Unleash a new HR era

Driving exponential business performance requires a fundamental redesign of the HR function itself. With executives and investors focused on growth and returns, HR must move beyond incremental change to lead intentional, exponential transformation.

To help organizations become more agile, drive performance and future-proof themselves, HR must evolve from a focus on people operations (tracking what is happening now) to workforce architecture, (shaping what should happen next). This shift positions HR not as a downstream service provider, but as a system designer at the center of business performance.

The misalignment between HR’s people priorities and the areas the C-suite believes will drive the greatest value is symptomatic of a deeper issue: HR is still not strategically embedded. Without reinvention, priorities will remain misaligned, investments will miss the mark, AI transformation will stall, and productivity gaps will persist.

Winning organizations will be those that treat HR not as a function, but as a capability: architecting work, steering intelligence, accelerating decisions, and enabling the business to evolve at the speed of change. To do so, HR must look outward and redesign itself, moving beyond traditional service delivery models to orchestrate the broader business system. And as human intelligence remains the ultimate differentiator, HR must also lead in ensuring responsible and ethical AI governance. There is no more time for inertia or incremental change: it is now or never for intentional, impactful HR transformation.

HR and C-suite misalignment risks derailing performance

HR’s top priorities for 2026

Enhancing the employee experience/EVP to attract top talent
Designing talent processes around skills
Rolling out new HR technologies or optimizing existing platforms

C-suite’s top people initiatives for driving ROI

Redesigning work to incorporate AI and automation
Improving HR/people analytics capability
Improving managers' abilities to lead an integrated workforce (humans and AI agents)

Embed HR to create enterprise value

For almost two decades, HR has aimed to become more strategic. AI disruption accelerates the urgency: if HR cannot elevate itself, it risks irrelevance. Those organizations where HR is embedded in strategic decision-making report higher workforce resilience and talent competitiveness. Investors see embedding HR into strategic decision-making as essential for driving growth.

81% of investors say embedding HR into strategic decision-making is essential for driving growth

Executives who report their organization has an embedded HR function also highlight

Greater resilience:

76% of executives say their business is resilient and can withstand unforeseen challenges,

versus 62% of organizations overall

Improved talent competitiveness:

78% of executives say their business is well-placed to compete for top talent,

versus 62% of organizations overall

But HR remains stuck in the role of operational partner today, with only 8% of executives believing their HR function is strategically embedded. Going forward, HR must be fully embedded, not structurally sidelined, if it is to drive performance, agility, resilience and growth.

HR’s role is shifting, but is it going far enough, fast enough?

HR must redefine its north star in an era of human and machine teaming. Being a ‘partner,’ even an ‘advisor,’ is insufficient. HR must own the system of work, shifting its operating model from support to orchestration, building the foundations for AI enablement at scale.

Rearchitect the system of work

AI can rewire how employees interact with HR processes — and there is much room for improvement.

How employees feel about HR processes:

Just as redesigning work becomes a core organizational capability for amplifying human potential and driving AI productivity, redesigning how employees work, the system that enables them, must be a core HR capability. This is bigger than optimizing HR processes. How can HR architect the system of work to improve productivity, performance and the EX? Enabled by AI, HR moves from servicing requests to anticipating needs, and building experience around intent and outcomes — not channels or platforms.

HR processes must be simplified, digitized and balanced with human touchpoints to ensure they enhance the EX while driving efficiencies. While 67% of HR leaders are planning to increase self-service solutions in 2026, and 58% are planning to implement new technology for HR services, putting a new system on top of a broken process will not free up HR, improve the EX or deliver business outcomes. The system itself must be rewired.

New tool, old process?

Adoption of AI tools in HR processes is not translating into ROI. While 57% of HR teams have implemented chatbots, only one in five say this has driven significant value — and only a quarter say HR process automation has done the same. Is this a case of ‘new tool, old process?’

Bolting AI onto outdated, existing processes and siloed teams will only drive marginal gains, not the exponential performance executives seek. With fewer HR functions using AI to support work redesign and strategic workforce planning (SWP), there is limited value from AI deployment within HR. Rather than instructing AI to follow a process designed for humans — a waste of technology’s capabilities — rethink the process itself. This helps organizations scale AI east-west across their operations.

Current AI usage in HR operations

Top 5 (of 17) usages of AI in HR operations

Bottom 5 (of 17) usages of AI in HR operations

Today, only 13% of C-suite leaders see HR technology as a transformation leader, driving enterprise-wide transformation through data, technology and strategic insight. In two years’ time, 36% of executives expect to see HR technology delivering transformation, while 44% want fully integrated HR technology.

Is HR capable of delivering? Yes, but not without taking a leap into designing and owning a more intentional, dynamic and outcomes-focused system of work. The future value of HR is not in managing people or deploying technology, but in designing and orchestrating the system of work where humans and machines create value together.

Reinvent or risk irrelevance

of HR leaders are concerned about HR’s role given the proliferation of AI agents

of HR leaders worry that HR may lose the right to define its role in the workplace as technologies advance faster than they can adapt

Reinvent the HR operating model

Legacy operating models were built for compliance, not intelligence, and not to enable business performance at scale. Future models must be designed for flow, adaptability and continuous reinvention. Traditional, siloed HR and fragmented technology models slow the business down — constraining, not enabling, agility. Models must move from centralization to federation, hierarchy to fluidity, and process-first to outcomes-first design.

Three-quarters of HR functions still use the three-pillar model (centers of excellence, HR business partners or HRBPs, and shared services).9 This model has worked for 30 years, but today demands something different.

35% of HR leaders and 30% of executives say reinventing the HR operating model is a priority for 2026

What comes next in HR’s structural reset? The answer is not incremental redesign or optimization of a legacy model. It’s reinvention of the operating model and the HR function’s role within it. This requires new design principles and ways of working across HR, IT and finance, and a reorientation from service delivery to outcomes delivery.

AI renders silos useless, starting with HR and IT. Workforce strategy is technology strategy (and vice versa), with HR and IT acting as one seamless system. In the past, HR would partner with IT to deploy a program; doing so today slows progress and creates risk. AI blurs the boundaries: is an algorithm used in recruitment a talent or a tech tool? Where does accountability for bias sit: HR or IT? The answer is both. Many HR leaders and executives anticipate this shift, expecting HR and IT functions to merge.

Leaders expect HR and IT to merge

of HR leaders expect HR and IT departments to merge

of the C-suite agree HR and IT must function as a unified force

of investors believe organizations where HR and IT function as a unified force are more attractive investments

Mercer’s outcome driven operating model

A living system, not a static structure, the operating model is designed for speed, scale and adaptability.

Digital fabric

The connective tissue that integrates people, data, and systems into human-machine teams; the secure, shared infrastructure that lets work flow.

Outcome delivery teams

Human-machine teams, aligned to business areas, and accountable for delivering people and digital outcomes that drive business results.

Domain expertise

The home of deep, functional mastery, where strategy, design and governance meet, responsible for enterprise-wide principles, policy and frameworks.

Enablement services

The operational foundation: shared services for the AI era, simplified, automated and instrumented.

AI empowerment center

The engine for responsible intelligence, ensuring AI can be applied safely and at scale, making responsible AI an organizational capability

HR’s reinvented operating model must enable organizations to flow people to work, with humans and machines working as one system from the start. Rather than building around HR processes, design around desired business outcomes, with structure following work, not hierarchy. Technology allows organizations to work in new ways, if HR can design the systems that allow it, enabling performance and embedding agility.