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 Strategic HR What It Is, Why It Is Important, and Why It Is Often Difficult

T he War for Talent was an influential book published in 2001 that emphasized the growing impact that workforce quality has on business performance. The book noted that “in 1900 only 17 percent of jobs required knowledge workers, now over 60 percent do. . . As the economy becomes more knowledge based, the differ- ential value of highly talented people continues to mount.”1 Since that book appeared, the importance of attracting, hiring, develop- ing, using, and retaining high-quality talent has steadily grown. Business success is becoming less about having better business strat- egies and more about having the talent to execute these strategies effectively. Winning does not just come from knowing what to do; it comes from doing it faster and better than everyone else.

A company that does not have employees who can support its strategies will fail, no matter how good its strategies are. This realization that people are very often the most important competitive differentiator is forcing organizations to excel in three ways:

• Increasing employee performance. As skilled labor becomes scarcer, the cost of qualified employees increases. Labor now accounts for more than

T W O c h a p t e r

Hunt, Steven T.. Common Sense Talent Management : Using Strategic Human Resources to Improve Company Performance, Center for Creative Leadership, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/ashford-ebooks/detail.action?docID=827115. Created from ashford-ebooks on 2020-03-25 15:54:46.

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60 percent of the operating cost in most companies.2 Companies must realize a high level of return on the sizable investment that they make in people. This means maximizing employee performance.

• Attracting, developing, and retaining high-performing employees. It is often said that employees are a company’s most valuable asset. This is true if you are talking about high-performing employees. These employees typically generate three times or more revenue than average employees.3 But the things that make employees high performers also make them a retention risk (e.g., achievement orientation, marketable skills). Companies must be able to both hire and keep high-performing talent to compete in the labor market.

• Identifying and addressing low-performing employees. High-performing employees may be a company’s most valuable asset, but low-performing employees can be a company’s most expensive liability. Low performers dam- age the revenue stream, decrease the productivity of coworkers, and drive away high-performing employees. Tolerating low performance drags down company profitability, business growth, and employee morale.

The only way to meet these challenges is to ensure managers are:

1. Employing the right people: They hire employees who can effectively per- form their jobs and will stay with the company long enough to justify the cost of hiring them.

2. Focusing people on the right things: They make sure that employees are working on things that support strategic business priorities and do not spend time on activities that do not align with company needs.

3. Ensuring people do things the right way: They take steps so that high per- formance is recognized and encouraged and poor performance is identi- fied and addressed.

4. Giving people the right development: They provide employees with develop- ment opportunities that enable them to perform their current roles more effectively and progress into future roles that support the company’s long- term business needs.

The purpose of strategic HR is to provide organizations with tools, knowl- edge, and guidance that ensure these four things are being done in an effective and consistent manner. I refer to these as the 4Rs of strategic HR: hire the right

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Strategic HR 17

people, focus them on the right things, ensure they are doing things the right way, and foster the right development.

2.1 THE FUNDAMENTAL PROCESSES OF STRATEGIC HR Strategic HR is ultimately about maximizing workforce productivity. Workforce productivity requires making sure a company has the employees it needs to sup- port its business strategies and that these employees are performing their jobs in a manner that supports the business needs of the organization. Strategic HR increases workforce productivity by providing methods that help companies find and place people in jobs where they will be effective (e.g., staffing, succes- sion management), improve employees’ current job performance (e.g., by per- formance management or training), and retain and develop employees over time (e.g., through compensation and career development). The one thing that links all strategic HR methods is a focus on predicting and increasing job per- formance to ensure people are placed in roles where they will succeed, improve productivity in current roles, and build capabilities needed for future roles.

Figure 2.1 illustrates the basic components of job performance and the fun- damental strategic HR processes used to influence them. Increasing job perfor- mance ultimately depends on managing three things:

• Goals that define the business outcomes associated with an employee’s job (e.g., achieving sales quotas, minimizing accidents, maintaining productivity levels, processing documents). Goals define the reason that a job exists. People are employed to do something; goals clarify what they are employed to do.

• Competencies that describe behaviors that employees are expected to display on the job—building relationships, planning and organizing, solving prob- lems, and other activities that influence success or reflect important cultural values of the company. People often distinguish goals from competencies using the concept of “what versus how.” Goals define what a person is sup- posed to do in the job, and competencies describe how they are expected to do it.

• Attributes are characteristics of employees that are associated with job suc- cess. They include qualifications (e.g., job experience, education, certifica- tions), aptitudes (e.g., personality and ability traits), and interests (e.g., career aspirations, salary preferences, work schedule expectations). Attributes define

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Commonsense Talent Management18

who employees are in terms of their knowledge, skills, and abilities. The attributes employees possess influence the competencies they display, which determine the goals they can achieve.

