HR485 DB5

Current Approaches to HR Strategies: Inside-Out Versus Outside-In Patrick M. Wright, Scott A. Snell, Peder H,H, Jacobsen, Center for Advanced HR Studies, School of Industrial and Labor Relations, Cornell University

I ti an effort to determine the

best practices with regard to

HR strategies, we conducted

interviews with HR executives

from 20 companies who are knowl-

edgeable about their HR strategies,

and gathered archival materials such

as the HR strategy documents from

nine of the companies. We found that

the content, process, and evaluation

of the HR strategies can each be

classified as focusing primarily on

the HR function, the people of the

firm, or the business. We provide

some examples of ways firms can

tnove from an HR-focused to a

business-focused HR strategy.

3 6 HUMAN RESOURCE PLANNING

Since Jim Walker's (1980) call for HR to con- sider the organization's strategy in the development of HR plans. HR functions have sought to align their activities with their business's strategies. While HR strategies have become progressively better-aligned with business strategies, both research and practice seem to indicate that, as a profession. HR functions still fall far short of where they need to be.

This article explores the current state of HR strategies, and argues that while the linkage between HR strategies and the business has improved, significant progress still needs to be made. A common theme emerged across answers to the questions and across the process, content, and evaluation dimensions ofHR strategy. This theme revolves around the major focus of atten- tion for the HR strategy, which we call an "inside-oui versus outside-in" approach. This basic distinction is depicted in Exhibit 1.

At the extreme, the *'inside-out" approach begins with the status-quo HR function (in terms of skills, processes, technologies, etc.) and then attempts (with varying levels of success) to iden- tify linkages to the larger business (usually through focusing on "people issue.s"), making minor adjustments to HR activities along tlie way. Under this approach, we observe HR functions that have been entirely inwardly focused: When asked about business issues, all they can see are those issues for which they feel some responsibil- ity (i.e., having to do with the people). In essence, it appears to be an exercise of standing where they are and reaching out to the business.

On the other hand, a few firms have made a paradigmatic shift to build their HR strategies from the stalling point of the business. Within these "outside-in" HR functions, the starting point is the business, including the customer, competi- tor, and people issues they face. The HR strategy

then derives directly from these challenges to create real solutions and add real value. These HR functions start with the issues facing the business, and then build an HR strategy to help the business deliver in all areas, not just the ones most directly related to HR. This is not reaching out to the business, but being indistinguishable from the business. HR functions .should strive toward this goal, but few have achieved it.

In the following sections we review some of the past rese;u*ch on the linkage between HR and strategy, describe the details of our study's method and results, and provide some examples and some guidelines for how HR functions can better create "business-driven" HR strategies.

Past Research on the HR-Strategy Linkage

In 1985, Golden and Ramanujam studied 10 firms in order to assess the linkage between HR and the business. They focused on structural/ process-related issues and described four types of linkage. The "administrative linkage" described the situation in which the HR function was completely divorced from the strategy of the business. Under the "one-way" linkage, top man- agers provided the HR function with the business strategy and the function was then expected to develop practices and pRKesses to help implement that strategy. Firms exhibiting the "two-way" linkage saw the HR functitin providing informa- tion to top manageineiu to be considered in their development of the business strategy. Then, the strategy was handed back to HR for iheir help in implementation. The most advanced linkage was the ''integrative" linkage, in which the senior HR executive was part of the top nninagement team, and was able to sit at the table and contribute during development of the business strategy. The authors found that of the firms in their study, one

Outside-ln Versus Inside-Out Perspectives for DevelopiJig HR Strategies

An Outside-ln Perspective

Business Issues/Ouccomes

People Usues/OuCcomes

HR Strategy

An Inside-Out Perspective

Issues/Outcomes People Issues/Outcomes

HR Strategy

HUMAN RESOURCE PLANNING 3 7

belonged in the administrative category, four belonged in ihe one-way, four in the two-way, and one in the integrative category.

A few years later, Buller (1988) followed up this study using the same categorization scheme as Golden and Ramanujam (U^S.'S). On a slightly positive note, he found that none of the eight firms in his study had administrative linkage, with three, three, and two in the one-way, two- way, and integrative categories, respectively, in the ensuing years, numerous studies have exam- ined the relationship between HR's integration with the business strategy iind actual business pertbrmance (c.f., Bennett, et al., 1998; Huselid, 1993: Martell & Carroll. 1995: Wright, et al,, 1998). In addition, numerous books have been written to pro\ ide HR executives with guidance on better integrating HR and strategy (c.f., Becker, et al.. 2001; Ferris, et al., 1991; Greer. 1995. Ulrich, 1998; Walker. 1992).

