HUMAN RESOURCE

STRATEGY AND
ORGANIZATIONAL
PERFORMANCE

INTRODUCTION

This chapter locates the HR function as a central feature of business strategy. Human
resource management (HRM) exists in order to achieve organizational goals through
people resources. People management is perceived by most organizations as a key
determinant of success. The changing role of HRM has reflected the growing awareness
by senior managers of the importance attached to how people are managed. This is the
'coming of age' of HRM: the recognition that organizational effectiveness and perform-
ance outcomes are very dependent on the HR function of management, as discharged
by line managers and specialists alike.
This chapter concentrates on three topics. First, we consider the evidence that
HRM has an impact on organizational performance. Second, we look at the relationship
between HR strategy and business strategy and, finally, we describe the practical
processes for creating an HR strategy.
In the previous chapter we described how some of the different traditions of
personnel management developed. The variability of organization cultures and the chan-
ging environment in which people are managed would lead us to believe that there is no
common trend in the development of people management that applies to all organiza-
tions. No single model of HR management can meet all requirements. Nevertheless,
research in the field rarely differentiates between different industry sectors, organization
sizes and the different histories of organizations. The theoretical advances in HRM have
been influential, and there are many forces for convergence, including common educa-
tion and training systems for those entering HR management. In many countries,
academic collaboration in research, the growth of multinationals with common policies
and similarities in policy agendas as societies and economic systems converge are
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reflected in European Community rules and laws, in addition to the arrangements in other
trade blocs covering laws and regulations. In what follows, therefore, we are making
generalizations that will need to be interpreted into the cultures and societies where the
organization operates.

HRM AND ORGANIZATIONAL PERFORMANCE

The strategic credentials of HRM depend on there being a consistent, explicable relation-
ship between HR policies and organizational performance. There have been a number of
attempts to describe the links between human resource management and organizational
goals. The Harvard model of Beer and others (1985) characterizes human resource manage-
ment as a system that links corporate objectives into societal needs and back into human
resource activities. This framework, therefore, describes the integration between business
and society. Perhaps the main weakness of this framework is its failure to show corporate
or business strategy as a key determinant of human resource strategies and policies.
Other authors, such as Hendry and Pettigrew (1990), have attempted to show human
resource management as a process where there are interconnected decisions deriving from
the corporate or business strategy, often, for example, originating in the product life cycle
stage or in decisions to move into new markets.
One of the difficulties faced by HR researchers was the absence of a theory that
would connect HR activities to the purposes of organizations. At the end of the 1980s and
into the 1990s, a resource based theory of the firm originating from Edith Penrose (1959)
and Barney (1991) became increasingly popular.

The resource based view (RBV)

The resource based view of the firm is a theory which seeks to explain how the internal
resources of the firm can provide the company with a competitive advantage. The main
feature of the theory is that internal resources and organizational capabilities are firm char-
acteristics which are a source of competitive advantage. These characteristics include, inter
alia, the firm's employees, organizational capabilities such as the knowledge of employees,
the systems and ways of learning and of interacting with customers, suppliers and logistics.
These are ways of operating which are valuable, rare, inimitable, not or imperfectly substi-
tutable (VRIN), which provide a source of competitive advantage. These capabilities could
well be a barrier to entry for would-be competitors and, according to the theory, are the
attributes that would make the firm highly competitive in its market.
The popularity of the RBV has grown amongst HR and strategy researchers as it gives
an emphasis to the strategic importance of resourcing employees, developing competence,
knowledge management, the systems and processes that sustain the culture and all
the policies such as talent management, appraisal, development rewards and employment

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relationships which help to sustain organizational capability. HR systems create the human
capital pool of capable people, so that they can sustain what Wright and others (2001)
describe as 'strategically relevant behaviours'. The RBV also gives HR managers a language
and analytical framework which is appropriate for the development of business strategy,
and a focus for HR strategy.
The RBV suggests a skills and capability focus for the strategy, so that firms learn
faster than their rivals, and protect and enlarge their intellectual capital. As a consequence,
companies can generate a human capital advantage owing to the unique capabilities of
their employees, as well as an organizational process advantage from their systems, history
and ways of working. Mavrinac and Siesfield (1997) have suggested that 35 per cent of an
institutional investor's valuation of a company is attributable to the company's non-financial
capabilities, such as management credibility and expertise, innovativeness, ability to attract
and retain talent, compensation practices, and the quality and execution of the company's
business strategy.

