How Business Strategy and Hr Strategy Are or Should Be Linked Together
Institute of Tourism and Hotel Management Anna Morozova Essay How business strategy and HR strategy are or should be linked together? Moscow, 2011 Departments are the entities organizations form to organize people, reporting relationships, and work in a way that best supports the accomplishment of the organization’s goals. Departments are usually organized by functions such as human resources, marketing, administration, and sales. The forward thinking human resource department is devoted to providing effective policies, procedures, and people-friendly guidelines and support within companies.
Additionally, the human resource function serves to make sure that the company mission, vision, values or guiding principles, the company metrics, and the factors that keep the company guided toward success are optimized. Of executives surveyed, 20% currently use the HR department as active and innovative business solution partners. 20% believe that the HR department should remain as administrative overhead and only perform transactional work.
But, 60% of the executives are starting to expect the HR department to partner with others departments to improve the company’s core competencies and competitive advantages.
Competitive pressure in a fast changing business world – pressures for sales, talent, and profits. Most CEO’s are held accountable for three general but powerful results: Increasing revenue, generating cash, and reducing costs. In order to focus on these three accountabilities, executives are discarding paradigms that no longer work as companies seek to stay in and grow their business. Many CEOs and CFOs are more interested in the payoff and are asking appropriate questions: What’s in it for the company? Where is the improvement in the revenue stream? How does this get us new customers and retain our current customers.
Where is the proof of corporate performance enhancement metrics? Once they get solid answers to these questions from competent HR leaders, the CEOs are quick to change their thinking.
To answer the payoff questions, recognize that a continual company-wide value chain analysis is critical to the success of any organization. Over the past decade, CEOs began demanding that their Human Resources departments deliver flawless functional work and become a knowledgeable partner with all other disciplines to advance the business plan of the company. Individual professional silos are breaking down.
Disciplines such as finance, sales, marketing, operations, and HR no longer exist as stand-alone entities. They are inter-dependent with one another. Weakness of any one of the links inhibits other links from maximizing their efficiency and productivity.
These three emerging concepts in the practice of HR bear examination: * What value does the HR department brings to the organization. Many HR teams lack a vision that includes their value to the organization. Do the HR department’s activities directly help the company achieve its broad business objectives?
Are the HR team’s arguments for or against a business strategy credible to the other department heads at the decision making table? How are the HR department strategies that benefit the employees, the shareholders, the customers, and all other stakeholders in the organization, selected and implemented? * What value does the HR department generate for the customer – the end user of the company’s product or service? Sales and quality are no longer restricted to the sales and quality assurance teams. The HR department doesn’t just hire a salesperson based upon a manager’s request.
The end result of HR’s recruiting and hiring efforts is that the customer who interacts with the new sales person receives continuing world class service from the company.
HR shares the quality of the new hire with the other departmental silos to insure that the company is, or becomes, the vendor of choice for that customer. * The final of the three emerging concepts for the Human Resources Department is: What core business competencies must HR leaders possess in order to be credible strategic partners with the rest of the executive team?
Each company and each industry can generate its own list of core business skills their teams must have that go beyond their individual specialties. This issue has become so critical that in graduate and undergraduate level business programs, new editions of Organizational Development textbooks are including chapters on financial calculations and ratios, corporate social responsibility, globalization, and major workforce diversity challenges, among others.
The biggest barrier to profitability is ignorance – ignorance by many people about how the company makes money and how it achieves its objectives, and how all of the departmental silos are interdependent on each other. The myth that only finance people need to know about finance or that marketing people are the only people who need to know about marketing is fast disappearing. In today’s business environment, profitable organizations require highly skilled employees who can solve complex problems using multi-disciplinary teams.
Here are three examples how can HR be linked to profitability metrics: * A well known global company formed a group of HR professionals who developed processes and training programs in sales, customer service, workouts, project management, process improvement and leadership development that focused on critical performance issues for their internal and external customers. By partnering with operations, sales, and customer service they served as a catalyst to forge alliances, partnerships and agreements.
Many of their efforts resulted in improved relationships that translated into “Preferred Provider Status”, which increased sales and lowered costs. All of their costs were liquidated by charging a fee for the service while creating net revenue. After two years, this HR group generated sales of $4 million and a profit margin in excess of 30% which was returned to the division budget at the end of each fiscal year. * Secondly, an HR team, partnering with the Audit staff, discovered that the accounts receivable turnover had moved from a preferred 30 days to 45 days during the past two years.
They decided to let the chief credit officer go. The HR staff established criteria to identify candidates with the ability to reduce the ratio from 45 days back to 30 days. The HR staff recommended one candidate for hire. Within six months, the company’s DSO (Days Sales Outstanding) ratio was reduced to 35 days. * In a third case, while designing and negotiating a new health care and 401(k) plan, the HR leadership partnered with the sales and marketing team to determine if the cost of the program would erode the company’s market share and competitive pricing strategy.
The resulting benefit program design achieved its cost/benefit objectives without jeopardizing the company’s market share and pricing metrics. How do HR leaders and CEOs make the Human Resources Department to a Profitability Factor? Here are suggestions based on that the more employees become knowledgeably involved in the business, the better they will be able to become a more productive asset. * Develop a leadership development program that includes hands on training in all of the functional disciplines.
