Becoming a Key Player in Business Strategy

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Author(s): Edward E. Lawler III, Ph.D.

With respect to business strategy, human capital issues influence both what strategies should be chosen, and how strategies should be implemented.

The time is right for HR executives to take on an important new role in organizations. They need to become major players in the development and implementation of business strategy. This is a role that adds a great deal of value and one that HR executives can and should perform.

Over the last several decades there has been significant discussion about how the HR function can add more value by becoming a business partner. Most descriptions of the partner role include implementing business strategy, but they rarely, if ever, include developing and determining that strategy. It is time for a change. The conditions are right for human resources to go beyond just being at the table when business strategy implementation is discussed. Instead it needs to position itself so that it is a key player in developing and implementing the strategy.

Why Now?

It is worth briefly noting why the time is right for HR executives to become key players in strategy. First and foremost, human capital and how well it is organized is increasingly becoming the key to organizations achieving a competitive advantage. As a result, human capital accounts for an increasing percentage of the value of corporations. With respect to business strategy, human capital issues influence both what strategies should be chosen and how they should be implemented.

My recent research suggests that in most organizations senior executives recognize the importance of human capital. When asked whether HR issues are critical to strategy, most senior executives report that they are. In addition, they say they want human resources to make a contribution to strategy and play a role in supporting its implementation.

Despite the logical arguments and support for this, my research suggests that in most corporations it is simply not happening. In a 2004 survey of major corporations, fewer than 40 percent of HR executives surveyed reported that human resources is a full partner in strategy development. The results were even worse when their counterparts in management were asked. Fewer than 25 percent of senior executives reported that human resources is a full partner in the development and implementation of business strategy.

There are a number of reasons why, including the following:

* HR executives are not on corporate boards.

* HR executives often are not members of the senior management team.

* HR is mired in administrative data and ends up with a largely administrative role.

* HR executives have careers that do not expose them to business strategy.

* Human resources does not have the kinds of metric and analytic capabilities that finance and marketing have.

What human resources does have is a strong, compelling and logical case for playing a major role in business strategy development. By itself, this case isn't enough to position human resources as a strategic player, but it is a key foundation upon which to build. What does human resources need to do in order to get to the strategy table - or more important, to become a key player? Following are some suggestions.

Corporate Board

The lack of an HR expert on the corporate board is a major knowledge void when it comes to the board considering human capital and organizational effectiveness issues. The good news is that it creates an opportunity for internal HR executives to play an important role with the board. In fact, my research suggests that HR executives often are asked to attend meetings, in order to lend much-needed knowledge in this area. In fact, chief HR executives are the third most active staff executives when it comes to the frequency of attendance at board meetings. The most frequently active is the chief counsel, the second most frequently active is the CFO.

Board members report that the most common issues for which they request HR assistance are talent management and compensation. Admittedly, these are not "pure" strategy issues, but they are important, and can lead to discussions about strategy. They can be a "foot in the door" when it comes to human resources showing its knowledge and gaining influence with respect to business strategy.

Strategy Development as a Key Practice

The process that is used to establish business strategy is critical to its success. It should involve data gathering, meetings among senior executives, the work of task forces and analysts, and the development of an implementation process. It is a process that needs to be led by the CEO, but it doesn't need to be organized and managed by the CEO. It usually is best organized and managed by someone who understands how such a process should be run, particularly one that is human capital and knowledge intensive. Thus, it is a natural role for an HR executive who is interested in and capable in business strategy and organizational development.

Strategy Implementation

When strategies fail, frequently the major cause is improper implementation. More often than not, the implementation process fails to deal effectively with organizational change and people issues. This is an area where HR executives can help by highlighting organizational development issues when strategy is formulated, and by providing change expertise when it is implemented.

Develop Metrics and Analytics

Perhaps the major reason why human resources isn't involved on an equal footing with finance and marketing when it comes to business strategy is its lack of relevant metrics and analytics. It can argue eloquently about the reason for adopting a particular strategy and for the importance of HR issues, but unless it brings business numbers to the table, it is unlikely to prevail.

Metrics that report on how effectively the HR function itself is operating is not what is needed. What is needed is a set of metrics which indicate the strategic readiness and performance of the organization.

The foundation for most critical HR metrics is information about the kind of talent that is available in the organization. My research clearly indicates that the one area from which executives most want to hear is the availability and readiness of talent. Human resources needs to respond to this by having a set of metrics which indicate the type of talent that is in the organization, the kind of talent gaps that exist with respect to various strategic directions and the availability of critical kinds of talent in the labor market. But this is not enough.

In addition to talent metrics, human resources needs to develop organizational effectiveness metrics - metrics which indicate how effectively a company's talent is being organized and utilized, and how well it is performing. These metrics need to be tied to the strategic thrusts of the business and the organizational capabilities that have been identified as key to business strategy. For example, in many companies a key capability is customer satisfaction. Human resources needs to be able to produce data which show the relationship between various organizational practices and the quality and level of customer service.

This is a powerful way to establish that it is not just about talent, it is about organizational performance.

Internal Department Operations

The HR function is a business of its own. It has costs, deliverables and customers. Although there is no operational link between how efficiently and effectively the HR function operates and its strategic role, there is a credibility relationship here. If human resources is not run effectively as a department, it damages the credibility of the whole function and makes it difficult to be a strategic partner. Therefore, human resources needs to become a low-cost, high-quality provider of HR services.

It is hard for any internal HR function to gain the scale that is necessary in order to be an efficient processor of HR services such as payroll, benefits administration and call centers. One way to gain scale is to outsource all HR administration, as an increasing number of large corporations are doing. Just in the last few years, International Paper, Pepsico, Proctor and Gamble and a host of other well-known companies have outsourced their HR administration.

Develop Business Skills

Making contributions to business strategy requires skills that many HR managers and executives do not have. Simply stated, it requires not only a good understanding of HR strategy, but also a good understanding of business operations and strategy. However, many HR managers and executives have a career that involves working only in the HR function.

About 25 percent of the Fortune 1,000 now have HR vice presidents who do not have an HR background. Although this brings business expertise to the HR function, I do not believe this is the best way to make HR a strategic partner because it puts someone in the HR leadership job who does not have expertise in the field. A much better approach is for companies to develop HR executives who have a good understanding of the business. This can be done by classroom education. But often that is not enough. HR executives need to rotate out of human resources into non-HR jobs at critical development points in their careers.

They also need to be on task forces and project teams that are focused on business issues.

The Future of HR and Business Strategy

Given the importance of human capital in major corporations, there is no doubt that strategy increasingly will involve critical human capital and organizational effectiveness issues. Thus, the question is not whether strategy formulation and implementation will consider human capital, it is how effective it will be in considering the human capital issues and what kind of expertise will be at the strategy table.

A strong case can be made for having the leadership of the HR function at the table if it has the right metrics, as well as knowledge of the business and organizational effectiveness. Strategy formulation is a high value-added process that HR functions can benefit from, and in turn, their participation can benefit their organizations. Thus, developing a major role for human resources should be on the agenda of every HR executive.

CENTER FOR EFFECTIVE ORGANIZATIONS, MARSHALL SCHOOL OF BUSINESS

Edward E. Lawler III, Ph.D., is the founder and director of the Center for Effective Organizations at the University of Southern California. He can be reached at elawler@marshall.usc.edu. Lawler also is the author of Achieving Strategic Excellence (2006) and Human Resources Business Process Outsourcing (2004).

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