Surely, almost 20 years and numerous books and articles later, (he f"ield of HR has developed a much more tightly integrated structure and is much more highly involved in the development and implementation of business strategy than it was in the early 1980s. Or has it? The purpose of this study was to assess the current state of the art and current best practices in the development and implementation ofHR strategies. By conducting interviews with HR executives knowledgeable about their HR strategies and examining some of the HR strategy documents themselves, we were able to both differentiate those HR functions that seemed to be most integrated with the needs of their businesses, and identify some of tbe pnx'esses and structures that enable HR functions to become better integrated.

Method The research presented here was conducted

through the Center for Advanced Human Resource Studies (CAHRS) in the School of Industrial and Labor Relations (ILR) at Cornell University. CAHRS is a research partnership between 50 to 55 corporate sponsors and the facul- ty and students in the School of ILR. (The number of sponsors changes from year to year. For the past seven years, the sponsor base has never dropped below 50 companies and currently stands at 58.) The corporate sponsors are all Fortune 5(X) companies, representing a variety of industries; most are well-known multinational tlrms.

CAHRS has traditionally developed and

maintained a best practice file available for class- room use. These files are developed by asking the sponsor companies to share across 35 different HR topic areas any documents that provide examples of what they consider to be some cf their best practices. Students can then access these files to find examples of how companies have implemented programs in areas such as performance management, diversity, or leadership development to use for class projects.

In 2002, the best practice file was developed differently. Instead of only asking for mailed-in dtK-uments, we focused on three areas in consid- erably greater depth. In a survey of our .sponsor companies, they indicated that the greatest need for best practice information was in the areas of HR strategy, leadership development, and E-HR. This article presents the results with regard to the HR strategy benchmarking study.

We invited any of the sponsor companies that fell they were best practice companies to provide someone knowledgeable about the development of their HR strategy to submit lo a one-hour inter- view. Twenty companies agreed to participate. As seen in Exhibit 2. these were predominantly large multinational Fonune 2{X) companies. Their aver- age employment base was 76,000 (median = 35,700). ranging from under 10,000 to over 3(K),()(K) employees. The exhibit also lists the title of the individuals who submitted to the interviews, and suggests that these individuals held positions in which they should have in-depth knowledge of their companies' HR strategies.

During the interview, we also asked the indi- vidual to provide his/her HR strategy document if one existed. In five cases, the company had a document, but would not share it because it was confidential (one of those companies did provide the core components of the strategy, as discussed later). In the rest of the cases, the individual either said he/she would send the document (11 cases) or that no such document existed (four cases). As of the date of this writing, nine compa- nies either had sent in their HR strategy document (five cases) or fully outlined the core components of their strategy during the interview (four cases).

The interview consisted of 13 questions about a variety of areas related to their HR strategy. In essence, we hoped to gain a sense of the content of their HR strategy, the issues it sought to address, how it was developed, and the metrics used to monitor its progress. (The interview questions are provided in Exhibit 3.) Rather than

3 8 HUMAN RESOURCE PLANNING

cover the answers to each question individually, here we summarize the major findings with regard lo three issues: the process for developing the HR strategy, the content of the HR strategy, and the measures/metrics used to monitor or evaluate the HR strategy.

In analyzing the results, each of the authors first read through the transcript of each company interview to get an overall sense of the story that the company tells in terms of how the strategy was developed, who was involved, and how they assess its implementation. Then, we created a file that was broken down by questions, with all of the 20 company answers to each question listed back-to-back. This provided a sense of the themes and areas of convergence and divergence across companies. One author coded the compa- nies on a number of variables (discussed later) and another author checked the coding for

convergence. We then sat down as a group and developed a consensus regarding what the major themes and important fmdings were from the study.

Findings Many of the 13 questions asked touched on

similar issues; therefore, for the purpose of dis- cussing our fmdings. we break them down into three categories: process, content, and evaluation. Process issues deal with the actual process these tlrms used to develop their HR strategies, includ- ing who was involved, how long it took, how it was devised, and how it was disseminated. Content issues deal with the issues the strategy addresses, the goals for the strategy, and its time horizon. Finally, evaluation issues concern the way in which the function seeks to assess the effectiveness of the strategy, particularly focusing on metrics.

