There certainly are strategic HR departments in the world like Google and GE, but unfortunately the odds are that yours isn’t one of them. Now before you get mad and assume this is another “hate HR article”, take a breath and think about it. Are there some objective measures that allow you to get a snapshot assessment of how strategic your HR department is?
For example, legally a corporation must thoroughly cover everything that is strategic in its annual report. So you can tell if you are recognized as strategic by your executives based on whether your HR results are thoroughly covered in the annual report or if instead, you only get a few paragraphs. In that annual report, strategic HR functions, generally also have a single “results measure” that reveals in dollars what was HR’s total strategic impact on corporate revenue. Almost everyone already knows that within the corporation, board members and the CEO are the individuals that make the actual determination on what is strategic and what is not. Unfortunately, when you 3ask CEO’s and Board Members in a survey to rank business functions from “the most strategic” to the “least strategic” (as DDI’s Simon Mitchell did last year) you find that sales is ranked #1 but HR was ranked “as the least strategic function”.KPMG / HfS Research also revealed that Talent Management was ranked dead last out of 18 business factors that contributed the most to improving business outcomes.
Need another indicator? By definition, strategic functions have a formal strategy with “a name”, and that strategy is selected from a master list of possible strategies. But if they were asked, could your own corporate executives repeat the name to your HR strategy? And can you show how your named strategy is tailored to fit your business situation and how your strategy is differentiated from and superior to the HR strategies implemented at your competitors? Well if you can’t, don’t despair because
I have found that 90+ percent of all HR functions don’t have a formal written strategic plan (not a PowerPoint presentation), and most CHRO’s don’t even know where to find the list of the possible HR strategies to choose from. Even fewer can show how their strategy provides their firm with a competitive advantage in the area of Talent Management. If you are the least bit intrigued about the factors that are necessary to make an HR function strategic, the remainder of this article will highlight those indicators.
A Definition Of Strategic HR – being strategic in HR means having forward-looking and future focused HR initiatives and programs that have a company wide impact across several business units. Those programs directly and measurably impact the corporation’s stated strategic goals, but especially the two most important strategic goals, revenue and profit, which they increase by at least 5%. Strategic HR functions also provide a firm with increased capabilities, and a significant and measurable competitive advantage in the three most important outcomes of effective people management, increasing workforce innovation, increasing workforce capabilities and increasing overall workforce productivity.
A Checklist of the Top Indicators That an HR Function Is Strategic
This section will highlight in an easy to scan bullet point format the 15+ factors that should be used to assess whether your HR function is strategic. They are listed with the highest impact assessment factors appearing first.
- Strategic HR is asked to present to the board of directors – no one is more interested in learning more about the strategic areas of the business than the Board of Directors. And that means that if you are truly strategic, your HR function will have been asked to make a formal presentation on your strategic people management plans to the board of directors during the last year?
- Strategic HR is forward-looking and it anticipates the future – being strategic requires that you be forward-looking. And that means that you produce forecasts that reveal upcoming opportunities and problems, so that executives can prepare for what is “around the corner”. Being strategic in HR means shifting from “fighting fires” to preventing them. Part of that future perspective, each year you formally forecast important factors like skill needs, talent surpluses or shortages, productivity problems and the talent capabilities that will be required to execute the strategic business plan. In order to be forward-looking, the HR function must have more “predictive metrics” than it has backward looking historical metrics. The HR function will also have the capability and a track record of accurately alerting managers and executives about upcoming talent trends, problems and opportunities.
- Strategic HR provides a measurable competitive advantage – having effective talent management programs and processes that improve incrementally each year is not enough. In order to qualify as strategic, HR programs, processes and results must be differentiated, hard for competitors to copy and clearly superior in performance and design to those of our competitors. In many cases, a strategic HR function also has to be “a first mover” that is the first in the industry to adopt “next practices”. A yearly external “competitive analysis” must reveal the talent areas where we successfully maintain a measurable competitive advantage over your talent competitors.
- Strategic HR quantifies its total business impacts of the function – working with the CFO’s office, the department should calculate the total dollar impact that functional efforts had on business results and the bottom line. For HR, those impacts would include the dollar impact of great HR hiring, retention and development on improving product development, sales, customer service, revenue and profit. The dollar impact should increase each year.
- Functional HR goals are part of the corporate strategic goals – merely “being aligned with strategic goals” would not qualify as success in this area. In order to be strategic, at least one of the key strategic functional goals needs to be included in the overall list of corporate strategic goals. In the case of HR, that generally means having workforce productivity, workforce innovation or workforce capabilities included on the published list of the overall corporate goals.
- The functional HR plan is an integral part of the strategic plan – obviously the functional plan of any truly strategic function should be an integral part of the corporate strategic plan. In the case of HR, that means that the overall corporate strategic business plan should include key components or sub-plans that cover workforce supply/demand forecasts, workforce capability plans and forecasts and plans that cover upcoming talent problems and opportunities.
- Strategic HR has a single measure of HR functional success – strategic functions have a single overall measure that reveals the percentage of improvement in capability and effectiveness of the function. In HR, generally that measure is the ROI of the workforce (which is the ratio between the total of dollars spent on labor and the dollar value of the output of the workforce for that year). A related measure that provides a simple view of workforce productivity is the dollar increase in the revenue per employee calculation (which is the total corporate revenue divided by the number of employee FTE’s). The results of that single functional measure should improve each year but it should also be ranked among the top ones in the industry.
