Only 8% of executives say HR is strategically embedded in their organisations

Only 8 per cent of executives believe their organisation’s HR function is strategically embedded, highlighting a significant gap between how HR currently operates and the role business leaders believe it should play in driving organisational performance.

New research from Mercer’s Global Talent Trends for 2026 indicates that while HR leaders continue to focus on employee experience, talent attraction and HR technology, executives are increasingly prioritising initiatives that directly influence productivity, return on investment and long-term competitiveness.

According to the study, HR leaders’ top priorities for 2026 include enhancing the employee experience and employer value proposition (EVP) to attract talent, designing talent processes around skills, and rolling out or optimising HR technologies.

By contrast, the C-suite is placing greater emphasis on structural and technological transformation. Their top priorities for driving return on investment include redesigning work to incorporate AI and automation, improving HR and people analytics capabilities, and strengthening managers’ ability to lead an integrated workforce made up of both humans and AI agents.

This divergence suggests that HR may still be perceived primarily as an operational function rather than a strategic driver of organisational performance.

The findings also suggest that organisations where HR is embedded in strategic decision-making tend to report stronger business outcomes.

Among executives who say HR is strategically embedded in their organisations, 76 per cent report that their business is resilient and able to withstand unforeseen challenges. In addition, 78 per cent say their organisation is well placed to compete for top talent, compared with 62 per cent across organisations overall.

Investor sentiment reflects similar expectations. The research indicates that 81 per cent of investors consider embedding HR into strategic decision-making essential for driving growth.

Despite this, HR remains largely positioned as an operational partner in many organisations.

HR’s role evolving in the age of AI

The report argues that the rapid development of artificial intelligence is accelerating pressure on HR to redefine its role.

Rather than focusing primarily on people operations, such as managing processes and tracking workforce activity, HR is increasingly expected to design the “system of work” – shaping how employees, technology and processes interact to deliver organisational outcomes.

This includes redesigning work itself to accommodate AI, improving workforce architecture and enabling organisations to respond more quickly to changing business conditions.

However, the research indicates that many HR processes still fall short of expectations. Only 4 per cent of employees consider HR processes to be “state of the art,” while 36 per cent say processes have been simplified but still have significant room for improvement.

Another 28 per cent say HR processes have been digitised but have lost necessary human interaction.

The study also notes that adopting new technologies alone has not necessarily delivered significant improvements.

While 57 per cent of HR teams have implemented chatbots, only around one in five report that these tools have generated substantial value. Similarly, only about a quarter say automation of HR processes has delivered meaningful results.

Researchers suggest that many organisations may be applying new technologies to outdated processes rather than redesigning workflows from the ground up.

Pressure to rethink the HR operating model

The research further highlights growing pressure to reinvent the traditional HR operating model. For the past three decades, many organisations have relied on the “three-pillar model”, consisting of centres of excellence, HR business partners and shared services.

However, 35 per cent of HR leaders and 30 per cent of executives say reinventing the HR operating model is a priority for 2026.

Future models are expected to move away from rigid structures and toward more flexible systems designed around outcomes, adaptability and continuous reinvention.

The report also suggests that the boundaries between HR and technology functions may increasingly blur. Fifty-six per cent of HR leaders expect HR and IT departments to merge, while 60 per cent of C-suite executives agree the two functions should operate as a unified force.

Investors appear to support this direction as well, with 67 per cent saying organisations where HR and IT operate as a unified system are more attractive investments.

Ultimately, the study argues that HR must move beyond incremental improvements and reposition itself as a core driver of organisational performance.

Rather than focusing solely on managing people or deploying HR technologies, the future value of HR may lie in designing and orchestrating the broader system of work – ensuring that human and machine capabilities are aligned with the organisation’s strategic goals.

Without this shift, the report suggests HR risks remaining operationally focused at a time when businesses increasingly expect it to play a central role in enabling growth, resilience and transformation.