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A Review of 2018 Human Capital Management Trends & Forecasts: Part 1, some new wine and a lot of new bottles

By Steven Hunt & Lauren Pytel

Read on for the results of our third annual review of human capital management (HCM) and Human Resource (HR) trends and forecasts where we summarize predictions published by HR thought leaders, consulting firms, and associations between October and February.  The focus is on articles looking at the broader HR field.  Articles with titles like “10 things in HCM to watch for”, “3 major changes affecting HR”, or “the top 5 talent management trends”.   Articles limited to narrowly defined areas are excluded.  For example, we do not include predictions from articles with titles like “five major changes coming to employee drug testing”.    We then categorize the predictions based on similar themes and concepts. 

The first review was completed in 2016 and categorized 131 predictions from 20 articles.  We compared the 2016 predictions to a set of predictions made in 2005 to see how much had changed in 10 years.  Our conclusion was the general nature of HCM challenges has not changed much over time.  This is because HCM is primarily about people, and people do not evolve that quickly.   But the relative importance of HCM challenges changes based on labor market and economic conditions.  And solutions used to address HCM challenges can be radically changed by advances in technology.  For example, companies have always been challenged with talent retention, but the importance of talent retention changes based on the labor market and the methods used to increase retention have changed considerably over time.     

The 2017 review categorized 130 predictions and observations from 21 articles.  The 2017 review also introduced the “wine bottle index”.  This categorizes HCM trends based on whether they address well-established vs. novel challenges (old vs. new wine) and involve use of familiar vs. innovative solutions (old vs. new bottles).   This year replicated the 2017 study, but expanded the sample to 199 predictions from 29 articles.  Part 1 of this review describes the 2018 categories we identified and the wine bottle index results.  Part 2 will reflect how the nature of HCM predictions has evolved over the past three years. 

The 2018 study identified 24 categories of predictions.  Figure 1 plots these predictions using the wine-bottle index.  The size of the bottles reflects how often different predictions appeared in the articles.  The category “Increased use of AI/Machine Learning” was the most common with predictions on this theme appearing in 79% of the articles.  Predictions associated with the next most frequent category, “Greater Staffing Complexity” appeared in 33% of the articles.   Approximately 30% of the articles contained predictions associated with the next 7 categories:  Increasing HR Analytics, Improving Employee Experience, Transforming Compensation, Growing Legal Challenges, HR Driven Technology Innovation, Performance Management Evolution and Increased Focus on Wellbeing.  The rest of the predictions in Figure 1 appeared in 10% to 20% of the articles.  Eight additional categories appeared in fewer than 10% of the articles.   These categories are excluded from Figure 1, but are briefly discussed at the end of this review. 


Figure 1.  2018 Prediction Categories

 

Using AI/Machine Learning to Improve HCM processes
People have been predicting that Artificial Intelligence (AI) and Machine Learning (ML) methods will transform HCM for years.  This is not new.  What is new is the focus on using AI/ML to improve HCM process usability and user experiences.   Past predictions talked about AI/ML “replace people” when making complex decisions related to staffing, compensation or workforce forecasting.   Although a growing number AI/ML decision making tools exist, for the most part AI/ML has not affected how most HCM decisions are made.  Instead, companies are starting to use AI/ML to create more intuitive and effective user interfaces.  For example, using AI chatbots to improve the user experience associated with making a leave request, or using ML to provide targeted learning recommendations tailored to individual employees.  The use of AI/ML is likely to significantly increase.  But AI/ML seems less likely to replace people when it comes to making HCM decisions.  Instead, it will be used to make it easier to complete HCM processes. 

Greater Staffing Complexity
This trend is a continuation from previous years, but has increased as the labor market becomes more fragmented into different employment categories.  Staffing used to primarily be about hiring full-time employees for full-time jobs located in specific locations.  Now staffing is about matching business needs to people with the skills required to perform them, regardless of where people are located around the globe and whether they want to work full-time, part-time or as contractors.  This shift is leading to increased use of social media, targeted marketing and other innovative staffing tools to find talent across multiple labor markets.  It is not surprising that Google entered the staffing market when one considers that staffing is becoming more about conducting strategic internet searches and less about creating job postings on career sites. 

