According to Porter's theories, there are three ways in which a company could gain and maintain an advantage over its competitors: segmentation, differentiation or cost leadership. Alongside these classical strategies, there is another one that has gained increased importance in recent years. According to this new view, competitive advantage can be gained also through people, and the success of a company relies on its ability to acquire, retain and motivate talented workers.
This strategy is fundamentally different to the other ones, because it belongs to the Human Resource sphere. Treating people as the scarce and most important resource of a company means therefore shifting the importance of HR functions to a new level. Effective HR management becomes fundamental for the company, as HR managers are more directly involved in strategic decisions.
This essay aims at analysing the current challenges that contemporary businesses face, focusing on the implications that are more strictly related to Human Resources functions. Subsequently, the war for talent will be analysed as a core function for the strategic position of today's organization. Examples will be given to show different ways in which HR and strategy formulation are linked, and to describe the benefits that this linkage brings to the company. The final part of the essay features a discussion of the competencies that are required from HR managers in order to become strategic partners within the organization.
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In today's constantly changing business environment, managers are no longer engaged only in the battle for strategic market position. Besides developing and maintaining a core competitive advantage that allows to business to expand and be profitable, companies need to face many other challenges that are strictly related to the Human Resources sphere. Some of these challenges encompass competing by attracting, retaining and motivating staff, developing effective succession management policies, globalization and consequent workforce diversity, changes in organizational structures, HR innovation and sustainability.
It is believed that scarce strategic resource in today's business environment is 'people'. The scarcity is due to many factors, including demographic trends. OECD countries are experiencing static populations and birth rates are declining. It follows that in the near future there will be more people retiring than joining the workforce, if the current employment and retirement policies will not be modified (Holland, Sheenan & De Cieri 2007).
A research conducted by Michaels, Handï¬eld-Jones and Axelrod (2001) surveyed 77 companies and realized that 75 per cent of them were short of talent, either on a temporary or permanent base. They argued that the skill shortage represents a true crisis, since finding 'talent' is becoming more difficult and costly.
Employees whose skills are in demand are referred to as gold-collar workers, because they enjoy a top-level position in the labour market. They usually do not look for employment but for 'employability' and they are willing to change their job often. Their strength is represented by they fact that they own the means of production, i.e. specific knowledge, and thanks to their specific skills are able to gain big rewards (Holland, Sheenan & De Cieri 2007). The problem of talent shortage is affecting also the Australian labour market, especially in the mining sector. Mining companies that operate in regional areas are currently losing skilled workers, who choose higher paid jobs in metropolitan cities (Cooper 2010).
Engaging in the so-called 'war for talent' is the most important competitive challenge and has recently become a strategic imperative for many companies across the globe. The battle for talent starts from the hiring phase since companies face a fierce competition in attraction gold-collar workers. According to Bartlett and Ghoshal (2002), the challenge for HR professionals is converting recruitment into a strategic task. In order to do that, the company must commit itself to locating and attracting the best people not only for the top management positions but also at any level. Recruiting average people can lead to a loss, also because the company "loses to opportunity to acquire competitive advantage through a hiring decision" (p. 37).
Once acquired, highly skilled and talented employees must be retained and motivated. According to Holland, Sheenan and De Cieri (2007), gold-collar workers expect that the company will secure employment and, more importantly, enhance their skills and upgrade their knowledge, so they will be able to maintain their status of in-demand workers in the labour market. By proving ongoing training and development to its employees, a company can become an 'employer of choice', therefore gaining an advantage in the war for talent.
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The effort of retaining people is strictly connected to the strategies that a company adopts to motivate its employees. Motivation refers to the mental process that makes people think and behave in a certain way. When applied to the organizational context, employees' motivation increases if they see the company fulfilling their needs. Motivational theory is strictly connected to Maslow's Hierarchy of Needs. In fact this theoretical framework is used by HR professionals in outlining motivational strategies. It classifies individual needs into five categories: physiological, security, social, esteem, self-actualisation. The basic needs that human being try to satisfy are the physiological one, such as food and shelter. Once they are satisfied, an individual moves to the second sets of needs, i.e. the need for security, and so on. The model therefore highlight the fact that a person is motivated by the needs that have not been satisfied yet and not by the one that are already fulfilled (Kaliprasad 2006).