Empirical studies of the effect of HR policies on business performance

There have been many research studies into how HR policies can improve performance at
the unit or company level. Even F. W. Taylor's 1913 book Scientific Management reported
on the beneficial results of piece work systems based on time and motion studies, when
applied to manual labour. The socio-technical systems theory advocated in the 1950s in the
UK presented possibilities for managers to intervene by working on the social system that
operates along with the technical system, through better aligning the social and the tech-
nical system, especially at the work group or unit level, ideas which were adopted in
companies such as Shell and Esso (Standard Oil).
Chapter 2 briefly mentions the attributes of work teams where there is a notion of high
involvement work groups, using the energy of the group and their tacit and explicit know-
ledge and experience in a participative way to solve work problems, and to improve perform-
ance of the work group, as well as the technical system as a whole (for example, Appelbaum
and others 2000). As discussed in Chapter 2, companies have long used motivation theory
and job design principles where jobs are redesigned to be inherently motivational, and util-
ized group dynamics to improve problem-solving and output, including quality (Hackman,
Brousseau and Weiss 1976). All of these studies gave backing to HR policies that could
improve performance. However, line managers rather than HR specialists were usually and
necessarily the advocates for introducing these management practices.
Interest in empirical studies on this topic was given a boost by Huselid's (1995)
research, in which following four national surveys in the USA, it was claimed that results from
over 2000 firms showed that small changes to HR systems could bring an increase in the
market value of the firm over time. These and similar studies argued that individual HR prac-
tices are not sufficient to improve organizational performance; rather, what are often called
'bundles' of HR policies are required which would all need to be consistent in their support

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for a particular idea (e.g. improved team work). The practices are often in the recruitment,
training, reward and appraisal policy areas. Arguably, there is already evidence of HR practi-
tioners bundling up policies, for example in the cases of talent management and total rewards.

Paauwe's Framework
The study of what HR practices 'ought' to be applied to improve organizational performance
has been fraught with methodological difficulties, since there are contextual affects, such as
organization size, industry sector, type of occupation, trade union relationships, etc., as well
as the national context, with its laws, traditions, customs and geographical features. All of
these variations make generalization difficult.
Jaap Paauwe (2009) summarizes these problems, following Purcell and others (2003),
as the 'black box problem'. The 'black box ' is only an analogy, a way of describing the unknown
context and the many variables and the interactive effects of them, which are intervening vari-
ables between HR policies and practices and the actual outcomes of a firm's performance.
Paauwe (1998) sets out a framework that seeks to identify the various interactions
according to the state of knowledge on this topic. The significance of the model is
that, instead of seeking a direct relationship between the HR strategies/policies and
practices, and organizational performance HR outcomes such as labour turnover,

Figure 6.1 Framework of HRM outcomes

Paauwe, J. (2004). HRM and Performance. Oxford: Oxford University Press.

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recruitment quality and the like are seen as the intervening level, which are measurable, and
can be shown in turn to relate to organizational outcomes. One of the potential weaknesses
of the model, as acknowledged by Paauwe, is that the model suggests a linear movement,
implying causality, whereas there might be a form of reverse causality. In short, financially
successful businesses may not be successful because of HR policies and practices but,
because they are financially successful, they can afford extensive HR policies and larger
HR functions.