Company Characteristics and Participant Titles in the HR Strategy Best Practices Study

Company's industry

ChemiL-als

Computer HW. SW. Services

O'liiputtT HW. SW. Services

Coniptilcr HW. SW. Service^

Conglomerate

Consumer Packaged GCKKIS

Diversified FinanciaJ Services

Diversified Financial Services

Energy

Insiiraiice & liivcsimenis

Insurance & Invcstmcnis

Insurance & Investmenis

I n s u r a n c e s Invesimenis

Insurance & InvestmcnK

Pharmaceuticals

Phurmaceulicals

PhiirmaccuiiCiils

Retail

TelecoJTiniiJnicaiitins

Piirlicipiint Trlle(s)

VP. Qinipcnsalion & Benefits

HR Operations Ixad

Direcior. HR Communications

Senior Director, HR Strategy & Plannini:

VP. Global Workforce HI'I'ectivencss

Mgr. HR Staffing and Development; Manager. HR Components

Director. HR

VP/Managcr HR Planning & Devel.

Director, iixec. & HR Prof. Devel.

Director, HR

SVP. HR

Group SVP, HR

VP. HR

Head. Technology. Strategy & Delivery: 2 Leadership Development Consullanis

VP. HR Policy & Strategy

Heiid. Executive Development & HR Excellence

Director. HR

Dirccior. Leatlership Development

Director. HR

Manager. Organisational EITectiveness

2001 Kt̂ vi-nui-

$ i5-.WB

S 5-1.SB

S 5-1.SB

$ 5-1 SB

S»30-UX)B

SlOOB-i-

$ 5-15B

% 5-15B

SI(ltlB+

Sl()OB+

J. 5-I5B

$ 15-.1f)B

$ I5-30B

S I5-30B

$ I5-.̂ OB

S LS-.̂ OB

.S30-in()B

S 3()-H)0B

$ S-ISB

Employees (2U0tl

75K-15OK

I(1K-2.SK

I()K-25K

25K-5()K

1M)K+

I50K+

25K-50K

10K-25K

IS()K+

75K-L'ilIK

< lOK

2.5K-.SOK

25K-5OK

25K-50K

25K-5UK

5()K-75K

2.'iK-5{)K

75K-15()K

I50K+

25Ko(lK

HUMAN RESOURCE PLANNING 39

HR Strategy Inteniew Questions Company Name: Company Contact Persons Name;

I .Would you share your HR strategy document with us?

2. Describe che process you used for developing your HR strateg)'. W h o was tnvolved. how iong

did it take, how was ii devised, how was it disseminated, etc.?

3.What are the major business issues/challenges chac your HR strategy seeks t o address?

4.What is the time horizon for this strategy? H o w long do you think this strategy wiil remain In place before it needs to be reorganized?

If it is a living document, upon what basis do you keep it alive and changing?

5. H o w would you describe the major outcomes you hope to achieve through the HR strategy? Do you have any metncs in place to .issess

if you achieve those outcomes?

6. What are the major {3-S most critical) metrics you use to assess the effectiveness of your HR function (In particular, assessing HR's

contribution to the organization)?

7. Which HR activities/programs currently support the strategy and which need Co be modified?

8. To what extent were ilne executives involved in the formation of the strategy and what are their key contributions to ics implementation!

9. In what ways does the strategy suppon the development of the firm's core competencies?

10. H o w does the strategy suppon innovation and competitiveness?

11.To what extent is the strategy based on todays needs versus tomorrow's competitive capability?

12, Is there any other information that we have noc yet captured that you would like to share with us?

13. Follow-up: Please send any additional written materials (i.e., competency models, vision statements, etc.). ideally within two weeks.

Process Issues Bask' Steps

The basic prtxess involved in developing a people strategy resembles that of any strategic decision process:

1. Scan the firm's external environment: 2. Identity the strategic business issues that need

to be addressed; 3. Pinpoint people issues critical to the success

of ihe busine.ss; 4. Develop a strategy to address the relevant

issues, including connecting relevant metrics to the strategy;

5. Communicate the strategy.

While this process seems ideal, it is by no means universal. All of the respondents focu.sed on the people issues, the developrneni oi' ihe strategy (although not always identifying met- rics), and communication of the strategy (at least internally to the HR community). Not all respondents indicated they scanned the extemal environment, and. as described later, not al! focu.sed on business issues. We regard external environment and business strategy as separate components that should be considered patn of the process, because a true understanding of the strategy cannot be gained without a deep knowl- edge of how that strategy attempts to position the firm in its external environment.