The relationship of attributes, competencies, and goals can be summed up as, “Who you are (attributes) influences how you act (competencies), which determines what you achieve (goals).” Any effort to increase workforce pro- ductivity must ultimately influence employee attributes, competencies, or goals to be successful. All processes that increase employee performance, engage- ment, retention, or any other variable associated with the productivity of indi- vidual employees will at some point focus on aligning, clarifying, or developing employee attributes, competencies, and goals.

There are four basic ways to influence employee attributes, competencies, and goals, and they correspond to the 4Rs of strategic HR:

1. Hire the right people. Staff positions with employees whose personal attri- butes match the competencies and goals associated with their jobs. This is

Competencies Attributes

(Skills, Aptitudes, Interests)

Right Development Succession, Career Planning, Training

Right People Staffing, Promotions, and

Workforce Planning

Right Way Performance Management and Merit Compensation

Right Things Goal Management and Variable Compensation

How you act

Create learning through experience

Who you are

Goals

What you achieve

Figure 2.1 How Fundamental Strategic HR Processes Influence

Components of Job Performance and Examples of HR Methods Associated with Each Process

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Strategic HR 19

the primary focus of recruiting, workforce planning, and certain aspects of succession management and compensation.

2. Focus employees on the right things. Clearly identify and communicate the goals you want employees to achieve, and measure and reward employees against these goals. This is the focus of goal management, goal-based com- pensation, and variable pay.

3. Make sure people are doing their job the right way. Define the compe- tencies employees must display to achieve their job goals or support the desired company culture, and provide feedback and other resources that encourage them to demonstrate these competencies. This is the primary focus of performance management and merit-based compensation.

4. Provide job experiences and resources that drive the right development. Create a work environment that helps employees develop the attributes that influence competency performance and goal accomplishment. Put people in jobs, assign them goals, and provide them with training and learning resources that build their capabilities to more effectively per- form their current role and progress into future job roles. This is the pri- mary focus of career development and certain aspects of succession management.

Right people, right things, right way, and right development: these are the fundamental processes that define strategic HR. They roughly correspond with the traditional talent management processes of staffing, goal management, per- formance management, and succession management and career development.4 However, the 4R model is not based on human resources. It is based on the psy- chology of employee behavior. These four processes reflect basic psychological mechanisms that influence human performance: matching individual differences to task demands (right people), focusing motivation and attention (right things), providing feedback on behavior (right way), and enabling learning through experience (right development). These mechanisms reflect elemental methods for predicting and changing people’s behavior.

Because the 4R model is based on well-established psychological princi- ples, it can be used to define strategic HR methods for any company as long as it employs people (and I’ve yet to encounter a company that does not employ at least one or two humans). The relative importance of the four factors will change depending on a company’s business needs, but the basic structure of

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the 4R model remains consistent across industries, cultures, and workforces. Furthermore, the 4R model will be just as relevant for defining strategic HR fifty years from now as it is today. Even if the concept of strategic HR disappears, these four fundamental processes will continue to represent the basic mecha- nisms for improving workforce productivity. This is because the 4R model is rooted in basic human psychology. As I like to say, “People don’t evolve at the same pace that business fads come and go.”

2.2 WHY DO WE NEED STRATEGIC HR DEPARTMENTS? The 4R processes are given the label of “strategic HR” because they are typically managed by HR departments. However, these processes must be used by line managers and employees to be effective. The role of strategic HR departments is to provide tools and methods that help leaders, managers, and employees increase their productivity. The reason we need strategic HR departments is that many managers struggle to manage people. Ideally, managers would excel at hir- ing the right people, focusing them on the right things, and giving them the right development without any help from a centralized HR function. But the world is not ideal. Strategic HR departments play an important role in business per- formance by designing and deploying processes to help managers do an effec- tive job hiring, evaluating, rewarding, motivating, and developing the people they manage.

The reasons we need strategic HR departments are similar to the reasons we need financial departments. One could ask, “Why do we need finance and accounting?” or “Why do companies force managers to keep track of budgets and money under the guidance of a centralized finance department?” People are likely to respond to these questions with two observations:

• Finance is a specialized area of expertise, and it is unrealistic to expect man- agers to create effective accounting and budgeting processes on their own.

• Financial resources aren’t owned by managers; they are owned by the com- pany, and managers are allowed to use them. As such, the organization needs to create processes to ensure managers are allocating and using these resources appropriately.

