Does HR need a new

operating model?
Building a model fit for the future
Does HR need a new operating model? Building a model fit for the future 2

Does the common HR

operating model need
to change?
We understand this question differently.
Before you scrap your model and start
fresh, think about the HR interactions and
investments in your people and technology
needed to make your current model — or any
model — successful.

Human resources leaders are under more pressure than ever

to deliver real value for their organizations by bringing both
increased efficiency and increased effectiveness to the functions
they lead. Consequently, all eyes are on the HR operating
model and whether it can help HR deliver against these
heightened expectations.

Has the common federated HR operating model — which we

define as an HR function with HR business partners, centers of
excellence (COEs) and shared services — fully achieved what was
expected? Should the operating model evolve to accommodate
employee experience, increased automation, personalization and
other demands being placed on the HR function?

Theories abound — but at Mercer, we have a strong point of view

guided by data-driven insights and practical, real-world client
experience on these critical issues.
Does HR need a new operating model? Building a model fit for the future 3

Our perspective
Instead of inventing or leading with a radically new HR operating model that may or may
not be fit for purpose, organizations should respond to changing demands by designing
or optimizing an HR interaction model that reflects their unique needs. Specifically,
companies should:

Review, radically simplify and Change from reactive to Invest in/improve adoption of
enhance interactions with HR anticipative service design supporting technology and
customers and within HR HR infrastructure to make HR
truly digital and support better
employee experience and HR
interactions

Redesign HR roles and Build and strengthen team

responsibilities to make them members’ skills and critical
more agile and adaptive to capabilities within HR, with a
business and workforce needs focus on making them more
experience-driven
Does HR need a new operating model? Building a model fit for the future 4

What the data

tell us
In late 2022, we surveyed 857 organizations In a nutshell, the challenges for and expectations of the HR
department have grown exponentially without significant,
about their HR operating models and sustainable changes that enable HR to address these new
asked them to self-evaluate the strength challenges and expectations.
of the HR function. Survey participants
also shared details on the specific setup of
their models as well as their investments in
The challenges for and expectations of the
supporting skills and infrastructure.
HR department have grown exponentially
We found three common challenges — or traps — within without significant, sustainable changes
HR organizations: that enable HR to address them.
1. Many organizations have implemented the centralized or
federated model (also known as the three-pillar model)
but only at a basic level. They’ve also failed to design Even as the workforce and, by extension, HR has been
the interactions properly — in other words, the many forced to confront and adapt to multiple, simultaneous
queries, support requests, coaching, HR interventions challenges and crises, HR has lacked access to the resources
and collaborative efforts in which HR is involved that the needed to drive change and adapt for the future.
model requires to work properly.

2. In most organizations, technology is underutilized.

In addition to lacking the tools to support their HR
operating models, such as case management, knowledge
management and employee direct access, many
organizations have implemented the HR functionality
necessary to drive greater automation, digitalization and
efficiency without properly adopting it.

3. HR teams are often understaffed and under-

skilled relative to organizational expectations and
stakeholder needs.
Does HR need a new operating model? Building a model fit for the future 5

Time spent
operating
within the
model pays
off
We also learned in our study that the common federated or
three-pillar model takes time to mature. Organizations that
are newer — and thus have implemented the model more
recently — are more likely to be low performing,1 whereas
organizations that have been using the model for a longer
period are more likely to be high performing. So even
though the federated model has some complexity — as
most operating models do — time spent ensuring that work
is performed in the right places and focusing on customer
interaction pays off with improved performance.

The time required to implement and fine-tune the

federated model, to build the required skills, capability, and
support infrastructure, and to educate HR team members
and customers alike through robust communications,
training and change management is not unique to this
model. Therefore, before selecting and implementing a
new operating model, organizations might be better off
assessing their existing HR operating models to determine
whether they fit both business and people strategy. It’s
also critical to assess whether the model has been set up,
implemented and complemented properly with the right
skills, interaction model and well-implemented technology.

