Strategic Human Resource Management 101: Your Essential Guide
Strategic Human Resource Management builds a bridge between an organization’s business goals and the people who accomplish them. In this tactical role, HR has a wider reach and must reorientate its responsibilities. The focus becomes equipping the workforce to best support the direction the company is headed in.
In this article, we will explain what Strategic HR Management is, how it impacts our work in HR, and offer five tips on how to make an impact with Strategic Human Resource Management.
Contents
What is Strategic Human Resource Management?
Traditional HRM vs Strategic HRM
Strategic Human Resource Management examples
Importance of Strategic Human Resource Management
How to create a Strategic Human Resource Management plan
FAQ
What is Strategic Human Resource Management?
Strategic Human Resource Management aims to align the focus of HRM with business to achieve objectives through the strategic deployment of a highly committed and capable workforce, using a range of cultural, structural, and personnel techniques (Storey, 1995).
These techniques include hiring, promoting, and rewarding employees, building and maintaining high-performance work cultures, and organizational design to add value and achieve a competitive advantage.
Strategic HRM centers on creating a talent management framework that drives behavior and culture to support an organization’s long-term business goals.
The concept of Strategic Human Resource Management was developed in the 1990s – mainly through work by Storey, Schuler, Wright and McMahan, and Boxall and Purcell – and popularized in the 2000s. This was triggered by Dave Ulrich’s challenge for the HR profession. HR had become “often ineffective, incompetent, and costly; in a phrase, it is value sapping.”
Today, Strategic HRM is an essential part of the HR function, particularly for large and rapidly growing organizations. However, there is no specific strategy that guarantees success, and Strategic HRM is constantly evolving. That’s why organizations must create their own strategy that aligns with their specific context, culture, and objectives. Continuous monitoring then allows them to build on and improve it.
Traditional HRM vs Strategic HRM
HR management was traditionally considered a task-oriented administrative function. It was distanced from what business leadership was doing and primarily reactive. It met employees’ needs as they arose. However, it wasn’t in touch with where the company was headed and didn’t anticipate what might be coming.
For example, traditional HRM would answer employee questions about HR policies, but it wouldn’t create policies based on the company’s long-term goals and find ways to engage employees with them.
With a strategic HRM plan, HR teams operate more proactively because they are integrated with business strategies. They understand and center their pursuits on the company’s objectives. This involves planning and taking action to ensure the organization has the workforce it needs to achieve its goals.
For instance, instead of hiring based solely on immediate needs, HR will recruit people whose talents and experience can also meet future demands. This is possible because HR is part of the leadership team and is fully aware of what the company wants to accomplish in both the short and long term.
Caitlin Weiser, Consultant at Red Clover HR, explains: “Aligning HRM with overall business strategy is about understanding what employee behaviors are needed to support long-term business goals. By identifying these behaviors, HR can make strategic process improvements, create incentive programs, set KPIs, and provide learning and development opportunities to drive results.”
Strategic Human Resource Management examples
Companies that embrace strategic HRM enhance their HR practices to better support business performance. Let’s look at how this plays out in the real world.
Here are examples of how three different organizations have put SHRM into practice:
Example 1: Nissan
A business goal to differentiate itself from competitors prompted Japanese auto manufacturer Nissan Motor Corporation to foster a corporate culture that empowers employees to innovate its manufacturing processes.
Nissan applies a continuous improvement framework called Kakushin. This philosophy challenges assumptions about operating in a certain way and embraces brainstorming and analysis to make changes and move ahead. Employees are encouraged to find ways to continually improve methods for getting work done.
With the business objectives and the Kakushin method in mind, HR leaders can focus HR practices where they need to be:
- Recruiting the right talent, and
- Building a secure workplace environment where employees feel entrusted to meet challenges with autonomy and fresh ideas that drive achievement.
Example 2: Brigham and Women’s Hospital
Brigham and Women’s Hospital is a teaching affiliate of Harvard Medical School. They recognize that “great patient care begins with great people“. The organization’s strategic HRM efforts primarily target creating a healthy work-life balance for employees.
HR helps to provide childcare for employees who are caring for children or the elderly, as well as back-up childcare in case of emergencies. The hospital also assists with home health services, nursing home placement, and support groups to reduce stress. What’s more, employees who earn below a certain threshold get subsidized tuition rates.
In general, the hospital actively encourages employees to balance their work responsibilities with their personal lives and maintain their health and wellbeing.
