Three recipes for strategic HR
, Mari Rauhala
Human Resource Management or People Management is a top priority in today's dynamic business environment. Companies that can create a fit between their strategy, strategic capabilities, organizational culture and HR practices will be better positioned for the future, generate higher profits and attract more talent.
At Aalto EE, we will provide you with a framework that helps you to see your work from a new perspective. We often include live cases which involve working with real life problems. We also offer a combined training and consulting approach in which teams work on designing or redesigning a chosen HR practice. Our programs are backed by Aalto University and its world class HR research.
The authors of The Global Challenge (by Ingmar Björkman et al.) point out that, to implement an HR Strategy with a strategic fit, HR leaders need to continuously ask themselves the following questions:
The capability to develop is determined by an outside-in perspective, that is, understanding what customers and investors expect from the company.
When organizations are seeking ways to renew their business, HR can lead the process with foresight, by creating resilience and the ability to learn. Long-term success is driven far more by consistency and coherence in answering the questions above, than by the quest for “best practices.”
Research shows that HRM or people management can have a major, positive effect on a company’s performance. For example, an analysis of the results of 92 studies covering 19,319 organizations in a variety of industries and countries revealed a correlation of 0.2. between the use of high-performance/commitment work practices and various indicators of the firm’s performance. The most influential of these studies was by Huselid and Becker, who examined the payoff of various HR practices. Data analysis of HR practices and economic and accounting performance revealed that one standard deviation in the use of high-performance practices enhanced profitability by more than USD 4,000 per employee and market value by more than USD 18,000 per employee. These inspiring findings indicate that investing in a set of high-performance HR practices genuinely pays off, and the financial return can be remarkable.
We often talk about high-performance work systems or a high-performing culture, while referring to a set of practices that promote employee competence development, motivation and involvement.
The three key HR processes – performance management, talent management and reward management – must steer employees towards achieving the company's strategic goals and strengthen its strategic capabilities. However, to have an impact, these practices must also build up the intrinsic motivation of employees. Skill, courage and strong persuasive skills are needed in order to combine organizational and individual perspectives.
These three HR processes cannot be planned in silos. An integrated approach is needed, which encourages certain types of behavior in employees and supports their intrinsic motivation. Motivated people serve customers better, which has a positive effect on profitability.
To have an impact, these practices must also build up the intrinsic motivation of employees."
Performance management is a tool for aligning corporate, business, geographic and functional objectives – which are critical to control and coordination. This provides clarity about people’s roles, objectives and contributions to the business, as well as input to other HR processes (compensation & benefits, training & development, talent management), and links them to corporate objectives.
Talent management basically involves getting the right people into the right places at the right time. Its focus has long been on managerial and leadership positions, but is also increasingly targeted at top-level technical and other specialists who are strategically important to the company's success. For example, an airline business that had “building excellent customer experience” as one of its strategic capabilities, had come to the conclusion that its key positions in terms of fostering this capability were customer facing ones, such as stewards and stewardesses, not pilots as one might expect.
Reward management or compensation and benefits concern strategies and policies aimed at rewarding people fairly, equitably and consistently in accordance with their value to the organization. It consists of analyzing and controlling employee remuneration, compensation and all other benefits. A total reward approach includes both monetary and non-monetary elements.
‘Organizational culture’ refers to the way in which members of an organization relate to each other, their work and the outside world in comparison to other organizations. This can enable or hinder an organization's strategy. It has even been said that "Culture eats strategy for breakfast, lunch and dinner." Strategic goals cannot be met if the culture does not support the behavior expected from people. It is critical to understand the concept of ‘organizational culture’ and how it can be shaped.
Organizations that can set clear and aligned values and processes will consistently outperform those that cannot."
Organizations that can set clear and aligned values and processes will consistently outperform those that cannot. Furthermore, leaders who understand when it’s time to do things differently in order to stay relevant are best able to adapt their organizations to changes in the business environment.
HR practices or management practices hold a key position in creating a high-performing culture within an organization. The theory of fit tells us that such practices must be aligned with the company's strategy and culture. On the other hand, when the culture needs to change, practices are the factors that can drive change – defining, for example, who is promoted and what kind of behavior is valued and rewarded.