Increasing HR Analytics
For years, people have been predicting greater use of HR analytics.  But growth is coming at a painfully slow pace.   Companies now have a lot of HCM data, but relatively few are using it in a sophisticated manner.  Hopefully we will see companies do more than just track HCM cost metrics like headcount and salary, and start to focus on HCM revenue metrics associated with employee productivity and team performance.   Several predictions suggested the future of HR analytics is not about analyzing “big data” with machine learning to draw out hidden empirical insights.  Instead, it is about using targeted analytics focused on small but critical datasets to drive meaningful conversations.   For example, tracking things like “employee turnover level by employee performance level” and using that to guide conversations about workforce quality and engagement. 

Improving the Employee Experience
In the past, most predictions about job satisfaction emphasized employee engagement.  This year’s predictions emphasize creating better employee experiences.   This doesn’t mean engagement is no longer important!   It does suggest companies are starting to look beyond internal factors that affect engagement such as providing employees with a sense of purpose, respect and recognition.  Companies are also creating tools and work environments that make employee’s lives simpler, easier and more productive.  This decreases the frustration that comes from inefficient and non-intuitive tools and processes.  This bodes well for employees as the quality of a job depends both on the value of work and how enjoyable it is to get work done. 

Transforming Compensation & Rewards 
There has been a focus on improving employee recognition for several years, but it is starting to translate into significant changes in overall compensation methods.  Companies are exploring ways to provide rewards more frequently, increasing transparency around compensation decisions, and using more non-monetary rewards including time off, wellbeing programs, and other perks and benefits.   These new approaches provide a lot of opportunities, but also raise a lot of risks and challenges.  These challenges are both tactical in terms of managing compensation regulations and motivational in terms of ensuring employees feel fairly and equitably treated. 

Growing Legal Challenges 
Managing legal regulations is one of the constant challenges of HCM.  The most significant changes in this area are tied to a greater focus on HR data security and management (e.g. GDPR), growing intolerance for compensation and staffing inequality, and higher levels of transparency and visibility around legal and regulatory compliance.  This area is becoming particularly challenging for global companies due to constantly shifting regulatory environments around the world.   The move to cloud technology is providing solutions that help companies manage global compliance more easily.  At the same time, moving to a single global HCM platform increases the importance of localizing centralized processes to comply with regional requirements.

HR Driven Technology Innovation
Technology has been transforming HR for decades.   But we are starting to see a shift in the nature of this transformation.  Historically, most HR departments waited for other organizations to create technology that they could use.  Due to recent innovations in cloud technology such as “app stores” and rapid prototyping tools, HR departments are now taking ownership for innovating and creating many of their own HCM technology tools.   HR is no longer just a user of technology, it is becoming a technology function.  This is leading to the emergence of true HRIT professionals who thoroughly understand both HR methods and IT solutions. 

Performance Management Evolution
Predictions about performance management transformation are not new.  But this year’s predictions have moved away from previous years’ focus on “getting rid of ratings”, to more discussions about creating coaching dialogue between employees, managers, and coworkers.  Companies are realizing that effective performance management does not depend on the design of processes nearly as much as it depends on the skills and motivation of the managers and employees using that process.

Increased Focus on Wellbeing
Wellbeing is shifting from being a subset of benefits programs to a central strategic initiative that is increasingly tied to board level priorities.  Companies are realizing that employee wellbeing is critical to the creation of highly engaged, collaborative and service oriented work cultures.  Employees cannot be fully productive if they are not fully present, mentally and physically.  And employees cannot be fully present if they are overly stressed or exhausted.  We suspect that wellbeing will soon become as central to HCM as leadership development, compensation and succession. 

Developing HCM methods for Contractors
The use of contract employees is not new, but the rapid growth in contract employment is.  What is also new is the increasing attention companies are paying to developing recruiting and talent management methods specifically designed to address challenges associated with managing a workforce that mixes together full-time, part-time, and contract workers.  Historically, most contractor processes focused on managing financial logistics associated with pay and scheduling.  Over the coming years, look for more tools designed to improve the speed and quality of contract recruiting and the productivity and engagement of contract employees.   The days of contractors being managed by procurement as though they were a bulk commodity are coming to an end.   Future HR departments are likely to have dedicated functions focused on attracting, hiring, managing and engaging a high performing contract employees.

Better Tools for Feedback
Traditionally, when HR professionals talked about “improving feedback” what they meant was improving the quality of manager-employee coaching conversations. Today, feedback refers more broadly to sharing critical, constructive opinions and suggestions across the entire organization.  There is growing emphasis on creating methods for upward feedback so leaders have real-time awareness around employees’ perceptions, attitudes, and opinions.   We are likely to see greater use of pulse survey, performance management, and social collaboration tools that enable development of highly “feedback rich” work cultures.