Two fimis presented unique and interesting approaches to scanning the external environment as a part of the process for HR strategy develop- ment. One firm brought in external consultants to take the linger HR team (approximately IO() indi- viduals) through a "scenario analysis" process. This process entailed identifying a few different potential business scenarios (e.g., the business continues at its present growth versus the bottom drops out of the industry and ihe firm experiences negative growth). The group then had to develop skeleton strategies for responding to each of the different scenarios. Interestingly, the bottom dropped out of the industry shortly after develop- ment of the strategy, so participants felt better prepared to respond, having already considered what they would do under this scenario.

A second ilrni conducted a process of focus groups consisting of both line and HR executives across the globe. This process gave them a tremendous amount of information regarding business issues, engaged multiple stakeholders in the process, and enabled (hem to develop a strate- gy that was a.s "culture free" as possible.

Line Involvement Both ill the question about the general process

and a specific later question ahout line involve- ment, we sought to gain an understanding of the extent to which key line executives participated

4 0 HUMAN RESOURCE PtJ^NNING

in the development of the HR strategy. In exatn- ining the answers, there appeared to be four potential (and not mutually exclusive) ways line executives could participate, and some variation in the extent to which they did:

1. Line executives could provide input that would he used in the development of the strategy. Virtually ail companies (18/20) indicated that there was line input, but in some cases, this input was informal and assumed, rather than formal and explicit. For instance, one firm indicated that while the HR team developed the strategy, each member "is constantly working with the line leaders, and so s/he knows what those individuals see as issues." Our experience causes us to view such an assumption with considerable caution. Many HR generalists assigned to business units have little deep. formal knowledge of the competi- tive issues facing their businesses.

We suggest that creating a formal mechanism for gaining line input (requiring the generalists to inter- view or formally ask the business leaders about the cuirent strategic issues) would be much wiser than hoping or assuming that such input is gained indirectly.

2. Line executives could be formally involved in the process hy sen'ing on the team or teams that develop the actual strategy. In only t1ve cases did respondents specifically note that line executives had been formally involved in the process of .strategy development (the case of focus groups noted previously aiso had line executives as part of the coqiorate group that developed the final document). In \? cases, there was no involvement of line executives. and the remaining two cases were difficult to classify. Clearly, those firms involving line executives felt that their strategies were iTiore strongly tied to the business and that there was greater commitment from the line to the strate- gy. In fact, in one of the cases, the involvement of line executives was crucial becau.se they are held accountable for implementation of the strategy as part of their performance manage- ment process.

3. Once the strategy was developed, line execu- tives could be involved by having the strategy communicated to them or made available to them. Note that communication does not

Many HR general-

ists assigned to

business units

have little deep,

formal knowledge

of the competi-

tive issues facing

their businesses.

require any type of response from the line executives, and may have been provided either as a courtesy or as a means of convincing line executives that the HR function was aligning its activities around the strategy.

4. Line executives could be more formally and explicitly involved by requiring their approval of the final strategy document. White almost all firms (15/20, with the remaining Uve impossi- ble to categorize) communicated the strategy to the line (possibly by simply distributing hiird copies), only about half the companies (9/20) explicitly stated that they sought formal approval of the strategy from the line. Seven firms specifically noted that line executives were not asked to approve the strategy, and four were difftcuU to categorize.

^ ^ ^ ^ ^ ^ These findings may raise some cautionary flags. While few. sotne finns seemingly develop their HR strategies devoid of any formal line input or feedback. If their HR profes- sionals are integrally involved in the businesses and well aware of the business and competitive issues, then such an approach may still result in an effective HR strategy. Assuming such a situation exists when it does not may position HR further on the fringe of value-added in the minds of line executives.

Content Issues The content issues revolved around the specif-

ic business issues the HR strategy was intended to address, as well as the goals the strategy sought to achieve. Questions covered issues sueh as busi- ness issues/challenges the HR strategy seeks to target, the HR programs that support the business strategy, how the HR strategy contributes to inno- vation, core competence, and competitiveness, and the present versus future orientation of the strategy.

Business Issues/Challenges The business issues or challenges most fre-

quently cited as being addressed by the HR strategy were retention (five cases), growth (five cases), and globalization (five cases). Other issues, such as customer-centricity, demographics, the changing psychological contract, culture change, mergers and acquisitions, diversification, distribution channels, capability to launch new

HUMAN RESOURCE PLANNING 4 1

products, becoming a public company, and ihe employee value proposition, were mentioned by only one or two companies.

