Human Resources as a Strategic Partner
Although many HR functions have begun to play a strategic role in guiding succession management, knowledge retention, and other enterprise-wide initiatives, there is still opportunity for such functions to improve and truly transform key influencers and decision-makers. The pressing need for organizations to maintain a diverse pool of talented leaders, capture expertise from exiting employees, and outsource transactional activities to focus on core capabilities has heightened the importance of the HR function. Those who want to remain relevant will focus on strategically supporting their organizations and the customers they serve.
The corporate HR function sets the strategic tone and provides specialized knowledge and direction while HR generalists implement and adapt to fit the needs of specific business groups. A healthy tension exists between the policy directives determined by corporate HR and the diverse needs of various business units, but the best practitioners are able to achieve a healthy balance because of their deep understanding of current HR practices, corporate strategy and divisional business objectives. For example, at Texas Instruments (TI) the leadership and HR have engaged in a strategic initiative aimed at reducing the costs of turnover and low morale resulting from expansion and contraction associated with the business cycle by using outsourced workers to provide a more flexible work force.
Consequently, the strategic partnership created between executive leadership and HR is not an organic outcome; it is achieved on purpose—usually as the result of some need or business driver that prompts the organization to take deliberate action to satisfy that need. For HR to be an effective strategic partner in any organization, the HR professionals must understand two things: 1) the business of the business and 2) that HR work begins with the business, not HR.
Knowledge of the business, support for the strategy, and the ability to translate every activity to strategic objectives undergird the success of our best practice leaders. Moreover, this process cannot be completed overnight. For example, the MITRE Corporation (MITRE) began a transformation process in 1998 and followed with reorganization a year later. They estimate that the process took 18 months of research and an additional year to pilot the partner model in two organizations.
Another aspect of becoming a strategic partner with the business is demonstrating support for organizational/business strategies through alignment with those strategies. Such alignment puts HR in a better position to deliver value, which thereby demonstrates credibility. Increasing credibility leads to increased trust, which cements the HR department’s position as a strategic partner in the organization.
When asked to describe the HR relationship to corporate strategy, all of the partners indicated that the HR organization is an important partner in either the development or implementation of corporate strategy, and three of them indicated that it is involved in both (Figure 1). Corporate Partners are the “best practice partners” and the Sponsor Organizations are the firms that paid to sponsor the study.
HR and the Strategic Process
Critical to HR’s functioning as a strategic partner is the HR department’s role in the strategic process. Not only is it important for HR to participate in the corporate strategic planning process to further its understanding of business needs for the upcoming year, it is also important to align its own calendar and focus with the corporate agenda to support HR’s position as a strategic partner.
Key questions to ask to ensure that HR is a key player in the organization’s strategic process include the following:
- What organizational capabilities must our organization have to gain and/or maintain a competitive advantage?
- What abilities do HR personnel need so that they can understand and respond to short-term and long-term market demands?
- How do we organize HR activities to deliver maximum value?
- How do we create an HR strategy that sets an agenda for how HR will help our company succeed?
If HR is to be a true partner in the strategic process, it must take strategy formulation and implementation as seriously as does a line manager. Therefore, integrating HR as a part of the corporate calendar is critical to the strategic partnership’s success. HR partners tend to participate in the operating business cycle in two ways. First, they formulate HR strategies that contribute to the firm’s strategic goals during the same time frame that business units are developing their objectives. For example, Texas Instrument’s strategic HR goals include such topics as “workforce flexibility and ramp readiness,” or more basically “to improve automotive results.” Secondly, organization and leadership reviews are typically conducted in the same time frame as are business and operational reviews.
Developing Leaders
Reviewing performance and recognizing the potential of leaders are strategic keys to a company’s future. In best-practice organizations, the ability to deliver the results outlined in the strategic plan is balanced with an appreciation of a person’s potential for further growth and development. A review of both these variables is a serious and regular part of the strategy process.
General Mills is a pertinent example of how a company can address these variables since it strongly believes in employee development, in fact so strongly that a tool called the Individual Development Plan (IDP) lies at the heart of the company’s development strategy. The IDP process is designed to help management and HR understand the needs of employees and translate those needs into a defined career path. The IDP is a collaborative process that leverages 360-degree feedback.
