HR STRATEGY ALIGNMENT WITH ORGANIZATION
Human capital has become a key source in the success of any organization these days. With the growing importance of human capital, activities related to HR have also gained importance. HR now has an important to role to play in the success of the organization. HR these days is responsible not only is assisting the company achieving in corporate objectives but also a vital part in determining the corporate strategy.
Like other departments of the organization HR is also supposed to develop a strategic plan. HR strategies should ensure that the company has the right skills and support and the right attitudes are rewarded. HR strategy should be designed around corporate strategy. All HR functions such as recruiting, performance appraisal, training and development, compensation etc should reinforce corporate strategy. Hence came the concept of strategic HR management. In fact it’s not just HR but all departments should formulate their support strategy and their managers should strengthen alignment by translating unit strategy into goals for each individual employee.1 (Society for Human resource management, 2006)
Many theorists believe that the effectiveness of HR strategy depends on the situation and organizational context. This situation based approach or contingency approach believe that strategic alignment approach of HR is the best practice. It searches for the best ‘fit” to provide unique characteristics and competitive strategies. 2(Linda Holbeche, 2009)
Leading edge organizations these days allow HR strategies to align with overall business strategy. Key elements of HR strategy include recruitment and selection, health and safety, compensation and benefits, employee training and development etc. HR director first identifies and then develops strategy and objectives regarding all these functions of HR which constitutes the HR plan. This HR plan is then aligned with the overall business objectives. This is an integral part of company strategy. For example if the corporate strategy is for expansion then it is the job of HR to provide additional workforce required and to train existing employees for the future requirements. This requires revision of the HR process as the overall strategic planning process. Divisional board ensures that the HR plan supports and is aligned with the overall corporate strategy.
Strategic Alignment of HRM Policies
Business Policy and Strategy
3-year Strategic Plan
Human Resource Strategy and Policy
↓ ↓ ↓ ↓ ↓
Training, Recruitment, Appraisal, Remuneration, Employee benefits
This process shown above further strengthens the need of HR aligning its strategy and policy with the business strategy. This shows how HR strategy should actually be derived from corporate strategy.
Formulating and developing corporate strategy and business strategy is only the first step for organizational success. The task of the managers is to translate these strategic priorities into functional strategies of all the departments which also includes HR along with marketing, production etc. this involves all aspects of the business but the especial emphasis falls on HR to have a clear alignment between HR and the requirements of the corporate strategy. This alignment can be achieved by achieving two types of fit in HR policies and practices. The two types of fit are
- External fit/ alignment
- Internal fit/ alignment
The main focus of External fit/alignment is connecting HR initiatives and the corporate objectives. For example if the company strategy is to achieve cost efficiency then HR policies and practices should reflect it by reinforcing efficient and reliable behavior in employees. If the company strategy is of differentiation and company wants to succeed through innovation and product development then HR policies and practices should foster and encourage creativity, flexibility and innovation. 13(Michael Armstrong, 2006)
Internal fit/alignment should ensure that HR policies and practices are in alignment with one another as well so that all of them are directed towards achieving the same goal. There should not be any discrepancies between them. They should establish a configuration that is mutually reinforcing. The entire function and practice of HR starting from job design, recruitment and selection, training, performance appraisal, compensation and benefits should be directed in achieving the same objective. Some times what we witness in organizations is the contrary. For example training and development is emphasizing on team work whereas individual idea and performances are rewarded through compensation and benefits. This creates confusion among employees as to what is expected of them. Hence both external and internal alignments are very important for successful implementation of corporate strategy. 3(George Bohlander, Scott Snell, 2010)
The most recent trend about HR is that it is considered the strategic partner of the business. This concept has increased its importance manifolds. HR can act as a strategic partner by developing talented teams as per corporate requirements with potential for growth, gaining credibility by ensuring fundamental rights to all employees, aligning HR activities and strategy with business strategy. It should not only understand but also communicate and measure the return on investment (ROI) on HR initiatives such as training and development. HR should not only be committed in implementing the strategy but they should also be able to measure outcomes of their initiatives in quantitative terms. It helps in improving credibility and also compliance by employees of all the initiatives taken by HR. The quantitative measures of outcome are many such as matrices, scorecard, ROI, return on investment or more precisely ROTI return on training investment.
A growing no of companies these days make their HR score card which is in fact derived from business scorecard to ensure perfect alignment of policies and practices. Even business scorecard is derived from corporate strategy which determines the objectives and hence task and activities to achieve those objectives. In the similar fashion Hr scorecard is made deriving initiatives policies and practices for HR from the HR strategy which is derived from business strategy. HR scorecard helps us in aligning and quantitatively measuring the effectiveness of the policies and practice of HR such as turnover rate, absenteeism etc. 15(Mark A Huselid, Brian E. Becker, Richard W. Beatty , 2005)
Hr score card enables two things manage HR as a strategic asset and demonstrate HR’s contribution to the financial success of the company. Although HR scorecard is different for each organization but all of them have the following four themes.
