Thinking ahead it vital to the success of any organisation, but is not without pitfalls. Paul Kearns discusses how the profession can best plan for the future
For every strategic business decision there are a multitude of HR issues, and anticipating them to produce a coherent strategy is no mean feat. It requires a great deal of experience of working in large organisations and understanding the stresses and strains that such fundamental shifts in business strategy place on an organisation.
Admittedly, many businesses going through such fundamental change somehow manage to cope and achieve their strategic goals, but that is not the same as saying they have done so as smoothly as they could have. HR strategy is a means of achieving strategic objectives, but it also aims to make any necessary organisational transition as smooth as possible. The changes should reap the greatest rewards for the business with the least disruption for the workforce.
The overall aim of a strategic, bottom-line HR function is to produce a totally integrated, coherent and measurable strategy. In addition, there should be some means of checking whether the strategy is working and, if it is not, a way of identifying where it is falling short or going off course. However, there are often some big obstacles that get in the way of producing such a strategy. Indeed, effective HR strategies are rare because these obstacles often prove insurmountable.
The strategic dilemmas
I call these obstacles to producing effective HR strategies the "strategic dilemmas" because they are all double-edged swords. They may not be easy to deal with, but if you know what to look for then at least you have a fighting chance of overcoming them.
Principles, values and strategy
First on the list is the idea of honesty. Is it idealistic to expect business leaders to be completely honest? Possibly. What CEO wants to tie their colours to any particular mast, when they may be hoist by their own petard at a later date, if that is not a mixture of metaphors?
There is always a temptation for a CEO to make public pronouncements that impress the financial analysts in the City. So we hear more and more about claims that a particular CEO is going to double shareholder value in three years, or something along similar lines.
Unilever is pursuing a business strategy of reducing its number of product lines from about 1,500 to 400. It wants to focus on the products that return the most value. As a consequence of this strategy the people working in each division have been told quite clearly that if they do not achieve their targets, Unilever will divest itself of their part of the organisation.
Here, a clear business strategy starts to have an immediately discernible impact on everyone who works at Unilever. The best strategists seem to do this. They tell their workforce what is expected and what will happen if they do not make the grade. Is this hard-nosed or just straightforward honesty and highly-effective management?
Regardless of the reasons, there will never be an effective HR strategy if the business does not have clear values (for example, the shareholder comes first) and principles, such as personal accountability. The HR director at Unilever has something very focused and tangible to work to. Consequently, they should have no excuse for not producing an effective HR strategy.
Unfortunately, even businesses that set themselves some tough targets are often reluctant to get this message across clearly to their employees because it might signify a different management style that their employees are not used to. The bottom-line HR function, therefore, has a key role to play in prescribing some strong medicine. If HR shies away from this task it will slip back into its former, faddish behaviour where it never gets to grips with the real issues the business has to face up to.
Short-term versus long-term – the biggest red herring?
One of the biggest red herrings in strategic HR thinking is that HR strategy is inherently long-term, while there is always a tendency, particularly in Western economies, for business leaders to engage only in short-termist thinking. In other words, HR and business strategies work to different and irreconcilable time frames. This is a brilliant excuse for not producing any meaningful strategy and is actually totally fallacious.
There is no reason why short-term needs and long-term strategy cannot be accommodated simultaneously and even if HR strategy tends to look at the long-term it still has to incorporate ways of managing day-to-day, immediate issues. Take, for example, the need to cut costs on a daily basis. One very short-term approach to this is to just dictate to all managers that they have to cut costs in their own area by 10 per cent. Little thought may have gone into this dictat but it will, no doubt, result in some cost reductions – even if, on occasions, the cost reductions are made at the expense of some longer-term need.
So, product development costs are reduced but, in the long term, this results in fewer new products being brought to market. This means, ironically, that the initial cost-cutting decision, which was most probably taken in a vain attempt to improve value, actually results in the organisation losing value.
So where does a longer-term HR strategy fit with this short-termist, short-sighted view? First we need to move away from the traditional management approach of asking all managers to reduce their budgets by a uniform amount. This initiative needs to be selective.
Then, how about a very short programme, for the managers selected, to ensure they only cut costs that will generate genuine savings, without longer-term damage being caused? But, at the same time, a longer-term management development plan can be put in place to ensure that the next time cost savings are required, these managers will already be well prepared and will even have been reducing costs on a regular basis anyway.
A few years ago a director of a large car spares business told me that Toyota had embarked on a cost reduction programme which aimed to reduce its cost base by 50 per cent over three years – yes, I was astonished as well, especially as I already regarded it as super-efficient. At the time, it was already 18 months into this programme and apparently was on target.
The only way Toyota could ever have achieved this was by developing its employees’ cost-reducing skills over a long period. This was no surprise though. Its business-focused HR strategy requires that all employees should constantly be thinking of ways to reduce costs. It recruits people who are willing to accept this condition of employment and then gives them training to help them to do so.
Those who say HR management is hampered by short-termism would argue, no doubt, that this is the main reason there is little evidence of effective HR strategies. Any distinction between short- and long-term, though, is specious. As an economist, I know only too well that today’s short-term accumulates to become tomorrow’s long-term. It is a pity that this confused thinking results in short-term solutions being chosen to the detriment of long-term development. It does not have to be this way.
