Developing HR strategy: Aligning HR to the business

In the continuing series of articles examining HR strategy, Keith Rogers
looks at the steps recommended by experts and practitioners to align HR
strategy with overall business needs

When organisations talk about aligning their HR strategy to business
objectives, there is an underlying assumption the HR function will be doing
most of the adjusting. Because many organisations pay little more than
lip-service to the role their employees play in executing their strategic
plans, they frequently underestimate the human capital implications of their
decisions. The reality, however, is that HR strategy is a core component of
overall business planning, and for either to be effective, the two need to be
developed hand-in-hand.

The four key areas HR must address are:

1. Being involved in setting corporate strategy

While more enlightened companies have given HR a seat in the boardroom and
the opportunity to help shape their corporate plans, the vast majority will
expect HR and other departments to fall into line once a business strategy has
been mapped out. As such, HR tends to play a reactive role in the most
important part of the corporate planning process.

Tackling that issue may involve a subtle shift in mindset. Linda Holbeche,
director of research at Roffey Park Management Institute, points out that a
large number of HR heads present the function as a service provider within the
organisation – with that kind of perspective, they are implicitly more likely
to follow than to take a leadership role. She believes that the combination of
governance requirements and economic turbulence makes it hard for HR to shift
into a proactive role, but that’s essential if HR directors are to be able to
influence their senior colleagues.

Mike Cutt, HR director at the DIY retail giant B&Q, agrees. "It is
not a question of starting with corporate objectives and aligning HR – the HR
objectives have to be embedded in the corporate objectives. Before it starts
drafting the objectives, the organisation should have people values it believes
in. And it makes a huge difference having an HR director on the board – but the
director has got to be capable of contributing to a commercial agenda."

If they can win a seat at the top table, suggests Louise Allen, director at
Cedar International, HR directors should ensure that whatever demands are made
on HR by corporate strategy should be clearly laid out. If HR is unable to
participate first hand, she urges directors to arrange a formal presentation
from the CEO, finance director or strategy director, so there is sufficient
understanding on both sides of the demands on the workforce.

2. Understanding HR’s wider role in the business

Holbeche argues that HR directors need to bring their expertise to bear in a
business context, not just in traditional HR terms. Many HR strategies, for
example, focus on how to get the best out of the HR team, rather than on the
broader HR-related initiatives.

As such, organisations need to look beyond pure HR goals. One of her clients
recently prepared to embark on a major ’emotional intelligence’ initiative,
setting it as a priority for all of its business leaders. However, it realised
that it had no evidence to show whether more emotionally- intelligent leaders
generate better business results than others, and set out instead to test the
theory before implementing the practice. Holbeche’s point is that the final
business result is more important than a fashionable HR theory.

Once seen in the broader business context, HR’s potential role is huge. Aside
from governance issues, it spans the acquisition and retention of key staff,
employee development and succession planning, performance measurement, and, in
industries such as the pharmaceutical sector, the ability to inspire
innovation.

Carolyn Nimmy, vice-president of the global people relationship management
team at Cap Gemini Ernst & Young, argues that HR has a key role to play in
developing two planks of what she calls today’s ‘adaptive enterprise’ –
building ‘adaptive talent’ at an individual level, and more broadly, building
an ‘adaptive culture’.

3. Developing an HR strategy that complements corporate planning

There has been a noticeable increase in the number of companies that are
developing HR strategies. Most of them, it appears, also start by spelling out
the overall objectives of the business. Aligning the two, however, goes much
further than an initial statement of intent.

Cedar’s Allen suggests HR teams should build an HR strategy model (Features,
28 October), with business goals at the centre feeding traditional HR
components like organisational structure, compensation, development and
performance. Alignment with the business objectives centres on two areas –
priorities and planned actions.

First, HR should compare its current strategy with the overall business
strategy to ensure the top priorities match up. Next, HR should describe what
strategic responses it will make to meet the business strategy needs using key
headings – such as ‘compensation’ or ‘development’ – and check that these
provide the required outcomes to support the business goals. If the HR function
doesn’t have a strategy in place and is developing one from scratch, it should
start by selecting and composing the headings for its strategic response.

Holbeche warns organisations to keep the planning process simple and avoid
listing too many projects or too much detail, as that is likely to lose people.
In her view, the best HR strategies are those that are integrated with the
overall corporate plans and not seen as a separate document.

