Linking Business Strategy and Human Resources Management

Linking Business Strategy and Human Resources Management
Edward Lawler Center for Effective Organizations Marshall School of Business University of Southern California
2001 Center for Effective Organizations, University of Southern California
Sources of Competitive Advantage

Natural Resources Economic/Financial Location/Market Access Technology Human Assets Organizational Capabilities Core Competencies
EL7J
Core Competencies
z
Focus: technical and production skills needed to develop and make the firms products Example: miniaturization, precision manufacturing, imaging, digital signal processing
Organizational Capabilities
z
Focus: organizational designs and management practices that enable strategic performance Example: customer focus, speed to market, quality
EL14H
Organizational Capabilities

Quality Focus Quick Response Innovation Customer Focus Stateless/Global Partnering Change Management Learning Growth Cost Control Leadership
EL2E
Resource Allocation
OLD: Competitive advantage is in obtaining and allocating low cost financial capital and physical assets. NEW: Competitive advantage is in obtaining, developing, and allocating human capital and knowledge assets
EL1I
Share Value Determinants
Intangibles account for more of market value: From 20% in 1980 to 40% in 1998 of market value missing without them. Investors say non-financial measures important: 35% of investment decisions driven by them Management most important non-financial information
EL11J
Importance of Non-Financial Factors to Investors- Oil and Gas

Management Products & Services Customer Service Corporate Culture Investor Communications Executive Compensation Policies New Product Development Market Position
N=275 Source: Ernst & Young
Short term Long term
6 9 Percent Change
12
15
EL10J
Importance of Non-Financial Factors to Investors - Computer Industry

Management Products & Services Customer Service Corporate Culture Investor Communications Executive Compensation Policies New Product Development Market Position
N=275 Source: Ernst & Young
Short term Long term
Percent Change
12
15
EL11J
Executives Views of Information

90 80 70
Percent Valuing Information Percent trusting quality of information
Percent
60 50 40 30 20 10 0
En Co viron mm me un nt/ ity cia l ons
M Cu arke sto t/ me r
Op era ti
p le
N= 205
Source: Schumann & Associates

EL12J
Ad apt abi l
Fin an
Peo
ity
Return to Shareholders (1994 - 1999)

120% 100% 80% 60% 40% 20% 0%
Low HCI Companies (0-25)
From: Watson Wyatt, 2000.
103% 88%
53%
Medium HCI Companies (26-75)
High HCI Companies (76-100)
EL14K
Model 1 - Administrative
Aims:
Free up the line to focus on the business Reduces wasted internal energy
Process:
Establish policies, rules and systems to create internal equity Functional orientation - get the basics in place Personnel administration Government regulations Labor relations
Planning:
No formal consideration of HR (personnel) factors in the business planning process; post-hoc action planning by HR (personnel) function
EL3E
We want to have more people selling instead of watching people sell and fewer human resources people watching -- God only knows what they watch
Bob Lipp Citigroup Cost Cutter Fortune Magazine, January 11, 1999
EL6J
Two Highest Priorities For The Next 5 Years

Cases Benefits Medical Caliber Of Workforce Staff Training Management Development Retention Diversity Of Worker Employee Motivation Innovation/Relevant Productivity 131 118 94 75 59 59 34 34 29 Percentage 32 29 23 19 15 15 8 8 7
EL3C
Model 2 - Human Resource Management Aims:

Business orientation Services provided expressed as outputs or products Voice of the Customer Build performance management capabilities Development of managers - linking competencies to job requirements and career development Succession Planning Enhancing organization change capabilities Building an HR network organization wide Business plans inspected by HR (and all other functions); inputs from HR may be inserted in the planning process
EL4E
Process:
Planning:
Job Opening
Merrill Lynch has an opening for a Director, Executive Development. They would like someone to come in to assess their current executive development and revamp it as necessary in a way that aligns their people with their strategic goals. The job is worldwide and they would like a thought leader to move into the position, a practical intellectual. Compensation could go as high as $1,000,000.
E-Mail from a Head Hunter
EL9J
Human Resources Management Is Too Important To Be Left To:
The Human Resources Department Line Management
EL5D
Old
Strategy Advice
New
Service
Strategy
Advice
IT SelfService
Service
Out Source Shared Services
EL4J
Model 3 - Business Partner

Aims:
Line management owns HR as a part of their role HR is an integral member of management teams Culture of the firms evolves to fit with strategy and vision HR organized flexibly around the work to be done (programs and projects, outsourcing) Focus on the development of people and organizations (road maps, teams, organization designs) Leveraging competencies, managing learning linkages, building organization work redesign capabilities Leadership development An integral component of strategic business planning by the management team
Process:
Planning:
EL5E
Business Strategy Is Too Important To Be Left To:
The Human Resources Department Line Management
EL15H
Model 4 - Strategic Partner

