Strategic Human Resource Management: The Basics
Strategic Human Resource Management is essential when it comes to managing people. In this article, we will explain what Strategic HR Management is, how it impacts our work in HR, and give 5 tips on how to make an impact with Strategic Human Resource Management.
What is Strategic Human Resource Management? A definition
Strategic Human Resource Management is a combination of Strategy and Human Resource Management (HRM). According to Storey (1995), HRM is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques.
This is a complex and descriptive definition. It states that Human Resource Management involves the use of different techniques. These include:
- Personnel techniques, like the hiring, promoting and rewarding of employees;
- Structural techniques, like organizational design; and
- Cultural techniques, like building and maintaining high-performance work cultures.
According to Storey, the goal of this all is to achieve a competitive advantage. A competitive advantage is what distinguishes an organization from its competitors.
The second part of the definition is about “strategic deployment”. Let’s zoom in on strategy.
Strategic Human Resource Management became increasingly popular in the 2000s. This was triggered by Dave Ulrich’s challenge for the HR profession. HR had become “often ineffective, incompetent, and costly; in a phrase, it is value sapping”.
According to Ulrich, HR needed to become value adding – and thus more strategic. This means that HR needed to become a better fit with the business strategy in order to provide value.
Strategic HRM is the result of this call to action. It aims to align the focus of HRM with the focus of the business. As such, strategic HRM is all about achieving business objectives through smarter Human Resource Management.
5 Steps to Make Impact with Strategic Human Resource Management
The question is now how to make an impact using Strategic Human Resources Management. In this section, we will list five tips to make an impact with truly Strategic HRM.
1. Creating a Human Resource strategic plan that follows the business
The first step towards making a strategic impact with Strategic HRM is to create an HR strategic plan. Remember, Strategic HRM follows the business. This means that the HR strategy should follow the broader business strategy.
We can write an entire article on how to create an HR Strategy – and that’s exactly what we did, you can find it by clicking the link. It boils down to a few steps.
First, you need to understand the broader business strategy. Then, you need to align what we’re doing in HR with this business strategy. The HR strategy should aim to build the capabilities that are defined in the business strategy.
If the business strategy is one of cost leadership, where the aim is to minimize costs, the HR strategic plan will be different then when the business strategy is one of differentiation, where the product is unique and more expensive. In these cases, the HR strategy and subsequent policies will be very different.
2. Aligning HR activities
Once the HR strategy is set, the real work starts. All HR activities should be aligned with the HR strategy. These include recruitment, selection, performance management, compensation and benefits, organization and function design, and more.
All these activities should be aligned with each other.
For example, the qualities that you evaluate someone’s performance on should also be the criteria you use to hire people. In addition, these should also be the qualities you look to develop in your workforce. This way hiring, performance evaluation, rewards, and learning and development all align with what the business strategy is trying to achieve.
In research, these groups of HR practices are referred to as bundles. An example of such a bundle is employee retention, which is associated with several HR practices, including good job design, employee involvement, and equal opportunities (Guest et al., 2006).
Another bundle is innovation. Innovation is associated with performance appraisal, employee involvement, teamworking, job design, training and development, and provision of information.
Aligning these HR practices with each other will create a compound effect and help in achieving the business strategy. This is what makes HRM truly strategic.
3. More emphasis on data
One of the key requirements of making an impact with HR is being able to show that impact.
This is where data comes in.
An emphasis on data is key in measuring the impact of HR policies. It is very common for the business to track its success using Key Performance Indicators (KPIs). KPIs are metrics that are aligned with the strategy of the organization.
Finance has a large set of financial KPIs, and so has Marketing. If the company is public, an important KPI for the board of directors is the stock price. Decisions are influenced based on their impact on these strategic KPIs.
HR departments, however, are often not data-driven.
Metrics are ill-defined and are scarcely tracked. HR KPIs are even rarer. These are the HR metrics that will have a direct impact on the Key Performance Drivers (KPD) of the business. KPDs are the drivers of business KPIs, like customer satisfaction, product quality, innovation, and so on.
In addition to tracking progress, people analytics can be used to measure which people policies contribute to business goals.
This can make the contribution that HR makes very tangible.
For example, Best Buy, an American consumer electronics retailer, found that a 0.1% increase in engagement leads to an increase in revenue of $100,000 per store.
People analytics thus helps to make a very concrete business case for HR investments.
4. Don’t forget HR’s other responsibilities
We started off pointing out that the push for Strategic HRM originated with Ulrich’s critique of the lack of strategic contributions of HR. This doesn’t mean that HR should only focus on its strategy, there are other elements to focus on.
Ulrich defined 4 HR roles. These include HR strategy, enabling change, efficient administration, and developing and engaging employees.
The risk of Strategic HRM is that we focus too much on the HR strategy while forgetting other tasks. Tom Haak points this out beautifully in the following clip.
As Haak points out, the focus of HR shouldn’t be too much on strategy. Once the strategy is set, the power lies in its execution. HR should not forget to focus on flawless employee operations and employee intimacy.
5. Taking an outside-in approach
A critical next step to being strategical is taking an outside-in HR approach. Who are the customers of HR? These are sometimes employees. However, they are also other stakeholders, including shareholders and customers.
According to Ulrich, it is HR’s task, to not only look at strategy as a mirror for what HR has to do. It has to look at it as a window that shows how we can do our jobs better for outside stakeholders.
These outside stakeholders include customers, investors, key suppliers, government agencies, and communities. HR can become a lever for those external factors.
This requires further integration. Not only are different HR practices aligned with strategy, but the strategy is also aligned with these outside stakeholders.
The best way to do this is by focusing on value creation. HR shouldn’t focus on what it does but on what it creates.
Dave Ulrich explains this in the following 15-minute masterclass.
There’s a lot more to Strategic Human Resource Management than meets the eye. Not only should HR align its practices with the business strategy, to be truly strategic, HR needs to understand where the strategy comes from and connect with the various stakeholders that strategy is made for.
When HR succeeds in doing this it will be able to add tremendous value to the organization.
I hope this article has given you a good overview of what Strategic Human Resource Management is. If you have any questions, feel free to post a comment.