How HR can master strategy
HR should play a pivotal role in business strategy, particularly in organisations that consider their people a key asset. But the way to the CEO’s heart involves engaging with other business functions, talking their language and overcoming some intrinsic barriers.
Does any other business function have to justify its existence as much as HR? It often doesn't feel like it. And, one of the most common criticisms levelled against HR is that it's incapable of being truly strategic.
Take recent research by the CIPD, which finds nearly one in five (18%) business leaders is unaware of HR's contribution to business strategy, while a further 18% say senior HR people have no involvement in business strategy at all.
While HR's contribution to strategy may sometimes go unnoticed, 70% of CEOs want their HR directors to be a key player in strategic planning, according to a 2012 Economist Intelligence Unit study.
HR's ability to influence wider business strategy is often at the heart of discussions about the function's purpose and potential. But is it realistic to expect the profession to play a pivotal role in strategy?
For starters, can 'HR strategy' even be pinned down?
Mark Sandham, senior vice-president of organisational effectiveness and HR operations at media and information firm Thomson Reuters, believes it can. However, he prefers to define HR strategy as a "people strategy designed to enable business goals and objectives". "You can't create an HR strategy in isolation and keep it internally focused on HR activities and deliverables," he says. "Rather, you must understand where the business is heading, what kind of talent is needed, in what countries or for what customers, and at what cost. From there, you can develop a strategy around your people to help the business achieve its goals."
Sandham says the days of HR being solely about implementing processes and managing employee relations are a thing of the past.
"If we're not coming to the table with true leadership and talent insights, we shouldn't be there," he says. "[HR leaders] are often in a unique position regarding the insight they can bring to the table, and this insight shouldn't be confined to a traditional HR agenda."
That means driving the conversation around business direction, where to invest in resources, and top level talent isues, such as leadership development and talent pipeline. Sandham suggests HR should also have a say on potential mergers and acquisitions. "It's about changing the conversation from tactical to strategic by understanding business needs and adding value through talent analytics, OD support or system design," he adds.
Sandham's view reflects Korn/Ferry's latest research, What Makes an Exceptional HR Leader?, which is due to be published later this month. Authors Anna Penfold and Joseph Calleja told HR magazine that, above all, global business leaders list commercial acumen as the most valued competency for HR.
Worringly, the CIPD study found only 21% of business leaders believe HR successfully combines commercial and HR expertise. The Korn/Ferry report also highlights the importance of commercial acumen, saying "exceptional individuals are reaching the levels of group HR director or CHRO at younger ages", despite a growing list of required skills and experiences.
While received wisdom often states HR professionals need to experience different functions to be successful in the higher echelons of business, Penfold says this is increasingly no longer the case. The most critical skill for an HR leader is experience of leading change management and transformation. "You can build up these skills by putting yourself in as many different and challenging change situations as possible," she says. "You don't need to get them outside the HR function, which is the line that has been trotted out for years, even by HR itself."
In practice, that means actively seeking to involve yourself in change situations, whether that is moving markets to an emerging economy, changing sectors or taking a leadership role in any big change management programmes, such as M&A or divestment. Penfold also says it means gaining both Centre of Excellence and general business partner experience.
"HR is not always known for its strategic ability and commercial nous," she admits. But by being at the heart of these situations and making difficult business decisions, she says HR professionals can gain "unique" experience other functions don't necessarily get.
Of course, any large change management programme cannot sit in isolation, and according to David Russell, group HR director at bookmaker William Hill, the most important point to bear in mind when considering HR strategy is that it cannot operate separate from business strategy. "Otherwise, it's just HR for HR's sake," he warns, adding people strategy shouldn't be reduced to specific HR elements like reward or resourcing. "HR's strategic role comes from being a key part of the executive team and being a supporter in the implementation of the business's strategic plan. Having the ear of the CEO in particular is critical."
Anecdotal evidence from Korn/Ferry suggests HR being close to the CEO is becoming more common. Penfold says she has seen more boards actively looking to recruit NEDs with HR experience, suggesting the tide is slowly turning on how wider business views the function. "It's a small sign that boards are appreciating the people risk side of business and are looking for someone who knows how to get the best out of people," she says.
She is increasingly seeing HR directors take responsibility for more traditionally strategic issues like skills audits and succession planning. "There is a difference between responsibility and accountability," she says. "But in the last few years, I have seen the HR director become more accountable for people strategy and the efficient running of an organisation."