Aims: Process:
HR is major influence on business strategy HR systems drive business performance Self-service for transactional work Transactional work outsourced Knowledge management Focus on organization development Change management HR processes tied to business strategies HR is key contributor to strategic planning and change management
Planning:
EL12K
Ideal HR Function
N=232 All N=68 USA
Business Partner Skills HR Practices Linked with Strategy T&D Linked with Strategy Provide People Consulting Select Best Talent High-Commitment Work Environment Performance-Enhancing Reward Systems Align Culture with Strategies Provide Change Management Services
Based on 1999 HRPS SOTA/P Study
30% 29% 24% 22% 13% 11% 9% 8% 6%
44% 40% 28% 16% 22% 13% 10% 7% 12%

EL11K
Human Resource Roles

Current 1995 1998 5-7 Years Ago 1995 1998
Maintaining Records
Collect, track and maintain data on employees
15.4 12.2 31.3 18.6 21.9
16.1 11.2 35.0 19.3 20.0
22.9 19.5 34.3 14.3 10.3
25.6 16.4 36.3 14.2 9.5
Auditing/Controlling
Insure compliance to internal operations, regulations, legal, and union requirements
HR Service Provider
Assist with implementation and administration of HR practices
Practice Development
Develop new HR systems and practices
Strategic Business Partner

Member of the management team. Involved with strategic HR planning, organization design, and strategic change
98HRPS1A(4)
HR and Business Strategy

1998
No Role in Business Strategy -----------------------------------Implemented Business Strategy -----------------------------------Input and Helped Implement Business Strategy -----------------------Full Partner in Development and Implementation --------------------
4.2% 16.9% 50.0% 28.8%
98HRPS1A(8)
Percentage Reporting that HR is Business Partner

HR Managers
All Industries Manufacturing Engineering/Design Services Insurance/Finance/Real Estate Health Services Government
Based on SHRM/CCH Survey 1998
Line Managers
53 61 52 65 56 57
76 76 55 71 85 87
EL3I
Percentage of Corporate Officers Who Strongly Agree
78
27
HR should be a partner to me in my efforts to build a stronger executive talent pool
Source: McKinsey War for Talent Corporate officers survey
Believe this philosophy
Think HR plays this role now
EL5J
Extent of Contemporary Approaches

1995 1998
Y Y Y Y Y Y Y Y
Shared Services -------------------------------------------2.9 Joint Line HR Development --------------------------- 3.3 Decentralized Generalist ------------------------------- 3.6 Small Corporate Staff ---------------------------------- 2.9 Some HR Activities by Line Managers -------------- 2.6 Self-funding HR Services ------------------------------ 1.7 Rotate People into HR ---------------------------------- 1.8 Rotate HR People out to Other Functions ------------ 1.8
3.3 3.3 4.0 2.8 2.6 1.9 1.9 2.0
Scale Response: 1 = Little or No Extent, 2 = Some Extent, 3 = Moderate Extent, 4 = Great Extent, 5 = Very Great Extent
98HRPS1A(11)
Shared Services
Not At All Some All
Y Y Y Y Y Y Y Y Y Y Y Y
Employee Record Keeping -----------------------------Recruitment and Selection -----------------------------Career Planning -----------------------------------------Organization Development/Design -------------------Legal Support --------------------------------------------Affirmative Action --------------------------------------Union Relations -----------------------------------------Compensation --------------------------------------------Benefits ---------------------------------------------------Employee Training --------------------------------------Management Development -----------------------------HR Information Systems --------------------------------
17 26 63 41 16 21 41 11 4 22 24 9
48 57 32 42 26 42 32 48 36 66 61 37
35 17 6 16 59 37 27 41 60 12 15 55
98HRPS1A(9)
Effectiveness Effectivenessof ofShared Shared Services Services

Not Effective Somewhat Effective Very Effective
Y Y Y Y Y Y Y Y Y Y Y Y
Employee Record Keeping -----------------------Recruitment and Selection ------------------------Career Planning ------------------------------------Organization Development/Design -------------Legal Support --------------------------------------Affirmative Action --------------------------------Union Relations ------------------------------------Compensation --------------------------------------Benefits ----------------------------------------------Employee Training --------------------------------Management Development -----------------------HR Information Systems --------------------------
5 5 26 10 3 3 2 0 0 10 6 10
42 51 64 60 20 49 26 43 33 61 63 61
53 44 10 31 77 49 72 57 67 29 31 30
98HRPS1A(10)
Outsourcing of Human Resource Practices

