How to Create a Human Resource Strategy
Whether you’re working in a large corporate or a smaller enterprise, a Human Resource strategy forms the basis of everything you do in HR. In this article, we will give a definition of the HR strategy, explain how the HR strategy impacts daily HR practices, and we will end with a Human Resource strategy example.
What is a Human Resource Strategy?
A Human Resource strategy is a business’s overall plan for managing its human capital to align it with its business activities. The Human Resource strategy sets the direction for all the key areas of HR, including hiring, performance appraisal, development, and compensation.
The HR strategy is thus a long-term plan that dictates HR practices throughout the organization.
An HR strategy has a set of characteristics:
- It requires an analysis of the organization and the external environment.
- It takes longer than one year to implement.
- It shapes the character and direction of Human Resources Management activities
- Helps in the deployment and allocation of organizational resources (i.e. money, time, personnel)
- Is revised on a yearly basis.
- It incorporates the expert judgment of senior (HR) management.
- It is number-driven.
- It results in a specific behavior.
These characteristics give a good overview of what an HR strategy consists of.
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How to create an HR strategy
The next question is: how do we create a Human Resource strategy?
A very useful model here is the standard causal model of HRM, one of the key HR models. This model shows where HR strategy originates from and how it influences HR execution and business performance.
The model shows that the HR strategy is a result of the broader (business) strategy. It shows that HR activities create value when they are aligned with what the organization tries to achieve. When there is alignment (fit) between the two, HR will contribute to the performance of the organization.
The overall business strategy is formulated based on the past and the present. It is a result of what the company has been doing in the past and its current internal capabilities. An often used tool to arrive at this strategy is the SWOT analysis.
In the SWOT analysis, the organization’s internal Strength and Weaknesses, and its external Threats and Opportunities are mapped. Strengths include the company’s core know-how and know-what. These are its production capacity, existing brand, marketing channels, sales capabilities, R&D expertise, and other human capital factors.
The company’s strategy leverages its Strengths to capitalize on the Opportunities in the market. At the same time, it tries to circumvent Threats and minimize the impact of Weaknesses.
The result of this strategy-setting is the company’s value proposition. For example, the value proposition of Walmart, a discount retailer, is “every day low prices”. This explains a number of internal HR practices, especially the ones related to worker compensation. For more unique value propositions, check this article.
The HR strategy is based on the organizational strategy. The HR strategy touches on all the key areas in HR. These include recruitment, learning & development, performance appraisal, compensation, and succession planning.
An example of an HR strategy is an HR mission statement and HR vision, with concrete, high-level actions about how to execute on this mission and vision. We will give an example later on.
The Human Resources mission statement
The result of an HR strategy is often an HR mission statement. The HR mission statement helps to clearly define where the organization wants to go. All Human Resource Management practices and decisions can be judged based on that statement.
An example is the HR mission statement of the University of Marquette in Milwaukee, Wisconsin: “The Human Resources Department creates, encourages, and maintains an environment that supports, develops and sustains the well-being of Marquette University’s employees, students, and the broader community.”
This mission statement clearly focuses on the creation of an environment for different groups. This makes it easier to make decisions and start initiatives regarding HR’s involvement in different projects. For example, I would be very surprised if this HR department is not actively involved in (student) community-building projects.
Digital HR plays a pivotal role in enabling the HR strategy. In the final section of this article, we will explore the role of digital in more depth.
6 HR strategy best practices
When creating and implementing an HR strategy, there are a number of best practices to keep in mind.
- HR professionals should know the strategy and (at least to some extent) be involved in its creation – A strategy will only be effective if it is clearly communicated. Involvement in the creation of the strategy will help in the communication and create buy-in.
- Management buy-in and HR budget are critical enablers of strategy execution – An HR strategy can never be realized in isolation. Conditions are management buy-in, budget, skilled HR professionals, and appropriate digital technology.
- HR initiatives should be aligned with the HR strategy – The strategy is there for a reason: it should be followed. HR practices and initiatives should follow the strategy.
- Performance incentives should be directly connected with the execution of the strategy – The idea of contingent compensation is as old as HR itself. People will work harder if their goals and incentives are aligned.
