HR and people leaders understand that the labor market fundamentally impacts a company’s ability to achieve its strategic goals. HR can help companies achieve these goals, but executives sometimes underestimate the function’s power to be a strategic business partner.
Earlier this year, McKinsey hosted a roundtable discussion in Germany with 15 HR executives from heavy industry sectors (materials, energy, oil and gas, and chemicals).Currently, the heavy industry is facing volatility and complexity—and productivity in Europe is lagging behind the United States.1 In light of this, we met to discuss key themes emerging from McKinsey’s research in theState of Organizations andState of Energy Organizations reports.
The discussion produced rich insights from HR executives on four key themes: “new” leadership, talent transition, the implications of applied AI, and reimagining HR.
Developing ‘new’ leadership capabilities
“Developing new leadership skills is like training a muscle—you must train it to be able to do the heavy lifting on the spot.”
—HR executive
Heavy industry organizations, like many others, are facing stakeholders that demand leaders be accountable for profitability, sustainability, performance, and direction and empowerment. Frequently, leaders fall short of such ambidexterity—but organizations that address this leadership gap proactively could gain advantages over their competitors.2
New leadership styles focus on inclusivity, resilience, and transformational leadership, with leaders moving beyond profit to impact, creating an environment for collaboration. At the roundtable, HR executives highlighted a dual challenge: role modeling new leadership from the top while investing in the frequently underserved “magic middle.”3 Middle managers possess granular knowledge and are key to shaping and operationalizing transformation agendas.
HR can play a pivotal role in creating the space, time, and resourcing required for sufficient leadership development as a key organizational priority—from the board to the frontline.
Navigating the talent transition
“The massive transformation toward sustainability provides a unique chance for us to attract talent—no industry has more leverage to reduce carbon emissions, and that is a true value proposition for new talent.”
—HR executive
The emergence of majority millennial workforces and the changing employee preferences after the COVID-19 pandemic, have shifted employee expectations of employers. Many current heavy industry employee value propositions (EVPs) are outdated—heavy industries’ EVPs are ranked sixth out of seven compared to other industries, and are lagging behind on career opportunities, culture, and senior management.4
We heard from HR executives that organizations can adapt by developing robust EVPs that bridge the gap between workforce desires and corporate requirements. Topics particularly top of mind included:
- Improving branding toward purpose: Potential employees often perceive heavy industries in a negative light. However, this sector’s role in decarbonization or the energy transition presents an opportunity to connect the workforce to a meaningful societal goal.
- Addressing diverse, global talent: To counteract the sector’s traditionally male-dominated culture, organizations can foster inclusivity, promote gender equality, and develop a compelling EVP to recruit and retain talent such as female engineers or nonlocal talent.
- Improving additional benefits: Employee benefits, such as affordable housing; good schools close to the workplace; or flexible work options, are vital for attracting and retaining talent and fostering a positive work–life balance.
- Augmenting roles with technology: Manual or technical workers hold critical, highly specialized positions in heavy industries. These cannot be automated or replaced by current technology solutions; however, everyday work can be improved significantly through technology—as can many other roles.
- Focusing on skill potential and development: As technology becomes more integrated into the workforce, technical skills are seen to hold equal importance as people and commercial skills.
- Creating a supportive work environment with inspiring leadership: There can often be a disconnect between experienced employees and the younger generation, and investing in leadership development and programs such as reverse mentorship can help bridge the gap.
Applications of AI
“Some companies are at risk of only piloting AI use cases; they also need to get into application and rollout to reap the benefits—we need leaders to make this happen.”
—HR executive
Embracing automation potential from AI has always been crucial for efficiency and productivity gains.5 Now, generative AI (gen AI) has brought with it additional use cases focused on reinvention, innovation, and augmentation.
Gen AI offers significant potential for heavy industries: creating more diverse and engaging work environments; enabling theautomation of repetitive and coordination tasks; improving efficiency and effectiveness; and enabling rapid data-driven decision making. Yet, companies in heavy industries report the lowest gen AI usage compared to other industries.6
During the roundtable, we heard that HR leaders can help integrate AI into an organization, specifically calling out aspects around risk management (guardrails, privacy protection, and personal data), talent (including building the required enterprise-wide backbone of people data), and facilitating broader adoption and change.7
Given the perceived “lagging” of heavy industries, many leaders saw gen AI not just as necessary for survival, but as a potential source of true competitive advantage.
Reimagining HR models for the future
In McKinsey’s 2022 report,HR’s new operating model, we identified five HR operating model archetypes emerging in response to dynamic shifts in the world. At the roundtable, people leaders reported that:
- Half see their functions in the Ulrich+ model, with business partners developing functional spikes and assuming more center of excellence-like responsibilities.8
- They have or are trying to adopt agile elements and the integration of machine-powered elements.
When reimagining HR operating models for the future, all heavy industry representatives saw convergence toward a more "leader led" model. This emphasizes the alignment of HR with business strategy, where people leaders’ tasks include full responsibility from line management (including hiring, onboarding, and developing) to budget responsibility.
This transformation calls for an HR mindset and capability shift—a pivot from self-focused circles to active contributors to business strategy.
The future of HR is strategic: it seamlessly integrates business goals, empowers leaders, is technology- and data-driven, and embraces a multifaceted model for organizational success.
Organizations that are reluctant to adapt to these shifts could lose talent and performance to their competitors. Those that are able to pivot toward operating with HR as a strategic thought partner could unlock huge opportunity—with senior leaders building a thriving organization of global talent, purposefully navigating transformation and technology adoption.
The authors wish to thank Tobias Berner, Daniel Gayk, Christopher Handscomb, Fabian Lensing, Anna Lieser, Sarena Lin, Ulrike Sander, and Jutta Bodem-Schrötgens, for their contributions to this blog.
1 Sandra Durth, Bryan Hancock, Dana Maor, and Alex Sukharevsky, “The organization of the future: Enabled by gen AI, driven by people,” McKinsey, September 19, 2023.
2 Aaron De Smet, Arne Gast, Johanne Lavoie, and Michael Lurie, “New leadership for a new era of thriving organizations,” McKinsey, May 4, 2023.
3 Emily Field, Bryan Hancock, and Bill Schaninger, Power to the Middle, Harvard Business Review Press, July 18, 2023.
4 Patrick Guggenberger, Dana Maor, Michael Park, and Patrick Simon, The state of organizations 2023: Ten shifts transforming organizations, McKinsey, April 26, 2023;based on ratings from employee reviews (Glassdoor) in the United States from 2018–2023; reviews are gathered for the top 100 largest companies (by head count) per industry; total sample includes 475,000 reviews across 900 companies within the nine peer industries; denotes the percentage difference in ratings for companies within a specific industry and the average sentiment across the nine peer industries.
5 Harnessing automation for a future that works, McKinsey, January 17, 2017; The future of work after COVID-19, McKinsey, February 18, 2021; The economic potential of generative AI: The next productivity frontier, McKinsey, June 14, 2023; Jobs lost, jobs gained: What the future of work will mean for jobs, skills, and wages, McKinsey, November 18, 2017.
6 “The state of AI in 2023: Generative AI’s breakout year,” McKinsey, August 1, 2023.
7 For more information see, “The state of AI in 2022—and a half decade in review,” McKinsey, December 6, 2022.
8 For more information see, Sandra Durth, Neel Gandhi, Asmus Komm, and Florian Pollner, “HR’s new operating model,” McKinsey, December 2022.