BUSINESS STRATEGY AND HR STRATEGY RELATIONSHIPS

Business strategy can be defined as: 'The attempt by those who control an organization to
find ways to position their business/organization objectives so they can exploit the planning
environment and maximize the future use of the capital and human assets' (after Johnson,
Scholes and Whittington 2008).
This definition emphasizes the choices available in the search for competitive
advantage, where to position the business, how to exploit the planning environment (that is,
the opportunities for the company) and how to maximize the use of capital and human
assets in the future. The assumption that employees are assets could be challenged, since
clearly some employees might be liabilities.
Business strategy may be created in a variety of ways. Strategy may be imposed,
from top down, usually from the main board of directors or the management board,
who have accountability for the direction taken by the company, and for the performance of
the business to shareholders and to other stakeholders. Public sector boards have a
similar responsibility, being accountable as they are for the quality, efficiency, availability
and costs of services to local councillors or to Parliament. Strategy may be 'emergent',
deriving from actions and choices over time, and sometimes by immediate needs. This
may be a form of 'logical incrementalism', where strategy is created step by step. These
are two typical approaches, therefore: the more analytical and longer term, driven from
the top, or the slower, more emergent approach, where the reconstruction of strategy
is continuous, and where input may be from a variety of sources. We should also
differentiate between intended and realized strategy. There are many companies where
business strategy exists only in PowerPoint presentations, and where much is said about
plans, but the ideas are not realized. In this latter case, the benefit to the company
may come from the process of consultation, discussion and general agreement on the
direction of the business going forward, rather than any specific plan with timelines and
measurable objectives.
Research has shown the complexity of the relationships between corporate and
human resource strategies. The term 'corporate strategy' is taken to mean the strategy
pursued by a corporate board, which includes the portfolio of interests it wishes to acquire
or retain, together with the financial ratios (such as return on capital employed, ROCE) the

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company uses to measure the corporate performance of its various businesses. Human
resource strategies should not be confused with human resource or personnel policies. HR
strategies are typically a series of policies and practices, overall programmes of action
designed to meet business objectives (Tyson 1995). These policies may, for example, be a
mixture of recruitment and reward policies, and job satisfaction/job design work, together
with succession planning and career management, which are intended to ensure the
company manages talent successfully.

Different types of 'fit' between HR and business strategy

By business strategy here we mean the strategy of a particular business or business unit,
which has a strategy to achieve its objectives, in which there are people management
aspects. There are three distinct types of fit:

1 The fit between the HR strategy and the business strategy. The purpose of the HR
strategy is to give effect to the business strategy, and to ensure the strategic object-
ives of the business are achieved. This is the fundamental rationale for the HR func-
tion. If the function is not helping the business to operate its business model effectively,
the very existence of the function would be questioned. This type of fit, therefore, is a
priority.
2 The fit between the different policies and practices (the bundles of policies) in the HR
strategy, so that there is an overall coherence in the HR objectives and the HR policies
and practices. This enables a clear vision and a more easily understood direction to
the strategy, helping to communicate and to embed the strategy with line managers
and employees alike.
3 The fit of the HR strategy to the organizational context. We know that the economic,
the social and technological context change rapidly. HR has to play a boundary span-
ning role at the boundary between the organization and its legal, economic, social and
technological context. New employment laws, changes to labour markets and to
rewards and benefits, social changes such as demographic shifts, attitudes towards
marriage and to child care and care of the elderly exemplify strategic input to the HR
strategy.

These three types of 'fit' are not mutually exclusive, but it seems likely that organizations will
focus on different types of fit according to the situations they face. For example, the fit to the
business strategy may not be so important when the organization is in the process of chan-
ging the strategy if, for example, it does not seem to be working. 'Fit' to ensure cohesion is
less likely to be top priority when there is an intention to devolve policy creation to local
business units in a conglomerate organization, or may be seen to be inappropriate because
management does not want to retain the same approaches to reward in a company where
to do so would encourage trade unions to bargain for a wider group of employees. Similarly,

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when the context is changing in significant ways, HR will wish to respond with new
approaches, and the context becomes of superordinate significance.

