How To Develop an Effective HR Strategy [2024 Edition]
It takes a capable workforce to meet the demands of an organization’s ambitions. When HR practices link employees to business goals, outcomes improve. An HR strategy centers HR efforts where they need to be to help the company thrive.
In this article, we will explain how an HR strategy impacts daily HR practices, look at some examples, and provide tips on how to develop an HR strategy.
Contents
What is an HR strategy?
Key components of an HR strategy
The importance of HR strategy for your organization
HR strategy framework
How to develop an HR strategy
HR strategy examples
FAQ
What is an HR strategy?
An HR strategy is a plan for aligning human capital investments with business needs. It shapes the character and direction of HR management activities to focus on supporting what the company is trying to accomplish. The HR strategy sets the direction for all the key areas of HR, including hiring, performance appraisal, development, and compensation.
According to Dr. Dieter Veldsman, Chief HR Scientist at AIHR, an HR strategy is always in response to what has been articulated in the business strategy. “The HR strategy clarifies how HR will contribute to achieving the business objectives and helps to guide all HR activities,” explains Dr. Veldsman.
An HR strategy is characterized by:
- Requiring an analysis of the organization and the external environment.
- An outlook of three to five years.
- Forming the base of Strategic Human Resources Management in an organization.
- Helping in the deployment and allocation of organizational resources (i.e., money, time, personnel).
- Being revised on an annual basis.
- Resulting in a specific behavior.
Key components of an HR strategy
The details of an HR strategy will differ according to each organization’s needs. However, you’ll want to make sure it covers certain key areas to inform your HR practices.
These include:
- HR mission statement: Create an HR mission statement to define what you’re trying to achieve. Ensure that every HR team member is well acquainted with it.
- Organizational culture: When HR is in tune with the company’s goals, it can look for ways to promote the desired behaviors and a culture that will help make them achievable.
- Talent acquisition and recruitment: HR can target its talent acquisition tactics to reach and hire qualified talent that can take the company where it’s headed.
- Talent management and development: HR must stay on top of the capabilities required to get work done efficiently and effectively. Then, it can design appropriate management and development practices to build these up.
- Compensation and benefits: With buy-in from senior leadership, HR can ensure that compensation and benefits are competitive to recruit and retain the kind of employees who can contribute to organizational success.
The importance of HR strategy for your organization
An organization’s success relies on how well its employees deliver its product or service. Since every HR decision affects the workforce, there must be a thoughtful approach behind them.
Developing and executing an HR strategy has a positive impact on the business in the following ways:
- Alignment with business goals: HR can maximize its contribution to organizational goals by prioritizing its initiatives and actions to support them. Then both time and money are invested where it matters most. Without this focus, there is potential for misaligned efforts and wasted resources.
- Operational efficiency and performance: When HR can put the right people in the right roles, there is better resource allocation and streamlined operations. Then, processes become more efficient and effective, which enhances productivity and overall performance. In addition, relevant and timely workforce initiatives centered around the HR strategy enable business growth.
- Organizational culture and employee engagement: A strong, healthy organizational culture and engaged employees are the bases for achieving positive business outcomes. A people-centric HR strategy helps shape and maintain a workplace culture that enhances the employee experience and promotes engagement and productivity.
- Strategic workforce planning and development: Having an HR strategy means identifying current and future workforce needs and establishing clear guidelines on recruitment, onboarding, training, and retention. As you build a skilled, motivated workforce, you can also be looking ahead and preparing for future challenges.
HR strategy framework
An HR strategy framework gives structure to developing your HR plan and guides its implementation.
Deloitte created an HR strategy framework with three phases – Defining human capital value, Aligning HR products and services, and Delivering value – and ten steps. This approach helps HR leaders define the HR strategy in a systematic way.
Here is a brief overview of this method:
Defining human capital value
1. Understand the business strategy: You must have a grasp of what your organization has to offer and what its future strategies and goals are. Consider external market forces as well. Then identify how these will impact the HR strategy and priorities.
2. Define HR strategy: Create a roadmap for how HR can sync its functions with what the business is trying to accomplish. The goal is to leverage human capital in ways that will help build a competitive advantage for the organization.
Aligning HR products and services
3. Segment HR customers: Not all HR customers are equal. Segment your different (internal) customer groups and identify the ones that are most crucial in achieving desired results. Different customer groups require different policies and approaches. Design programs and services that meet these varied needs.
