Creating a strategy oriented HR system

By way of overview, we can think of an HR process as consisting of three basic components. There are the HR professionals who have the strategic and other skills required to build a strategy-oriented HR system. There are the HR policies and activities that compromise the HR system itself. And there are the employee behaviors and competencies that the company’s strategy requires, and that hopefully emerge from the actions and policies of the firm’s strategy-supporting HR systems. Some HR experts refer to these three elements as a company’s basic HR architecture.

Ideally, the HR professionals should design the HR system in such a way that it helps to produce the employee competencies and behaviors the company needs to achieve its strategic goals. It obviously does little good to design, say, training practices that produce a workforce incapable of using the company’s new computerized machines.

Creating a strategy oriented HR system requires new skills on the part of HR professionals. They must have the competencies required to create HR systems that produce strategically relevant employee behaviors. They need to understand the strategy formulation process. They must be adept at identifying the workforce implications and requirements of the new strategy and at crafting HR policies and practices that produce those workforce requirements. They must have a sufficiently wide breadth of business knowledge to be able to understand how the company creates value, and to see how the firm’s HR system can contribute to that value-creation process. The HR professional has to understand how business operates. Just understanding the details of recruiting selecting and training is no longer sufficient.

In today’s competitive environment, the manager can’t leave the nature of the HR system, the actual HR policies and practices to chance. Managers usually try to create high-performance work systems (HPWS). The HPWS is a set of HR policies and practices that maximize the competencies, commitment, and abilities of firm’s employees in practice. This means that each HPWS HR activity produces measurable superior results. It is to be noted that the high-performing companies structure their recruiting activities so as to produce qualified recruits, much more extensively. Also high-performing firms hire employees based on selection tests and provide training to new employees much more extensively. The bottom line is that management can’t leave their HR systems unmanaged. A research program with over 2,800 corporation firms that use HPWS policies and practices do perform at a significantly higher level much more extensively than those that do not. The evidence suggests that “high performance HR practices, particularly combined with new technology, produce better productivity, quality, sales, and financial performance.

For example, the high performing firms generally emphasize placing employees in self managing, cross functional teams. In fact, the whole thrust of the HPWS’s superior recruiting, screening , training , and other HR practices is to build the sort of highly trained, empowered, self governing and flexible work force that companies today need as a competitive advantage.

The need for HPWS became apparent as global competition intensified in the 1990s. Companies needed a way to better utilize their human resources as they strove to improve quality, productivity and responsiveness. In the early 1990s, the US Department of Labor identified several characteristics of high performance work organizations; multi-skilled work teams; empowered front-line workers; more training; labor management cooperation; commitment to quality; and customer satisfaction.

The HR manager needs a way to translate the firm’s new strategy into specific, actionable HR policies and practice. Management formulates a strategic plan. That strategic plan implies certain workforce requirements, in terms of the employee skills, attributes, and behaviors that HR must deliver to enable the business to achieve its strategic goals. For example, Employees must dramatically improve the level of customer service, more computer literate employees needed to run new machines getting installed. Given these workforce requirements, HR management formulates HR strategies, policies, and practices aimed at achieving the desired workforce skills, attributes and behaviors. These may take the form of new selection, training, and compensation policies and practices. Ideally, HR management then identifies “Scorecard” metrics it can use to measure the extent to which its new HR initiatives are supporting management’s strategic goals.