Dynamic capabilities
It follows from the ideas in the RBV theory that companies are always striving to
remain competitive by adopting management practices (including HRM practices), which
maintain their competitive advantage, through their VRIN capabilities. Competitor
organizations are also seeking to do so, and therefore firms must constantly seek to
maintain their advantage, especially when the context changes. Just such a contextual
change was initiated by the 2008/09 financial collapse, and the ensuing recession.
The recession spread like wildfire from the USA and the UK to Europe and beyond.
This became a time for economic and financial reform, and institutions were under the
spotlight, leading to institutional reviews and changes. At the same time, societal, technolo-
gical and organizational changes were also continuing, creating a 'perfect storm' for
managers who were expected to adapt their organizations to change (Moyo 2011; Parry
and Tyson 2014). This raises questions about the processes that can help organizations to
change.
The idea had already been proposed that firms needed adaptive processes in order to
remain competitive and the concept of 'dynamic capabilities' was attracting the interest of
researchers. Dynamic capabilities were defined by Teece and others (1997: 516) as: 'The
firm's ability to integrate, build and to reconfigure internal and external competences to
address rapidly changing environments'.
Because of uncertainty in the economic, political and social environment the strategic
planning horizon for most organizations was already shifting from five years down to three
or even two years. Capital intensive businesses (such as manufacturing, power generation)
will typically plan over a much longer period than labour intensive businesses (such as retail,
financial services). Very often, there is a long-term statement of strategic intent, with a short-
term plan for the next one or two years.
There are enormous international pressures for change owing to increased competi-
tion, and from rising customer expectations, globalization and customer demands for
improved quality, technology innovations, demographic and social change. Organizations
are changing as part of a dynamic aimed at making both private sector companies and the
public sector more responsive, with a strong capability to change. Acquisitions, joint
ventures, mergers and demergers are producing a great variety of organization structures,
including network and federal structures. This organic approach means organizations are
more fragmented, and less inclined to favour stability, rigidity and rationalistic formal rela-
tionships, as we described in Chapter 3.
The capabilities that are thought to be necessary for firms in the dynamic environment
we experience are described by Bowman and Ambrosini (2003) as those which aid in the
tasks of reconfiguring organizations (for example reorganizing organization structures to be

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more responsive to customer needs), leveraging (for example ensuring best practice from
one unit is adopted at other similar business units), improving learning systems (for example
by ensuring learning is a continuous process and is adopted in all parts of the business),
creative integration (for example looking for synergies across the business, and investing in
new ideas or products based on the new insights this brings). Dynamic capabilities could
be summarized as organizational attributes:

■ change capability
■ learning capability
■ innovative capability.

Firm processes which derive from the capabilities and impact on firm performance are:

■ integration
■ review
■ reconfiguring
■ renewal.

In their summary of the literature on dynamic capabilities, Ambrosini and Bowman (2009)
point out that the literature differentiates between the dynamic capabilities themselves and
how they are enabled in the firm, i.e. how these capabilities are brought into existence and
sustained in the firm, which is seen as a managerial task.
Human resource strategies which seek to put in place processes are 'ways of working'
akin to the old ideas of 'stratagems' or ploys to achieve particular ends, rather than the ends
themselves. For example, we can conceive of organizational cultural strategies that aim to
set up a style of working in support of certain values. These processes themselves are
typical of the kinds of process advantages that are referred to in the RBV. There is often an
ethos in a company or partnership that competitors find difficulty imitating, for example in
John Lewis retail stores in the UK, in McDonalds restaurants around the world, in Rolls
Royce aero engine manufacture and in Mercedes Benz car manufacturing.
Fit between business and human resource strategies can be achieved not only through
policies designed to drive the business strategy forward, but also by adopting a style of
working, or an organization culture.
In a knowledge based society, organizations need to be able to take forward the
ideas and new products from the people who work within the organization, and to adapt
quickly and take in ideas from the whole society. For example, whilst the research of
Watson and Crick on DNA resulted in the genome project, it is the adoption of these ideas
within the pharmaceutical and related industries that eventually produces advances for
society. Cell phones, tablet computers and all the latest electronic and telecommunications
technology derive from inventiveness and the conversion processes into products and
services.

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THE AGILE ORGANIZATION APPROACH

One capability all organizations wish to develop is the capacity to manage change well and
naturally and to be adaptable to the fast moving markets where they operate. As the chief
protagonists (Dyer and Shafer 2003: 7) of this approach argue: 'Dynamic organisations
compete through marketplace agility. Marketplace agility requires that employees at all levels
engage in proactive, adaptive and generative behaviours, bolstered by a supportive mindset.'
The challenge is to find ways of changing organizations in a responsive way, so that
instead of seeing change management as a specific campaign to move an organization from
one position to another, the objective is to create an internal dynamism whereby organiza-
tions adjust at all levels to new circumstances and conditions as required. Agile organiza-
tions are 'self-organising systems', which have 'the capability to be infinitely adaptable
without having to change' (Dyer and Shafer 1999).