- Strategies should be monitored and execution measured through KPIs – Strategy will never be effective without consistent implementation and monitoring of results. This is done through KPIs (metrics that measure strategic goals)
- Strategy is a long-term plan – A strategy is, by definition, long-term. This doesn’t mean it isn’t subject to change. A strategy can be – and sometimes should be – adapted to better fit the external environment.
These best practices help to create, implement, and execute the Human Resource strategy.
Human Resource strategy example
A good example of a Human Resource strategy that worked was how Netflix managed its people. After the dot-com bubble burst and the 9/11 attacks, Netflix had to lay off a third of its employees.
It had always been Netflix’s strategy to hire only A players. This was an opportunity. By letting go of the B-players, the remaining employees were happier and more productive. To quote one of the engineers: “I’ve learned that I’d rather work by myself than with subpar performers.”
This also had consequences for people who once were invaluable but had become redundant as the company grew. According to Patty McCord, Netflix’s chief talent officer from 1998 to 2012, “if we wanted only “A” players on our team, we had to be willing to let go of people whose skills no longer fit, no matter how valuable their contributions had once been.”
Working with only A players also impacted Netflix’s holiday policies. After Netflix went public, there was some pressure to formalize the paid-off-time policy. After some research, McCord decided to use a system in which employees could take as much time off as they felt was appropriate – in dialogue with their boss.
For a full overview of Netflix’s unique definition of company culture, check out their culture guidelines.
HR strategy framework
A very useful tool I discovered while doing research for this article, is the Deloitte HR Strategy Framework. This framework follows a 10-step approach towards defining strategy and delivering value.
The first phase is about defining human capital value. This happens in two steps:
1. Understand the business strategy – this is about understanding the market forces and identifying how they impact HR strategy and priorities.
2. Define HR strategy – in this second step, you create a roadmap about how HR aligns its strategy and how it helps to build a competitive advantage for the organization.
Second, HR products and services need to be aligned.
3. Segment HR customers – not all HR customers are equal. In the third step, you segment your different (internal) customer groups and identify the most crucial ones. Different customer groups require different policies and approaches.
4. Prioritize HR investments – your HR budget and other resources are limited. Prioritize the investments that benefit your key customers and that provide the best ROI. A good technique to prioritizing these investments is calculating an ROI through HR costing.
5, Design HR services – in this phase, you will go through all the HR focus areas and analyze and identify all the processes that should be streamlined or re-engineered.
Third, HR practices need to deliver value. This is the right side of the standard causal model for HRM.
6. Ensure the right HR service delivery model – in this step, you will assess the current HR service delivery model and assess how effectively it helps to meet the organization’s goals. You should also analyze the key HR enablers such as HR systems, processes, and infrastructure. Optimizing these will help in delivering HR services that add value to the organizational strategy.
7. Establish the right HR capabilities – another HR enabler that requires special attention are the HR capabilities. By identifying the current skills and competencies and the ones required to deliver HR strategy, a skill gap can be identified and filled.
8. Improve HR operational excellence continuously – this step is about the optimization of what we do in HR. By assessing the efficiency of our HR processes, we can continuously improve them.
9. Build an HR brand – establish the HR department in the wider organization and obtain information on how HR is and should be performing.
10. Measure the impact of HR products and services – in step 8 we looked at the efficiency of HR processes. In the end, we want HR processes to be effective. Measuring the impact of our products and services on the relevant business outcomes through analytics helps to adapt and improve what we do in HR. This is done through HR analytics.
There is only very little information about how to build an HR strategy on the internet. Although this medium mostly covers digital HR and HR transformations, for both the HR strategy is the starting point. I hope this article has taught you where you should start when you want to define and implement an HR strategy.
Creating an HR strategy takes time. Just as executing on the strategy takes time. But when your strategy is well-defined, it can create a tremendous benefit by aligning HR’s activities with the goals of the organization.
A Human Resource strategy is a business’s overall plan for managing its human capital to align it with its business activities. It sets the direction for all the key areas of HR.
A very useful model is the standard causal model of HRM, one of the key HR models. It shows where HR strategy originates from and how it influences HR execution and business performance.
The result of an HR strategy is often an HR mission statement. The HR mission statement helps to clearly define where the organization wants to go.