The liirge number of people issues cited as business issues may be cause tor concern. We suggest that issues such as retention, demograph- ics, the war for talent, changing psychological contract, and employee value proposition are best categorized as "people" rather than ""business" issues. While critical lo the overall succe.ss of the business, these issues are more enabling factors that lead to success in dealing with issues in the competitive environment. While the distinction may seem trivial, it leads to an important question: Is identifying "people" issues as "business" issues an excuse for not knowing or getting integrally involved in the business?

Let us illustrate with a further breakdown of the results. Of the 20 respondents, five listed otily "people" issues, without mentioning any other business issues, and two were diffi- ^ ^ ^ ^ ^ ^ cult to classify. Certainly not all of the issues facing the business were "people" Issues. In these cases, our interpretation was that they saw no further than the people issues: In essence, they did not clearly under- stand why or how the people issues have an impact on the business. For instance, most of them identified retention/attrition (one stated emphatically, "Retention is a business issue!"), but not how failure to retain might impact overall capability. Certainly, the loss of key employees can be detrimental to the business; however, paying immense amounts of money to ensure the retention of such employees can have an overall negative impact on the business. Moreover, some attrition, and particularly the departure of some employees, has a positive effect on the business.

A cautionary note with regard to tbe content of the HR strategy. Some firms had a specific pillar or component of the overall business strategy that related to HR (usually something around "talent" or "building the most talented workforce in the industry"). On one hand, this represents signifi- cant progre.ss for the HR function within a firm when the business strategy specifically identifies such an HR-relatcd issue as critical. On the other hand, the potential danger lies with HR profes- sionals {probably further down the HR hierarchy)

Business metrics

need to be the

concern of every

HR professional

regardless of the

amount of control

they possess over

the outcomes.

viewing that as the "HR component" and then focusing on that to (he exclusion of the other aspects of the strategy. Ideally, the HR function will play a significant role in the formulation und execution of all aspects of the strategy. Thus the HR leader should be vigilant in comnuinicating and demonstrating that while a "talent" responsi- bility is important. HR systems, processes, and effort must be devoted to the entire business strategy, not just the one that appears to be most closely tied to HR.

HR Strategy Components As previously mentioned, nine of the firms

provided hard copies of their HR strategy docu- ments. Note that these all represented corporate HR strategies, and thus usually articulated more generic principles than HR .strategies for specific businesses. These nine companies (average employment of 110.000. ranging from 15,0(X) to

^ ^ ^ ^ ^ ^ over 3(K),()(X) employees) were larger ihan the full-sample norm, perhaps indicating that larger companies have more resources to devote to the development of an actual document.

We examined the core components (if each of these strategies to under- stand how HR strategies compared to one another in terms of their first priorities. For instance, one company iiientified talent, leadership, climate, performance, and HR capability as its priority components. Under one of these, more specific issues might be addressed (e.g., global diversity).

It was our sen.se that these core components best represent how these HR leaders view their HR functions" primary roles in the organization.

While some variance existed across the compa- nies in nomenclature and specificity, more consis- tency seemed to appear with regard to the basic principles or components. "Perfonnance" or "pro- ductivity" appeared in seven of the firms" writlen strategies (with four specifically noting a "perfor- mance-driven culture"). "Leadership capability," or some variant of it, appeared In six of the nine companies* strategies. "Talent management" also appeared in six of the nine companies, and it was a separate component from leadership in five (i.e.. one company identified leadership but not talent, and one company identified talenl but not leadership). Six companies noted a variant of "HR capability." which focused on developing

4 2 HUMAN RESOURCE PLANNING

and implementing the best HR systems, processes, und services. Four companies named "climate" or "work environment" as components, and, while somewhat surprising given that all nine compa- nies have substantial overseas operations, only two specifically noted a "global" aspect as a core principle or component.

In summary, the core components of HR strategies seem to be building a performance culture, developing leadership capability, attracting and retaining the be.st talent, and providing state of the art HR systems, processes, and services. Given that all the companies were multinationals, it seems that the global component, while not ignonsd. is not currently core to most HR strategies.

Time Frame for the HR Strategy There was little variance in the time frames

of the HR strategies. All but three firms noted that the HR strategy was developed as a guiding document for the next two to five or three to five yeiu-s. In addition, they noted that they revisit the strategy each year to determine whether it needs modification in light of recent developments.

Evaluation Issues A final set of questions focused on identifying

how HR functions seek to evaluate the effective- ness of the HR strategy. Questions focused on the "desired outcomes" of the strategy and the metrics used to monitor how well the firm is delivering against the strategy.