Figure 6.2 Agile organizational capability

Source: Dyer, L. and Shafer, R. A. (1999). Creating organisational agility: Implications for strategic human resource management, in
eds. P. Wright., L. Dyer, J. Boudreau and G. Milkovich, Research in Personnel and Human Resource. Management, Supplement 4,
Strategic Human Resource Management in the Twenty-first Century. Stanford, CT: JAI Press, 145-74.

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The paradox is that, in order to change, some aspects of organizational existence must
remain the same. Hence, at the heart of the agile organization are a shared vision and
shared values, together with a general understanding of performance metrics. Where organ-
izational agility exists, this enables organization redesign, and the reconfiguration of techno-
logy and business processes to occur, and to support agility in employees who can rely
upon a core of high quality staff. There are advantages in the organization renewal context
for this approach, which promises a duality in strategy so that it is possible to optimize
adaptability and efficiency simultaneously, as demonstrated by the strategic approach taken
by companies such as GlaxoSmithKline. The central feature of all these examples is the
organization culture, which expects change to be a norm and to be constant. This type of
culture has been described as a 'gazelle' culture. The characteristic features of such a
culture are informality and networking, with only the budget as a powerful constant which is
immutable, strong values associated with flexibility and a market orientation, combined with
a 'can do' philosophy and strong loyalty to the products and to the company. This is a very
focused culture; there is a challenging atmosphere, where intellect and flair are valued.
The culture thus described is found in companies with a strong marketing orientation
such as the French/international cosmetics, hair care and skin care company, L'Oréal. The
brands and the brand values dominate the thinking, there is extensive innovation and new
ideas frequently come from the staff. People move around the company and undertake a
variety of roles in their careers. The organization as a whole seeks to learn constantly about
the work and to improve the company's routines through feedback. HR staff in such a
culture are expected to spend much of their time on development and career management,
and to work closely with general managers as business partners.
Agility could be said to be driven by the RBV. There are three specific competencies
that need to be fostered: reading the market, mobilizing a rapid response and embedding
organizational learning. Learning is developed to the point where all are involved in gener-
ative double loop learning, learning about the processes as well as the content. This helps
to eliminate defensive routines.
We can see that the idea of organizational agility as a self-adjusting system is
consistent with the work on dynamic capabilities.
In this model, HR should be building the dynamic capabilities into the firm strategy,
which will enable the firm processes of integration, review, reconfiguring and renewal, which
is the platform for organizational performance and for creating and maintaining a compet-
itive advantage.

THE PROCESSES FOR CREATING AN HR STRATEGY

Where is HR strategy created?

The answer to the question of where HR strategy should be defined and produced depends
upon both the organization structure and on the involvement of stakeholders in the process.

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Organizational structure variables, such as whether or not there is a transnational structure,

influence the degree of complexity required in the process, as would divisional structures.
Industry sector, as mentioned earlier, affects the planning time horizon. Differences in
control and budget systems between public sector and private sector organizations also
influence the planning process. Often, the strategy needs to be designed to meet mixed
requirements from seeking to fit the needs of a number of managers in different parts of the
organization (see Chapter 3) and, consequently, only the overall strategy captures the
totality of all the HR activities in the years ahead. The strategy could deal with the following
allocation of responsibilities:

Head office: HR planning, organization structure, organization development, due

diligence, senior level recruitment, promotion development and rewards.
Division: manager recruitment, development, rewards/pay structures, HR policy, the
broad terms and minimum standards, communication in the division.
Business unit: employee relations, policy implementation, recruitment and selection,
training.