Example 3: Sainsbury’s
Sainsbury’s is one of the leading supermarket chains in the UK. The company has been an innovator when it comes to all aspects of the business. They opened their very first “worker academy” almost a century ago, pioneered self-service shopping, and recently invested in raising all its retail staff’s salaries to £11/hour.
The retailer works hard to ensure that its employees are empowered to offer customers a great experience.
Sainsbury’s training academies are responsible for training team leaders and store managers in technical and behavioral skills to boost their confidence, create a more positive employee and customer experience, and help them advance in their careers. 58% of colleagues who are in the Leading@Sainsbury’s program will get a promotion within 9 months of completion.
The company has also ditched the requirement for a CV when hiring for retail colleague roles, creating more opportunities for people who may lack the education or employment history traditionally required by other employers for similar roles.
Importance of Strategic Human Resource Management
Reaching success is more likely when the whole company is working toward the same goals. When HR is tuned into leadership’s big-picture plan, it can have cohesive structures in place to support and engage employees in ways that will make it come to fruition.
Strategic management of human resources adds value in the following ways:
- Connecting employees with organizational goals – The Strategic Human Resource Management process ensures that HR practices, policies, and strategies link employees with the company’s path to accomplishing its broader organizational objectives.
- Gaining a competitive advantage – Knowing exactly where leadership wants to take the organization allows the HR department to focus on the skills and abilities people need to do the work it takes to get there. Through effective talent management, training, and development, SHRM can lead to a more competent and skilled workforce that yields a competitive edge over rivals.
- Adapting to change – A strategic approach to HRM means continually looking ahead, allowing organizations to anticipate and quickly adapt to changes in the business environment. Plans can adjust to accommodate technological advancements, market shifts, or evolving workforce demographics. Meanwhile, HR supports, motivates, and communicates with employees throughout the adjustments.
According to Simon A. Taylor, Head of Organization Effectiveness at Gap Inc., with an understanding that change is the new constant and no one knows the future, the best thing an organization can do to prepare for the future is to build the capacity to change quickly, hone in on what’s important, and quickly adapt.
“Practically, this means two things: 1) building the mindsets, practices, and capabilities within the organization to spot and rapidly adapt to change, and 2) designing HRM practices with an understanding that they can – and maybe should – evolve in the not-too-distant future as the business strategy evolves,” says Taylor.
- Enhancing employee performance – Strategic HRM determines how employees add value and facilitates performance management systems that ensure they are motivated, well-trained, and properly evaluated. HR can implement methods for addressing employee weaknesses and reinforcing their strengths, leading to optimal job performance and productivity. What’s more, it can strive to improve performance through improved employee wellbeing.
- Driving business growth – With its emphasis on proactive planning, SHRM identifies gaps in current resources and forecasts future workforce needs. As a result, the organization is equipped with the necessary human capital to launch initiatives, enter new markets, and drive growth.
- Improving operational efficiency – A strategic approach to HR is about meticulously designing roles, responsibilities, and workflows to specifically suit the company’s human capital needs. This clarity streamlines operations to reduce redundancies and boost overall efficiency, directly contributing to better business performance.
How to create a Strategic Human Resource Management plan
Now that you have a better understanding of what Strategic HRM is and why it matters, let’s explore how to create and implement a strategic plan for your organization.
Although there is no one specific Strategic Human Resource Management model to follow, there are some best practices to be mindful of.
The following five tips will help you implement truly Strategic HRM:
1. Create an HR strategic plan that follows the business
The first step towards making an impact with Strategic HRM is creating an HR strategic plan linked to overall business goals.
An HR strategic plan boils down to:
- Understanding the broader business strategy so you know what success looks like and how to measure it.
- Evaluating strengths and weaknesses to uncover where you need to make improvements.
- Aligning what you’re doing in HR with the business strategy to build the capabilities needed to carry it out.
Here are some questions to ask yourself to help understand the business on a deeper level:
- What are the long-term goals of the organization?
- What are the strengths and weaknesses?
- What are your current resources?
- What current skills does your workforce have, and are there any gaps?
For example, if the organization plans to grow exponentially over the next five years, you might need to invest in recruitment programs across different functions. If you’re looking to launch a new product or service or expand into new markets, think about the skills and capabilities you need to achieve this.
“if a changing business strategy requires different mindsets and ways of working, then that’s going to have a direct implication for how you manage performance, the cultural principles that need to be elevated, and the kinds of people you need to hire.