1995
Y Y Y Y Y Y Y Y Y Y
Outsourcing of Human Resource Practices

1998 87% 82% 79% 60% 60% 56% 55% 29% 9% 7%
Benefits --------------------------------------Employee Education and Training ----Employee Assistance ----------------------Legal Affairs --------------------------------Management Development --------------Recruitment ---------------------------------HR Information Systems -----------------Organization Development --------------Strategic Planning -------------------------HR Planning ---------------------------------
71% 63% n/a 39% 47% 38% 31% 34% n/a 2%
98HRPS1A(2)
Outsourcing Problems
1998
Y Y Y Y Y Y Y Y Y Y Y
Services not as good as promised -----------------Resources to manage ---------------------------------Cost higher than promised -------------------------Managing contractors lack skills -----------------Contractors dont know company ----------------Switch to new outsources difficult ----------------Cannot have HR systems needed -----------------Negative reaction from HR employees ----------Negative reaction from business units ----------Negative reaction from employees ---------------Loss of competitive advantage ---------------------
53% 51% 47% 41% 40% 37% 35% 32% 29% 29% 15%
98HRPS1A(3)
Traditional
Vice President Human Resources
Staffing
Compensation & Benefits
Training & Development
Planning
Organizational Development
EL11H
Business Partner
Vice President Human Resources
Centers of Excellence
Rewards Staffing Training & Development Communications
HR Generalists
Service Centers
Information Technology Claims Processing Employee Assistance
EL12H
Front/Back Human Resources Structure

Human Resources Vice President
Centers of Excellence Transaction Centers Vendors
Vice Presidents L.O.B.

Generalist Generalist Generalist
EL13H
Front/Back HR Key Issues

HR Practices Fit/Integration Line ownership Corporate /Generalists Power Balance Generalists Going Native Specialists Going Corporate Purchase Outside Sell Outside
EL8J
Effectiveness and Time Spent

TIME EFFECTIVENESS
Records Audit/Controlling Services HR System Development Partnering
- .35 - .20 - .20 .15 .44
EL10K
Effectiveness and Activity Increase

Design & Organizational Development Employee Care Employee & Management Development Recruitment & Selection Compensation HR Information Systems Performance Appraisal Career Planning Union Relations
.46 - .09 .16 .17 .07 .11 .10 .07 - .14

EL9K
Relationship of HR Process Automation to Effectiveness

MEAN EFFECTIVENESS RATING
Completely Integrated HR Information System Most Processes are Automated but Not Fully Integrated Some HR Processes are Automated Little Automation Present in HR Function No Automation Present
Response Scale: 1 = Not Meeting Needs, 10 = All Needs Met
6.6 6.6 6.0 6.4 5.9
EL15K
eHR will free up HR to be a strategic partner
EL33L
Old
Strategy Advice
Future New
Strategy
Service Strategy
IT Self-Service
Advice
IT SelfService
Service
Out Source Shared Services
EL46L
eHR will obliterate the HR function
EL31L
In five years HR will be part of the IT Function
EL34L
Computer Information Systems by Employees/Managers

Computer Systems (Partial/Completely) System Effectiveness2
(Very)
Y Y Y Y Y Y
Post Job Openings -------------------------------------- 86% Salary Planning/Administration ---------------------- 72% Change Benefit Coverage ----------------------------- 76% Change Address and/or Personal Information ----Apply for a Job ----------------------------------------Obtain Advice and Information on Handling Personnel Issues ----------------------------- 46% 61% 71%
38% 30% 53% 56% 24% 12% 21% 6%
Y Y
1 2
Performance Management --------------------------Career Development Planning -----------------------
52% 41%
Scale Response: 1 = Not at All, 2 = Partially, 3 = Completely Scale Response: 1 = Not Effective, 2 = Somewhat Effective, 3 = Very Effective, 4 = Not Applicable
98HRPS1A(13)
Percentage of Surveyed Employers Using Technologies for Various HR Applications

Corporate Communications Benefits Information Job Postings Recruiting & Staffing Retirement Planning Benefits Enrollment Performance Appraisal/ Management Personal Data Changes Total Compensation Statements New Hire Orientation
78% 75% 75% 69% 57% 56% 39% 38% 25% 20%
Source: Watson Wyatt 2000
DF21L
Vision of Net-Enabled HR
Individual portals containing all of the key information needed to enhance productivity and satisfaction
z z
Real-time business information Knowledge management links to specialized expertise and communities of practice Reinvented and personally tailored HR processes