The fit to the business plan

Irrespective of the level at which the HR function is located or the unit for which the function
has responsibility, the starting point for the HR strategy is the business plan, again irre-
spective of its format. The HR director or the specialist HR strategy unit needs to tease out
the key issues, for example looking at the priorities and the people management implications
of the business model. The business model is the structure of the product or service flows
of work and information, covering issues such as how the business operates to deliver its
service or to manufacture its product and to generate sales/revenue. Here, the issue to
explore is how those involved expect the existing model to change over the coming planning
period? The business strategy may have already articulated important potential contribu-
tions from HR to the achievement of the business objectives.
As we described earlier, there are different types of fit, including a fit to the business
plan, which might be both a business unit plan and a divisional plan, and a broader corporate
plan, containing items such as proposed mergers or acquisitions and potential divestments.

HR interventions
However, the HR function legitimately has its own agenda. There may be issues related to
employee motivation and involvement, levels of job satisfaction, communications and
employee perceptions held of the organization, organization culture, employment relation-
ships, reward structures and the external labour market changes, new contractual forms
and labour costs, the types of benefits including pensions and services to staff, which have
significant cost implications for the business. New employment laws sometimes require

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organization-wide responses, for example changes to laws about discrimination, such as

age discrimination legislation, which affect not only recruitment, but also development,
rewards and benefits such as pension plans. In addition, the HR function is likely to be
involved with senior line management in programmes to improve efficiency and to undertake
development and training initiatives.
One of the competency areas that HR specialists need to develop is how to make
effective interventions, such as those which are concerned with change management, using
for example organization development techniques and organizational surveys to determine
what is happening in the organization and why?
The improvements in computing which allow businesses to use large scale data sets
such as attitude data from an organization-wide survey in conjunction with other data
sources such as absence statistics and data on stress or other occupational health inform-
ation, for example, using a 'private' cloud, provides HR with powerful tools to ensure that
people management issues are on the strategic agenda of the organization. This raises
important questions about the extent to which employees are to be consulted and involved
in HR strategy creation.
Involving employees is not a new approach. A good example of this method was when
a European institution, employing nationals of all Member States, found itself in difficulty with
its own staff, who had set up an in-house trade union, encompassing all levels of staff. The
terms and conditions of employment were extremely generous, and there were considerable
difficulties experienced when trying to put new appraisal and career management policies in
place. The solution adopted was to arrange an organization-wide survey in which the in-house
union had an involvement, and where the results were all fed back to the staff by the president
of the organization. By tackling the dissatisfactions alongside the need to change as a whole,
new policies were implemented with the full agreement of the staff and their representatives.
HR strategies can only be created and agreed where the often tacit issues about the
power of the different organization leaders have been sufficiently addressed for action to
proceed. Whether or not there is HR recognition at main board level, there is likely to be a
dominant coalition or a powerful network of senior managers who 'call the shots'. Much will
be down to the personal credibility and the track record of the HR director. Successful HR
directors will have established a good working relationship with the dominant coalition as a
natural part of their working relationships.

The HR strategic plan

The following documentation is commonly found in organizations with an HR strategy:

■ HR plan, separate - showing all the HR initiatives, with targets and milestones
■ a business plan, with consequential HR initiatives and strategies integrated
■ an operational plan, perhaps designed using an existing framework, such as the EFQM
■ a balanced scorecard type of plan.

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The more fully integrated plans imply a joint approach with line management ownership of
the plan, alongside HR.
For the last few years there has been an interest in the idea of the 'balanced score-
card', originally from Kaplan and Norton's 1996 book of that name. This takes the idea of
linking value creation with the notion of stakeholders. The RBV is also drawn upon in this
framework, which sees capabilities, learning and growth as the foundation upon which
internal business processes are based, and that these processes should serve the
customer's needs, which produce financial performance.
Simple frameworks such as lists of business objectives and the HR implications
(expressed as programmes of work, with key performance indicators (KPIs) milestones, and
outcome performance measures) are sufficient. There are more elaborate models such as
the EFQM framework, which is used in a quality competition, with points awarded by peer
group assessors, resulting in Europe-wide winners. This recognizes that there are different
but interlinked groups of people involved in strategy achievement - including suppliers,
customers and shareholders, as well as employees (see Figure 6.3).
Stakeholder models of HR strategy show the KPIs for each stakeholder in regard to
each HR objective or programme, as illustrated by the example from a large retail mail-order
business.
Stakeholders are looming in organizational thinking for several reasons:

