What Is HR Digital Transformation? Definition, Strategies, and Challenges


Digital transformation is defined as the transition of a business based on traditionally manual processes to a business that has technology as its core in all its functions: internal (employee-facing, operational) and external (customer-facing). Transformation is the outcome of digitization. It is not the process of digitization itself.

“When digital transformation is done right, it’s like a caterpillar turning into a butterfly, but when done wrong, all you have is a really fast caterpillar.”

– George Westerman

PrincipalOpens a new window Research Scientist with the MIT Sloan Initiative on the Digital EconomyOpens a new window

Digital transformation is a process and an outcome. It is a revolutionary change but also an evolutionary phenomenon. In addition to digitization, the transition to business with technology at its center also entails a shift in the culture and mindset of an organization.

Much like every other part of the organization, the digital transformation of HR is essential in an age where technological disruption is the norm. According to a Deloitte survey, digital transformation budgets are going to increase by 25 percent in the next year. With the advent of artificial intelligence (AI), blockchain, machine learning, automated performance management, and much more, HR teams that still rely on Excel sheets to collect and interpret data need to make the shift to automation, and quickly.

In this primer on digital transformation, we look at what digital transformation in HR means, what it entails, and the challenges that businesses face in enabling this transformation in HR.

Table of Contents

Section I: What is Digital Transformation in HR

Fig 1. What is the goal of HR’s digital transformation?

The goal of digital transformation in HR may be multifold:

  • To automate processes and reduce the time spent on repetitive tasks.
  • To maximize the employee experienceOpens a new window .
  • To use the freed-up time to strategize and ultimately benefit the business bottom line.

HR digital transformation is the transformation in the way HR functions, using data to guide all areas of HR: payroll, benefits, performance managementOpens a new window , learning and developmentOpens a new window , rewards and recognition, and hiring.

The role of HR teams in digital transformation is twofold:

  1. It is responsible for its own transformation – using automation and digital, data-led processes.
  2. In collaboration with the IT department, HR is now being asked to lead organizations towards digital transformation and support its continual digital evolution. This involves empowering employees with a digital mindset to improve workforce processes and enhance productivity.

Section II: What Are Digitization, Digitalization, and Digital Transformation?

Fig 2. Digitization, digitalization, and digital transformation: Each step leads to the next

These three terms, often used interchangeably, have subtle differences in meaning. Each step leads to the next. It is important to identify these differences to know where you stand in the digital transformation journey.

1. Digitization

Digitization is a shift from manual processes to digital processes. For example, digitizing the performance records of employees from 10 years ago.  

2. Digitalization

Digitalization involves becoming a digital-led organization, an organization that leverages digital tools for its daily operations. Digitalization involves creating a culture of using technology to run a business.

For instance, the impact of AI on the HR industry is real and tangible. AI is most efficient in the hands of people who:

  1. Are willing to acknowledge that AI can help, not hurt, their job.
  2. Possess the critical thinking skills required to interpret the data it presents.
  3. Possess the creative thinking skills required to use the data to develop an HR strategy that will deliver business outcomes.

An ideal example of digitalization is an organization led by artificial intelligence that uses the technology to leverage the insights it offers into key processes.

3. Digital transformation

Digital transformation comprises both digitization and digitalization. It involves automating processes and creating a culture of automation. But it goes a step further and questions which processes are needed at all, eliminating rote tasks that held value when processes were manual but now have no place in a digital organization.

The transformation journey entails identifying problems that need to be solved and using technology in the most efficient way possible to solve those problems. It requires the mindsets across the organization to be changed, and this change begins from the leadership and trickles down to the rest of the company.

Digital transformation is the outcome of digitization and digitalization: it results in an agile organization, ready to adapt to the rapid evolution of technology.

Section III: Digital Transformation Strategy: How to Enable Digital Transformation in HR

Fig 3. Steps to build and implement a digital transformation strategy

In a piece titled “What We’ve Gotten Wrong About HR Transformation,” Dave Weisbeck, Chief Strategy Officer at Visier, asks HR to stop HR transformation for transformation’s sake.

He says, “I’m going to take a bold stance here and recommend that any business currently undergoing an HR transformation, or thinking about doing so, stop immediately unless your stakeholders can clearly state why, and you know explicitly how to measure success quantitatively.”

This is the first step to beginning the digital transformation of HR – asking the relevant questions. Then comes the actual process of implementing the transformation—

1. Define the goal you want to achieve by implementing HR’s digital transformation

In defining the goal of digital transformation, consider asking the following questions to establish value creation from transforming HR:

a. Will it make things easier for everyone involved or affected by the process?

The digital transformation should benefit the end user. That means if HR wants to implement an automated performance management system that will allow them to gather data to decide salary appraisals, managers and employees should also be given access to this platform to view and update it.

b. Is this goal measurable?

