Sustainable Agility: How HR Can Survive the Rapid Pace of Change

The age-old HR goal of supporting the business by aligning with strategy has become untenable. Business strategies now change too fast for supporting practices to keep up, and the demand from business leaders to become agile with faster change is heaping major stress on employees. The director of The Wharton School’s Center for Human Resources and a veteran HR executive detail how HR leaders can straddle the apparently conflicting goals of advocating for employees’ interests and helping their organizations pursue agility.

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Human resources as a serious function arguably began with the U.S. Army’s psychological studies during World War I on morale and other topics. But it didn’t blossom into something we would recognize today until employers were confronted with unionization. Employers responded both by fighting unions aggressively and by trying to buy out workers’ interest in having a union. The system known as “welfare capitalism” created a role in companies for finding out what employees wanted and trying to give it to them. In other words, advocating for employees.

The 1980s saw a change in the way organizations operated. Employers began crushing unions and became so successful at it that the “industrial relations” departments that dealt with unions—which were common in virtually every large company—disappeared altogether. Personnel departments, which had reported to industrial relations, were now responsible for all employee needs and issues. But personnel departments’ role as advocates for employees also became unnecessary with the decline of interest in keeping unions out. It also put them at odds with the new cost-cutting, shareholder value-oriented business leaders.

The U.S. also moved from a period of labor scarcity following the post-World War II economic boom to a decades-long buyers’ market for labor. That began in the 1970s and accelerated with the 1981 recession, leading to white-collar layoffs for the first time and waves of corporate restructuring, which frankly never ended. Things improved a bit in the 1990s, with unemployment averaging 5.3%. But then from 2000 to 2018, unemployment rose again to average 6.2%. It wasn’t hard to hire or retain employees when so many people were looking for jobs. Rather than advocating for employees, it was more common for companies to be taking things from them.

Since 1980, top management has clearly been pushing HR departments to stop advocating for employees and do more to help the business. (That’s partly why the function’s name shifted during that decade from “personnel” to the more business-sounding “human resources”).¹  The most attractive option was to be a “strategic partner” supporting business strategy.

But what did it mean to be a partner? One answer was to be “the perfect agent of the CEO,” as former GE Executive Vice President Frank Doyle once put it. That meant moving away from policies that HR thought was best toward whatever the CEO wanted—and that rarely focused on looking out for employees. Jack Welch’s fixation on forced rankings was arguably the best-known example of a policy the CEO wanted but HR did not.²

The field of business strategy provided a more sophisticated answer with the idea that companies needed to differentiate what they did in order to compete. They could do that by developing a competency—in some cases a central “core competency”—that made them better than competitors at some aspect of their business.

From there, companies had a straightforward focus on supporting that strategy. For example, an airline like Southwest was going to compete by having a more productive workforce, Nordstrom with push-the-limits customer service, Chubb Insurance by getting the best underwriting, and so forth. To support those strategies, companies hire people with the dispositions to fit those needs, develop the behaviors associated with the needs, and create cultures that support them. This was the notion of “alignment” that HR leaders still refer to as the central part of their mission.

Supporting Strategy Goes Away

It was never clear how many companies ever had those clear and consistent strategies based on an obvious competency—nor how well HR actually did at supporting them. But these days, the notion of competing by having one clear strategy and executing it consistently seems quaint.

A 2022 Conference Board C-suite survey found that “modifying their business model” had moved up to the No. 2 business priority for executives. Another survey found that more than half of managers (58%) said they need to “reinvent” their business every three years or less just to survive. In other words, evidence suggests that it pays for CEOs to take this broader view, shifting from execution to looking for new opportunities.³

What does it take to support business strategy when that strategy changes every few years and when it may differ across lines of business? It is simply not possible to do this by aligning traditional HR practice with the new strategy. If we hire different people who “fit” the new model every few years, it will take a very long time before the workforce as a whole changes, and the different cohorts will likely be in conflict with one another. Training and then changing management practices to get existing employees to behave differently takes a huge amount of time and resources. Organizational cultures simply don’t change quickly, and then only if fundamental policies and practices change.

More importantly, HR professionals report that every restructuring creates winners and losers and a sense of crisis among much of the organization’s talent. For example, when GM announced a couple years ago that it plans to phase out its gas and diesel manufacturing in a decade, what will that mean for the legions of employees who work on internal combustion engines? As one CHRO put it, their main challenge when these directions change is just to keep the current workforce from panicking. (Will we still have a role after this new direction? Are we likely to lose our jobs?)

