Building Winning Capabilities – A Strategic Positioning Opportunity for HR
Sometimes people ask me “What is the purpose of HR?”. That’s an easy question – HR is a business function that leads the people aspects of the enterprise to create organisational capability for competitive advantage. However, when it comes to influencing the strategic direction of the organisation, HR can too often be absent¹ (Lawler, 2014). When HR is at the centre of the strategy discussion a number of things happen; The HR leader is seen as a credible business partner that adds value to the C Suite, the HR function delivers a value proposition that is critical for strategic positioning and the agenda for HR is concerned with building the capabilities that help the business to win with the customer and shareholder.
According to Dave Ulrich², it is not enough to take an inward-looking view of the strategy but to view strategy as a window on the outside world. Taking an outside-in view allows you to understand and represent the perspectives of all of the key stakeholders involved in the future success of the organisation.
How does HR become central to strategy? By adopting the five imperatives for strategic HR.
The Five Imperatives for Strategic HR
ONE: Position the organisation to win
- Move from managing transactional HR services to being an ‘outside focused’ strategic partner that leads change from the front. Move from being a tactician to a strategist³ (Watkins, 2012), and move beyond “knowing the business” to being able to position the business to win in its marketplace4 (Ulrich et al, 2017). Then use the insight gained from stakeholders to contribute to the company strategy by determining what its competitive game plan will be5(Collis et al, 2008).
- Value strategic work above the operational activities6 (Charan et al 2001) and spend more time on strategic topics – HR typically spends less than 15% of its time as a strategic business partner, according to Lawler¹ (2014) whose research shows that spending more time as a strategic business partner leads to better company performance.
- Think and act strategically. Dave Ulrich4(et al, 2017) recognises that to be able to contribute to the purpose of the firm, the HR Partner must act as a ‘Strategic Positioner’ who can anticipate an external stakeholder’s future needs and co-create with them as well as anticipate trends that affect the competitive landscape. Being able to represent those stakeholder’s needs when involved in business discussions helps to position the organisation for success.
TWO: Create the right value proposition for the organisation
- Create value by knowing stakeholder needs, including external customers and investors4 (Ulrich et al, 2017). By understanding the strategic value of the HR proposition and acting accordingly HR can avoid the low-value mindset identified by Graber7 (2014), where people are conditioned to evaluate everything on cost and scalability, and instead focus on strategic value creation. For example, one-third of Millennials rank training and development opportunities as a prospective employer’s top benefit7. Cutting corners in this area may jeopardize employee engagement and retention in a demographic that will represent 75% of the U.S. labour force by 2025.
THREE: Build winning capabilities to address strategic business challenges
- Prioritise and solve the right problems. Strategic HR takes the opportunity to help the organisation to be very clear about how to add value, has the right system of capabilities needed to innovate in line with that value proposition, and then helps take those innovations to market. Take a lesson learned from the technology industry that understands that innovations and technologies don’t just emerge. They are created because a company has the system of capabilities needed both to develop them and to win in the market with them8 (Péladeau, Friedrich & Catrina, 2013).
- Focus on sustainable organisational capabilities. A recent Mckinsey9 study found that capability building has remained a high strategic priority and that the most effective companies focus on sustaining skills and linking learning to business performance. Ulrich et al 4(2017) demonstrated that organisation matters more than individuals in creating business value and that organisational capability creates competitive advantage. Capabilities, such as Culture, Leadership, Talent, Learning, Innovation and Customer Intimacy are important for most organisations and are areas in which HR can create value.
- Create change management capability across the organisation. This is a key action for HR Leaders charged with improving business performance10 (Miller, 2010). Building HR leadership for change management sets the tone for the organisation and ensures that change efforts are explicitly tied to business goals.
FOUR: Ensure the organisation is aligned to execute the strategic decisions
- Take primary responsibility for organisational effectiveness¹ (Lawler, 2014) by providing input, advice, direction, and execution as a means of delivering the strategy and as a source of competitive advantage.
- Ensure alignment across the organisation. Alignment is a key theme in sustaining organisation performance11 (CIPD, 2010) which can be achieved by ensuring different parts of the organisation are co-ordinated and support each other. Alignment is needed between the organisation’s values and the way business is conducted through individual behaviour.
- Articulate an explicit link to the company strategy in aligning the organisation. Clear, succinct strategy enables aligned behavior, empowered employees and increased effectiveness. Aim for the Strategic Sweet Spot where your company meets customers’ needs in a way that rivals cannot5(Collis & Rukstad, 2008).
Figure 1: Aim for the Strategic Sweet Spot when positioning the organisation to win5
FIVE: Measure the impact on business performance
- Measure the value created through the HR value chain4 (Ulrich et al, 2017). Leverage HR analytics in strategic decisions and use the metrics to track and measure progress. To do this means building business acumen in HR, including talking the language of business, both operational and financial. According to a HBR Analytics Report11(2017), HR and business data often come together only through the common language of finance. Bringing them together in business operations and strategy conversations makes measurement more impactful11.
So, what will you say when people ask you the purpose of HR in your organisation? Leave us your thoughts in the comments.
Author: Paul Tuck, Strategic Leadership
Paul hosts Strategic Positioning Events for the Strategic Leadership Group. Visit the events page to find one near you.
1. HR Should Own Organisational Effectiveness, by Edward E. Lawler III, Forbes Publication, February 2014. https://www.forbes.com/sites/edwardlawler/2014/02/11/hr-should-own-organizational-effectiveness/
2. Are we there yet? What’s next for HR; Dave Ulrich, RBL Group Article, 2010.
3. Michael D. Watkins, How Managers Become Leaders, June 2012, Harvard Business Review https://hbr.org/2012/06/how-managers-become-leaders
4. Victory Through Organization by Dave Ulrich, David Kryscynski, Michael Ulrich, Wayne Brockbank. McGraw Hill Education, 2017
5. Can You Say What Your Strategy Is? by David J. Collis and Michael G. Rukstad, HBR, April 2008
6. Charan, Drotter & Noel, The Leadership Pipeline, Jossey-Bass, 2001
7. TALENT MANAGEMENT; It’s Not HR’s Job to Be Strategic, by Sean Graber, HBR, October 31, 2014
8. Success through capabilities; Winning in the technology industry; Pierre Péladeau, Roman Friedrich & Gabriel Catrina; Strategy& Publication, PWC, 2013; https://www.strategyand.pwc.com/media/file/Success-through-capabilities.pdf
9. Building capabilities for performance, McKinsey Survey, January 2015; http://www.mckinsey.com/business-functions/organization/our-insights/building-capabilities-for-performance
10. How to build the capability to manage change; David Miller, APRIL 15, 2010 http://www.hrmagazine.co.uk/article-details/how-to-build-the-capabilty-to-manage-change
11. Sustainable Organisation Performance, Shaping the Future, CIPD Interim Report 201012. HR ANALYTICS: BUSTING SILOS AND DELIVERING OUTCOMES; HARVARD BUSINESS REVIEW ANALYTIC SERVICES REPORT 2017