Therefore, whenever the business strategy changes, the HRM strategy needs to change with it. When this doesn’t happen, HR loses its seat at the table and fails in its primary role – to drive business results.”
– Simon A. Taylor, Head of Organization Effectiveness at Gap Inc. and author of Build Smart: A Blueprint for Building a High-Performing Organization
2. Align HR activities with the strategy
All HR activities should align with the HR strategy and with each other to create a compound effect that helps achieve business outcomes. These include recruitment, selection, performance management, compensation and benefits, organization and function design, and more.
For example, performance evaluation criteria should be the same qualities you look for when hiring people. In addition, you should strive to develop these qualities throughout the workforce. This allows your hiring, performance evaluation, rewards, and learning and development to align with what the business strategy is trying to achieve.
In research, these groups of HR practices are referred to as bundles. An example of such a bundle is employee retention, which is associated with several HR practices like good job design, employee involvement, and equal opportunities.
Another bundle is innovation. Innovation is associated with performance appraisal, employee involvement, teamwork, job design, training and development, and provision of information.
Strategic HRM is about prioritizing HR activities that help you carry out your HR strategy, which, in turn, contributes to the organizational strategy.
3. Emphasize data
Data is the key to showing the impact of Strategic HRM. Evidence from multiple sources of workforce data can influence HR practices to sustain better outcomes. You can track success with HR key performance indicators (KPIs) that are aligned with the strategy of the organization.
In addition to tracking progress, you can use people analytics to measure how your people policies contribute to business goals. This makes HR’s contributions very tangible and can build a concrete business case for HR investments.
For example, Best Buy, an American consumer electronics retailer, found that a 0.1% increase in engagement leads to an increase in revenue of $100,000 per store.
Furthermore, a McKinsey study found that it pays off to shift the best talent to where the business strategy requires it. Organizations that swiftly reallocate employees to high-priority initiatives are more than two times as likely to outperform their competition.
4. Don’t forget HR’s other responsibilities
The push for Strategic HRM doesn’t mean that HR can neglect the rest of its responsibilities. Next to HR strategy, Dave Ulrich defined three other roles of HR as enabling change, efficient administration, and developing and engaging employees.
Once the strategy is set, the power lies in its execution. The Human Resources department should not forget to focus on flawless people operations and employee engagement. Beyond the strategic outlook, you still need to have an engaging and compliant onboarding process, handle employee data, and manage benefits.
5. Take an outside-in approach
A critical step in being strategic is taking an outside-in HR approach, which provides a more comprehensive picture of HR’s purpose. Who are the customers of HR? While the obvious answer here is employees and leadership, there are also other stakeholders, including shareholders, investors, and customers.
HR practices must align with business strategy, and that strategy also needs to align with these external stakeholders. Rather than focusing on what it does, HR should gauge the value it creates for every entity.
When HR practices are in line with the expectations and needs of these stakeholders, it fosters a positive brand image, strengthens trust, and encourages a balanced business ecosystem.
By showcasing the impact created for each stakeholder through HR practices, HR can contribute to sustainable organizational growth and drive business excellence.
“If you want to be a real strategic player in HR, you not only want to have the understanding of the entire landscape, but you need to be able to see all altitudes and see how all the tactical pieces are dependent on each other.
Taking a broader position will allow the HR professional to understand the business strategy and apply the human resources efforts (regulatory/compliance, culture, technology, etc.) in a way that complements and betters the business strategy, not create silos, additional hurdles, or administrative burdens.”
– Jessica Moore, HR Consultant and Founder at ThriveWise Solutions
A final word
A Strategic Human Resource Management plan guides HR activities so they link people to the organization’s objectives. In other words, programs like recruitment, performance management, and compensation and benefits all function so that the workforce is enabled to carry out what the company aims to achieve.
Operating from a truly strategic framework offers a greater chance for business success because everyone in the organization is collectively working toward the same goals. HR can add tremendous value to the organization by executing SHRM properly, and become a strategic partner to the business.
FAQ
Strategic Human Resource Management strives to align HR strategies and policies with business objectives. This is done by effectively managing the workforce in a way that supports the long-term growth of the company.
Strategic HRM helps organizations achieve business goals and build a competitive advantage through impactful HR initiatives.
HR strategies are plans for how HR will manage human capital. Strategic Human Resource Management is the process of bringing HR practices into consistency with an organization’s overall plans and objectives. An effective HR strategy is an inextricable part of successful Strategic HRM.
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