6. Compensation Practices Under Pressure to Evolve
HR leaders are grappling with determining appropriate compensation in dynamic, location-flexible work environments. Traditional compensation data sources and tools are proving inadequate for hybrid work scenarios, leading companies to use multiple data sources for decision-making. This is expensive and time consuming. There is also increasing pressure to incorporate more equity in executive compensation, though economic conditions are driving preference for fixed compensation.
7. Skills-Based Organization Models Gaining Traction
Companies are increasingly adopting skills-based organizational models as they navigate the impact of AI and need for more agility. This shift represents a fundamental change in how organizations structure roles and develop talent. Rather than focusing solely on traditional job titles and hierarchies, companies are mapping and organizing around specific skills and capabilities. While still in early stages, this transition is gaining momentum as organizations seek greater workforce flexibility in response to the business environment and opportunities through the integration of AI.
Implications for HR Leaders
Our findings reveal a period of significant transformation in HR, characterized by economic uncertainty, technological evolution, and changing workplace dynamics. HR leaders are challenged to balance cost pressures with the need for modernization and adaptation to new ways of working. Success will require rethinking traditional processes, careful investment decisions, and new, strategic approaches to talent management.
Top Opportunities for HR Leaders
1. Lead Digital Transformation
Spearhead AI adoption within HR functions to demonstrate practical applications and operational efficiencies.
Develop comprehensive digital strategies that integrate various HR tools and systems and unleash the opportunities with AI.
Create frameworks for evaluating and implementing new technologies.
2. Evolve Talent Management
Pioneer new frameworks for talent planning, encompassing role definition, skillset identification, headcount forecasting and organizational design to align with new ways of working.
Update core people processes like feedback, performance management, reward and recognition, and succession planning to reflect the shift in the business environment and rapid disruption in most industries.
Identify gaps in emerging skills and invest strategically in capability development.
3. Develop Future-Ready Leaders and Managers
Reimagine new leadership / management competencies required to address unprecedented challenges, flattening hierarchies and future transformations.
Establish support systems and communities for managers as they navigate new challenges and rapid change.
Invest in the next generation of managers and leaders by identifying high-potential talent early, and providing clear pathways for impact within the evolving nature of work.
Strategic Questions to Consider
Technology Integration & AI Strategy
How can we develop a comprehensive AI and technology adoption strategy that both modernizes HR operations and supports broader organizational transformation, while ensuring we maintain the human element in our people processes?
Future Readiness
How do we build organizational capabilities that will be relevant regardless of which future scenario unfolds?
Management / Leadership Model Evolution
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