- Identification of key HR deliverables that leverages HR’s role in overall business strategy.
- Development of high performance work system(HPWS)
- The extent of alignment between HPWS and the strategy
- Efficiency with which deliverables are generated.
The corporate scorecard has the leading and lagging variables in the same HR scorecard has the leading and lagging indicators. HPWS and strategy alignment are leading indicators while HR efficiency and HR deliverables are the lagging variables.
Through ROTI we can measure the result of any training program by calculating the cost and benefits involved in the process. These types of analysis increases motivation among employees and increase the effectiveness of the HR initiatives. 4(G. Reese, R. French, 2010)
The importance of HR strategy alignment has been established now. Now the question arises how all functions of HR can be aligned with corporate strategy as well as with other functions of HR. HR is supposed to undertake following functions to act as strategic partners especially in the area of recruitment and selection. 5(John S Oakland, 2004)
- Designing and development of HR strategy which is derived from business strategy which in turn is derived from corporate strategic plan.
- HR plans and policies should be reviewed on continual basis to ensure alignment with business objectives.
- Ensure that job descriptions are responsibility and competency based rather than task oriented.
- Training of line managers in interviewing and other selection techniques.
- Alignment of job description with competency which helps identifying people with right skills and attributes for the job.
- Comparing of organizational terms and conditions with internationally published data to ensure high standards.
- HR policies should be periodically reviewed to ensure they fully reflect legislative and regulatory changes. It is also helpful in adopting best practices.
Recruitment and selection is critical for any organizations success. Staffing is the cornerstone of HR functions because it is responsible for the type of human resource capital that the company will generate and foster. It includes acquiring, deploying and retaining the talent. Strategic staffing is necessary for aligning this Function of HR with corporate strategy. Strategic staffing is responsible for assessing the labor market, targeting recruits, assessment of the candidates based on their current abilities as well as potential for growth with respect to company’s demands and objectives. The seven steps of strategic staffing are planning, sourcing, recruiting, selecting, acquiring, deploying and retaining talent. Strategic staffing is linked with corporate strategy e.g. organization is planning expansion then strategic staffing will provide the required human capital when needed. 6(Jean M. Phillips, 2009)
In order to successfully align recruitment and selection strategies with the business we need to be proactive. Instead of increasing the head count we need to identify the business objectives such as organization has planned to do vertical integration and will do supply chain distribution instead of outsourcing it. Here comes the role of HR to successfully hire such individuals for the organization at the right time, the right kind of people with the desired capabilities and potential. A proactive staffing plan can provide the company with the talent that can give the company the competitive edge over its competitors. The role of Hr is to strive for synergy between staffing and corporate objectives. A successful staffing strategy has the following traits 7(Carl Banks, 2003)
- It provides competitive advantage by aligning it with corporate strategy.
- It fits the external and internal environment of the company
- Attraction and retention components are included.
- Strategy is clearly stated, understood and communicated to employees.
- Effectiveness of strategy is measured through metrics.
A case study of an international bank which was planning to introduce a development unit will be of help in understanding strategic staffing in real life. Strategies and development plans were designed to support revitalization of the development unit and a sizable budget was also allocated. Suddenly political climate inside and outside bank changed which further increased the importance of the revitalization of this development unit whose major function was to support lending operations by providing technical and functional support for proper implementation of the projects for which the bank funds were being loaned. 8(World Bank, 2006)
With the change in environment the role of the development bank also changed. From the traditional role of providing capital and expertise it moved towards program based lending. Now they were providing loans to those countries in need who achieved certain milestones and policy goals. This change in role, expansion and change required many changes in the bank including strategic staffing. Before addressing staffing requirements other basic parameters of the model need to be defined such as population, planning Horizon and model structure. The major bulk of the staff falls into the three category i.e. economics, education, and operations. To support the staffing strategies and plans a staffing model was developed. This model included all regions where the development unit was supposed to operate and it captured actual staff levels, forecasting of future staff availability, staffing requirements and also measured staffing gaps and surpluses. This model identified all regions and jobs. This kind of staffing strategy gave rise to many issues such as inappropriate use of consultants, not every region was large enough to have separate consultants for three major streams, and all three streams were acting as project managers rather than technical experts which were the forte of the bank. Overlapping of jobs resulted in consultants which were not experts in the relevant area. For any successful strategic staffing it has to cater to specific needs of the business. Bank resolved these strategic staffing issues quite effectively by differentiating job streams to support needed specialization, creating centre of excellence, recruit and develop high level policy executives, redefining the role of short term consultants and creating a pool of candidates for senior level positions.
