HR as a Strategic Partner

In our experience, many HR management teams have a well-developed vision of their department, but the CEO and senior managers are at least skeptical of HR’s role in the firm success. Worse, in many firms, executive want to believe that” people are our most important asset,” but they just can’t understand how the HR function makes that vision a reality.

The problem is that HR’s influence on firm performance is difficult to measure. HR tries to measure HR performance such as revenue per employee, employee turnover, and job satisfaction. The problem is there is disconnect between what is measured and what is important. Therefore, HR managers have under fire to demonstrate how they can create value of how they have been challenge to serve as strategic partners in running the business.

To be a partner, HR managers must understand the firm’ strategy; that is, its plan for developing and sustaining an advantage in the marketplace. They must move from “bottom-up” perspective to a “top-down” perspective (emphasizing the implementation of strategy). Finally, they need innovative assessment system that will let them demonstrate their influence on measure that matter to CEOs, namely firm profitability and shareholder value.

HR staff focused on administering benefits and other payroll and operational function and didn’t think of themselves as playing a part in the firm’s overall strategy.
Most HR’s Idea was that improvement in individual employee performance would automatically enhance the organization’s performance.

The evolutions of HR as strategic asset are as follows.

The personnel perspective: The firm hires and pays people but doesn’t focus on hiring the very best or developing exceptional employees.

The compensation perspective: The firm uses bonus, incentive pay to reward high and low performers. But it doesn’t fully exploit the benefits of HR as strategic asset.

The alignment perspective: Senior managers see employees as strategic asset, but they don’t invest in overhauling HR’s capabilities. Therefore, the HR system can’t leverage management’s perspective.

The high-performance perspective: HR and other executives view strategy implement. The firm manages and measures the relationship between these two systems and firm performance.

To design a measurement system that HR is impact on business performance, HR must focus on how HR can play a central role in implementing the firm’s strategy. With a properly developed strategic HR architecture, managers throughout the firm can understand exactly how people can create vale and how to measure their value-creation process.

THE HR ARCHITECTURE AS STRATEGIC ASSET

The foundation of a strategic HR role is the three dimension of the “value chain” represented by the firm’s HR architecture: the system, and employee behaviors.

1. The HR Function

Most HR managers were very proficient in the delivery of traditional or technical HRM activities (such as recruiting, compensation, and benefit), but much less so in delivering strategic HRM capabilities. HR managers were particularly limited in their ability to translate strategy and operational goals into actionable HR goals, and subsequently to implement that goal. The competencies that HR managers need to develop and ones that have the great impact on firm performance—are business and strategic HRM competencies.

2. The HR System

The High-Performance Work System (HPWS) is designed to maximize the overall quality of human capital through the organization. To build and maintain a stock of talent human capital, an HPWS does the following:

- Link its selection and promotion decisions to validated competency models;

- Develops strategic that provides timely and effectively and effect support for the skills demanded by the firm’s strategy implementation; and

- Enacts compensation and performance management policies that attract, retain, and motivate high-performance employees.

The above items are vital steps in improving the quality of employee decision-making throughout the organization—something that make good business sense as traditional command-and-control management models increasingly go out of fashion. In short, for HR to create value, a firm needs to structure each element of HR system away that relentlessly emphasizes, supports, and reinforces a high-workforce.

Comparison of high and low HR management quality

HR practices
Percentage hired based on a validated selection test
Bottom 10% HR Index—4.26%
Top 10% HR Index—29.67%

Percentage of workforce whose merit increase or incentive pays is tied to performance
Bottom 10% HR Index—23.36%
Top 10% HR Index—87.27%

Number of employees per HR professional
Bottom 10% HR Index—254
Top 10% HR Index—140

HR Outcomes
Extent to which strategy is clearly articulated and well understood throughout the firm
Bottom 10% HR Index—3.40
Top 10% HR Index—4.21

Extent to which the average employee understands how her or his job contribute to the firm’s success
Bottom 10% HR Index—2.80
Top 10% HR Index—4.00

Extent to which the executive leadership team is visionary
Bottom 10% HR Index—3.02
Top 10% HR Index—4.33

Extent to which the firm’s HR professionals are perceived to be agents for change
Bottom 10% HR Index—3.31
Top 10% HR Index—4.12

Extent to which the firm’s HR professionals are generally perceived to be business partners
Bottom 10% HR Index—3.19
Top 10% HR Index—4.30

Firm Performance
Employee turnover
Bottom 10% HR Index—34.09%
Top 10% HR Index—20.87%

Sales per employee
Bottom 10% HR Index—$158,101
Top 10% HR Index—$617,576

3. Strategic Employee Behavior
The strategic behaviors can be classified into two general categories. The first would be the core behaviors that flow directly from behaviors core competencies defined by the firm. These are behaviors that are considered fundamental to the success of the firm, across all business units and levels. The second are situation-specific behaviors that are essential at key points in the firm’s or business unit’s value chain. An example of these later behaviors might be the cross-selling skills required in the branch of a retail bank.

Integrating a focus on behaviors into an overall effort to influence and measure HR’s contribution to firm performance is a challenge. Which ones are important? How should they be “manage”? We need t o keep a few points in mind. First, the importance of the behaviors will be defined by their importance to the implementation of the firm’s strategy. Understanding how people and process within the firm actually create value is the firm step. That analysis will reveal both the kinds of behaviors that are generally required throughout the firm and those with specific value at key points in the chain. Second, it’s essential to remember that we don’t affect strategic behaviors directly. They are the end result of the larger HR architecture. Especially important is the influence of an HR system that is aligned with the firm’s strategy.

Source: Brian E. Becker, Mark A. Huselid, Dave Ulrich, The HR Scorecard: Linking people strategy, and performance, Harvard Busin