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Talent Management Column

What Does HR Strategy Mean?

The notion of HR strategy began with a simple powerful idea in 1980 but the concept has become messier since then. Now, it's an overworked term that is easily misunderstood.

Tuesday, January 10, 2006
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Most of my career has been spent at the Wharton School, where I sit in a department that includes the largest and most distinguished group in the world of academics who study business strategy. Just in defense, if nothing else, I've had to learn something about how the field of strategy thinks.

This background is helpful in seeing how to make sense of the overworked term, "HR Strategy." This phrase gets used in so many different ways it's easy for people in the field to get lost trying to understand not only what HR strategy means, but also what it implies for running their own organizations.

The word "strategy" comes from the Greek word for generalship. And the simplest definition for strategy is just "goals and a plan." Careful writers distinguish between tactics and strategy, where tactics are specific procedures used to attain the goals set out in strategy. 

People also talk about the "strategic level" in organizations, which is another way of referring to issues that are addressed far enough up the hierarchy where executives are planning, as opposed to executing. In this sense, an HR strategy could be as simple as a strategy for reducing turnover.

When people in organizations talk about strategy, however, they typically mean business strategy, which defines how organizations compete against competitors in their environment: The goal of succeeding against competitors and the plan for doing so. 

General Motors is often seen as inventing business strategy, beginning in the Great Depression, first with forecasting (they asked their dealers whether customers were biting), then with plans based on those forecasts, and finally by building into those forecasts some assessment of what their competitors would likely do. 

The notion of HR strategy in the context of business strategy got going in 1980 with Jim Walker's famous book, Human Resources Planning. The idea was simple, powerful, and has driven much of HR since: What should HR be doing to help support the business strategy of its organization?

This view was particularly potent in the 1980s because notions of business strategy were easy to understand. All business strategies boiled down to a few generic categories, such as being the "low-cost" leader. What HR needed to do to support that strategy was therefore pretty easy to figure out: Do things that keep costs down. 

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Now, in practice, it was never that simple because knowing the consequences of HR practices is not so simple. To illustrate, are you more effective at lowering costs using a Wal-Mart strategy of low wages and high turnover or a Costco strategy of higher wages and lower turnover? 

But the idea was straightforward.

Since then, the field of strategy has become much messier. There is no longer a belief in generic strategies that are easily described. In fact, the dominant models now see business strategy as coming from within the firm, from competencies that an organization has relative to competitors.

The notion of "core competencies" is just one manifestation of this view. And the role for HR strategy becomes more important as well: How do we choose policies and practices that shape employee behaviors in ways that build and reinforce those organizational competencies? 

In this sense, HR has a crucial role in building, not just supporting, business strategies. The first step, and the hardest part in my experience, has been getting the top executives of the company to be clear about what they want their business strategy to be. 

 

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