In today's global economy, HR managers need to carefully develop motivational strategies according also to the cultural context the company is operating in. An analysis conducted by Di Cesare, and Sadri (2003) shows that different cultural backgrounds can impact the importance and effectiveness of motivational drivers, even if individuals are motivated by the same essential human needs worldwide. For example, American workers follow an individualistic approach and therefore are motivated by improving themselves and their status. On the other hand, Japanese people are driven by the success of the group as a whole, following a collectivistic approach.
A common mistake made when planning a motivational strategy is adopting a short-term approach. Pay rises do improve the morale of the workers, but this lasts only for a limited time. A long-term should be recommended, according to which employees are recognized for their efforts and informed that their good performances are fundamental to achieve the company's overall goals (Taylor & Stern 2009).
Succession planning and management represents another current challenge that HR managers need to face. Today's business climate requires organizations to go beyond pure succession planning, i.e. identifying individuals for specific positions, and develop a succession management scheme. Through succession management, companies are able to develop potential successors so that they will be ready for their future positions (Byham 1999).
Changes and challenges have been brought about also by the increasing globalization, which had a huge impact on the composition of the workforce. The composition of work units has significantly changed over the past decades in terms of cultural or demographic characteristics and it is becoming more diversified. However, diversity should not be considered as a threat, but as a core competency for all employees, especially managers. Managing this diversified workforce is a very challenging task, but it is fundamental to ensure constant employee motivation and subsequent high performance. Therefore, it is vital to devote resources to diversity management and to develop training opportunities (Pitts 2009).
International staffing represents another consequence of globalization that HR managers need to face nowadays. Domestic and international staffing procedures are significantly different, since the process of recruiting and selecting expatriates requires HR managers to analyze different variables. The right candidate for an international assignment requires additional skills and knowledge that make him suitable to work in a different context. Usually expatriates are recruited internally to the company and therefore HR managers need also to persuade top-level management to release their best employees for international assignments. Moreover, the constraints imposed by host-governments, such as work visas, must be taken into consideration when selecting expatriates (Dowling, Festing & Engle 2008).
HR innovations represent another challenge for organizations, especially because these innovations are often surrounded by uncertainty. According to Wolfe, Wright and Smart (2006), the implementation of HR innovations is dependent upon two factors: the power of the innovation champion and the organizational context. An innovation champion is the person within the company that is actively engaged in promoting an innovation. He plays a fundamental role in the successful implementation of innovations. HR managers need to take on this role if they want to overcome organizational resistance to change.
To make the best use of its human capital, it is important that organizations take into account HR sustainability. Gollan (2005, p. 25) defines HR sustainability as "the capacity of organizations to create and regenerate value through the sustained application of participative policies and practices". In other words, sustainability refers to the ability of an organization to create value by carefully applying human resource policies and systems. HR strategies can be considered sustainable only if they are integrated with business performance and they lead to employee equity, development and satisfaction.
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After discussing the challenges faced by HR managers in the contemporary business world, it is important to analyse one of the solutions that organizations have adopted to be successful in the war for talent. As previously explained, the war for talent is created also by the fact that top talent choose the companies they want to work for and how long they will stay for that particular company. A key to this problem is represented by 'employer branding'. This is a new concept but it is seen as a crucial tool for the recruitment and retention process. It is gaining momentum and is increasingly recognized as of strategic importance by organizations worldwide, since it allows establishing "the identity of the company as an employer, and ideally an employer of choice for potential and existing employees" (Kaliprasad 2006, p. 25). But the biggest benefit is represented by the fact that employees become proud of their employer and decide not to look for new jobs.
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An example of a company that has been successful in winning the war for talent is Standard Chartered Bank. While competitors were suffering from a dramatic increase in attrition, Standard Chartered Bank was able to reduce attrition in its China operations by 3 per cent in the years 2007/2008, as described by Ready, Hill and Conger (2008). In order to achieve these results, they developed a strategy based on two main elements: attracting the best workers talent by making compelling promises based on company's brand, opportunities and purpose, and retaining these people by maintaining these promises through reward system based on merit.