For example, in the production department, identify the barriers that prevent managers from achieving efficiencies and savings; * Insist that Human Resources staff receive financial training so they understand the impact of cash flow, receivables, billing cycles, and so forth. If it is a public company, teach them how to read and understand company’s annual report.
Reading the proxy statement is always informative – even if the information contained in it is reluctantly revealed, and occasionally masked with arcane accounting jargon; * Have HR staff participate in sales strategies, customer visits, and technology reviews.
Encourage them to learn quality methods, process improvements techniques, terms and conditions, and contract negotiations with suppliers and customers. Engage them as process consultants (have them trained if necessary) so they can assist with growth initiatives; * Most importantly, hold all employees accountable for achieving the “critical numbers” established for your company. A superb HR department becomes irrelevant if the company is sliding into bankruptcy. The HR department’s powerful value focuses on its contributions toward reversing the slide.
It is important to Include HR employees as full business partners. They will rise to the occasion and surprise you by building your bottom line and becoming a profit center contributor as well as maintaining their traditional responsibilities – and they will be better at both. The intense and brutally competitive business environment of our global and digital world needs the help of everyone in the company. Russian small enterprises do not practice the establishment of HR Departments in view of unprofitability of such a business organization.
As the result, the majority of small enterprises do not develop any HR strategy.
Thus I would like to present the unique HR strategy of Apple Inc. and how it is linked to company’s business strategy. Most firms strive to have a productive workforce. One of the best ways to measure workforce productivity is revenue per employee. Apple produces what can only be considered extraordinary revenue per employee; $2 million.
A second measure of workforce productivity is profit per employee: nearly $478,000 for Apple (unbelievable considering it has a retail workforce).
During 25 years Apple has been following the philosophy called “lean – management” which explains the prime drivers for Apple’s extraordinary employee productivity. For years, the leadership of Apple has followed the philosophy that having less is more, meaning that by purposely understaffing and operating with reduced funding, you can make the team more productive and innovative. Innovation at most firms is expensive because you must pay for a lot of trial and error.
The lean approach, however, can improve innovation because with everything being tried, there simply isn’t enough time or money for major misses and re-do’s.
“Unrealistic deadlines” at Apple mean that you have to get project problems solved early on, because there isn’t time to redo things over and over. Being lean forces the team to be more cohesive. Even providing a lean schedule forces everyone to be productive because they know there is no room for slippage. At Apple, the lean approach means that even with its huge cash resources, every employee must adopt the mentality of leanness.
If you understand the lean concept and its advantages, you shouldn’t be surprised that numerous innovations have been developed in “garages,” the ultimate lean environment.
I have chosen an article “Human resource practices to attract and retain talents” by Hiltrop, 1999, because, in my opinion, it is very actual theme as businesses look for global growth, chronic skills gaps combined with a mismatch between demand and supply of talent means that getting (and keeping) the right people in the right places at the right time has never been more challenging.
HR leaders need to mobilize talent to help businesses grow. This article explores one of the biggest issues and challenges now faced by large organizations: how to attract and retain a critical group of talented people. Getting talent management right means you can worry less about your talent problems and more about your business opportunities. It is very important to use a fact based approach to help identify the specific elements of talent management which drive the most value in your business and industry.
It is needed to create a Talent Management Framework and Diagnostic to develop and implement strategies that deliver the right improvements – those that give you the best return on investment.
So I can conclude that to win the war for talent, companies should figure out who they are aiming for, and then make sure the recruitment process and practices are tailored to the specific needs and expectations of the target group. I have chosen an article “Science and practice of HRM in small firms” by Mayson and Barret, 2006 because human capital (i. e. the knowledge, skills, and abilities of employees) is one of the primary factors a business can rely on to differentiate their products or services and build a competitive advantage; however, few studies directly guide managers of small and growing firms through the people management issues that they will face through the lifecycle of their business. The recognition that human resource issues are important to small and growing firms is not new. For instance, in 1987 (Hess) was presented data that suggested that small business owners rank human resource related issues as the second most important management activity after general management.
Further, was suggested that the majority of CEO’s believe that human resource practices have a substantial impact on firm performance. Additionally, in 2008 were presented the results suggesting that sound hiring practices and training programs are considered important by small business owners who have 10 or more employees. A small firms’ ability to attract, motivate and retain employees by offering competitive salaries and appropriate rewards is linked to firm performance and growth.
Whilst the evidence does show that there is some form of HRM in small firms, it also confirms that the practice is characterized by informality. I personally think, that this is a problem, because informal HRM practices do not necessarily recognize the value of employees.
Despite the recognition of the importance of HRM to small, growing and entrepreneurial firms, there is very little research in the area, there is even less research that explores the strategic nature of HRM in small firms.
It is important to note, that properly developing strategic selection, training, and compensation programs takes time and financial resources. However, these short-term costs are almost always balanced by long term gain because the quality and caliber of employees (or human capital) within the firm improves. The improved caliber of employees and enhanced effort almost always has a positive financial impact for the organization.