The goal should be outcome-oriented, not output oriented. For example, an output-oriented goal is to use an AI-based tool to increase the number of screened candidates per month during a recruitment cycle. For this, you can have a target and ensure that it is achieved.

What is the expected outcome? That the screening provides a database of quality candidates who have the potential to be a part of the next round of interviews.

How will you measure this? Each candidate can be assigned a score by the solution you are using, and the number of candidates having a certain score can be the measure of the success of this solution.

c. Will it have a positive financial impact on the business?

This goal of transformation must be tied to the business goal. The success of a digital transformation project is measured by the business value it adds. For example, the goal could be to reduce the cost per hire or the cost per replacement and thus reduce overall business expenditure. Alternatively, the goal could be to improve revenue by hiring the right candidate using an AI-led candidate screening process.

2. Identify who will implement this transformation

Line managers and HR practitioners themselves must take responsibility for this transformation. Line managers deal with employees directly, and any change to HR practices directly affect these managers and their teams. It is likely that these managers may be most excited about the transformation and relate to key areas where HR processes need to improve for them.

3. Hire additional resources for the digital transformation process if required

Naturally, you will have to invest in the tool you need to perform a certain job. But beyond that, you may need to hire people for the role. For example, if one of your processes is to use AI to gain insights about engagement and performance in your organization, you may want to hire a data scientist to make sense of the data and simplify the insights it offers to help you improve business strategy.

4. Define a time frame within which you will establish that a certain tool is a success

Each process must be given a certain amount of time to demonstrate its value to the organization. For instance, a three-month window to implement a new candidate-screening tool is enough to tell you whether it is capable of offering you a quality candidate database.

5. Identify which processes will be phased out with the intervention of a digital platform

In the recruitment cycle, for example, the process of going through job boards and LinkedIn to find candidates may be eliminated altogether with the implementation of a recruitment/screening software. When you identify processes to be replaced, it may also require the reorganization of management and a more open, less hierarchical structure. For instance, even your intern may be able to offer inputs for low-level strategy or may be able to initiate the second round of candidate screening. 

6. Then, make the case to the C-suite to invest in the resources you need

Making a business case to the C-suite is always a challenge. While businesses are ready to increase their spends on digital transformation, they often find it challenging to entrust an entire department to take it on with minimum risk of failure. However, by answering the first five questions in depth, you can build a business case that relies on thorough research, giving your leaders meaningful reasons to invest in the software you need.

To understand which technologies will be most suited to your workplace, consider the difference between technology enablement and digital enablement.

Gordon Laverock, Managing Partner, Presence of IT, says: “Without understanding the difference between technology enablement and digital enablement, simply automating a process won’t necessarily add value. Technology enablement is using a tool to produce an outcome, while digital enablement is less about the application of technology, and more about choosing the right technology to sustainably elevate and advance a workforce.”

7. Prepare your team for the change

A change in HR processes means all stakeholders involved need to be prepped and prepared for this change. However, we recommend starting small. HR leaders are concerned that organizations that are waiting to watch how digital transformation will play out are going to fall behind. Even so, starting on a smaller scale (if you must) can minimize the impact of failure (if any) than making an organization-wide change, and as a result, abandoning any digital transformation endeavor altogether. It’s much easier to apply feedback and learnings from a pilot project to a company-wide one, than making errors in a large-scale rollout.

Anand Shankar, Human Capital Partner at Deloitte India, in an exclusive chat with HR Technologist, suggested creating “edge teams” for smooth digital transformation – teams that start with fresh processes and don’t disrupt everything that already exists to go digital.

So, for example, a small team within the HR team can transition to automated candidate screening for associate-to-mid-level positions while the remaining recruitment team follows an older process to identify best-fit candidates for managerial positions. This means you haven’t disrupted traditional processes. You are simply experimenting with a new one. With this, the impact of the failure is lower.

8. Create a culture of digitalization

The essence of HR’s digital transformation lies in creating a culture of digitalization. This involves not just learning how to use automated solutions but learning how to use them so that they enhance human capabilities. For example, decisions that are based on data obtained from a digital solution, say an AI recruitment analytics toolOpens a new window , can drive measurable outcomes such as the strategy to reduce time-to-fill, showing the organization the benefit of focusing on data.

Andrew Wilson, CIO at Accenture, shared with HR Technologist how the digital transformation process was undertaken at his organization: “To ensure a smooth digital transformation, it is essential for organizations to put their employees first, rather than the technology. This allows users to adopt the new technology, rather than the other way around, to make the adoption smoother.

“At Accenture, we have found the grassroots approach to be particularly effective when implementing technology to our employees across the globe. Our internal IT organization provides new technology to those who want it, and then relies on those individuals to promote it, as change is often more accepted from peers than when pushed from the top.  This emulates the consumer world and is reflective of the way services are consumed today.”

What if you don’t achieve the goal?

It is possible that you transition to new technology, train your team to use it, and then realize that it is not working effectively. This is likely to happen. Most companies don’t get it right on the first go.