The metrics seemed to fall into two basic cate- gories: people metrics and HR metrics. People metrics assessed aspects of the workforce, while HR metrics assessed the pertbrmance of the HR function. Four people metrics appeared most con- sistently: leadership development/succession pool (14 cases), retention (12 cases), employee satis- faction (measured hy climate surveys: nine cases), and diversity ratios (nine cases). The top three most commonly identified HR metrics were: customer satisfaction (surveys of HR's customers: eight cases), headcount/HR or HR- hudgetyetnployee ratios (six cases), and titne to fill (four cases).

Little attention was paid to business outcomes as interviewees responded to these questions. In one sense, this i.s not surprising because it seems unwise to focus on outcomes over which one has little or no control. Many HR functions tend to have both substantial conlro! and substantial accountability only for HR systems, processes, and services. HR-specific tnetrics tend to be

preferred because they are less- or un-contaminat- ed by other influences. As one moves into the people metrics, such as retention or diversity, performance becomes more dependent on line managers (executives, managers, and supervi- sors), with the HR function having some, but considerably less, control (and accountability). Finally, business outcomes depend on the entire organization's (executives, managers, supervi- sors, employees, staff, etc.) contributions, with the HR function possessing only minute control, and probably little accountability.

Although we acknowledge that HR lacks substantial control and accountability for husi- ness-spccific outcomes, we caution that to advo- cate such a position formally within the firm perpetuates the inside-out mindset that continues to plague tnany HR organizations. Business met- rics need to be the concern of every HR pmfes- sional. regardless of the amount of control they possess over the outcomes. Again, vigilance from the HR leader in continually communicating the busine.ss outcomes/metrics can help to promote and maintain an outside-in perspective.

Conclusions The structured interviews and examination

of the HR strategy documents presented as part of this study reveal that the HR profession has progressed significantly from the mid-late 1980s when the Golden and Ramanujam (lys.*!) and Buller (1988) studies appeared. There is still sig- nificant roonn for improvetnent. While all of the firms in our sample were actively attempting to integrate their HR activities to support the busi- ness, significant variance existed in how this was carried out. We provide a framework based on our own interpretation of these results as a way of understanding some of the current practices in the development of HR strategies; we also provide suggestions for improvement.

Categorizing the Firms In order to understand more deeply the distinc-

tions between the basic "inside-out versus out- side-in" perspectives, we provide a more precise categorization of the levels of progress that have been made. Some firms had functions that were almost entirely internally focused on the HR function, while other firms seemed to have moved their focus out of the function and toward the people of the firm. Some firms seemed to have made the linkages from the HR function, through the people, to the business. Finally, a few

HUMAN RESOURCE PLANNING 4 3

firms seemed to represent a tectonic shift in per- spective: Rather than starting with HR and link- ing forward to the business, they began their process and thinking with the business, and that drove the HR strategy. These categories were not tnutually exclusive, but rather .seemed to build upon the previous one(s). That is, firms that had a people orientation still concerned themselves with HR function issues, and those that were business-oriented still concerned themselves with both HR and people issues.

Just how prevalent were these different approaches in our sample of 20 companies? In order to answer this we categorized firms with regard to the level of integration between HR and business strategy by looking across responses to the issues regarding pr(x;ess, content, and met- rics. This resulted in four different approaches: business-driven, bu.siness-linked. people-linked, and HR-focused. These different approaches are illustrated in Exhibit 4.

The "'husiness-driven" approach consisted of five firms that seem to have fully ^ ^ ^ ^ _ developed an outside-in approach for developing HR strategies that align the HR function with the strategic needs of the business. These firms stiirt with the business in answer to tnost every question, and the intervie- wees seemed to possess an in-depth knowledge of the business, its issues, how people ftt in its business model, and the role that HR can play in sup- porting it. Their perspective seems initially to treat HR as a blank slate: They begin by identifying the major business needs and issues, consider- ing how people fit in and what people outcomes are necessary, and then building HR systems focused on meeting those needs.

The remaining companies stilt seemed to be largely bound by an inside-out mindset. Such firms seemingly begin with an assessment of what HR is doing, then identify the major people outcotiics they should focus on. and, in a few cases, how those might translate into positive business outcomes. White all shared this perspec- tive, they varied in how far "out" tiiey were look- ing. For instance, five ftrms seem to be close to turning the corner: While their perspective may be largely inside-out, they at least consider the linkages all the way through the business out- comes. This approach we consider "business- linked." because the functions appeared to have

In an ideal sce-

nario, ... line exec-

utives would also

be held account-

able for the peo-

ple metrics con-

tained in the HR

strategy.

articulated the linkages among HR, people, and business issues.