4. Prioritize HR investments: Allocate your HR budget and other resources effectively. Understand the costs, risks, and benefits of delivering your initiatives and services. Then you can prioritize the investments that benefit your key customers and provide the best ROI. A good technique for prioritizing these investments is calculating an ROI through HR costing.
5. Design HR services: Go through all the HR focus areas and analyze and identify any processes that need to be streamlined or re-engineered.
Delivering value
6. Ensure the right HR service delivery model – Evaluate the current HR service delivery model and assess how effectively it helps to meet the organization’s goals. You should also analyze the key HR enablers, such as HR systems, processes, and infrastructure. Optimizing these will help deliver HR services that add value to the organizational strategy.
7. Establish the right HR capabilities: Identify the skills and capabilities that the HR team needs to execute the HR strategy. Compare that to the current competencies and discover where the gaps are. Then determine how to train and recruit to overcome the disparities.
8. Improve HR operational excellence continuously: This step is about optimizing the role of HR. By regularly assessing the efficiency of HR processes, you can find ways to improve them. This may involve providing tools or infrastructure that HR staff need to be more efficient and effective.
9. Build an HR brand: HR’s value should be apparent to all stakeholders in the organization. Understand how the HR department is and should be performing by gathering feedback. Market what HR has to offer through integrated communication channels.
10. Measure the impact of HR products and services: In the end, HR processes must be effective to fulfill the HR strategy. Measure the impact of your products and services on the relevant business outcomes through HR analytics.
How to develop an HR strategy
Having a thorough grasp of your organization’s overall business strategy and reviewing an HR strategy framework is the starting point for how to create an HR strategy. As you get deeper into the process, there are some best practices for HR strategy formulation to keep in mind:
1. Understand how HR delivers value to the organization
HR models are a tool for articulating the impact of your HR department. One example is the Standard Causal Model of HRM:
This model displays that the HR strategy is a result of the broader business strategy. It shows that HR activities create value when they align with what the organization is trying to achieve and can promote higher employee motivation and job satisfaction.
This allows HR to contribute to the internal and financial performance of the organization. If you can demonstrate this impact, there is a clear justification for the resources that must be invested to execute the HR strategy.
This exercise also helps you be realistic in your planning. Can you deliver what your HR strategy promises? What do you need for successful execution?
2. Consider emerging HR trends
New developments and technological advancements are constant factors in the world of work. Emerging HR trends include the boom of generative AI, flexible work arrangements, and an emphasis on employee wellbeing. As new considerations transpire, expectations for HR and what it should deliver will continually change.
HR teams must be aware of external and internal dynamics that will require adaptation and how this influences the strategic HR plan.
3. Conduct a SWOT analysis
A SWOT analysis is a method for mapping out an organization’s or department’s internal strengths and weaknesses and its external threats and opportunities. Strengths include the company’s core know-how and know-what. These are, for example, its production capacity, existing brand, marketing channels, sales capabilities, R&D expertise, and other human capital factors.
Using this assessment, you can decide how these elements affect HR and also conduct your own SWOT analysis. Then you can make plans for addressing the weaknesses and leveraging your human capital strengths to make the most of opportunities.
4. Plan for long term with room for adjustments
A strategy is, by definition, long-term. This doesn’t mean it isn’t subject to change. You will need to address limitations and shifting circumstances. Specific actions within a strategy can and sometimes should be adapted to better fit the environment.
For example, if your commission and bonus structures are not producing the expected results, you may need to alter them to encourage and reward new behaviors that will improve business activity.
5. Get management buy-in
An HR strategy cannot stand alone. Carrying it out requires an appropriate budget, technological resources, and skilled staff. This is only possible when management backs the strategy and is willing to fund and advocate for it.
Being able to demonstrate how HR practices deliver value is the key to gaining this crucial support from business leaders. It’s also a great opportunity to clarify what the leadership expects from you and what you, as HR, will and will not be doing.
6. Upskill your HR team
Competent HR professionals are the foundation for implementing and executing an effective HR strategy. They need HR knowledge, business acumen, HR technology literacy, and appropriate soft skills.
HR leaders need to know where the HR skills gaps are and plan how to bridge them. Identify the employees who have talent beyond the scope of their current role and are ready to take on new challenges.
Work with your HR team members to create professional development plans that will guide their growth and skill building. Focus on future HR skills that will help your team navigate the fast-changing work environment and successfully guide the organization through these shifts.