Values and competencies are the foundation of leadership development. The best practice partners in the study tended to begin the process of developing leaders with a foundation of key corporate values and then focused on key competencies that grew out of the value base and the strategic mission. For example, Genworth started with the firm’s values and looked for “technical skills, personal attributes, business acumen and interpersonal, team and leadership competencies” (Figure 2).
Figure 2: What Genworth Looks For
With inherent values in place, employees must possess essential competencies for leadership development. Best-practice organizations begin the leadership development effort by ensuring that employees understand and embody the company’s values.
With a foundation based on the firm’s values, employee competencies can be recognized and fostered through a partnership between corporate, specific businesses and the individual. Most of the best practice exemplars recognize the concept of “corporate property” in which developing the careers of key executives is viewed as being corporate responsibility. This means that the best qualified person for a key sector or business unit job may be given a developmental assignment to assist someone from another business, even when a successor within the company has been groomed for that job. At the same time, that individual is expected to manage his/her part of the partnership by responding to feedback, improving in key areas and communicating interests and restrictions.
The partnership will be able to identify key moments for development known as transition points. Specific developmental activities are often tied to an impending need or to a new type of challenge. These transition points offer vital “teachable moments.” For example, in the General Mills program for newly appointed managers, the CEO teaches a portion of the program. He often shares his own 360-feedback on areas that he is trying to improve and stresses the importance of IDPs.
Transition points offer a distinct opportunity for companies to analyze and review individual employees’ career experiences and to create developmental plans accordingly. With early identification of potential leaders, companies are able to more effectively plan for future leadership development activities. By leveraging key transition points, companies can maximize developmental opportunities, thereby enhancing leadership development capabilities.
Recruiting and Retaining Talent
Instilling values and developing employees’ abilities is only one part of HR’s job of assisting capable individuals to grow and develop their talents. Recruiting and retaining talent is also very important and is a top priority for participating best-practice companies. Each company understands the importance of attracting and retaining top talent because of the belief that “getting the right people on the bus” is likely to lead to better employee performance and long-term business success.
Recruiting does not start or end with hiring. Even in firms that outsource some of their recruitment [i.e. Texas Instruments (TI)], the hiring decision is part of an integrated system. This process begins with a carefully thought through identification of what kinds of skills will be needed to execute the firm’s emerging strategic goals. MITRE is an independent, not-for-profit corporation engaged in scientific and technical activities for various government organizations. Because of the company’s strong technical emphasis, MITRE forecasts its recruiting needs three to four years into the future. The process continues with a crafted “on boarding” process that then links to the assessment and developmental activities previously discussed in this article.
Some firms do a “risk assessment” to determine which critical people are most likely to leave the firm either because of limited internal opportunities or external offers that provide greater opportunities for advancement. TI practices the concept of “re-recruiting” for highly mobile key resources. General Mills (GM) provides each new hire with a mentor to help them acclimate to the organization. GM believes that every employee deserves a good boss because “People don’t leave companies, they leave managers.” The basic concept for our exemplars is expressed with the motto, “Start right and don’t stop.”
One way these firms “don’t stop” is by giving high potential personnel special attention even if they are not always told why. Best practice firms identify from 5 to 20 percent (10 percent seems most common) of their managers as high potentials and provide them with extra opportunities for development. While such potential leaders are likely to be told that their performance (for the current year) places them in a select category, many firms are hesitant to tell leaders that they have been designated as “hi pos” because management worries about demotivating the vital 80 percent of personnel who do not win this recognition or about creating an “entitlement” mentality among the anointed. Despite the lack of formal transparency in this area, one executive remarked, “If they don’t figure out that they are on the high potential list, maybe they aren’t [as smart as we thought].”
Assessing Success
Recognizing the importance of the HR-business strategic partnership, leadership development, and recruitment and retention of talent can lead to company improvements. But how can firms measure changes in individual personnel performance? Nothing reinforces strategic objectives more than measurement and ties to incentive compensation. In a drive to reduce turnover among high potentials and the “vital 80 percent,” TI monitors the percentage of personnel departures on a quarterly basis and has a goal of “filling 100 percent of openings with identified successors.” Solar Turbines has a computerized “HR dashboard” that displays performance standards for salary ratios, cost of health insurance, and job acceptance rates. While some common measures are used by the best practices firms, the key assessment items vary significantly according to the strategic emphasis of a given firm.