We would categorize another seven ftrms as having clearly identified, articulated, and aligned their HR activities around people issues and out- comes, hut not business issues and outcomes. These we refer to as "people-linked" because the strategy linked to, but may not have been driven by. people issues.

Three firms seem to be fully characterized by an inside-out perspective for developing their HR strategies, and these we classify as "HR- focused.'" Even their articulation of people out- comes seemed to stem more from an analysis of what their functions currently do. than frotn an understanding of how those people outcomes relate to the larger business.

All of this discussion atid analysis should be considered with appropriate caution. The sample is by no means large enough, nor representative enough, to make any inferences about the current state of HR strategies in all firms. If the discus- ^ ^ ^ ^ ^ _ sion/ analysis is biased in any way, it

is probably toward the more progres- sive end of the spectium. As dis- cu.ssed, the companies that chose to participate did so because they felt that they had "best practices" [hat other firms might want to bench- mark. In addition, the respondents were all t;yge Fortune 2(X) companies that tended tt) have greater resources available to devote to the developtnent of HR strategies.

White the firms nominated the individuals to be interviewed, and their titles seem to indicate that they

should be well-versed in the developtnent and implementation of the HR strategy, there is no assurance that all were. To the extent that the wrong individual was identified, it may well be that the current state of HR strategy in that firm is further (or less further) along than the responses indicated.

Conclusion and Recommendations While by no means do we want to imply ttuii

the results of this study represent the current state of the art, the "inside-out" versus "outside-in" distinction can be quite usefut for categorizing HR strategies and the processes u.sed to develop them. HR functions and their corresponding strategies are much better positioned to add value to firms when they take an outside-in perspective.

4 4 HUMAN RESOURCE PLANNING

Such a perspective better ensures that the right issues are being dealt with, and is likely to gain greater buy-in trom line executives. Such buy-iii not only raises the status of HR in their eyes, but also may generate greater commitment from them 10 internalize the HR strategy; line executives might view its implementation as part of their roles, and not just HR's. To develop an outside-in approach, we suggest the following:

1. Develop a fonnal process for involving line executives in the development of HR strategy. A larger group should provide input, one or more line members shouid serve as part of the group that develops the actual sti'ategy. the top executive team should formally approve the strategy, and then it should be disseminated to all key line executives. In an ideal scenario, as in one of the companies studied, line execu- tives would also be held accountable for the people metrics contained in the HR strategy.

2. Have formal mechanisms for tracking develop- ments in the external environment as part of the process. Identify key trends and potential scenarios with an impact on both the workforce (e.g., demographics) and the business. These, along with the strategic direction set by the firm, should be the starting point from which the HR strategy is derived.

3. Begin with the as.mmption that everything the current HR function is doing is either wrong or does not e.xist. Be vigilant in ensuring that no current or prospective HR processes and systems are considered until a deep under- standing of the business and peopie issues is gained by the HR strategy team. One of the biggest constraints to developing a business- driven HR strategy is a rigid adherence to either doing things (a) because "we've always done them this way," (b) because "we invested so much time and effort in creating these processes." or (c) because these are the "best practices." The goal should never be to con- vince business leaders that what we are doing is valuable for the business, but ratber to build processes that truly add value to the business.

4. Identify the key busine.is and people metrics that will determitie or indicate the .mccess of the business, then constantly track and commu- nicate those metrics to the entire internal HR community. Metrics do not serve as a panacea, nor is it possible to identify all of the relevant metrics that will perfectly assess perfonnance. While performance on many of these metrics goes beyond the control of the HR function, they will focus HR attention on the key business success indicators. By also communicating key people and HR metrics to business leaders.

Different Perspectives Identified in the Study (n=20 eompanies)

An Outside-ln Perspective Rii\incss-f)rivc!i !'.'> ca.ses)

Business Issues/Outcomes

People Issues/Outcomes

Three Differeni inside-Oul Stages Business-Linked {5 cases)

Business Issues/Outcomes

Peopte Issues/Outcomes

People-Linked (7 cases)

People Issues/Outcomes

Peopie Issues/Outcomes

HR

HR

HR

-l-o

HR

Strategy

Strategy

Strategy

Strategy

HUMAN RESOURCE PLANNING 45

HR can foster a valuable ongoing dialogue and reinforce line buy-in.

5. Based on the business issues and metrics, devetop the HR strategy that will maximally drive performance on those metrics. Identify four to six core components that can guide thinking and decision making, with second- and third-level details that provide more specific instructions, objectives, and activities.