If recruiting is necessary, focus on skills-based hiring to find people who are equipped with the right capabilities, even if they lack direct experience in a similar role.
7. Monitor your strategy execution through KPIs
A strategy will never be effective without consistent implementation and monitoring of results. This is done through tracking HR Key Performance Indicatiors (KPIs) (metrics that measure strategic objectives) to quantify how successful your HR strategy is.
These metrics could include:
- Absence rate
- Turnover rates (voluntary and involuntary)
- Internal promotion rate
- Employee satisfaction index
- Employee engagement index
- Supervisor and employee feedback statistics
This will be an ongoing process, so determine a timeline for assessing the KPIs and key milestones to achieve your goals. As you review the progress, identify the improvement areas and adjust the related components in your strategy. Continue to evaluate the changes and whether the HR strategy is supporting the company’s growth.
HR strategy examples
Let’s look at real-world scenarios of how HR can connect its practices to the organization’s goals. Here are three successful HR strategy examples:
University of Marquette HR mission statement
Many organizations will translate their HR strategy and how it ties to business goals into a mission statement. Condensing a strategic plan into a short phrase clarifies HR’s purpose for all stakeholders. It also gives HR staff a guiding principle to keep in mind as they carry out the department’s responsibilities and initiatives.
The HR department at the University of Marquette in Milwaukee, Wisconsin operates under the following mission statement:
“The Human Resources Department aspires to be the model for excellence and leadership in human resources, delivering strategic and progressive human resource solutions and counsel that support and enable the University’s mission and strategy. We aspire to be a catalyst that makes Marquette University an employer of choice.”
Digital transformation at Colgate
American multinational consumer products company Colgate-Palmolive wanted to prepare its operations to be savvier in the new ways of conducting business. Wendy Boise, Senior VP of Global Talent, Learning, and Organization Development, explained:
“We’re embedding digital in everything we do, from driving digital media efficiencies to new analytics to our E-commerce business. It’s about accelerating digital upskilling, focusing on digital frameworks, concepts, and technologies, and how we use them to advance our purpose and strengthen business results.”
They started by conducting a study to find out which new capabilities its workforce needed to digitally transform the company. Then, Colgate designed and implemented a learning and development program to upskill its 16,000 office employees located in 100 different countries.
The program has fueled employees’ abilities to boost business outcomes in several ways, including:
- Using bots to drive efficiencies, resulting in a 100% elimination of product delivery errors.
- Increasing e-commerce sales.
- Mastering complex analytics to manage digital shelves.
Innovative talent strategies at Canva
Canva, a Sydney, Australia-based online graphic design platform, has experienced exponential growth since its 2013 start. To keep up with the company’s rising recruiting needs, they’ve developed a skills-first mindset and fostered a talent community.
Canva uses a skills framework around the four pillars of craft, communication, leadership, and strategy. The skills required in each pillar are made a priority throughout hiring, onboarding, and L&D.
Applicants who don’t get hired are invited to join Canva’s talent community with opportunities to attend events and skills-based webinars. To show further appreciation for job seekers and keep them engaged with the company, candidates who make it to a certain stage of the recruitment process are granted a complimentary Canva Pro subscription.
Amy Schultz, Global Head of Talent Acquisition, puts it this way:
“I’ve got this True North vision that one day we will never have to post a job ad again. We know where we are, we know where they are, we know the skills our people have and that they have an affinity to work at Canva.”
These inventive approaches have supported Canva’s global team growth from 1,000 to 4,000 employees in three years and produced a talent community with over 20,000 potential hires.
To sum up
Today’s HR leaders are the catalysts and advocates for uniting the organization’s overall strategy with the people who can make it happen. A purposeful and well-defined HR strategy is the starting point for this.
Although it takes time, creating and executing an HR strategy can produce a tremendous benefit by aligning HR’s activities with the goals of the organization.
FAQ
A Human Resource strategy is an overall plan for managing human capital to align it with business activities. It sets the direction for all the key areas of HR.
A very useful model is the standard causal model of HRM, one of the key HR models. It shows where HR strategy originates from and how it influences HR execution and business performance.
Aligning an HR strategy with the business strategy requires using the organization’s vision and goals as the focal point and intention for all HR activities.
Every HR strategy is tailored to its organization’s needs, but in general, it guides:
– Forming and managing organizational culture in a way that promotes strategic business goals
– Organization’s talent acquisition, talent management, and compensation practices
– How organizational resources are allocated and deployed
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