Rethink HR Strategy from the Outside In
by J. Wayne Brockbank
It comes as no surprise that the best performing companies identify and focus on activities that add the greatest value to customers and shareholders. Thus, every department in a company adds value only to the extent that it aligns to the demands of the marketplace – and HR is no exception.
Wayne Brockbank, Clinical Professor of Business and Director of the Center for Strategic HR Leadership at the University of Michigan Ross School of Business and member of the University’s Executive Education faculty, argues that HR value creation requires a deep understanding of external business realities and that value is defined by key stakeholders both inside and outside the company.
“Human resources within any organization must have a clear definition of market demands and align the departmental strategy with those requirements,” says Professor Brockbank. “Whether it means contributing to revenue enhancing competitive advantage or to bottom line results, HR departments hoping to add value must have a clear vision of what constitutes high value HR work and reduce – even eliminate – activities of lesser value.”
For example, General Electric’s human resources practices are successful and widely studied because they are aligned to the nature of the company’s business. According to Professor Brockbank, the HR leadership at GE understands the importance of maintaining an alignment between HR practices and what the business must do to be successful. This is a shift from the more traditional inside-out approach of HR to an outside-looking-in mindset.
For years HR has been involved with inventing the concept of the internal customer (i.e. employees). And while Professor Brockbank contends this is an important group, HR departments must be careful not to lose focus on external customers in their effort to keep the internal customer satisfied. This is why it is critical for HR to maintain a line of sight to the outside as those indicators and criteria will ultimately determine the success of the company.
To get started, Professor Brockbank offers practical tools though his teachings and publications to help HR marshal resources that create value for customers, investors, executives and employees. One important set of steps highlighted in a book he co-authored with Dave Ulrich, The HR Value Proposition, is aimed at helping the HR function align itself with the organization’s external environment in a disciplined way:
1) Identify the organizational unit for which you are going to develop your HR strategy. Is the strategy for the entire organization, a business unit, or specific geographic region?
2) Identify clearly defined and prioritized trends in your business environment.
3) Identify and define the source of your organization’s competitive advantage. What does the firm have to do that makes it better than its competitors?
4) Define the cultural capabilities that support and sustain your sources of competitive advantage. Cultural capabilities represent a collective way of thinking and behaving within the organization that is required by customers and shareholders for the company to be successful.
5) Ensure all HR practices align with these cultural capabilities. Focus on those that provide the greatest value and that are not already in alignment with the competitive advantage.
6) Develop a clear implementation strategy and execute.
Professor Brockbank cautions every HR leader to remember that what defines a successful strategy at one company is not going to necessarily be the same at another. Strategy has to be consistent with objectives that generate positive cash flow, only then does it create value.
“In the tradition of HR, a lot of what has been done in the past has started with the study of best practices,” concludes Professor Brockbank. “To plot a course, HR leaders have gone to conferences, listened to academics and mimicked successful corporations. However, if HR is truly going to be a player in business today, it must maintain a line of sight to its organization’s external customers, owners and business strategy.”Start creating value and aligning HR practices to what the business must do to be successful. Learn more about the upcoming course, Strategic Human Resource Planning, available July 26-30, 2010, and November 1-5, 2010, with Ross Executive Education today.
Looking to develop your outside-in skills? Explore our General Management and Leadership programs in Executive Education. Doing so enhances your ability to go beyond the traditional HR boundaries and partner as a business leader within your organization.