Surely the aim of HR is to find a strategy that gets the best of both worlds, some short-term quick wins and longer-term progress and development. However, HR should never try to have a long-term HR strategy if there is no long-term business strategy. Not unless the HR director really feels he or she can start to actually inform and influence business strategy.
If Ford used short-term tactics in HR 20 years ago it is reaping the consequences of that thinking today. Consequently, it may still be acting short-term because it has never addressed the underlying, fundamental, strategic issues. It sounds like a recipe for a vicious circle.
I am sorry to harp on about unions again, but their continued existence is good evidence of a lack of both long-term, strategic HR vision and strong HR functions. Equally, however, I could cite a failure to make performance-related pay work and an inability to take training and development seriously as examples of short-termist HR thinking.
Reactive versus proactive
One debate that has raged in HR circles for many years is the old chestnut of whether HR is reactive or proactive. HR strategy, by definition, has to be proactive. It has to be based on a vision of the future. It has to anticipate and plan ahead.
There will always be a certain amount of reactivity in day-to-day, HR work. Perhaps a sudden increase in demand, a competitor makes an announcement that seriously affects your business or the Government decides to change its policy. But the best strategists will either already be ahead of the game or have a certain amount of contingency or flexibility built into their own strategies.
The reactive personnel administration team will fill a vacancy as soon as they can, but the strategic HR team will help to make the decision that the vacancy exists in the first place, as far in advance of the need as possible.
‘Command and control’ versus freedom to act and empowerment
One of the most difficult issues for older managers (if there are any left) to face up to is the debate about how much control they should exert as opposed to allowing people the freedom to think for themselves and make their own decisions. This dilemma was perceptively summed up by Niall Fitzgerald, chairman of Unilever, in an interview in The Times on 18 September 1999, when he was reported as saying, "We’re going to have to find ways in which we can run our business (yet) give much more freedom and control to the individuals who are in the business… We’re not going to mandate… the day-to-day how you do it but there are principles by which you will do it which you must never depart from, because that’s the soul of our business."
This thinking leads him to conclude that Unilever has to accept a "much more fluid environment in which we have to operate, looser arrangements between people internally and externally puts an ever greater premium on the clarity of articulation from the top with regard to what business is about and where it is going. If those are not expressed in a tight, clear, consistent way the thing will just break down in anarchy".
Command-and-control style cultures did not require brilliant, creative, innovative HR strategies. The management style in such organisations was "like it or lump it". Management made all the decisions and then informed staff as and when they saw fit to do so. Niall Fitzgerald is now saying that this type of management style is totally unsuited to the challenges that large, modern organisations face.
I am sure Unilever was always interested in clear, strategic business thinking and planning and Fitzgerald is not moving away from this basic concept. Nevertheless, his statements are a clear admission that incorporated into the business strategy must be a crucial element of HR strategy. Interestingly, one of the most important elements he refers to is "clarity of articulation". Sending "tight, clear" signals to the workforce is of paramount importance. We covered this under the first strategic dilemma and this illustrates the many-faceted, holistic and integrated nature of effective HR strategy.
The final strategic HR dilemma is that of managing complexity. No one would deny that running any sizeable organisation today is anything other than a very complex affair. Relentless competitive pressures, globalisation, the spread of e-commerce, increasing legislation, technological change and a host of other variables make for a very complex mix of factors which have to be considered, balanced and acted upon.
Complexity and the speed of change do not seem to lend themselves to long-term strategic thinking. How can boards of directors manage and control something that is subject to such a wide variety of different forces – many of which are actually outside their control. Some argue that in such circumstances it is impossible to work on the basis of well-formulated, clearly defined strategies.
Complexity is a serious issue and appears to militate against organisational strategy. I was lecturing a few years ago to a group of senior people from various arms of the Ministry of Defence and the armed services, who had specific responsibility for personnel. They said they all face numerous constraints on their freedom to make strategic decisions. They had to skilfully persuade, manage and convince a wide variety of stakeholders – their top brass, the Government, other civil servants, pressure groups, Nato, and the UN.
As a result, they argued, they could not predict the future with any degree of certainty. Consequently, it undermined any explicit attempt to devise a coherent organisational strategy, never mind HR strategy. In other words, complexity and strategy are not happy bedfellows.
From the same premise I would argue the opposite. It is precisely because we cannot predict the future with absolute certainty that we need a strategy. A total lack of strategy means being totally reactive. This is a very vulnerable state to be in. It is the description of a victim of circumstance.
When I played devil’s advocate with this group and levelled this accusation at them it was interesting to see their response. "Uncomfortable" does not really begin to describe it. You see, if you take away someone’s excuse, that they cannot have a strategy, you put them fairly and squarely in a renewed state of accountability.
You are either strategic or you are not. Although some try to cloud the issue by talking about their "default strategy", this is sophistry. If the word "strategy" means anything it includes planning and having some clearly defined strategic goals. You cannot have a "reactive", ad hoc strategy; that is a contradiction in terms. This is true of organisational strategy but it is even more important for HR strategy.
- Paul Kearns is senior partner at Personnel Works and an authority on training and development measurement and evaluation