The gap between the executive and people functions is about to get even wider
This article is designed to be a helpful and potentially useful articulation of the issues and opportunities facing senior Human Resource Professionals in a rapidly changing business dynamic.
With some notable exceptions, there has always been a bit of a gap between the executive team and the people function.
But something significant is happening in the market, which isn’t just pushing these two functions further apart; it appears to be becoming an insurmountable chasm. What is causing this dynamic? Here in the UK, this is what we are seeing:
Historically, executives focused on strategy, performance, growth, and shareholder value, seeing the world through commercial strategic outcomes. Whereas, the people function prioritises execution, with a much broader delivery and people-centric focus. This can encompass talent, development, recognition and reward, colleague management, incl. relations, wellbeing, compliance, and increasingly culture and organisational performance (mindsets, behaviours and business transformations, etc). Different accountabilities, different languages.
Although complementary, these focuses have often been seen as separate, and, as a result, have been measured and valued differently. In simple terms, and perhaps unfairly, one is considered by some to be ‘hard’ and the other as ‘soft’. But it can also be seen through a fast and a slow prism. As strategy typically shifts quarterly, people systems typically work on annual cycles.
I have met some very strong and capable CPOs who are at the heart of the executive team, and I have met some who have almost no authority or respect at the executive level. But in the close executive huddle of big strategic or investment decisions. The HR role is often seen as one of execution or support, and their salaries and voice reflect that reality.
Firstly, in the UK, performance and growth expectations and pressures on leaders are rising from investors and boards, whilst simultaneously, market conditions are getting even more complex, disruptive and harder.
This means chief executives want different focuses, capabilities and cultural realities in their business. They are demanding outcomes now, not activity… as pressure builds, the ‘how’ becomes increasingly less important than the results.
Post-2008, as access to near-free money softened UK businesses' risk, ambition and performance focus. In benign market conditions, many UK businesses became preoccupied with their organisational cultures. Increasingly, becoming internally looking, prioritising meaning, purpose and feelings as pressure to perform weakened. Everyone wanted to be heard and their voice valued equally. Leaders scrambled to appear to be inclusive and caring, in an attempt to ensure everyone felt valued, as the promised logic was that psychologically safe and inclusive environments would unlock new breakthroughs in people's performance. Those results haven’t materialised as inclusion came to mean in practice, including everyone in everything everywhere, and colleagues became even more confused and distracted.
Unsure how to move forward and with no real performance pressure, organisations applied old model logic, such as adding more layers of administration, systems and processes to drive behaviours; increased basic salaries, bought yet more tech; recruited yet more people, acquired more competitors to obtain market share as they struggled to build organically. This added yet further layers of administration, management, and drove more training and compliance requirements. It also helped hide capability gaps, strong decision-making and risk aversion. Driving more distraction, confusion, and further eroding performance, focus and decision-making capabilities. Businesses become unfocused and bloated to the point that they became almost entirely atomised in their focus, attention and behaviours. Everything, everywhere, was equally important and urgent; the activity and noise distraction undermined the exec-to-business transmission, traction and performance headway when it came to their strategic and business transformation intentions.
Then the situation changed.
Money became more expensive and harder to access, and friction in the system meant old approaches no longer delivered growth, but pressure and expectations for performance and profit have risen regardless of circumstances.
There are two main things being discussed at an investor or executive level now - Performance, and how AI might unlock performance.
What most large-scale organisations are trying to do is align their organisations with their growth strategy, by narrowing their focus, building the new capabilities (AI), looking externally to their customers and market, keeping their best people focused on the growth agenda and removing everything and everyone else, so they can unlock both growth and efficiency.
And this is a real challenge for the people function, as the executive, leaders, and managers typically don’t believe the people function understands or can contribute significantly to strategy, commercials, or performance.
The game has moved from activity to output. But People Functions don’t always have deep capabilities in this arena.
And if the people function goes back to their already exhausted, distracted, cynical, potentially underperforming and strained leadership and management, with yet more training or conversations about culture, inclusion, understanding, meaning, purpose, feelings, or anything that remotely sounds or looks like that, then they are going to get almost zero traction.
