For decades, there has been a single generally accepted way for multinational companies to manage people. This approach, pioneered by professor and management coach Dave Ulrich in 1996, is characterized by three pillars, adjusted to fit each organization’s unique needs: business partners in human resources (HR), specialized cross-disciplinary units known as centers of excellence, and shared-service centers.
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Vincent Bérubé is a senior partner in McKinsey’s Montréal office, Dana Maor is a senior partner in the Tel Aviv office, and Alex Sukharevsky is a senior partner in the London office.
That’s changing. There’s no longer just one HR archetype to rule them all. HR now plays a central role in helping organizations navigate change, and modern chief human resource officers (CHROs) are innovating in ways that are helping HR functions evolve. The three-pillar model is breaking down in favor of a pool of professionals who can be quickly deployed to deal with the most critical issues or the highest priorities. The CHRO’s job, as a result, is becoming more nuanced than ever before.
How are the roles of today’s CHROs changing, and how are they extending the reach and scope of the HR function? Read on to find out.
Learn more about McKinsey’s People & Organizational Performance Practice.
What are the five emerging HR operating models?
Employees have made it clear that they want to be managed differently in an era of hybrid working models and the rise of the majority-millennial workforce. In response, organizations are rethinking their approaches. Many are looking closely at five emerging HR operating models, all of which are enabled by two core elements: a strong, consistent data backbone and a user-friendly, highly reliable service backbone.
1. The Ulrich-plus model
Many CHROs believe the classic HR model is unable to meet today’s challenges, especially in the case of multinational businesses with mature business models. But an updated version of the Ulrich model could change their minds by making centers of excellence more flexible and assigning more execution responsibilities to HR business partners.
2. The agile model
CHROs who favor this model believe that HR needs to move more quickly to accommodate rapid transformations in their organizations. The agile model features fewer HR business partners, with an emphasis on counseling top management. And it has center of excellence teams focusing on data, workforce planning, and diversity, equity, and inclusion initiatives.
3. The employee-experience-driven model
This model is meant to help CHROs gain a competitive advantage by creating a world-class employee experience journey. This means allocating outsize resources toward “moments that matter,” such as onboarding. The companies that employ this model are highly dependent on their top talent.
4. The leader-led model
In this model, CHROs transition HR accountability to the business side, supporting line managers with HR tools and back-office support for processes like hiring, onboarding, and development. Companies exploring this approach typically have a high share of white-collar workers, with a strong focus on research and development.
5. The machine-powered model
HR professionals in a machine-powered model focus on providing employees with counsel, leaving tasks like talent selection and absenteeism analysis to algorithms. Organizations experimenting with digitization typically employ a large population of digital natives.
In large, diversified organizations, CHROs may find that different archetypes are better fits for various aspects of the business—and may adopt a combination of HR operating models.
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How are CHROs putting the ‘human’ back into human resources?
For years now, HR leaders have struggled with an increased emphasis on cost efficiency. They’ve been tasked with a worthy but uninspiring mandate: optimize labor costs, reinforce compliance using standardized measures, and support the adoption of technology. Even in the most meaningful and culturally significant areas of HR—recruitment and learning and development—leaders have had to focus more on productivity and how to measure it. McKinsey’s recent interviews with dozens of European CHROs reveal that there’s a marked desire in that part of the world for more people-centric policies in organizations, based on the view that some core human element of talent management has been lost in the wake of technological advances, such as generative AI (gen AI).
Of course, technology is a critical source of value creation for every business function. HR is no different, and like senior leaders in other business functions, CHROs must link technological insights and business decisions. Here are four ways to go about this process:
1. Engage more directly and deeply with employees
Many of the European CHROs we interviewed told us they wanted to transform their functions to engage more directly with the workforce, moving away from self-service solutions. It’s better to implement processes face-to-face with employees or at least with enough individual or customized attention to make remote interactions feel like personal ones.
2. Let employees bring their whole selves to work
The vast majority of CHROs we spoke with said they wanted to address the employee experience in a more targeted, dynamic way. This may mean taking a broader view of diversity, equity, and inclusion in the organization and acknowledging and addressing employees’ sense of purpose.
3. Pave the way to the ‘new possible’
CHROs can make agile workforces a reality by spreading decision making across the organization. It will be important to empower line managers and help employees throughout the organization develop agile skills and mindsets.
4. Act as ‘human capitalists’
CHROs may need to expand their view of talent to prepare for changes in demand and the nature of work required. They may need to engage more temporary workers and freelancers, for instance—not necessarily to cut costs but to increase flexibility and tap into different pools of talent.
Learn more about McKinsey’s People & Organizational Performance Practice.
Speaking of talent, how can CHROs find and keep much-needed tech talent?
According to McKinsey analysis conducted in the wake of the 2023 tech layoffs, more than 80 percent of laid-off tech workers found new jobs within three months—often with incumbent companies. This means that technology firms are becoming a little less “techie,” while incumbents are becoming more so.