- Data based decision-making permeates strategic HR – unlike overhead functions, strategic functions are too important to be run based on intuition and past practices. That means that all major decisions in the function are made based on data, facts and statistical algorithms and trend lines. Every program has comprehensive analytics and metrics. In HR, that means that each program and process (i.e. recruiting, retention, development, internal movement, rewards and leadership programs) must quantify its results and be able to demonstrate that all major program decisions are based on metrics, facts and data.
- Functional excellence is measured and rewarded at the executive level – if excellence in a functional area is critical to corporate success, executives and senior managers will be measured and rewarded for outstanding performance in that area. In the case of HR, that means that executive bonus formulas should include producing superior results in all aspects of people management (hiring, retention, employee development, leadership development and business unit workforce productivity). Overall, it must be clear that effective people management is among the top goals and reward factors for managers and executives.
- Strategic HR must accept accountability for improving people management results – talent leaders frequently complain that they shouldn’t be held accountable for people management results because so many people decisions are made by managers. I find that position to be “tactical” simply because most other business functions like finance, planning and IT also share responsibilities and decisions with numerous managers, but they still accept accountability for the results. The critical thing to remember is that Talent Management designs and manages all talent processes. So from the strategic perspective, they are “the default owner”. We also know that individual operating managers routinely refuse to take accountability for talent decisions, so that leaves talent leaders to accept the “captain of the ship” strategic role.
- Managers rate HR as a major contributing factor to their business results – because HR doesn’t completely “own” recruiting, retention, motivation and employee development, HR must rely on managers to deliver a significant portion of the people management services. The best way to determine if HR is providing the right level and quality of support to managers is to survey them and ask them where HR ranks among all functions in contributing to their business results. By forcing individual managers to rank which overhead or support functions (i.e. recruiting, accounting, security etc.) had the most positive impact on their business success, you can then see how recruiting, compensation, retention etc. contributed to business results, compared to other support functions.
- Prioritization allows you to focus your resources – in order to maximize its business impacts, strategic functions prioritize and focus their resources in the specific areas that have proven have the highest business impact. In HR, that means that business units, jobs and HR programs are prioritized, so that the most impactful ones receive attention first, and that they are provided with the most and the highest quality HR resources.
- Strategic HR creates a measurably superior employer brand – fortunately most executives already realize the value of a strong employer brand image and how it is essential for successful recruiting and retention. A strategic HR function must be able to measure its strength and continually improve its employer brand image. That means that it must be able to demonstrate that it directly increases the number of qualified applicants and that your employees indicate in a survey that it is a major factor in their retention. The employer brand must be clearly superior to the brand of your organization’s talent competitors. Where possible, the HR function should demonstrate the correlation between its strong employer brand and an increase in the firm’s shareholder value.
- Business and technology acumen permeates strategic HR – having staff members call themselves” a strategic business partner” isn’t enough to guarantee that employees in the function are knowledgeable in all strategic aspects of the business. In HR, that means that staff should have business degrees, be familiar with business models, have a “big picture longer-term perspective”, and be proactive and that they know the critical success factors that will make your organization an industry leader. Business acumen also means that HR staff are selected, rewarded and promoted based in part on their business acumen, agility, learning ability and their business impacts. Because technology plays such a major part in efficiency, speed and having a global capability, HR professionals that want to be strategic also need to be constantly exploring and adapting new technologies, apps and social media capabilities into every aspect of HR.
- A strategic HR function is fully integrated – most tactical HR departments are well known for their “functional silos”. In direct contrast, strategic HR functions are fully integrated so that customers can expect “one-stop shopping” when they have a complex people management problem. In order to be strategic, barriers and silo walls need to be eliminated and handoffs between HR functions need to be seamless. As a result, strategic functions do things faster and with higher rates of user satisfaction.
- When HR is strategic, it’s results and contributions are acknowledged publicly – as noted earlier, in a strategic HR function results and best practices are featured prominently in the annual report. However, the contributions are also mentioned in executive staff meetings, CEO speeches, quarterly business reports and in external media articles. A strategic HR function will also win external talent management and “best place to work” awards.
- In strategic HR, an annual comprehensive audit is completed – to ensure the highest level of functional efficiency and effectiveness, a comprehensive annual audit and benchmarking study must be completed. The audit should identify major problems and ways to continually improve, so that the organization continually leads the industry in people management. In addition, the quality, error and failure rates for each HR program and process must be identified, in order to see if they fall below the widely accepted Six Sigma level.
The survey of CEO’s that was cited earlier revealed that even though HR professionals frequently use the word strategic, most executives clearly do not consider the function itself to actually be strategic. In fact, when you directly compare the way that HR operates with other functions that are clearly considered strategic (like supply chain, finance, marketing, product branding and sales), HR almost always comes up short. It is certainly true that as individuals, we in HR are well-liked; however it’s finally time to realize that it takes actions and results to truly become strategic. My challenge to the reader is to use the factors presented here as a wake-up call and as a guide for moving in a more strategic direction. Because even though you know might have a “seat at the table”, in most cases it will take major changes before you gain the same level of strategic credibility and respect as the heads of finance, product development, marketing and supply chain. It’s a fact that in most firms that people expenditures exceed 60 percent of all variable costs, so it’s time to transform what is now considered “a high cost function” into a strategic one that has a much greater measurable impact on the bottom line!
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