These are the same reasons that companies need strategic HR departments. Strategic HR is a specialized area of expertise. Most managers do not fully

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understand how to effectively hire, evaluate, motivate, and develop employees. Nor do managers “own” the talent in their departments. Employees are far too costly a resource to risk being mishandled by managers who lack knowledge and expertise in strategic HR methods.

2.3 WHAT MAKES STRATEGIC HR DIFFICULT The goal of strategic HR is to help leaders and managers get the right people in the right jobs doing the right things to make a business succeed. This goal may sound straightforward, but it is often difficult to achieve. This is because it involves helping managers master the often subtle art and science of predicting and improving job performance. It also requires building processes that have a powerful but often complex and indirect relationship to business outcomes.

One of the things that makes strategic HR challenging is that it requires fore- casting and changing the day-to-day behavior of individual employees—for example, predicting what someone is likely to do if she is put in a new job or helping employees change their focus in order to support a new business strat- egy. Predicting and influencing human behavior is difficult.5 The divorce rate and weight-loss industries provide some sense of how hard it is for people to predict and change their own behavior even when their personal health and happiness are clearly at stake.

Being effective at strategic HR requires helping managers understand how employees’ motives, abilities, and behaviors interact to influence business results. Managers often ask themselves, “Why is that employee acting that way?” A man- ager’s success is tied to the performance of his or her employees, so managers want their employees to be productive. Even extremely incompetent managers usually think that what they are doing is going to help increase employee performance. The abusive manager who insults employees often thinks that this will make peo- ple work harder.6 A major part of strategic HR is helping managers learn how to effectively influence employee behavior and avoid practices that decrease produc- tivity, and make sure that people who lack the talent needed to effectively manage employees are not allowed to hold managerial positions. To achieve this goal, com- panies need to evaluate managers based on how their actions affect the employees they manage. This involves doing things like rewarding managers who attract and promote high-performing employees into the organization and confronting man- agers whose behavior causes employees to quit the company.

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Another challenge to strategic HR is its often indirect relationship to business results. Strategic HR practices, whether focused on staffing, compensation, per- formance management, or career development, all share the same goal of getting managers and employees to do things that support the company’s business strat- egies and objectives. But HR practices do not affect employee behavior directly. Employee behaviors are directly determined by attributes of the employees themselves—their knowledge, attitudes, motives, and so on. These attributes are a result of employees’ personalities, abilities, and values, combined with aspects of their work environment such as incentives, resources, and their coworkers. This is where strategic HR processes come into play. Strategic HR processes sup- port the hiring of certain kinds of employees and the creation of certain kinds of work environments. This increases the probability that employees will dis- play behaviors that support the company’s strategic direction. Over time, these behaviors lead to improved business results.

Aligning employee behaviors with a company’s business needs is where the rubber meets the road in terms of strategic HR. But the indirect relationship between strategic HR practices and business results increases the risk of creat- ing strategic HR programs that sound good in principle but fail to effectively influence employee behaviors. For example, a 360-degree survey feedback pro- cess that works well in a company with a historically supportive and open cul- ture might have negative consequences if used in a company with a less-trusting, more cynical workforce.7 Or consider the example of pay for performance, a phi- losophy that employees should receive different amounts of compensation based on their level of job performance. It is rooted in a belief the people will be more productive if they are paid for their results. But implementing a pay-for-per- formance compensation structure does not directly lead to improved business results.8 What it does is provide managers with tools to reward employees based on goals that support the company’s strategy. This is done with the assumption that employees will be motivated to display behaviors associated with achiev- ing these goals. But this assumption may not be true. Pay for performance will work only if (1) employees understand their goals, (2) employees see the rewards as adequate incentive for pursuing these goals, (3) employees feel they are capable of achieving the goals, and (4) the methods employees use to achieve these goals support the needs of the business. If these conditions are not met, then pay-for-performance programs may actually decrease workforce produc- tivity by demotivating employees or encouraging counterproductive behaviors

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(see the discussion: “Why Paying Employees to Be Safe Can Be Unhealthy”). A well-designed pay-for-performance process must take these factors into account to ensure it motivates rather than alienates employees.

W H Y P A Y I N G E M P L O Y E E S T O B E S A F E C A N B E U N H E A L T H Y

Pay-for-performance programs motivate employees by providing finan-

cial rewards based on achieving specific goals or outcomes. If used

correctly, these programs have been shown to significantly increase

employee productivity.a However, they can create significant problems

for organizations if they are not carefully thought through. One exam-

ple comes from efforts to use pay for performance to reduce workplace

accidents and injuries.