Organizations that succeed in their transformation projects are those that are willing to take risks and are open-minded. This combination can be the make-or-break factor in the digital transformation of the organization. What you need is a team that must be prepared to learn, unlearn, and relearn new processes.

To understand why you may have missed your digital transformation goals:

  1. Identify where the glitches are. Are candidates having a tough time interacting with the software? Is your recruitment team unable to utilize the dashboard associated with the tool to clearly understand which candidate is a good choice and which isn’t?
  2. Coach your team to open their minds to digitization. New technology can be intimidating, and sometimes, it may negatively affect the performance of your team before it enhances it. Use data to coach your team to embrace a more positive mindset.
  3. Re-evaluate your digital solution of choice. Maybe this tool does not serve your specific purpose. Maybe you need something more advanced or just a different solution. This is why establishing the purpose of the solution before you invest in one is important. It minimizes the chance of a solution not working out for your requirements.

Following these steps may help you advance to the next step, or it may take you back to the drawing board. Either way, an assessment is necessary to ensure that you are on the right track.

Section IV: HR’s Role in Business-Wide Digital Transformation

As HR takes responsibility for its own digital transformation, it is also expected to take the lead in enabling the transformation of the rest of the organization. While IT takes care of the digital aspect, HR’s role is more oriented to the human aspect – helping change the mindset and helping create the culture. Simply put, as the custodian of the human experience in the workplace, HR is at the center of enabling digital transformation.

Employees love consumer-grade experiences in their personal lives, like chatting with a chatbot to complain about the late delivery of their food order. But in the workplace, they may fear the same chatbot for a variety of reasons. For example, they may fear that the information they share with these chatbots may be used against them, that this automated tool will take their job from them, or simply believe that this trend might not last.

“Behavior change is a critical aspect when implementing new technology. In the end, it’s the people that make a business successful,” posits Andrew.

He then recommends unique ways to get employees on board when implementing a digital transformation project. “HR can help to provide learning experiences of different kinds for employees to make learning fun, engaging and effective,” he suggests.

For example, in getting employees to use AI-powered tools, you can tell them that it is AI that auto-generates a playlist for them to listen to on Spotify based on their preferences. This can open up their mind to the positive features of AI, and they are more likely to embrace it as a useful tool.

Some of the other benefits you can highlight are:

  1. Quickness: How easily a digital solution will improve the speed at which employees work.
  2. Simplicity: How easy it is to use the solution.
  3. Freedom from repetitive tasks: How it frees up time to do more creative tasks.
  4. Anonymity: How, while data collection is the norm, in some areas (such as in engagement surveys), the data is collected anonymously to help identify an organization-wide trend only.

In addition, “By providing learning both on-demand and through multiple channels in everyday activities, your employees can learn efficiently in real time and actual context. It’s also essential to make learning highly immersive, interactive and self-paced, so employees can practice tasks specific to their daily activities in the context of their jobs and at the rate of change they are comfortable with,” recommends Andrew.

Learn More: The Definitive Guide to AI in Employee EngagementOpens a new window

Section V: Challenges to the Digital Transformation of HR

Fig 4. The challenges that occur in most digital transformation efforts

Yes, we need digital solutions to everything, but where are the bottlenecks? “Technology is not worth the investment if it is not properly adopted and effectively used, and it must deliver value to the organization,” says Andrew. Resistance to adoption is one of the key challenges that organizations face.

In addition, some of the other challenges that you can face while starting off are:

  1. Lack of a clear strategy or goal for digital transformation
  2. Resistance from the C-suite to invest
  3. Lack of budget to enable digital transformation
  4. Lack of expertise in leading the digital transformation project
  5. Lack of agility in upgrading to new digital solutions

These issues are common and addressing them requires resilience from HR. “It will take time to build a workforce that will leverage these emerging technologies effectively,” asserts Andrew. Having said that, they can be addressed over a period of time. But creating a sense of urgency to initiate digital transformation is critical, and it will be taken seriously only when you make a strong business case for the project. “HR employees will need to reskill and retrain their employees at a faster pace than ever to keep up with technology trends and implementation,” he insists.

Section VI: Closing Thoughts

Digital transformation aims to create an agile organization that is ready to change as technology keeps advancing. Technology will always be ahead of the curve as organizations try to catch up. The absence of this agility can be one of the reasons why digital transformation strategies fail.

What you as an HR professional can do is prepare your organization and your team to remain engaged in this process, and adopt technology at its peak, optimally. For that, you need to be prepared yourself. Stay aware, stay current, and ensure that you know what your competitors are doing in the same area. Keep an eye on the pulse of the organization and what it is saying/doing. This will allow you to initiate, complete, and keep moving forward with your vital digital transformation project.

Have you undertaken a digital transformation project at your organization? What were some of the challenges you faced? Tell us on FacebookOpens a new window , LinkedInOpens a new window , or TwitterOpens a new window . We would love to hear about your experience!