The belief that HR should be aligning employees and their behavior to each new direction rarely worked that well in any case, because HR didn’t have the power to do so. Cutting recruiter jobs and pushing hiring decisions to line managers meant that HR no longer controlled hiring. Training budgets were stripped bare, and with them, the ability to mold employees. The ability to shape career paths was constrained by the growing reluctance of line managers to allow their employees to move. Organizational culture was never driven by HR; it is shaped by what the top executives do—and changing culture requires changing overall practices, which executives are often not inclined to do.

The Need for Speed—and Agility

The consistent theme in what top executives say they want from their organizations now reflects the constant pace of change, and that is to be agile. Not the project management practice of agile, but simply the ability to change and respond quickly. 

A McKinsey & Company survey found that three-quarters of business leaders said that organizational agility was among their top three priorities. Furthermore, those leaders believed more of their employees should undertake agile ways of working. On average, respondents believed 68% of their companies’ employees should be working in agile ways, compared with the 44% of employees who currently do.⁴

A Conference Board survey of HR leaders indicates that HR is getting the message. A full 94% of HR leaders say it is important for HR to be able to “reconfigure its capabilities and resources rapidly.” In ranking their own most important needs for change, “more flexible deployment” and “adopting agile methods” took two of the top three positions, beaten only by leveraging AI.

But HR leaders still think their organizations have quite a way to go when it comes to actually making the necessary changes. A Gartner survey of HR leaders found that only 19% feel their workforce is capable of changing direction in the face of changing needs and priorities.

The reason for needing agility is to respond to uncertainty. We don’t know what the next business opportunity will be, so we don’t know which competencies it will require. We don’t know which of our management practices would support or fight those needs. The traditional HR focus on planning and then aligning with the plan is simply at odds with any serious attempt to deal with uncertainty. It was hard enough to develop competencies even when strategy was stable. How we go about developing them when strategy may be in continuous change is not at all obvious.

The Labor Market Strikes Back

If the rapid pace of change wasn’t enough of a challenge, the labor market now has pushed back, reinforcing the need to pay a lot of attention to the most traditional HR task of getting and keeping talent.

As a result, talent issues of the most fundamental kind—how to get and hold employees—are at the very top of most CEO concerns, as several surveys show:

• The Conference Board’s 2023 C-suite survey has CEOs ranking employees ahead of shareholders as important stakeholders. CEOs also say that talent, especially acquiring it, is the No. 1 factor affecting their business. But the priority of changing their approach to strategy—“modify our business model”—is in second place.⁵
• In Deloitte’s C-level survey in 2023, those two goals were tied for the top position: transform the core business and get better at talent acquisition.⁶
  
• PwC’s equivalent survey had CEOs reporting that hiring talent and a digital transformation of the business were tied as No. 1 priorities. Just behind those two is increasing agility.

The goal of executives is clear: to keep changing the organization, and to focus on keeping and attracting talent. How to do both is the challenge because they are in conflict.

One of the biggest employee complaints is “change fatigue” and the stress it causes to be in a near-constant state of flux. Studies show that this has caused employees to be far less interested in supporting new company initiatives. A Gartner survey revealed that employees’ willingness to support change plummeted to 43% in 2022, down dramatically from 74% in 2016.⁷ When Harvard Business Review cited this survey, it floated the idea that organizations should take periodic breaks from change to allow employees to recoup. That’s not something we suspect CEOs are likely to embrace.   

The tight labor market not only means it’s harder to hire and retain employees. It also means current employees have more bargaining power and are more willing to push back against problematic aspects of work. Constant restructuring is one of those problems because the uncertainty it creates causes stress. The real fear of layoffs has been accompanied by fewer prospects for internal advancement—causing ambitious employees to look outside—and pay increases that lag inflation.

Another stress point: the rising belief that good mental health is a right for which employers are responsible. A McKinsey survey found that 80% of employers reported company-level
concerns about employee mental health, and half indicated it was a top CEO priority for them to address.⁸ But so far, employers have focused more on treating the consequences, rather than the root causes of work-induced mental health problems.

We saw other new employee concerns as well, from the #MeToo movement, the growing field of diversity, and a focus on societal issues that sees employees as stakeholders.  

When we roll all these issues together, we see the re-emergence of the employee advocacy role for human resources.

The conundrum for HR is simple: For 40 years, HR was told to stop advocating for employees and instead concentrate on how to support the business by supporting its strategy. Now there is a business need to be an employee advocate again. Will HR move forcefully in that direction? Can it do that and be supportive of an agile strategy that likely harms employees? 

Going Forward: Making Agility Sustainable

One obvious conclusion for the HR function is that the common view among senior HR leaders that outsourcing the basic HR tasks allows us to focus on the “strategic stuff” has been stood on its head. The basic stuff—keeping the organization together and getting jobs filled—is the strategic need.