1 Shareholder power is more apparent because of the free movement of capital,

through their non-executive director representatives on boards and the growing
demand for remuneration committees to exercise more control over top pay, and for
more transparency and disclosure to produce less generous top pay rewards. Public
sector shareholders, the taxpayers, are even more likely to be concerned about strategy.
2 There is a demand for more transparency generally, and for more accountability by
companies to their customers and to the public.
3 The requirement for the employee voice to be heard as a means to improving organiza-
tional effectiveness, means explicit stakeholder relationships with clear KPIs are needed.
4 The notion is gaining ground that organizations have to be seen to be socially respons-
ible to satisfy 'green' investors, local communities and central government, and to
retain their employees' commitment. All these reasons argue for a stakeholder place
in the corporate objectives, with KPIs for each stakeholder.

THE PROCESS FOR CREATING HR STRATEGIES:

A 10 POINT PLAN

1 Agree corporate vision/mission/values.

2 Establish HR vision or philosophy of management.
3 Produce business objectives and business strategy (maybe in the form of KPIs).

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4 Analyse what is happening inside the organization.

5 Agree HR objectives which fit the business objectives.
6 HR proposes long term HR objectives which support the mission/values.
7 Agree HR strategies for achieving 5 and 6 above, including policy changes.
8 Set measures of achievement.
9 Agree an outline timetable with HR milestones and responsibilities for each element.
10 Set out implementation strategies, feedback, monitoring and evaluation.

There is no one way to write HR strategies or business plans. They will usually consist of a
number of people management objectives (the achievement of which will be measurable),
together with the policies and actions which are thought necessary to achieve them. The
statement may also include express reference to any assumptions made (for example about
the availability of budget, or if a sales forecast is to be met, etc.). For example, a business
objective to which HR might contribute might appear as set out in Figures 6.4 and 6.5.

Figure 6.4 Example of a business objective to which HR might contribute

Figure 6.5 EFQM model

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There should be timescales and cost/benefits associated with this strategy. Any
assumptions made should be stated explicitly. For example, efficiency savings anticipated
as a consequence of redundancies.
Even if the HR strategy is fully written up with the business strategy there are advant-
ages in identifying separately the HR policies to see if they are consistent. The grouping of
policies together can have a significant impact on performance as we discussed earlier.
Figure 6.6 shows how HR strategy is typically dealt with at different levels in a divi-
sional structured company.
Strategic planning processes require a cascade of objectives, which typically follow a
series of iterations, starting with the company vision, or mission, down to an implementation
plan, but a review at each stage, shown by the feedback arrows on the left side, as set out
in Figure 6.7.
The role of HRM in creating an HR strategy is to work at the heart of the strategic
decision-making in the organization. This is an ideal opportunity for HR managers to adopt
the business partner role and to exercise the skills of the internal consultant. As discussed
in the previous chapter, analytical skills and organizational behaviour knowledge will need to
be combined with an understanding of the business, financial acumen, and an awareness

Figure 6.6 Creating HR strategies

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Figure 6.7 Strategic planning processes

of the many different fields such as corporate taxation, operations management, financial
reporting, accounting, corporate social responsibility and marketing.
In the following chapter a more detailed discussion covers the topic of workforce plan-
ning. These activities are essential first steps in the detailed HR plans which flow from the
HR strategy.

AUDITING THE HR STRATEGY (SEE THE

COMPANION WEBSITE)

There is a requirement when creating or updating the strategy to know the questions to ask
and the kinds of data to collect, as well as how to write up the strategy. The following 10
point plan is an audit instrument for this purpose.
Readers are recommended to work through the questions, using appropriate chapters
in the book for a guide in the process and to consult the companion website.

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The main headings of the 10 point plan can be used as a prompt to audit whether you
have HR strategy development or review needs, and what HR strategies you should be
putting in place.