1
Based on responses to 21 questions in Mercer’s 2022HR Operating Models
Survey.
Does HR need a new operating model? Building a model fit for the future 6

Areas of opportunity for

unlocking potential in the HR
operating model

HR interaction and role redesign:

Data gathered from multiple Mercer studies of more than

1,000 companies indicate that HR teams are spending
their time inefficiently. For example, 47% of HR leaders
report that their HR business partners are still trapped in
transactions as opposed to more strategic activities. Before
2018, on average, 10% of HR time was spent on strategic
partnering activities. The time allocation has only moved
up to 13% in the past five years — a marginal increase
despite countless transformational efforts designed
to tip the scales. Making progress in this area requires
removing lower-value interactions from the HRBP and other
strategic HR roles. Some of these changes can be achieved
by redesigning HR roles and interactions and rerouting
less-strategic interactions to other HR team members,
whereas some changes ultimately need to be facilitated
by technology.

Many organizations turn to shared services to improve

interaction, but radical simplification and automation are
needed before organizations will see payoff from their
shared-services investments. (In some cases, automation
can reduce the need for shared services to take on
new responsibilities or eliminate some transactional
tasks altogether.)
Does HR need a new operating model? Building a model fit for the future 7

Technology: HR skills and capabilities:

Properly selected, implemented and adopted technology More than half of HR leaders anticipate the need to upskill
can free up significant time within HR organizations HR staff due to new enterprise-wide responsibilities.
and improve the employee experience. However, many Designing roles for agility can facilitate building skills
organizations aren’t making the most of the technology they across the organization, but less than half of HR
have — or their plans for technology investments in the organizations we surveyed are using an agile approach;
future. Although organizations spend a significant amount 41% of companies did report occasionally sharing talent
of money on implementation and on the technology itself, pools and/or cross-skilling HR staff to flow to other areas
they often shortchange — in both investment and effort with some success. Organizations that don’t invest in
— the change management and post-implementation HR skill development will need to hire from outside as
reinforcement that drive successful adoption. they look for talent with specialized skills, such as data
and analytics, as well as versatile talent that can thrive in
And even as technology investments continue, many the most demanding senior HR business partner roles.
organizations still aren’t investing in or fully utilizing the The need for upskilling and reskilling applies across
features and functionality that drive both user experience the HR organization, not just in COEs. HR business
and radical simplification. Less than 15% of organizations partners, operations teams and shared services team
surveyed in our 2022 HR Operating Models Survey say members need to be agile, multi-skilled and broad in their
they are fully using mobile HR apps or user-friendly self- understanding of HR to maximize their effectiveness. And
service interfaces — two technologies that can reduce HR skill-building is best accomplished through traditional
interaction and free up HR business partner time. And six learning, complemented by exposure and experience
in 10 companies responding to our survey note they have through project assignments and agile roles.
no plans to use chatbots to answer simple HR questions.
Chatbots can automate time spent answering questions,
whether from HRBPs or from the service center, enabling
HR to spend more of its time on work aligned with the
business strategy. Finally, HR technology by itself isn’t
enough. For the most effective outcomes, HR and talent
technology suites need to be implemented in a way that
focuses on ease of use and simplification — and they need
to be combined with other organizational technologies.
Does HR need a new operating model? Building a model fit for the future 8