Prompts triggered by life stage events Ciscos travel reimbursement Trilogys reward choices
z z z
Real-time eLearning Two-way employee communication Productivity enhancing tools for managers and workers
DF50L
Vision of Net-Enabled HR
Intranet becomes the focus for strategically managing all aspects of the firm-employee relationship
z
HR links key processes
Linking competencies used for recruiting, skill development, promotions e.g. relating employee commitment to customer satisfaction, productivity, turnover rates
Combines HR data with business data
DF51L
s f e li e B
IT
Va
Talent Procurement
IT
lue s
IT
IT
Values
Development
IT
FIT
IT
Compensation
IT
Beliefs
IT
Career Management
IT
Performance Management
s lue Va
EL13K
Bel i e f s
The Business Case for eHRShort Term
Increase efficiency
z z
Cut costs Cut HR staff
Enhance level of service

z z
Better quality information Flexibility of access
Focus organization on core activities

DF25L
The Business Case for eHRLonger Term
Foster organizational transformation

z z z z
Enhance employees Net capability Strengthen the B2E relationship Save employees and managers time Enable scalable growth
Enables managing people as a core competence Guides business strategy

EL27L
HRs New Capability Requirements
To deliver the strategic B2E vision HR will need to develop a new set of capabilities:
z
Enhanced understanding of the business strategy and processes CRM and branding: internal and external
Data mining
z z
Technology fluency Building and managing effective strategic supplier relationships Knowledge management
DF32L
Key Issues eHR

Impact on Employees Commitment/Satisfaction Impact on Competitive Advantage Data Ownership Use of Push Technology Digital Divide Role of IT Function Development Approach Part of General Portal What is Done Best with Personal Contact How to Organize HR Function
EL43L
Approaches to eHR

Outsource Build Own Assemble / ASP Modules ERP Products
EL30L
Exult Model

Sell to Top Historical Cost Contract and Equity Position Process Analysis Process Changes Gainsharing eHR and Call Centers Transfer Employees Downsize HR
EL44L
Managing Dualities
Follower Reactive Administrator Controller Conscience Employee Advocate Doer Leader Proactive Strategist Business Partner Business Person Manager Consultant
EL4D

Linking Business Strategy and Human Resources Management

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Linking Business Strategy and Human Resources Management

Sources of Competitive Advantage

2001 Center for Effective Organizations, University of Southern California

2001 Center for Effective Organizations, University of Southern California

2001 Center for Effective Organizations, University of Southern California

2001 Center for Effective Organizations, University of Southern California

Share Value Determinants

2001 Center for Effective Organizations, University of Southern California

Importance of Non-Financial Factors to Investors- Oil and Gas

2001 Center for Effective Organizations, University of Southern California

Importance of Non-Financial Factors to Investors - Computer Industry

2001 Center for Effective Organizations, University of Southern California

Executives Views of Information

Source: Schumann & Associates

Return to Shareholders (1994 - 1999)

Medium HCI Companies (26-75)

High HCI Companies (76-100)

2001 Center for Effective Organizations, University of Southern California

2001 Center for Effective Organizations, University of Southern California

Two Highest Priorities For The Next 5 Years

2001 Center for Effective Organizations, University of Southern California

Model 2 - Human Resource Management Aims:

2001 Center for Effective Organizations, University of Southern California

Human Resources Management Is Too Important To Be Left To:

The Human Resources Department Line Management

2001 Center for Effective Organizations, University of Southern California

Out Source Shared Services

2001 Center for Effective Organizations, University of Southern California

Model 3 - Business Partner

2001 Center for Effective Organizations, University of Southern California

Business Strategy Is Too Important To Be Left To:

The Human Resources Department Line Management

2001 Center for Effective Organizations, University of Southern California

Model 4 - Strategic Partner

2001 Center for Effective Organizations, University of Southern California

30% 29% 24% 22% 13% 11% 9% 8% 6%

44% 40% 28% 16% 22% 13% 10% 7% 12%

Human Resource Roles

15.4 12.2 31.3 18.6 21.9

16.1 11.2 35.0 19.3 20.0

22.9 19.5 34.3 14.3 10.3

25.6 16.4 36.3 14.2 9.5

Strategic Business Partner

2001 Center for Effective Organizations, University of Southern California

HR and Business Strategy

4.2% 16.9% 50.0% 28.8%

2001 Center for Effective Organizations, University of Southern California

Percentage Reporting that HR is Business Partner

2001 Center for Effective Organizations, University of Southern California

Percentage of Corporate Officers Who Strongly Agree

Believe this philosophy

Think HR plays this role now

2001 Center for Effective Organizations, University of Southern California

Extent of Contemporary Approaches

3.3 3.3 4.0 2.8 2.6 1.9 1.9 2.0

2001 Center for Effective Organizations, University of Southern California

2001 Center for Effective Organizations, University of Southern California

Effectiveness Effectivenessof ofShared Shared Services Services

2001 Center for Effective Organizations, University of Southern California

Outsourcing of Human Resource Practices

Outsourcing of Human Resource Practices

71% 63% n/a 39% 47% 38% 31% 34% n/a 2%

2001 Center for Effective Organizations, University of Southern California