To boost their organizations’ tech capabilities, CHROs can work closely with technology leaders to explore new approaches to sourcing, supporting, and scaling technical expertise. When it comes to sourcing, HR and technology leaders can emphasize skills rather than pedigree when filling critical technology roles. In supporting technology talent, leaders can themselves use digitization to streamline processes wherever possible. Digital approaches and tools, such as psychometrics and gen AI, can help leaders propose specific trainings an individual might need ahead of a specific meeting or in anticipation of an internal process change. And finally, to scale a skills-based working model, leaders need to ensure continual upskilling and reskilling.
How could gen AI affect the HR function?
Gen AI is not just for computer scientists; it can be used in all types of jobs. OpenAI, the artificial intelligence research lab behind ChatGPT, estimates that 80 percent of jobs can incorporate gen AI technology and capabilities into work activities today, giving CHROs an important role in countering workforce concerns about replacement and loss. For a wide variety of technical abilities—including coordination with multiple agents, social and emotional output, and natural-language understanding—gen AI will match the median level of human performance by the end of this decade.
CHROs can use gen AI to shape talent management in several meaningful ways. Gen AI can augment the employee experience by helping to facilitate the training and upskilling process, enabling employees to pick up new skills more quickly. It can empower middle managers by freeing up more capacity so that they can shift their attention to higher-value leadership tasks, such as strategy-focused work and people management. It can help with candidate relationships, allowing for a more personalized approach that includes identifying other available roles to fit the candidate’s talent profile. And once the candidate is hired, gen AI can help companies match the new employee with mentors and coaches to help improve the onboarding experience, upskill talent, and streamline administrative tasks.
Gen AI also has the potential to accelerate the shift in focus from credentials toward learned skills in the recruiting process. Gen AI does tagging extremely well, according to McKinsey senior partner Lareina Yee. That’s “the ability to tag unstructured data for words,” she says. “Now you don’t need to look for a credential or a degree. You could look for keywords in terms of capabilities and skills.”
To lead significant organizational change, HR leaders must themselves be inspirational, focusing on the organization’s internal culture and capacity for change. Aside from their core responsibilities, it is important for CHROs to spend their time not only observing and listening but also proposing, explaining, and convincing.
Learn more about McKinsey’s People & Organizational Performance Practice.
How can CHROs build the leadership capabilities required for an agile transformation?
CHROs we spoke with from Europe and Asia–Pacific shared some lessons for how to employ agile ways of working in people management functions.
They note that leadership is the most important enabler of—and barrier to—a successful agile transformation. Leading agile change requires leaders to shift their mindsets from authority to collaboration, from scarcity to abundance, and from certainty to discovery. These shifts can have a big impact: for one CHRO, the shift from individual to collective performance evaluation helped the C-suite break down silos and shift to big picture thinking.
But the mindset shifts required to work in new and different ways must extend far beyond the executive team—all the way down to the front line, in fact. One CHRO we spoke with emphasized the critical role of the quarterly business review process in transforming organizational culture, especially the setting of objectives and key results: “If you get the [quarterly business review] process right, I think that it’s a real key to help drive accountability.”
Learn more about McKinsey’s People & Organizational Performance Practice. And check out HR-related job opportunities if you’re interested in working at McKinsey.
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Articles referenced:
- “The organization of the future: Enabled by gen AI, driven by people,” September 19, 2023, Sandra Durth, Bryan Hancock, Dana Maor, and Alex Sukharevsky
- “HR rewired: An end-to-end approach to attracting and retaining top tech talent,” June 27, 2023, Vincent Bérubé, Dana Maor, Maria Ocampo, and Alex Sukharevsky
- “The economic potential of generative AI: The next productivity frontier,” June 14, 2023, Michael Chui, Eric Hazan, Roger Roberts, Alex Singla, Kate Smaje, Alex Sukharevsky, Lareina Yee, and Rodney Zemmel
- “Generative AI and the future of HR,” June 5, 2023, Bryan Hancock, Bill Schaninger, and Lareina Yee
- “HR’s new operating model,” December 22, 2022, Sandra Durth, Neel Gandhi, Asmus Komm, and Florian Pollner
- “Reimagining HR: Insights from people leaders,” March 1, 2022, Laura Blumenfeld, Neel Gandhi, Asmus Komm, and Florian Pollner
- “CHRO perspectives on leading agile change,” August 30, 2021, Jason Inacio, Dávid Kincsem, and Dániel Róna
- “‘Back to human’: Why HR leaders want to focus on people again,” June 4, 2021, Talha Khan, Asmus Komm, Dana Maor, and Florian Pollner
- “The new possible: How HR can help build the organization of the future,” March 12, 2021, Asmus Komm, Florian Pollner, Bill Schaninger, and Surbhi Sikka
