Posts tagged ‘Strategic HR’
HR represents something of a paradox. On the one hand, management gurus suggest that HR should be central to the strategic thinking in most organisations. Jack Welsh – former CEO of GE – suggests that the HR executive should be hierarchically second only to the CEO, and at least on a level with the CFO. Jim Collins writes that the best companies understand that they must get the right people on the bus, get the right people in the right seats and only then find out where the bus should drive i.e. the people stuff comes before strategy.
And survey after survey show that people and talent related issues are top priorities and concerns among top executives across the western world. Also, more and more evidence show that the companies with the best people processes and ability to attract the best talent consistently outperform the rest across all industries and countries. It is also near impossible to open a management book or a magazine today without reading that “people is the most important asset” for companies today. This all suggests that HR should be the most important department in any organisation.
On the other hand, most people – including most top executives – often perceive HR to be an administrative function whose purpose is to make sure that people are paid on time, that employment contracts are signed and that relations with unions are good. Stuff that does not add much strategic value. When asked, CEO’s and CFO’s reply that they do not believe that their current HR function is delivering or is even able to deliver the value which is expected of them. HR is still not the strategic partner it wants to be.
So on one hand CEO’s say people stuff is important and on the other they don’t regard HR as important. This is a paradox.
This gap between the theoretical added value of HR and the perception that HR is not adding much value is in large part down to HR practices. Perhaps the best way to describe the current state of HR is to say that it is an area where practice lags behind knowledge quite a lot. There is a lot of evidence that shows that HR can add customer and shareholder value, but it is also fair to say that that practice is different.
I am not sure why. From my chair, I see a lot of improvement; improved practices, new mind-set and focus on value creation. That is why I am surprised that the latest surveys have not improved the picture of HR. Perhaps there is a fixed bias against HR, perhaps it is true that HR really does add no value, perhaps this is changing or perhaps HR is adding a ton of value but it is just not possible to prove it (and therefore other people take the credit). I don’t know. I am just a bit sick of hearing all the time how poor HR is. It is not what I am seeing.
If you Google “definition of Human Capital” you will be surprised and overwhelmed. It is a vast and contradictory amount of definitions you will get. And frankly not very helpful as they don’t explain exactly what it is. For example, if you look at Wikipedia under ‘Human Capital Management’ you will find that it redirects to ‘Human Resource Management’. To them it is the same thing.
To me, the definition of human capital is: “all strategic issues of people, performance and culture in an organization”. This is still vague and broad so let me elaborate. This is probably best illustrated in the figure below. HR can be viewed from three levels; strategic, tactical and operational. While it is important to get all three right, it is the strategic element which encompass Human Capital.
The definition of human capital includes two things; the strategic framework and the core strategic activities. This is illustrated in the figure further below.
The strategic framework is the set of principles and guidelines to which all strategic HR activities should adhere. They should be documented and implemented in such a manner that they are aligned with the company’s own mission, and operational so they can be used in the HR processes. The framework covers;
- HR strategy which must be totally aligned with the company’s strategy.
- Performance culture. All companies have a culture, but not all promote high performance and superior customer service. While HR is not the bearer or primary shaper of a company’s culture, it is up to HR to design and implement activities so they promote such a culture.
- Measure & evaluate. HR must measure and evaluate its initiatives constantly in an objective and tangible way. By using tools such as HR Analytics, HR can make better strategic and people-investment decisions, thus making HR more efficient
While all HR activities have an strategic and an operational side to them, there are some activities which are more strategic by nature. Activities which HR must get right to master Human Capital Management and they are core to the definition of Human Capital.
- Leadership Development. Leadership Development is a must-win battle any organization. Leaders shape the culture of the organisation and make the processes stick. Leadership Development must involve top management participation to underline its significance. Leaders, at all levels, must be able to guide and motivate based upon human understanding, respect and responsibility – competencies which must be constantly developed.
- Performance Management is one of the most effective strategic HR activities. Research show that it is directly linked with: 1) higher profits; 2) quicker execution of company strategy; and 3) reduced employee turnover through higher engagement in their work. Goal alignment also makes it possible to establish a true pay-for-performance culture by linking reward systems with both individual and team performance. Also, performance management serves both as a clear measure of individual performance and development, and also provides a clear pipeline to talent identification and succession planning.
- Talent Management. ‘The War for Talent’ is continuing with increased speed despite the current global slowdown. According to The Economist, Board members in global multinational companies single out the ability to attract and retain talent as the single most critical catalyst for growth today. Talent Management is a range of continuous processes and development programs that aim to identify, attract, retain, engage and intelligently deploy the best employees in order to become the future leaders on all levels – a leadership and specialist pipeline.
- Employee Engagement is widely recognized to be major driving force behind many business outcomes. Research clearly shows that engaged employees are more productive, more profitable, more customer-focused and more loyal. Improving engagement requires a constant focus on changing behaviors, processes and systems to anticipate and respond to the organisation’s needs. Improving engagement means measuring and analysing the level of engagement. It is not possible to improve what you cannot measure.
- Succession Planning has two main purposes: one is to mitigate risk by having emergency successors identified, to step in when needed; the other is to have a longer-term development view of how positions are filled. The advantages of doing this well are anchored in business continuity. An effective, proactive succession plan leaves the organisation prepared for the loss of key employees, and prepared for growth, filling new jobs and employee promotions.
This was a long post on the definition of Human Capital but I think it is important to get right. I would be happy to be challenged on the above.
Welcome to my blog about Human Capital Management – something I am passionate about. What is Human Capital? Other words could be; “The strategic framework for HR”, “The business focused HR”, “Putting value on people and competencies” or simply “Strategic HR”.
I don’t really care about what it is called or what the right definition is. To me what is important is that there is an added focus on aligning the HR strategy with the overall business strategy and evaluating and valuing HR initiatives. I believe that if an organisation get those two things right there is enormous value to be unlocked.
But today it is a sad fact that only a small percentage of companies get this and do it right. The HR director may sit at top level but in reality the impact on strategic decisions is limited. For the few where it does work the gain is great – that’s is why this is most often seen at market leaders. Why is it only a few that “get’s it”? Lack of knowledge? Lack of desire? Whatever the reason is, I want to use this blog to show the business case, to inspire others and to be inspired myself to make HR the most important business partner for the CEO.