In practice, many organisations will find the process of comparing and
aligning has an impact on both HR strategy and the overall corporate
objectives. Scottish & Newcastle, for example, composed five core HR
themes, several of which stemmed from existing corporate plans. As it developed
them in greater detail, its experiences helped to reshape the overall business
objectives (see right).

4. Turning strategy into action

While HR strategy provides the umbrella framework for tactical planning, the
requirement for alignment is not confined to high-level thinking. The next
stage of the planning process is to develop action plans that convert strategy
into executable operations, using the strategic master plan as an umbrella
framework.

As Cedar’s Allen points out, it is important here to ensure that cost and
budgetary issues are highlighted, and that the plans are sold to key
stakeholders as well as the board.

Finally, measurement is also critical, both to monitor how well individuals
and departments are pursuing their objectives, and also to ensure activities
continue to reflect the overall objectives. In effect, measurement becomes the
glue that links strategy to operations and back to strategy, allowing
organisations to refine both their HR activities and their thinking as they go
along.

As S&N’s Parish says, it is important to remember the HR strategy is not
set in stone – while organisations will be reluctant to tinker with the
strategy once it has been set, it will evolve as organisational priorities
continue to shift.

HR’s take home points:

1. HR must be included in setting the business strategy, and
its objectives embedded within it

2. Practitioners have to understand HR’s role in the business
and where it can deliver benefit

3. An HR strategy model that compliments business objectives is
needed

4. Action plans and measurement are needed to turn strategy
into outcomes

Case study: Scottish & Newcastle
shows the way forward for HR

The experiences of Kim Parish, head
of HR at Scottish & Newcastle, demonstrate that HR’s influence on the
corporate planning process can be far more extensive than many would imagine.

When she kicked off a project last year to define S&N’s HR
strategy, Parish took as a starting point many of the concepts that were
articulated in the company’s corporate plans. As the HR department built and
refined its own goals, however, it found that it was bringing more substance to
many of those corporate objectives. The net result was that the corporate plan
informed HR strategy – and HR’s strategic research in-turn refined the
corporate policy.

Parish began by crystallising what the HR function had been
doing, taking a snapshot of its activities at a given moment in time. She then
set out to identify a handful of themes based on the relationship between
people and the implementation of corporate strategy – in that way, HR, the
board and operations managers could all identify with them. Five themes emerged
from this process:

– Centres of excellence: S&N’s pubs and restaurants employ
some 30,000 people, all of whom are serviced from a corporate centre employing
800 staff. The company has set out to ensure that each servicing department,
such as food, becomes a centre of excellence, working closely with customers to
high professional standards

– Inspiring service: One of the main planks of S&N’s
corporate strategy is to deliver excellent customer service. From a
people-management perspective, this is heavily influenced by factors such as
culture and training

– Brilliant results: "In our business," says Parish,
"there is a real results focus – people must be clear about what they are
supposed to deliver." An integrated performance management system lies at
the heart of this effort

– Inspiring leadership: As well as coaching and developing
existing leaders, this theme also incorporates succession planning for the next
generation

– Talented individuals and willing teams: This theme is
supported by standard HR processes like recruitment and compensation, but it
also has a strategic aim – the group’s goal is to have everyone connected with
the business acting as advocates for it

Each theme is broken down into a number of different activities
and projects with a timescale attached. That process is highly focused.
‘Reward’, for example, is incorporated within the winning team’s theme, but pay
reviews are not – that is because the pay review process is not a strategic
issue, but designing a reward system to attract and retain the people you want
is. HR has developed a different set of metrics for each theme, including
standard input measurements such as training days, and outputs like
profitability per employee.

Parish points out that developing the themes was a relatively
long process, which initially began with the personnel director of each
business, then incorporated the HR teams and the board’s strategic review
group. Not surprisingly, the themes evolved over time – ‘inspiring leadership’,
for exam-ple, was initially encapsulated in the ‘service’ theme rather than as
a stand-alone item.

The themes then fed back into corporate objectives and helped
refine them. The concept of ‘centres of excellence’, for example, had been
talked about previously in corporate plans, but hadn’t been followed through in
detail. Performance management was also a core activity, "but we hadn’t
focused on it as a source of real advantage".

According to Parish, the hardest part of the process was
restricting HR strategy to no more than five items, and ensuring those five
were right. The most powerful aspect of the process was that the organisation
made a large investment in talking to people, including all 80 members of the
HR department itself. "The consultative process started a year ago and
went through to July," says Parish. "Each week, it became a living
way of talking about what we do."

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