Measurements are compared historically, internally, and externally. Most of the key firms in our sample want to show progress from year to year in their key performance measures. Comparing current and past scores on concepts such as “reduction in turnover rates,” “recruiting costs per hire,” or “employee engagement survey scores” are common ways of determining if progress is being made. While these are the foundation of a company’s internal personnel performance measures, many of our study partners want to see how they are doing on these measures relative to comparison firms. For example, MITRE looks at other participants in the Gallup and Fortune surveys for qualitative measures. TI has a list of 15 competitors against whom they measure. General Mills compares some of their key measures with other “best places to work” companies. Typically, objective measures, such as costs or turnover, are balanced with input from employee opinion surveys to assess the success of HR initiatives.
Critical Success Factors for the Present and Future
Providing a pipeline of strategically aligned, competent leaders is the primary critical success factor of Human Resources. The late Peter Drucker once said that the ultimate purpose of business is to “create a customer.” With due respect to the dean of management thinkers, we believe that having key leadership in place is even more basic. Without good leadership, quality and innovation will suffer and customers will disappear. General Mills describes its motto as “It’s the manager, Stupid!” which emphasizes that superior leadership is a critical element to all business success. Most of the administrative aspects of HR are necessary to maintain the people in a given organization. However, understanding the skills that the company needs to find, attract, hire and lead these personnel while simultaneously developing their abilities to lead constitutes the challenge of building and maintaining the organization for the future.
Summary
Success in developing “best” human resources practices requires that HR professionals be able to wear multiple hats and balance competing demands on their time and loyalties. The distinguishing quality of the best practice partners in this study was the excellence and comprehensiveness they brought to traditional HR practices. The APQC study team and subject matter expert were somewhat surprised to find that the best HR practitioners do not have any “secret weapons.” They do little that is not widely recognized as part of the basic HR canon, but they do it all well. They were consistently good at executing all of the basics more than they were innovative in use of new, unique approaches.
To weather potential impending storms, captains of industry and their lieutenants must start by aligning their efforts to develop effective personnel strategies to groom crew members to successfully stay afloat and keep their respective crafts—companies—intact through the storms of business change in order to complete their long-term goals of effective business management.
Since this is a long-term effort, attention must be devoted to providing opportunities for junior officers to develop and be ready to step up to greater responsibility. Advancement toward the goal must be accurately measured to be sure that resources are matched with the desired progress. The best practice partners in this research did not experience calmer seas. They were more focused on the ultimate objective and better able to develop the next generation of leaders than the comparison firms.
Robert M. Fulmer, PhD, is an academic director at Duke Corporate Education and a Distinguished Visiting Professor at Pepperdine University. A world expert in leadership development, Dr. Fulmer has designed and delivered executive seminars in 23 countries and on six continents. His research and writing have focused on future challenges of management, implementation of strategy, and leadership development as levers for strategic change. He was named one of the top 50 executive coaches in The 2004 Handbook of Best Practices in Executive Coaching. His writings have been widely read in both academic and professional circles. He can be contacted at robert.fulmer@pepperdine.edu.
A 2001 Business Administration graduate of the University of North Carolina at Chapel Hill, Steven Genson has lived and worked abroad for a year in Belgium, traveled to the Republic of Georgia for finance policy research, and worked on developing a business case for digital healthcare with the Commission on Systemic Interoperability in Washington, D.C. He is now pursuing a career integrating business strategy, global banking and U.S. foreign policy issues. Mr. Genson completed his joint Master of Business Administration/Master of Public Policy degrees at Pepperdine in April 2006. Contact him at sdgenson@pepperdine.edu.
[1] Founded in 1977, APQC is a member-based nonprofit serving approximately 500 organizations worldwide. In the past decade, APQC has conducted consortium benchmarking studies in a variety of business functional areas and disciplines.