More Flexible Work Arrangement
This trend could be considered a subset to the broader trend of Greater Staffing Complexity.  However, this trend focuses specifically on giving employees freedom to craft jobs to fit their lives.  The growing focus on flexible work arrangement is likely to increase given the growing talent shortage and the focus on creating supportive cultures that help employees manage non-work demands such as child and elder care.

Tools for Teams
The shift toward team-based work is not new.  What is new is the growing development and adoption of team productivity tools that enable people to find team members, quickly form new teams, and support ongoing team collaboration.   What is still lacking from this area are tools to help organizations more effectively develop and manage in-tact teams.   This creates a less than optimal situation where companies work in teams but manage employees as individuals.

Getting Serious about Diversity & Inclusion
2017 might have been the “tipping point” in terms of addressing inequity, particularly as it relates to gender.  In the past, diversity was viewed as an accomplishment.  Companies were applauded for having diverse, equitable workforces.  Creating an inclusive culture is now becoming a requirement to attract and retain talent.   Soon diversity will be viewed as a basic expectation, and companies that fail to create inclusive cultures will be punished for it.  Companies are also realizing that bias is fundamentally about flawed talent management decisions.  Creating inclusive cultures does not come through setting diversity metrics and sending people through awareness training.  It comes by changing the methods leaders use to make staffing, compensation and development decisions. 

Rethinking Retirement
Companies are shifting focus away from millennials and towards the growing number of workers reaching retirement age.  Companies have been employing people in their 20s and 30s for centuries.  But for the first time in history, companies are starting to employ large numbers of people over the age of 60.  People are living longer and many are interested in working past the traditional age of retirement.  And many organizations do not want to lose the knowledge of what are often their most experienced and highly skilled employees.  This is creating a shift in the notion from retirement to transition.  Rather than leave the workforce entirely, employees are creating alternative work arrangements so they can continue participating in the labor force into their 70s and beyond. 

Minor Themes
In addition to the major themes noted above, we identified several minor themes that only appeared in 2 or 3 articles.   Some of these reflect highly specific topics.  Others may indicate trends that have yet to fully emerge, or reflect the tail end of trends that are starting to fade.  These minor themes include:

  • More Accessible Learning Content.   There is a steady growth in the availability of learning content as technology makes it easy and inexpensive to create, market and deliver learning courses and materials.
  • Creating Employee Development Culture.   To manage the accelerating pace of change created by the shift to a digital economy, companies are building cultures that emphasize continuous employee learning and development.
  • Managing Job Automation.   Companies that employ workers whose jobs are likely targets for automation are putting programs in place to help employees manage anxiety and prepare for the eventual elimination of their current roles.
  • Continued to Shift to the Cloud.  HCM technology and processes will continue to move to cloud technology platforms and applications.  This shift will fuel faster rates of innovation and change in HCM overall. 
  • Creating Engaging Cultures.   Companies are putting more effort into creating engaging cultures that appeal to the interests of a diverse and multi-generational workforce.   This requires finding ways to tailor jobs to employees who work in the same group but have very different work goals and interests. 
  • Managing Cyber Security Risks.   As companies collect more and more HCM data, they increasingly become targets for cyber criminals.   This is requiring companies to invest greater resource into HCM data security and risk management. 
  • Managing Employer Brand.  Creating a strong employment brand is critical for attracting talent in a highly competitive labor market.   Maintaining this brand can be a challenging exercise give the transparency created by the internet and the viral nature of social media.  Companies are starting to manage their employment brands with the same sort of rigor that they put into managing their consumer brand. 

This ends our review of 2018 HCM predictions.  While most of the themes reflect “old wine”, some of this old wine is becoming more important and being blended in new ways.  For example, using AI/ML to improve HCM processes, addressing the growing complexity of staffing, using innovative compensation methods, and placing greater focus on providing a positive employee experience.  We are also seeing some “new wine”, such as the growing trend of HR taking primary ownership over driving technology innovation.  But for the most part, 2018 will be a year where most of the significant changes are about creating new solutions to old problems.  In other words, using a lot of new and more effective bottles to hold some old and well-established wines.  In part 2 of this series we look back to see what has and has not changed over the past 3 years. 

SAP SuccessFactors Research

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