Russell's view backs this up. "HR may have a view on the next big product or the next point on the globe to focus the efforts of the business, and from another angle there may be occasions when its contribution is to moderate the strategy as a result perhaps of skills shortages or other people limitations," he says.
Geoff Lloyd, group HR director at services company Serco, also believes HR strategy must be placed within the context of the overall corporate plan.
Echoing Russell, he stresses: "We should remember that HR is a function, not an end in itself, which is why we should talk about it in this context rather than [just] HR.
"HR has the luxury of being one of the only functions to touch every part of an organisation, from the very highest authorities on the board to the people on the shop floor."
This wide view means HR has access to more critical insights about what makes the company successful, or not, than many other business functions, something which Penfold's insights suggest is becoming more visible and important to the C-suite.
However, Lloyd says it's important HR doesn't forget it is ultimately focused on people.
"We need a combination of tools to contribute to the strategic debate and the soft skills to get people to speak to us, and for us to hear what they are saying," Lloyd says. "Leaders of HR functions need to make sure people are equipped to confidently contribute in their organisations."
The Corporate Research Forum (CRF) states in its imminent report, Developing a Strategic HR Approach, there is a recurring need for HR to ensure there is a clear line of sight between business strategy and HR actions. The report states that HR has to interact with the business to understand and make an input to corporate strategy, and deliver it. The CRF cites four strategic roles for HR, which will differ depending on the organisation. It also suggests a strategic framework for constructing an HR strategy, encapsulating areas such as HR's role, planning, action and organisational capability.
However, despite some positive trends in how HR and strategy are perceived internally and externally, there are still barriers to overcome. Russell says HR can often be "its own barrier" by overcomplicating what are often relatively simple concepts. "Beyond that there is always the risk that those within the function are not sufficiently credible to be able to influence at board level," he adds.
Russell doesn't believe getting mired in details of who does and doesn't sit on the board is relevant. "A good senior HR resource has an effective network of relationships across all levels of the organisation and, therefore, has a voice," he says. "There is too much noise around whether HR has a seat at the top table. If you are not able to influence things, take a look in the mirror rather than at the organisational structure."
Likewise, Serco's Lloyd admits that, in some cases, HR can get caught up in the basics and is often unable to move up a gear when opportunities arise.
"We need to think of appropriate ways of ensuring that services are delivered, but we need to give ourselves some room to do other work," he warns. "It is true we sometimes take refuge in delivering services rather than take the risk of challenging ourselves to look more holistically at our organisations. It all comes back to confidence."
Lloyd advises seeking out and learning from best practice examples where HR has made a significant contribution to change.
He also cites the volatile business environment as both a challenge and an opportunity. "The way to gain competitive advantage is through an engaged and innovative workforce, focused on delivering an organisation's goals," he says. "This will not happen through luck. It will take a brave and resourceful leadership team that understands its customers and employees." The skills and insights HR brings should play a pivotal role in that.
In contrast to these views, Thomson Reuters' Sandham doesn't believe there are any major barriers to HR being a strategic player. Instead, he says, it is incumbent on HR professionals to be business leaders and think holistically about their projects.
"We must learn from other disciplines about how they tackle issues and be able to share our recommendations that way," Sandham explains. "For example, if you're going to a meeting with the CFO are you providing data or guidance based on ROI or the bottom line? Or are you trying to fit a square peg into a round hole and talking about HR theory and best practices? Leave this lingo at the door and put it in real business terms based on real analysis. The HR leaders of tomorrow will know how to do this instinctively. We are our own barrier if we [don't learn]."
Mike Haffenden, director of the CRF, backs up the views that HR functions must be directly aligned to the business strategy, but warns against losing sight of the transactional work. "To support the organisation, there is always a need for the function to apply itself to improving organisational performance and identifying and developing future talent, while delivering transactional and possibly transformational change," he says. "Excellence in HR operations will be a minimum standard for the function to operate effectively."
Haffenden believes that for HR to achieve full strategic enlightenment it has to return to its "social science roots" and "stop chasing quick fixes with glib, meaningless titles". In some ways, he says, it means getting back to basics, focusing on analysis before solutions, setting clear objectives and evaluating outcomes.
"There needs to be a people strategy, and there needs to be an HR plan that supports the people strategy," he adds. "Often, strategy is confused with complex, senior work that may be important but not strategic. All this is set against a changing worldwide economic background and we must never assume that the conditions under which we develop our HR strategies are going to remain the same."
If HR can learn to take the long view, strategic insight is more achievable. As Sandham says, the best decisions aren't short-sighted, "they take into consideration the long-term goals and talent of the future."