Not only is this exposing a focus misalignment, but also a capability gap, which brings me to AI.
AI isn't really about AI training and getting colleagues to use AI more, although that will help.
Only a year ago, people looked at ChatGPT and saw it as a tool. Believing that just like the internet, emails and other tech breakthroughs, this was an improvement tool that could be embedded and used in a way that wouldn't upset their existing business model, but as a way to drive more growth and productivity. But it has become clear that AI is way more than just a tool to find efficiencies or unlock insights, etc.
It will be how businesses operate.
Businesses are facing a stark choice: resist and merely tinker with AI at the edges of their business, or integrate AI fully into the very DNA of their organisation, as it spiders over everything, which in turn will leave them incredibly reliant and incredibly vulnerable. The opportunities and challenges are vast.
Overnight, it could fix so much. Help leaders see gaps and huge commercial opportunities in market gains with improved execution strategies. Remove inefficiencies in resource management, people, ways of working, systems and processes. Removing projects or decisions, which can now be scrutinised and improved instantly, and either suggest better options, or close them down entirely - imagine that? This offers the nirvana of billions of surgical savings in a heartbeat with incredible off-the-scale improvements in growth.
But every AI firm is on a land grab, and every business and leadership team is thinking about how they apply AI to their business or sector in similar ways.
Begging the same question - What might be their point of difference?
When insights themselves become commoditised, what is the value of people? Or, as thought-leader Usman Sheikh brilliantly articulated in our latest correspondence, “LegacyCo firms will say, it's not possible, and human judgment is the differentiator. Which I agree it is. My question back to them is, do you need 40,000 people to deliver that judgment? At which point the conversation stops.”
Businesses and indeed entire sectors might become commoditised, once AI understands what a leadership team, a business, or the entire market might know or might not know, making businesses and entire industries irrelevant in a second, as AI capabilities continue to improve.
Once established and embedded, AI businesses will be almost impossible to remove. Think of the risks of removing it and the interests of the AI tech firms to make it impossible to remove them? Where is the real interest and alignment there?
It will exist like Japanese knotweed and understand the business, how it operates, how it interfaces with the world and its competition, with all its gaping vulnerabilities within the entire market rhizome, better than anyone in the business, including the executive.
The affordable or free tools that AI firms are currently offering are merely the Trojan horse for their real intent, which is to become so embedded in every business to the point they have singularity of everything. Then they will own the business effectively, its USP, IP, and content - everything they know or even might know, their point of difference or future unknown value. AI firms are playing a complex market chessboard, which is operating way above the business's understanding presently.
In comprehending this, large organisations will attempt to create their own internal AI models. But they will struggle for reasons of cost, scale and capability, forcing them back to the 4 or 5 tech players who will eventually own everything amongst themselves.
But if leaders don’t go all in with AI… they are also at risk of becoming irrelevant, as everything will accelerate to take off, exposing businesses that don't ... in a way that the cars did to the horse, or email did to paper letters.
And again, this is where the People Functions will be exposed.
The colleagues attracted to people functions typically by their nature are people people, not tech, sales or performance focused. Not many HR professionals currently understand at a complex, strategic application level what AI is, or how AI or they can add value to the business. And even if they did, they would have a job on their hands convincing leaders and managers that they do, which further drives them away from the strategic heat and decisions in businesses right now.
People Functions have a credibility and capability gap dilemma, brought about because of the need for greater business productivity, removing cultural distractions and how to apply AI at a strategic level, which they may struggle to bridge. As a result, their importance and influence at the top table may weaken further, as leaders attempt to use AI to drive greater productivity and efficiencies created by AI, in order to build yet more new AI and performance capabilities, to meet the incredible change that all businesses face right now.
We are in a once-in-a-lifetime, epoch-defining moment. The opportunities are extraordinary. But where the old approaches to people, performance and culture probably aren’t able to meet the new needs, in fact, they are increasingly seen by executive teams as a problematic distraction. And the more human resource leaders dig in and try to defend their current beliefs, focus and approaches about leadership, culture, people and businesses, the more tensions may arise.
The world is changing faster than people and businesses can keep up with. The people function has to find ways to bring value to that existential reality.