To encourage safe behavior, some manufacturing plants have given

employees bonuses if there were no accidents or injuries during a cer-

tain period of time—for example, paying a bonus to employees for

every week that passed without any accidents. When companies used

this approach, they discovered that accident rates did not necessarily

go down; what did decrease was employees’ willingness to report acci-

dents. Rather than reporting accidents, employees would hide them so

they could achieve their bonuses. Plant managers have told me about

employees who continued to work with severe injuries, even a broken

leg, because they did not want to file an accident report. The employ-

ees did not feel they could effectively control accident rates, so they

found another way to achieve the rewards.

The lesson to be learned is you often get what you pay for, but what

you pay for may not actually be what you want.

aPeterson, S. J., & Luthan, F. (2006). The impact of financial and nonfinancial incentives on business- unit outcomes over time. Journal of Applied Psychology, 91, 156–165.

The ability to influence employee behavior makes strategic HR a highly effec- tive method for driving business results. Small changes in employee behavior can have massive impacts on business performance.9 But the behavior of employees can be difficult to understand, and the factors that underlie employee behavior

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are rarely simple. As a result, it can be difficult to determine exactly how well a strategic HR process is likely to work. Care is needed to ensure that strategic HR processes are designed and deployed in a manner that will have the desired effect on employee behavior.

2.4 CONCLUSION Being effective at strategic HR processes requires understanding the basic fac- tors that influence employee performance, designing HR processes based on how employees truly behave, and recognizing and accepting that this may be quite different from how we might wish they would behave. It requires looking at strategic HR methods from the combined perspective of the business, the HR field, and the field of employee psychology. Strategic HR demands an apprecia- tion of employee psychology beyond what it is reasonable to expect most manag- ers to have. At the same time, it requires creating processes that enable managers to effectively predict and change employee behavior within their work environ- ment, reward managers who do this well, and address managers whose actions have a negative impact on overall workforce productivity.

What makes strategic HR difficult is the need to think through all of these factors when designing and deploying strategic HR methods. This may seem like a lot. But as we will see, it is not overly complicated provided you understand and work through some basic steps and concepts before implementing new stra- tegic HR methods in your organization.

NOTES 1. Michaels, E., Hanfield-Jones, H., & Axelrod, B. (2001). The war for talent.

Boston: Harvard Business School Press, p. 1.

2. Huselid, M. A., Becker, B. E., & Beatty, R. W. (2005). The workforce score- card: Managing human capital to execute strategy. Boston: Harvard Business School Press.

3. Boudreau, J. W. (1991). Utility analysis in human resource management decisions. In M. D. Dunnette & L. M. Hough (Eds.), Handbook of indus- trial and organizational psychology (2nd ed., Vol. 2, pp. 621–745). Palo Alto, CA: Consulting Psychologists Press. Fitz-Enz, J. (2000). The ROI of human capital: Measuring the economic value of employee performance. New York: AMACOM.

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Strategic HR 25

4. You might wonder where processes focused on increasing performance of teams or changing organizational cultures fit into these four processes. Each of these four processes can be implemented with a focus on groups instead of individuals. For example, team-building exercises can be con- sidered group-oriented approaches associated with “doing things the right way” and “giving employees the right development.” There are cer- tainly differences in how processes are designed when they are focused on groups. But since groups are made up of individuals, most things that influence individual behavior have parallels to things that influence group behavior (e.g., member goals, member attributes, behavioral feedback).

5. Ackerman, P. L., & Humphreys, L. G. (1990). Individual differences theory in industrial and organizational psychology. In M. D. Dunnette & L. M. Hough (Eds.), Handbook of industrial and organizational psychology (pp. 223– 282). Palo Alto, CA: Consulting Psychologists Press. Hunt, S. T. (2007). Hiring success: The art and science of staffing assessment and employee selec- tion. San Francisco: Jossey-Bass.

6. Sutton, R. I. (2007). The no asshole rule: Building a civilized workplace and surviving one that isn't. New York: Business Plus.

7. Morgeson, F. P., Mumford, T. V., & Campion, M. A. (2005). Coming full circle: Using research and practice to address 27 questions about 360-degree feedback programs. Consulting Psychology Journal: Practice and Research, 57(3), 196–209.

8. Schaubroeck, J., Shaw, J. D., Duffy, M. K., & Mitra, A. (2008). An under- met and over-met expectations model of employee reactions to merit raises. Journal of Applied Psychology, 93(2), 424–434.

9. Hunt, S. T. (2007). Hiring success: The art and science of staffing assessment and employee selection. San Francisco: Pfeiffer.

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