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In the current competitive corporate scenario, where the senior managers have grudgingly accepted the importance of involvement of the human resource function in the strategy implementation process, they still have not understood the importance of their presence in the strategy formulation phase. Based on the review of available literature on HR as a strategic partner, a model has been developed which aims to explain the expediency of involvement of HR in the strategic formulation phase in order to arrive at a course of action which leverages its strengths and weaknesses and at the same time manages the firm's weaknesses and threats.
Key words: HR as a strategic Partner, Strategy formulation process, Strategy implementation process
HR as a Strategic Business Partner
The word strategy sprung from a Greek word stratçgos which is an amalgamation of two words stratos: army and Ago: Leading/guiding. This word was initially used in military context and referred to the plans made by the military officials which were followed by the army in order to defeat their enemy. One of the first writers that discuss strategy is Sun Tza (6 century B.C) who in his critically acclaimed work The art of war said "All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved."
The usage today is not very different from before but 'Strategy' has now become a common word which is used in almost all realms of life. In corporate terms, strategy is a set of long term plans, actions and decisions that the manager make in well defined manner so as to steers organization towards attainment of its goals. In the changing role of HR Andrea Adams writes that only in the 'Future Proof' organizations who can plan their future endeavors effectively can continuously sustain themselves in the competitive global arena.
It is no longer over dramatization to say that one of the main roles that an HR plays is that of a strategic partner, especially today when most of its administrative functions are being outsourced. According to Schuler et al. (2007) the formulation and implementation of policies and practices affecting human behavior need to involve collective insights, knowledge and perspective of employees, customers, managers, board members, union members, government officials as well as human resource practitioners. He says that it takes all these groups to produce appropriate competencies, the right number of employee, needed behaviors and feasible levels of motivation to achieve organizational goal.
Strategy making includes strategy formulation phase, strategy implementation phase and monitoring and evaluation phase. While many researchers have written galore about the importance of HR in the strategy implementation process where the HR strategy should follow from firm's strategy, not much talk about the HR partnering in the strategy formulation process. The strategy measurement and evaluation phase has also been researched well by authors like Dave Ulrich. In this paper we are going to concentrate on the strategy formulation part of the strategy making process.
Strategy formulation process
In strategy formulation process the managers need to take the panoramic view of all the functions and their interconnections into consideration so that a common thread runs through all their activities and future designs. Alfred Chandler (1962) was one of the first scholars who professed the importance of coordinating various aspects of management under one all-encompassing strategy. A number of issue and problems arise in the strategy implementation stage when the functions that are going to execute the strategy are not in the loop during its formulation process. Time and again unrealistic goals are set in front of these departments with a rigid budget and time constraint which are a result of a flawed vision to strategy conversion process. This is because often strategy is made by people very far away from the field and hence there is a big gap between what is planned on paper and what needs to be done to achieve the organizational goals. Hence, for long term sustainability it is imperative to create a process of strategy formulation that is holistic in nature and does not treat functions in silos.
One of the functions that are neglected the most is the human resources function as often strategists tend to give people i.e. the employees the back seat. Some strategies involve making difficult decisions like layoffs and closure of factories which could have been avoided or better managed if HR function was involved from the first phase of strategy formulation. Most strategists are interested in calculating and analyzing the physical and financial capitals and ignore the intangible capital of the organization. But it is the people in the organization use and interacts with its physical and financial capital to produce a joint effort that is greater than the sum of the parts acting alone. Companies' human capital is the only resource that is a competitive advantage as it cannot be easily imitated by its rivals.
Strategy Formulation Model
A holistic model of strategy formulation is explained in the figure which is explained in terms of HR requirements subsequently. The process begins with the measurement of the current status of the assets and liabilities. At this stage the various assets i.e. the financial capital, physical assets and the intangible assets - the intellectual capital and the current and long term liabilities of the firm is studied to so that the future plans are made on the basis of the strengths and weaknesses of the firm. The various strategies which can be followed to attain the final goal are listed along with the constraints in terms of assets and liabilities. Along with the internal capabilities the firm's industrial, economical, social and political environment is also studied. This is essentially the data collection stage after which this data is analyzed together
Find the status of the various Resources-(Assets)
Find the status of the various Liabilities
Goal of the Company
Environmental Analysis-Social, Political, Economical, industry
Feasibility Studies/gap analysis/
Final Strategy-long term-operational-functional
Fig 1.Strategy formulation model
Assessment and the feasibility stage
In this stage the feasibility of various strategies to attain the organizational goal are studied with reference to the assets, liabilities and the environment the organization is in.
