My co-author Ranya Nehmeh asks a deceptively simple question of people in HR: What is your organization’s people strategy?
The reason it turns out to be a tricky and embarrassing question is because we all feel we should have one but we usually can’t articulate it. Why is that?
The answer takes us back to the 1980s. Before then, all “personnel” departments were pretty much the same. Although they were big and influential, they were all doing the same tasks in roughly the same way, some better than others.
Then the academic world identified the notion of business strategy, which meant that at least in businesses, companies had choices as to how to compete for customers and to make money. The fundamental point was that we probably cannot succeed if we are all doing the same thing as our competitors, the insight made famous by Michael Porter.
Among other things, that insight helped create the huge cohort of consulting firms that told companies what their strategy should be. At least initially, the idea was that there was a basic set of options from which competitors could chose, such as being the low-cost leader or offering something unique that distinguished the business from others. What follows from that? It was the ideal of “alignment,” that the practices inside the organization should support the business in achieving that strategy.
That is where the idea that HR as a function should have its own “strategy” began: a distinctive set of practices that supported their organization’s distinctive business strategy. I spent some of my earlier career describing that process, and there were many examples that seemed to support the general idea of alignment: Coke, for example, had a strategy of managing the most important trademark on the planet, so they slowly and carefully developed talent who understood the brand on a deep level in comparison with Pepsi, who competed across a range of drinks, constantly new ones, and brough in new talent from outside to get new ideas and try them out. HR practices differed because the business strategies differed.
But companies no longer have anything like a consistent strategy over time that drives their business even within a single market. Why not? A simple answer is that the competition changes too quickly. Distinctive products get copied fast, marketing pulls customers away more easily, competitors come in and out. Competitive advantages just don’t last long.
I had the opportunity recently to sit in on a discussion among CEOs about how they got their companies to succeed. We might guess that this was a discussion about setting strategy, but nothing about strategy as traditionally defined ever came up. What they said is that they watched competitors and the marketplace, then decided when to get out of a business, when to get into a new one—mainly mergers and acquisition—and sometimes when to double down on some market where they already operated. How to compete within a given market never came up. They were responding much more like investors deciding where to place bets than the traditional view of them as setting competitive strategy.
Some hard evidence for this new view comes from an interesting survey of how CEOs set strategy based on reasonably extensive reports from 262 CEOs. It assessed how well the CEOs could answer the question “What is your company’s strategy?” where a score of 1 meant “Respondent is unable to summarize” versus 5 as “A formalized, concise statement.” The average score was 2.5, much closer to the CEOs not seeming to have a strategy at all, as opposed to having a clear one.
When it comes to executing strategy, which is where an HR or people strategy would come in, CEOs were asked how well implementation issues had been worked out when the business strategy was determined. A score of 1 meant not laid out at all versus 5, where the obligations for execution had been identified for all departments. The average score here was even lower: 2.1. In other words, the strategy gets picked, and then the organization thinks about how to achieve it.
HR’s strategy dilemma
We still hear “organizational alignment” from consultants and strategy-setting experts as being a necessary part of effective operations. It implies that HR—the function most responsible for executing anything—has to act to support what the business is doing.
That is the dilemma: HR should have a strategy, but how can it if the business itself doesn’t have a clear or consistent strategy? Simply doing the basic steps well puts HR on the sidelines as something that could be outsourced. Is the answer for HR to get involved up front in M&A decisions to anticipate the people issues that cause them to fail? Is it to help the business get in and out of markets faster? Are there consistent issues that do change as rapidly, such as organizational culture?
That’s not clear, but it is the place to start looking.
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