SCB developed a talent management strategy called the "raw talent superhighway", which is aimed at attracting and retaining talented people for recruitment and providing current employees with continuous professional development. Peter Sands, the Standard Chartered Bank's CEO, explains the company's success in attracting, retaining and motivating talented employees in these terms: "By design we are among the world's most diverse organizations, so top talents from all walks of life are attracted to us because they know they will be embraced as central to our mission, not peripheral." (Ready, Hill & Conger 2008, p.4).
LINKAGES BW HR AND STRATEGY FORMULATION
Dealing with the linkages between human resources management and strategy formulation is an imperative for every organization, but it is particularly important for multinational corporations. Managers at the top level need to understand the profound implications of these linkages for the future of the organization. They should recognize that the company scarce resource is represented by talented people and therefore start building their competitive advantage on them.
In order for this to happen, HR issues should be at the top of the agenda in every company and should be discussed together with strategies priorities. Consequently, a Human Resource manager should sit in the Board of Directors and always work in close cooperation with the CEO (Bartlett and Ghoshal 2002). On the other hand, Guthridge, Komm and Lawson (2008) argue that the credibility and influence of HR managers have been declining recently, since they have not been able to demonstrate the strategic importance of their role. According to their findings, almost 60 per cent of all line managers think that HR function are not aligned with the business objectives of an organization and it does not have the necessary means to develop and implement talent strategies. Line managers believe that HR managers are only working for the top management and are not aware of where the talent is within the company. It is vital for the company therefore that HR leaders are willing to change their focus in order to meet the needs of line managers and employees at all level in the organization.
Brown et al. (2009) discuss the issue of compatibility between an employee-centered role and a strategic partner role for HR. The majority of managers that they surveyed reported undertaking both roles, even though most of their work is centered on being a strategic partner for the company. The main factor that demonstrated that the compatibility between these two roles is possible is represented by the changing view of HR manager in regard to employee-centered activities, since they regard these activities as consistent with the overall strategic responsibilities. Moreover, employee-centered work is perceived as beneficial since it improves employee retention, engagement, productivity and also the reputation of the HR mangers.
Since it has been demonstrated that attracting talent people is a strategic imperative for the company, it follows that the right amount of time and money should be allocated to this operation. Organizations usually make use of recruiting search firms and devote large amount of money when they need to hire a new senior leader. The same amount of time, care and financial resources is not used when hiring people for lower level positions. This is a common mistake, due to financial constraints but also to the biased vision that hiring is not a strategic and vital operation for the business. This view should to be changed and managers need to understand the importance of hiring the right people at every level of the organization (Taylor and Stern 2009).
In this context, it is interesting to analyze the framework outlined by Becker, Huselid and Beatty (2009). According to their view, the emphasis should be put on strategy, and not on people since a focus on people does not necessarily represents a fundamental change in the perceived importance of the role of workforce strategy. In their book these authors develop the fundamental concept of 'differentiated workforce strategy'. The core of this concept is the belief that differentiation is the most important feature of workforce strategy. It can occur at different levels: between organizations, within the same organization and among employees within a single unit of an organization. Value is created through the different ways in which companies design the workforce and develop the strategic plan needed to manage it.
Another strategic priority for every business is represented by the need for knowledge sharing. Knowledge is a different kind of resource that resides in the head if individuals at all levels in the company. It is different from capital since it increases when shared. It cannot be accumulated or centralised and then distributed to the projects or units were it should produce the greatest benefit to the organization. Therefore a change is needed in the perception of the importance of knowledge building and sharing. Senior managers should foster this process by developing individual expertise and skills. In a second stage, this pool of expertise and skills can be leveraged within the company trough cross-unit sharing (Bartlett & Ghoshal 2002).
However, according to Rishikesha (2005) there are come HR principles that transcend business strategy concerns in some circumstances. At times of crisis or major environmental shift, the author believes that
"it is the goodwill and commitment of employees that can be a major source of resilience. Such goodwill and commitment can not be engendered through a confrontational human resource policy. Transparency and fairness on a continuing basis are essential to create the reservoir of goodwill that makes employees willing partners in organisational transformation" (p.218).