6. Remember that the HR .strategy is a process, not a document, intervention, or event. Any strategy is a pattem in a stream of decisions, and as business and people issues change or obstacles appear, the pattem (strategy) will also have to change. The strategy should be formally examined for relevance annually, but informally examined on a continual basis.

The progress in the field over the past 20 years should exponentially increase over the next ten years. While these recommendations are not a panacea, they will likely lead to HR strategies Ihat better support business strategies, increasing- ly add value to tbe business, and continue to build the status of HR functions in organizations.

Biographical Sketches Patrick M. Wright is a professor of Human Resource Management and the director of the Center for Advanced Human Resource Studies (CAHRS) in the School of Industrial and Labor Relations. Cornell University. Dr Wright teaches, conducts rv.search, and consults in the area of strategic human resource marwgement (SHRM). focusing on how firms use people as a source of competitive advantage. He has published over 40 research articles, over 20 book chapters, and has co-authored two te.xtbooks. He is a past member ofHRPS's Board of Directors and led the 1999- 2000 and 2004 State of the Art/Practice Studies for the Human Resource Planning Society.

Scott A. Snell is a professor of Human Resource Studies and the director of executive education at Cornell Uruversity's Center for Advarxced Human Resource Studies. Scott's work addresses the different strategies firms use to develop and leverage knowledge as a source of value creation. He has over 50 publications in journals and edit- ed te.xts and is the author of two books. He has been on the boards of .several journals, served as associate editor qf Human Resource Management, and co-led the 2004 State of the Art/Practice Study for the Human Resouive Platming Society.

Peder Jacobsen graduated from Cornell Uruversity in 2003 with a Masters of Irtdustrial & Uibor Relation.s. He started his career in human resource management with an executive .search firm, helping U.S. and Canadian companies develop pipelines of top talent in critical skill areas. Peder has worked with The Hartford Financial Services Group, focusing on the devel- opment of strategy in the areas of talent acquisi- tion arul benefits. More recently, he has worked with the corporate human resources function of a leading medical device manufacturer.

References BUDLT. P.I-. (IVHS), -'Successful Partnerships: HR and Strategic Planning 3t Eighl Top Firms." Orftnnizaiumiit t.iynamui. 17(21; 27-53,

Becker, B.E., Huselid. M.A., & Ulrich, D. (2lX)i). The HRStorecurd: Unking People. Siraiet-y. und Perlonnance. BuMoii: Harvaril BusincSN SflnNii PFVSS.

Uenncti. N.. Kelt-hen. D.J,. & .Schull/.. E B , IIWS), "An Exwninalion of Faelon. Associated wilh ihe Integration of Huniun Rcsouivc Managdnicni imd Siraicgit lX'ciMi>n Making." Human Resource Marm^ement. 37( I).

Ferris. G.R.. Buller. J.E..& Napier. N.K, [\m\). Strategy and Human Resources Maiwxemeni. Cincinniitj, OH: Soulh-Wcslem Pub, Co.

Golden. K,A, & Ramanujam. V, (l^^S), "Between u Dream and a Nighitnare: On the Integration of the Human ReMmn;i; Miinageincnl and Strategic Business Planning Prticcsses,- Huinan Reximive Miimigemenl. 2-M4): 429-1S2,

Greer. C.R, (lyJS), Slralegy antl Human Rv.wurves: A General Managerial Perspective, taiglewootl C'lifts, NJ: Prentice Hall.

Huselid. M,A, (1W3), "The Impact of Environmenlal Volatility OD Human Resource Planning and Strategic Humiin Resource Management," riuiruin RfMiiin-e Ptwinmg. l(i(.l).

Martell, K. & Cairnll. .S,J, (l-WSl. -Which [iiccmive Human Re'̂ imrce Munagcmeni Practices lur Ihe l o p Mamigcniem Team Are Associated wilh Higher Firm F'crlitrmance'.'" Human Resource Management. 34(4).

Ulrich. D, (1998), Human Resinine Champions. Cambridge, MA: HarvanJ Business Schtwl Press.

Walker. J.W, (1992). Human Resource Strategy. New York; McGraw- Hill,

Wright. P.M . MeMahon. G., McCormick. P.. & Sherman. S, (19<)8). "Strategy. Core Compctenci:. und HR Involvement as Determinants of HR EITectivencss and Relmery Peribrmance," Human Re.\oune Mamgemenl. iH[): 17-29.

4 6 HUMAN RESOURCE PLANNING