The Society for Human Resources Management describes HR strategy as a planned collection of HR practices to foster high-performance work and advance the organization's vision, mission, values, and goals. HR strategy uses people-centric solutions to solve organizational challenges.
According to Gartner, HR strategy outlines the processes and actions that should be pursued and improved in the HR and workforce to produce results supporting overall business goals. Both Gartner and the Society for HRM agree that HR Strategy involves the planning and management of employees to support organizational objectives.
The World Economic Forum has also explored HR strategy. According to them, HR strategy is a holistic approach considering the organization's values, culture and workforce needs. WEF took a different approach to understanding HR strategy by creating a framework for HR Strategy in the context of the 4IR. [Read More].
According to The Chartered Institute of Personnel and Development (CIPD), HR strategy is a framework for connecting people management and development practices to long-term business goals and outcomes. Additionally, they describe the differences between strategic HRM and HR strategy and how HR should harmonize its policies and procedures with the corporate strategy.
HR strategy is unique across organizations and industries. A generic HR Strategy may be difficult to come by. Armstrong and Long (1994) and Armstrong and Baron (2002) found many variations in their studies on HR strategy. Some strategies are merely general declarations of intent, whilst others go into much more detail about desired outcomes.
HR strategy is required to highlight the interactive relationship between business strategy and human resource management.
Related: Does the HR Strategy Matter?
Related: HR Strategies for 2021 and beyond
The 3 Pillars of HR Strategy
Several theories inform HR strategy. Each pillar is supported by a distinct theoretical framework. The 3 pillars of HR strategy are strategic planning, workforce development and performance management. The section below discusses in detail what comprises the 3 pillars of HR strategy.
Pillar 1: Strategic Planning (Informed by the Strategic Contingency Theory)
This pillar ensures that HR is in line with the overall business strategy. This entails understanding the organization's objectives before creating HR initiatives that will aid in achieving those objectives.
David Hickson developed the strategic contingency theory. He proposed that organizations should align with the organization's strategy and external environment. If an organization operates in a highly uncertain environment, there needs to make strategic plans that align business functions, i.e. HR, to the overall business objectives.
HR may need to create a strategy to find and hire new personnel with the qualifications and expertise required to thrive, for instance, if the firm intends to enter a new market.
Important questions to ask: What role should the staff play in the company's overall success? What knowledge, skills, abilities and other characteristics (KSAOs) will assist in achieving this goal?
Various HR practitioners have agreed that this pillar examines the organization's HR demands in a VUCA environment. The result is to develop strategies to help adapt proactively to such a business world. The pillar ensures that the right numbers of the right personnel are available at the right times and in the right places to translate organizational plans into reality.
This pillar becomes strategic if an attempt is made to forecast long-term HR supply and demand relative to business dynamics. The HR department programs will be used to meet these identified HR needs.
Pillar 2: Workforce Development (Informed by the Resource-Based Theory)
The pillar involves establishing a knowledgeable workforce. Workforce development improves the level and application of skills to achieve greater success for individuals and employers.
The Resource-Based Theory contends that a company's competitive advantage comes from its resources. These resources can be tangible, such as physical assets, or intangible, such as knowledge, skills, and capabilities.
Workforce development emphasizes the need to develop human resources as one key resource that allows the organization to attain its goals. According to the resource-based theory, resources are worthwhile if they aid a business in achieving its objectives. And if the workforce is developed such that none elsewhere can offer the same advantages, they are inimitable.
There is a need to invest in the careers of employees. An integral part of this pillar is internal mobility. This involves promoting internal candidates who can take on new duties without much training or adjustment time. There is a risk of bias towards only rewarding top performers. For this pillar to yield the best results, there is a need to investigate opportunities to motivate all team members. This will ensure continued growth that benefits the organization and the employees.
Research suggests that the workforce development pillar can be effective in helping organizations find and retain employment. A Federal Reserve Bank of Cleveland study found that workforce development can help people gain higher-paying jobs. The study found that the average participant in workforce development saw their wages increase by 15%. This could lead to high employee satisfaction and performance.
Pillar 3: Performance Management
The last of the 3 pillars of HR strategy is crucial. This pillar determines the success of the HR strategy. Michael Armstrong defined performance management as ensuring that employee performance meets the requirements of their jobs and the organization's objectives. Armstrong believes performance management should be a continuous process rather than a once-yearly event. It should focus on helping employees improve their performance rather than simply evaluating their performance.
This pillar involves promoting or moving employees, dismissing those that consistently perform below expectations, and rewarding deserving employees with incentives or promotions. [Read More].
While research and experienced practitioners have identified several prerequisites for efficient performance management systems, there are still numerous choices to be taken to develop a system perfectly suited to a certain organization's requirements.
Research has shown that organizations that apply performance management as a pillar of their HR strategy can benefit in several ways. A study published in the International Journal of Mechanical Engineering and Technology (IJMET) found that organizations with effective performance management systems had 12% higher employee engagement and 30% lower turnover rates.
Overall, performance goals under this pillar should be specific, measurable, relevant, time-bound and achievable. Tracking progress will mean monitoring performance against these goals.
Benefits of using the 3 pillars of HR Strategy
The 3 pillars of HR strategy can be valuable for all organizations. The 3 pillars of HR strategy primarily seek to integrate and coordinate business and HR objectives to increase profitability and productivity. Some benefits can be achieved from using the 3 pillars of HR strategy outlined below.
- Improved employee engagement - Employees are more likely to be involved in their work when HR is aligned with the business goals and allowed to advance their careers.
- Increased productivity - A trained and happy workforce is more productive, which can boost financial performance.
- Reduced costs – An organization can lower HR costs by centralizing HR operations and streamlining procedures.
- Compliance – A practical guide by AIHR stated that organizations can lower the risk of noncompliance by having clear HR rules and procedures.
- Enhanced reputation – An organization with a strong HR reputation is more likely to attract and retain top talent.
The success rate of HR Strategy
The success of the 3 pillars of HR strategy depends on several factors. These could include the specific needs of the organization and the general business climate. However, research suggests that organizations focusing on the 3 pillars of HR strategy are more likely to succeed.
According to a McKinsey report, more than 90% of chief human resources officers predict significant changes to the HR operating model in the next few years. This reflects a growth trajectory in the implementation of HR strategy by businesses.
A study by the Havard Business Review found that organizations investing in strategy implementation are more likely to see steady growth. According to the study, this is because employee development fosters the development of a workforce that is more talented and adaptable, both of which are necessary for success in today's competitive economy.
Any firm that wishes to achieve its business goals must focus on the 3 pillars of HR strategy: strategic planning, workforce development, and performance management. Organizations may increase employee engagement, productivity, and compliance while improving their reputation by integrating HR with the company plan, investing in employee development, and efficiently managing employee performance.
Brandon Murambinda is an Organisational Design and Development Consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. Email:email@example.com or visit our websites https://www.thehumancapitalhub.com/ and https://www.ipcconsultants.com/