Some companies have been successful in building competitive advantage by linking HR functions with the overall company's strategy. An example is Nucor, a US steel manufacturer, described by Rishikesha (2005). This company competes on the base of costs, i.e. is pursuing a cost leadership strategy that is based on 4 main elements: innovation, efficiency, quality, responsiveness. This characteristics are matched by a well-developed HR plan. Nucor has always been aware of the importance of engaging in the war for talent and therefore has valued the process of attracting, motivating and retaining talented workers. Nucor employs ambitious people, motivated by excelling through ongoing development and improvement, which in turns bring them monetary rewards. Teamwork is another fundamental aspect of workforce management at Nucor, since steel production depends on group work. It follows that incentives are given on the basis of group performance. The concept applies also at the managerial level: plant managers are not rewarded only depending upon their plant's performance, but the output of the company as a whole is take into consideration. This has a profound implication because it represents a motivation to share and transfer knowledge and innovations within the organization. It helps also creating also a cooperative, and therefore more productive, environment.
Another example of a company that succeeded in matching HR and company's strategy is Lincoln Electric Company. Thanks to its innovative HR strategies, by 1995 Lincoln was able to gain 36 per cent of the market share for welding equipment in the USA. Their strategy is similar to the one adopted by Nucor, since compensation is directly linked to their performance level. An important difference is represented by the fact that at Lincoln, every year a big portion of the company's profits is distributed to workers. This is carried out on the basis of individual merit ratings that take into consideration not only output, but other variables such as ideas, cooperation, and quality of work (Rishikesha 2005).
COMPETENCIES NEEDED BY HR MANAGERS
Taylor and Stern (2009) discuss the importance of choosing the right people for HR position, especially at the top level of management. Since they are required to perform some of the most important and difficult task in the company, CEOs cannot make the mistake to choose second-rate people for HR roles. HR executives need to create strategies to attract, retain and motivate the most talented people available in the labour market. Therefore, they need to be the most qualified and best candidates for this job. Some of the qualities they need to have encompass dynamic leadership, ability to motivate and lead and being the best talent evaluator.
Alongside traditional skills and capabilities, HR leaders are required to build specific competencies, if they want to become a strategic partner in the company. As stated before, it is important not only to attract workers with individual-based knowledge and skills, but also enable the sharing of this expertise. It is fundamental therefore that the HR department makes use of IT experts that are able to map, codify and model this knowledge. They are responsible of building databases, intranets and expert systems, which make huge amount of information more accessible. These technical infrastructures therefore represent very valuable resources for the company (Bartlett and Ghoshal 2002).
However, there are other competencies that HR managers need to have if they want to promote knowledge sharing. Since this process is operated mainly trough social interactions, HR managers are responsible of creating these social networks trough which knowledge is captured and transferred. HR executives should be capable of understanding process management and organizational design, but most importantly they should develop "interpersonal relationships and a trust-based culture" (p.39).
In order to be truly effective in his/her role, HR executive should show many qualities such as fortitude, a point of view, backbone. But most importantly, he/she needs to be courageous and not blindly follow executive directions from the CEO. HR is often asked to stand up and confront difficult issues, defend its choices and take on the role of 'conscience' of the company (Taylor and Stern 2009).
In conclusion, the war for talent seems to be one of the greatest challenges that organizations worldwide will be facing in the next years. It is a condition that has been generated by demographic factors, such as aging population and declining birth rates. Thanks also to an improvement in the general level of education and more widespread access to tertiary education, the composition of the workforce has significantly changed. Talented people are aware of their skills and knowledge level and want to find the best opportunities for themselves. They are willing to work only for the best employers and are ready to change their job in case a better position becomes available somewhere else. Therefore organizations need to fight to have these people, because they carry with themselves knowledge and skills that companies cannot afford to miss.
Hiring choices can influence the success and failure of a company, and they have therefore taken on strategic importance. Once the minds of these people have become intangible assets for the company, another war begins. Now the company needs to fight for the heart of its high-skilled workers and made them commit to the company in the long-term. Therefore the same importance must be given to the process of retaining and motivating people, because they are two fundamental aspects for avoiding a high employee turnover. Using a romantic metaphor, HR managers are responsible to make talented people 'meet' the company and 'fall in love with it'. Once the relationship has begun, it is important that there is an ongoing reciprocal commitment to fulfil each other's current and future needs.