1. Agree corporate, mission/vision/values

1 Do you have a mission/vision/values statement? (Whose values are they?)
2 What do your customers think of the statement?
3 Is it remembered by employees?
4 Do members of the organization care about the mission/vision/values?
5 Is it clear, up-to-date and representative of what your organization seeks?
6 If you do not have a statement of mission/vision/values do you want one?
7 What do your key stakeholders think about your mission/vision/values?
8 Are there specific aspects of the mission/vision/values which affect or should affect
the HR strategy?

2. Establish an HR vision/mission/values/philosophy of management

1 Do you have a vision for the HR function?
2 Do you want your employees/potential employees to identify with your employer
brand?
3 What are the characteristics of your employer brand as seen by employees?
4 What should be the employee experience of working for you?

3. Produce business objectives and business strategy

1 Where is the business/organization strategy created (group, or division, or company
level or at other levels)?
2 What is your role in creating the business/organization strategy (are you a member of
the board/committee responsible for this)?
3 How are the business objectives expressed (e.g. key performance indicators, balanced
scorecard, etc.)?
4 Is there a written business strategy/plan showing how the objectives are to be
achieved.
5 What is your role in creating the HR strategy (working with the top team, or producing
first draft yourself, or as part of a planning unit, etc.)?
6 Are the HR implications of the business plan clearly spelt out?
7 Do you have to infer the HR implications, separately from the business plan?
8 Are there significant changes to organization structure, and/or location forecast?
9 Are there predicted changes to the workforce, e.g. expansion, contraction, changes to
skill/knowledge.

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10 Are there to be improvements to productivity, or changes to working methods,

systems/technologies?

4. What is happening inside the organization?

1 What are the significant changes to internal labour markets? (i.e. labour supply), e.g.
age profiles, labour turnover, absenteeism, productivity, skill levels, qualifications,
experience levels, supervisory and management skills, succession plans.
2 What are recent attitude survey results?
3 Are there any issues revealed in grievances, industrial disputes, discipline cases,
appraisal information?
4 Are there effects known or likely to become important for existing policies from forth-
coming legislation (e.g. age discrimination)?

5. Agree HR objectives which fit business objectives

1 What timeframe do the business objectives assume or mean for HR objectives?
2 Do these affect strategically significant groups of employees?
3 Are the business objectives reasonable, and achievable in HR terms?
4 Can measurable HR objectives be decided which will satisfy the various
stakeholders?
5 What are the effects on costs and the quantifiable benefits to come from the object-
ives being achieved?
6 Do these objectives affect the coherence of the HR vision/corporate values, employer
brand etc?

6. HR proposes long term HR objectives

1 What HR policy changes are needed to deliver the HR vision?
2 What are the cost: benefits of these objectives?
3 Auditing of existing HR policies e.g. recruitment, reward, development; are they deliv-
ering value for money, are they achieving the desired objectives?
4 What can be done to make the vision coherent, clear, communicated?

7. HR strategies agreed for achieving 5 and 6 above

1 Bring the data together from 4, 5 and 6.
2 What strategies are needed to achieve the business objectives and to deal with
existing issues?
3 What changes to HR policies and practices will be needed?
4 How will these be introduced (e.g. consultation, training, communication, etc.)?

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8. Set measures for achievement

1 What practical, measurable targets can be set?
2 Who is responsible for achieving these - project groups, etc.?
3 What procedures will be put in place in order to make this measurement possible?

9. Agree an outline timetable

1 What timeframe is to be used for each strategy?
2 How do these strategies interact and what pressures on resources (managerial/HR,
etc.) will be imposed by the timetable?
3 Who are the members of the HR department to be involved?
4 What resources are required in HR or elsewhere to achieve policy changes?
5 What HR systems/technology changes are required?

10. Implementation strategies, feedback, monitoring

1 How will the various projects be monitored and reported to TU, workforce, to senior
management.
2 What review procedures are in place? (frequency, who is involved, etc.).
3 Are there to be evaluation projects to test the assumptions made in the strategies?
4 Are there to be major change strategies? If so, is this to be handled as OD?
5 How much employee involvement is to be encouraged in strategy implementation?
6 Are there to be action/research/collaborative change methods?

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