Aligning Human Capital Strategy With Organizational Strategy

An organization’s workforce is potentially its most valuable asset. But this statement is only true if the workforce is made up of the right people, with the right knowledge/skills and the right motivation.

In addition, it must be managed effectively; this is where the human capital strategy comes in. It provides a framework for staffing and developing the workforce and for effectively and appropriately defining, measuring, managing and rewarding performance.

Figure 1 (below) shows a model for deriving the human capital strategy from organizational context and the business strategy. The context is a function of the vision/mission of the organization, the culture and the internal and external realities with which the organization must deal. Each organization must determine its context before examining alternative business strategies, since different strategies work or do not work depending on their fit to the context within which they must be executed. Then it can formulate a strategy for effectively functioning within that context.

Figure 1

As suggested in Figure 1 the business strategy should guide the manner in which the organization is structured and the human capital strategy adopted. The human capital strategy should result in the organization getting, keeping and motivating the workforce needed for success.

This article explores the impact of business strategy on the type of human capital strategy and its component functional strategies — such as staffing development, performance management and rewards management — that will be effective and appropriate. The business strategy that’s focused on one approach, which is the low cost provider or differentiation; or the operational excellence or product leadership or customer intimacy, makes planning for, building and managing a workforce that fits the strategy relatively straightforward.

Staffing and Development Strategy
The type of workforce an organization builds should be a good fit to strategy. By profiling the types of employees fitting the strategy using competency models, an organization can use workforce planning to evaluate the adequacy of the current workforce and plan for future needs. The model in Figure 2 illustrates the flow that can be used to continuously evaluate the workforce in light of changes to the organization’s needs.

Performance and Rewards Management Strategy
How effectively and appropriately an organization defines, measures, manages and rewards performance will have a significant impact on employee focus and motivation. When an organization utilizes multiple business strategies, the way in which performance is defined may vary across strategies. Or, it may be defined as overall success. For example, even if the organization has separate business units, the performance of business unit executives can be defined as both organization-wide results and business unit results. This creates an incentive for them to manage their units in a way that contributes to overall results. In organizations pursuing multiple business strategies within the same entity with the same workforce, individual and sub-unit/functional performance can be defined as both individual/sub-unit/functional results and organization-wide results. By basing individual performance appraisals on both individual success and contribution to the effectiveness of others and the unit, employees are motivated to achieve results in a manner that contributes to overall results.

Incentive plans can also be of value when business strategy changes. “What you measure and reward you most surely will get more of” is a principle that is widely accepted and is behaviorally sound. As an organization alters the way it competes, or even its basic vision/mission, changing performance criteria and standards can serve as a signaling device to put employees on notice that the game has changed. It is one thing to state that customer satisfaction needs to be improved, it is quite another to define, measure and reward performance based on satisfying customers. And direct sales employees who are rewarded more for $1 of sales from a new customer or a new product than they are for $1 of sales of an established product or to an established customer are economically motivated to focus their efforts based on what the organization will pay for.

Alignment Matters
The degree of alignment between the human capital management strategy and the organizational strategy will be a major factor in determining how effectively an organization manages its human capital. Getting the right people on board is the first step. The second is to align the efforts and focus on the objectives of the organization, by effectively utilizing the talents of people and defining appropriate roles for them within a coherent structure. The third is to develop a performance model that defines and measures performance at the organizational, unit/group and individual levels using the appropriate criteria. The fourth is to reward performance equitably, competitively and appropriately, which will provide the motivation to extend one’s best effort and to focus that effort on what will contribute to organizational success.

An excerpt from:“Aligning HR Strategy with Organizational Strategy” by Robert J. Greene, PhD
Email to request a copy of the full article.