From the above discussed case study it is clear that strategic staffing is a complex process which has to be in alignment with not only the external factors but also internal alignment with other policies of HR.
Employee training and development is another important function of HR. It is also very important with respect of alignment of HR policies and practices with corporate strategy. This area of HR is not only responsible for the career development of the employee but also aligning employee’s development with corporate present as well as future requirements.
Trained and development requires a well thought out and informed strategy, activities and decisions otherwise it will not be able to support business strategy and will be a wastage of time and resources for the organization. Alignment can be achieved by integrating training activities with business strategy. Although training is required in all circumstances to improve efficiency and upgrade potential of employees but it becomes more important if organization is planning some changes such as entering new market, developing new product etc. it requires employees to acquire new skills to execute and implement business strategy. 9(Wendy L. Combs, Bettina M. Davis, 2010)
We cannot deny the link between training and development activities which the organization takes and the business strategy. With the growing importance of human resource capital the need to value and manage them is also increasing. Human capital has become a source of competitive advantage for many organizations. Organizations have limited resources so the rationale of deploying these resources for certain training and development also comes from business strategy. The training cycle or the major functions of training and development are
- Identification of training need
- Planning and designing training
- Implementing training
- Evaluating training
The systematic approach of training and development starts with the identification of need which is strongly linked with organizational strategy. 10(John P Wilson, 2005)
Five models are used to organize training department they are namely, faculty model, customer model, matrix model, business embedded model and corporate university model. Any organization can choose the model that best fits their need or they can even utilize the combination of models as per their requirement. The new trend which is usually adopted by large organizations such as Boeing, Harley Davidson, Cingular wireless etc is the use of centralized training system. Training programs, professionals, resources are housed at one location where decisions about training are made. It highlights the importance of training in an organization. 11(Raymond A. Noe, 2008)
Alignment of training and development with the business strategy can be more successfully implemented if it is consistent with aims, ethics and culture of the organization. This alignment can be difficult for some people and professionals because it takes us out of our comfort zone. Any business strategy must consider full range of human resource activities and practices for successful implementation only then training and development can contribute significantly in organizations success. 12(Martyn Slowman, Chartered institute of personal development, 2007)
For example if an organizational is planning diversification and intends to enter in a new business then it is the role of training and development department to train and equip employees with the future need of the company. This requires alignment of vision, mission, organization goals, department goals and individual goals. To do this HRD must have the information of organizations future strategy so that they can align it with their own strategic programs. Any training which is not required by the organization will be a waste of resources. HRD should work towards improving efficiency for present tasks and enhancing capabilities for future development. For this same reason this department is called training and development because it also develops existing pool of employees for future senior management positions. 14(Michael Moskovitz, 2008)
With the entire theoretical search conducted it is derived that alignment of HR policies and practices with the business strategy is of utmost importance. Hr strategy should in fact be derived from organizational strategy for HR to contribute in the success of the organization. It is not only HR in fact all departments of organization should work in collaboration and integrate their activities. We also studied functions of HR how they can plan and execute strategic decisions to assert and complement business strategy.
1 (Society for Human resource management, 2006, Essentials of strategy, UK, Harvard Business School)
2(Linda Holbeche, 2009, Aligning Human Resources and Business Strategy, UK, Butterworth Heinemann)
3(George Bohlander, Scott Snell, 2010, Managing Human Resources, USA, South western Cengage Learning)
4(G. Reese, R. French, 2010, Leading, Managing, Developing, People, 3rd edition, UK, CIPD publications)
5(John S Oakland, 2004, Oakland on quality management, Oxford, Butterworth Heinemann)
6(Jean M. Phillips, Stanley M Gulley, 2009, Strategic Staffing, New Delhi, Pearson Education)
7(Carl Banks, 2003, HR how -to: strategy everything you need to be strategic in your Hr decisions, Chicago, CCH)
8(World Bank, 2006, Strategic Staffing, USA, World Bank publications)
9(Wendy L. Combs, Bettina M. Davis, 2010, Demystifying Technical training: Partnership, Strategy and Execution, UK, Wiley Publications)
10(John P Wilson, 2005, Human Resource Development: learning & training for individuals and organizations, London, Kogan Page)
11(Raymond A. Noe, 2008, Employee Training and Development, New York, Tata McGraw Hill)
12(Martyn Slowman, Chartered institute of personal development, 2007, The changing world of the trainer: emerging good practice, Oxford, Butterworth Heinemann)
13(Michael Armstrong, 2006, A handbook of human resource management practice, London, Kogan Page)
14(Michael Moskovitz, 2008, A practical Guide To Training and Development: Assess, Design , Deliver and Evaluate, San Francisco, John Wiley & Sons)
15(Mark A Huselid, Brian E. Becker, Richard W. Beatty , 2005, The workforce scorecard: managing Human capital to execute strategy, UK, Harvard Business school publishing corporation)