Let's take an example of an IT firm's goal is be among the top in 10 firms in 5 years to understand this stage. The firm can adopt various strategies to attain its goal for example it can kill the competition by acquiring and merging with small players in the market or it can innovate and make new revolutionary products. The final way that the firm adopts would depend on its current status. Let's find out the feasibility of the strategy of mergers and acquisition. The first question to be asked here is: do we have enough capital for the same, second is do we have the enough expertise to manage a new business and the third is: Are there any firms that can be acquired. To answer all these questions the firm needs to assess its intellectual capital, physical capital and its financial capital and its environment i.e. the current talent pool in the company, the competencies of the employees, the environment and the industry environment needs to be gauged. The company realizes that it does not have the financial resources to follow this course of action but during the process they realize that the intellectual capital of the company is very strong and is not fully utilized which would mean that the second course of action of that of innovation is more feasible.
This process finds the best strategy which leverages our strengths and utilizes the opportunities presented to us with and which can overcome the threats and weaknesses we possess. We will concentrate on the assessment of the intellectual capital in the organization which is studied at two levels in the model: Talent Assessment and Assessment of systems and processes.
The first level is the study of the available talent in terms of the number of Employees, the competencies that they possess, the most important positions which will be critical in attaining the organizational goal. The measurement again should be in terms of existing strategy so that a clear distinction can be made between the requirements of the new strategy. Depending on the available talent in the company the final implementable strategy can be chosen and its feasibility can be studied. Any gap in the same can be narrowed when the company gives the employees an opportunity to develop through training interventions or recruits fresh talent from outside. Attrition rates and the causes of attrition need to be studied to understand the future implications it has on the firm's strategy.
The model for the talent assessment is described in the figure 2
Number of employees
Competencies of the employees
Is there a requisite talent pool?
Is a new strategy needed??
Develop & train or Recruit
Fig 2: Talent assessment model
Assessment of Systems and Processes
The second part of human resource assessment is the evaluation of the firm's existing systems and processes. The systems and process which are under the radar at this stage are the Performance management system, compensation and reward system and the organization structure.
Performance measurement system is essentially the foundation of all HR interventions. This system is required in the first level too as it is through this process that the knowledge, skills and attitude of the employees can be judged. Here it is important to identify the behaviors that are important and which need to be measured. A system that is aligned to the strategy needs to be formulated otherwise the outputs of the performance measurement system would be useless for the firm. Hence when a new strategy is being formulated it is imperative that there would be some changes in this system as the organizational goals would change and hence the functional and operational goals and therefore the measures also would change which would record the status of these goals. Some researchers argue that the performance measurement systems will relate to 1) a greater frequency of strategy (re)formulations, and 2) a more comprehensive strategic agenda, reflected through a greater number and a wider variety of strategic decisions in each strategy (re)formulation.( Gimbert et. Al 2010)
Compensation and reward management system is very important in terms of establishing the behavior that the employees should display and the tasks that are important. For example for a sales intensive organization variable pay is high and the individual performance is rewarded but for a R&D intensive organization a steady basic pay and a variable pay which harps on the importance of team work is required. In an organization if the strategy is- highest customer satisfaction then the firm should devise the compensation system in such a way that this overall goal is communicated through it. Some employees directly come in contact with the customers and some are not in direct contact but their efforts still lead to customer satisfaction, such a link has to be made and the policies are to be in line with them. Some organizations have the policy of paying the best in the industry where as some line TCS have a policy of paying lesser than the market average but investing very heavily in the training and development of the employees.
Organization structure enables the firm to achieve the goal through a framework which employees use to divide work, establish work flow and assign authority and responsibilities. The structure of the company should be designed so as to facilitate fast response to the changes in the firm's environment, easy flow of work and clear coordination between various functions and departments. It is important to know the current structure and the dynamics of the organization so that a comparison can be made between what is required and what the firm possesses and requisite solutions can be formulated according to the firm's vision and constraints that bind the firm.
The model to study the same and the respective strategic choices is given below.
Compensation and Reward System
Implementable Final Strategy
Performance management System
Fig 3: Assessment of Systems and Processes
After these systems are studied and they are compared to what is required to be able to implement the strategy. The solutions to narrow the gap between the current and the required are listed and the feasibility of all these are studied. Depending on what changes can be made and what cannot the final strategy of the organization is formulated.
In the area of strategic management the human resource function should start functioning from the process of formulation of the strategy so as to be able to portend future requirements well before the implementation stage so as to avoid egregious mistakes. The key assets: Financial, physical and intellectual capital needs to be measured in terms of the requirements and a gap analysis needs to be done before the implementation stage.