A 2023 survey of HR leaders by Sapient Insights Group suggests HR feels somewhat in limbo, despite being in charge of the No. 1 business issue—talent acquisition. Only 46% of HR leaders reported that their HR function is viewed as contributing strategic value to the organization. That level has not changed in recent years, even with HR’s apparent success in getting organizations through the pandemic.⁹ And that 46% is roughly a third lower than the share of other functions that are viewed as being strategically valuable.

It is hard to be seen as contributing strategic value if you cannot demonstrate with credible evidence how important the problem is, i.e., what it really cost us if someone quits, the total value of a good hire, and so forth. It’s also hard to be seen as valuable if what you are doing is just outsourcing the solutions to someone else.

Top executives need to realize they cannot have an organization that is constantly changing its strategies without paying a big price for it, namely harming the stress levels and mental health of employees, the ability to recruit and retain, and the engagement of employees in their work.   

Is there a way to balance those two demands? The irony is that the pre-1980s generation of corporations made the case that the lifetime employment and generous perks to support changes that might move them into new jobs and new locations were precisely how to overcome resistance to change and achieve agility.¹⁰ That was the model corporations have abandoned since the 1980s.

Another option is to find resilient employees who are willing to absorb the stress of constant agility by overpaying them, a tactic used by the investment world that is unlikely to be considered by most. Nor do we think that leaders can be persuaded to back off the agility goal, because that goal is so strongly seen as a business requirement for survival.

However, it may be possible to get leaders to pick their change battles more carefully by persuading them how costly the agility goal is to their goals for talent acquisition, talent retention, and mental health. For example, some employers announce more layoffs than they ultimately carry out because they think investors like it. Is it worth the cost to employees to do that?

So is there a way to produce sustainable agility?

The focus on organizational change has been on making the change successful, which meant getting to the new model as quickly as possible. In part, that meant piling pressure on employees, such as the “burning platform” idea in which we either adapt or die. But sustainable agility should mean being able to make changes again, not just ram through the current change. This is different from the notion of resiliency, which is how well organizations can take a punch or a shock. We are thinking instead about how they can avoid so many self-
inflicted punches.

We also know that one of the best ways to reduce the stress on employees from uncertainty and change is to give them more control, which means more choice. For example, expanding “bidding and posting” systems to allow employees to at least apply to work on the new projects generated by new business strategies reduces stress, even for those who choose to stay where they are. The more employees can be engaged in at least shaping some of the decisions to be made with new business directions, the better. Employees know a lot about what is likely to work well, and they are more committed to the decisions when they have some input into them.

Nor should we forget that managing organizational change begins with managing expectations and better communication. Employees should know that the organization will keep changing directions, so they shouldn’t expect their current roles to last forever. Communicating early on about why the change is happening and what it means prevents employees from making up their own answers, which are almost always worse. Also, letting them know that there will be training and support to move in the new direction helps reduce anxiety. Yes, that will cost some money.

Bottom line: The 40-year run of downplaying employee issues appears to be over as tight labor markets and social concerns have elevated those issues to the No. 1 ranking in business needs. Those issues are the strategic imperatives now. HR needs to adjust: It is hard to imagine marketing, operations, or any other function finding that their traditional domain had become the top concern of the CEO and continuing to focus their attention elsewhere.

Advocating for employee interests in the wake of demands for the organization to be agile has to begin by raising awareness of the costs of the associated stress on employees. We are not in the 1980s anymore; those costs have consequences now. How to both improve employee outcomes and gain agility will also require different approaches than 1980s-style restructuring. There is no time to wait in getting started.   

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SOURCES

1. DiDomenico, P. “How We Got Here: The 75-Year Evolution of SHRM and HR,” HR Magazine, Spring 2023.
2. Bates, S. “Forced Ranking,” HR Magazine, June 2003.
3. Mannor, M., and Eklund, J. “Keep Your Eye on the Ball or on the Field? Exploring the Performance Implications of Executive Strategic Attention,” Academy of Management Journal, Vol. 64, No. 6.
4. “The 5 Trademarks of Agile Organizations,” McKinsey & Company, December 2017.
5. “On the Edge: Driving Growth and Mitigating Risk Amid Extreme Volatility,” The Conference Board C-Suite Outlook 2023.
6. “Insights: Building for Resiliency Amid Disruption,” Fortune/Deloitte CEO Survey, Fall 2023.
7. O’Morain, C., and Aykens, P. “Employees Are Losing Patience with Change Initiatives,” Harvard Business Review, May 9, 2023.
8. “National Surveys Reveal Disconnect Between Employees and Employers Around Mental Health Needs,” McKinsey & Company, April 21, 2021.
9. “25th Edition, Annual HR Systems White Paper,” Sapient Insights Group, 2023.
10. Mills, D. Quinn. The IBM Lesson: The Profitable Art of Full Employment (Crown, 1988).