We help organizations embark

on this journey differently,
leading to different results.
We help organizations improve the additional training and explore updates to the technology
itself to maximize experience. Enabling AI and chatbots,
performance of their HR operating for example, allows HR to provide quick answers to simple
models by: questions while freeing up resources to provide a human
touch for the moments that truly matter and that help
Improving interactions within HR and with HR form perceptions of employee experience. It’s time to get
customers: real about self-service; although it carries the perception of
shifting HR work from the HR function to busy employees
This requires having a clearly defined interaction model, and managers, it’s really about direct access to the data
with strategic and operational interactions routed to the and quick transactions that people want — and should be
right people, and having HR operating as a well-coordinated reframed that way.
team. An in-depth analysis of six HR transformation
initiatives completed with clients during the past year Redesigning HR roles and responsibilities to make them
concluded that 82% of all interactions can be either more agile and responsive to business and employee
anticipated or designed. Given the diversity of clients needs:
and client levels of HR maturity, we can infer that a well-
designed HR interaction model allows the function to be Although employee experience is now an expectation of HR,
proactive and to anticipate needs rather than react to them. in many organizations, it’s spread out haphazardly across
This is why it’s important to start with the what — the target roles and teams without clarity around ownership and
interaction model design — before deciding on the who or accountability. Designing targeted, effective and data-driven
the how. interactions provides a roadmap for role redesign and the
inclusion of new roles.
Unlocking the full potential of HR technology:
Identifying and building HR skills and capabilities:
Technology must be experience centered — not only in its
design but also in its implementation. This is the only way HR plays a pivotal role in organizational transformation
to ensure employees and managers are actually embracing and new ways of working. Nearly 70% of respondents to
the system instead of bypassing it and going directly to their our 2022 HR survey believe their business leaders desire an
HRBPs. Additionally, a digital HR organization requires the increase in HR strategic consulting capabilities. This means
right mindset and skills — within both HR and the broader strengthening critical capabilities within HR — particularly
organization. Although HR can drive some of the needed as HR organizations are often required to do more with less.
capability-building, some of it may take place as part of Assessing the skills that exist today, creating best-fit careers
broader digital transformation. within HR and using agile assignments to build skills in
team members allows organizations to build HR talent from
Organizations that have implemented HR technology and within. Given the premium employees are placing on their
haven’t seen the adoption or value they anticipated may experience, investing in experience-focused capabilities will
need to look at how interactions are designed, deliver support organizations in their critical retention efforts.
Does HR need a new operating model? Building a model fit for the future 9

Walk, run … A continuous

or leap? effort helps
organizations
In working with HR leaders to strengthen
their operating models, we recognize that
some investments need to be made over
achieve
time while others may be more urgent.
Even as HR operating models take time to
different
optimize, some improvements can provide
immediate value, freeing up time and outcomes.
energy for longer-term changes. A walk-
run-leap approach could look like this: Just as the HR function is continuing to evolve and
business expectations continue to increase, the
capabilities, HR structures and tools supporting
• Walk: Fix the HR foundations required to operating models need to evolve. This means a
achieve the HR strategy, including upskilling continuous focus on HR team skills, making sure
HR team members. that new interactions — or ones that change
in frequency — are managed correctly and by
• Run: Introduce radical simplification
people in the right roles. This means maximizing
and automation, freeing up time to
investment in existing HR technology through
focus on priorities. This should take on a
adoption and the implementation of user-friendly
multidimensional approach, focusing not
features and functionality and also investing in
only on technology but also on streamlining
breakthrough technology that changes HR outcomes
and standardizing processes. Areas of
significantly. These continued efforts can produce
focus could include reducing cycle times
improvements — and with a significant investment
(a measure of responsiveness), cost per
in HR capabilities and tools, they can also produce
transaction (a measure of efficiency) and the
breakthrough results for the HR function. And by
number of handoffs (a measure of how often
measuring outcomes, continuously evaluating
work is transferred to others) to simplify
effectiveness, applying a start-stop-continue lens to
transactional work.
all HR activities, and staying deeply connected to the
• Leap: Introduce AI and chatbots to improve organization’s strategy and vision, HR can continue to
the employee experience and answer common evolve and meet changing expectations in the future.
employee questions quickly and without
human intervention. Define interactions
between HR customer groups and HR to drive
great experiences and higher adoption of
technology. And introduce an agile component
to the HR organization structure.

Sources: Mercer’s Global Talent Trends 2022–2023 Survey; Mercer’s 2022 HR

Operating Models Survey; Mercer database (analysis of client engagements,
Mercer HR Operations Scanner).
Contributors
Primary contributors:
Shari Chernack
Senior Principal, Transformation

Miriam Daucher
Senior Associate, Global HR Transformation

Helen McCarthy
Principal, Global HR Transformation

David Mitchell
Partner, Transformation

Karen Piercy
Partner, Transformation

Armin von Rohrscheidt

Global HR Transformation Leader

Additional contributors:
Jonathan Gordon
Partner, Transformation

Ravin Jesuthasan
Global Transformation Services Leader

Will Manuel
Partner, Transformation

Kelly Mawhinney
Partner, Transformation

Karen Shellenback
Senior Principal, Global Business Solutions

Melissa Swift
US Transformation Services Leader

© 2023 Mercer LLC. All rights reserved.

6013266-CR