Building a Competitive HR Strategy By Wayne Brockbank and Dave Ulrich The RBL Group Ross School of Business at the University of Michigan The paper examines the logic and process for developing a powerful HR strategy To have optimal impact on business performance, the HR strategy must begin with a line of sight to the demands of its external customers and owners It will focus on building the cultural capability inside the firm that will meet the requirements of customers and shareholders outside the firm thus serving as the foundation of sustained competitive advantage It will also ensure that the HR agendas and practices that have greatest impact on business performance will receive greatest focus We focus on cultural capability for well-researched, empirical reasons Over the last 18 years, we have gathered the largest data set in the world on the HR agendas, practices, and competencies that distinguish HR professionals in high performing firms from those in low performing firms This data set clearly identifies that building a powerful, business-focused culture is the single most important HR agenda that contributes to sustained business performance From our empirical studies and our consulting experiences, we have derived the following framework Framework for a Culture Capability Based HR Strategy Trends in the Business Environment Business Strategy Cultural capabilities HR Practices, Policies and Processes From this framework, we have developed a five step process for building a high valued added HR strategy Step 1: Specify the Organizational Unit The HR strategy development process begins with the identification of the organizational unit for which the HR strategy is being developed The major challenge is to ensure that the organizational unit that is the target unit for HR strategy development is the same organization unit that is the target for business strategy development (e.g corporation as a whole, business unit, region, country, department, or function) Step 2: Prioritize the Trends in the Business Environment for the Selected Organizational Unit The following are the key questions that need to be answered to prioritize and translate key external trends into their respective HR implications • • • • • • • What is going on in the economy? What is the demand for your products or services? What are your customers' buying criteria? How well you meet the demands of your customer’s buying criteria? What are trends among your customers’ customers? What is the nature of your relationship with your suppliers? How much competition is there in your industry? What are the trends in the level of competition? Are changes occurring in the basis of competition? What is the nature of process, product and information technology in your industry? To what extent is your industry regulated? What is the relationship of your firm with your regulators (i.e friendly, hostile, protective, or demanding)? How aggressively your owners demand financial results? Step 3: Specify the Sources of Competitive Advantage and Relevant Measurements for Each Source of Competitive Advantage Having specified the business context within which firms must operate and compete, you must then consciously decide how your firm will compete Twelve sources of competitive advantage may be differentiated These include the following: • Innovation (e.g 3M, Intel) • On time delivery (e.g FedEx, any firm who does business with Wal-Mart) • Convenience (e.g McDonalds, Amazon.com) • First to market (e.g Eli Lilly, Apply) • Quality (e.g Toyota, Motorola) • Cost (e.g Wal-Mart, Southwest Airlines) • Relationships (e.g UBS, Disney) • Mergers, acquisitions and alliances (i.e Cisco, Vidaphone) • Synergy (i.e Wyeth, University of Michigan) • Branding (i.e Coke, Polo) • Distribution (i.e Unilever, Kellogg) • Service (i.e Marriott, IBM) In this step, line managers and HR professionals identify and prioritize the short list of desired sources of competitive advantage (usually 3-4) and their respective measurements Step 4: Define the Desired Cultural Capabilities and the Behavioral Expressions of These Cultural Capabilities Defining a company’s business-focused culture requires two sub-steps: defining the culture and specifying how people behave in the ideal culture In recent years, companies have become relatively more sophisticated in defining their required cultures They have come to recognize that in most instances a firm may have a limited number of cultural targets or pillars – usually two or three Examples of cultural pillars include the following: Disciplined Risk Taking (Deutsche Bank) Teams Passionate about Winning (AstraZeneca) Commercially Innovative (BAE Systems) Customer focused innovation (TI) The culture should be defined to support and sustain the sources of competitive advantage from the preceding step The culture should be defined to address the question, “What is the culture we need to have to achieve better performance in the future than we have today?” Once the culture is defined, it must then be translated into specific behaviors The specific behaviors should be defined to address the question: “How our people need to behave differently in the future than they have in the past so that we get better results in the future than we did in the past?” Step 5: Identify the HR Practices That Will Have Greatest Influence on Creating and Sustaining the Desired Culture This step focuses on designing and delivering HR practices that maximize the likelihood of the company’s success in creating and sustaining the identified culture with its accompanying behaviors Four major categories of HR practices have potential influence on a company’s culture • Flow of people consisting of the HR practices of recruitment, promotions, transfers, outplacement, training and development especially leadership development • Flow of performance management consisting of the HR practices of measurement, appraisal, and rewards • Flow of information consisting of the HR practices of keeping the organization in touch with key external realities, managing internal communications, and designing information technology infrastructure • Flow of work consisting of the HR practices of organization structure, work process design and the physical setting Our experience is that over a 1-2 year period of time, a company will probably be able to change four to six HR practices To identify which of the above practices should receive the greatest amount of attention, two questions should be asked: To what extent is each of the HR practices currently designed and delivered with a clear and intended line-of-sight to the desired culture? To what extent does each of the HR practices have the potential to strongly impact the desired culture if it were designed and delivered with a clear line-of-sight to the desired culture? Once these practices are identified, they may then be redesigned to support and sustain the desire culture and their accompanying behaviors By following these steps, a firm can develop an HR strategy that optimizes HR’s influence on business performance ... high valued added HR strategy Step 1: Specify the Organizational Unit The HR strategy development process begins with the identification of the organizational unit for which the HR strategy is being... past?” Step 5: Identify the HR Practices That Will Have Greatest Influence on Creating and Sustaining the Desired Culture This step focuses on designing and delivering HR practices that maximize... accompanying behaviors Four major categories of HR practices have potential influence on a company’s culture • Flow of people consisting of the HR practices of recruitment, promotions, transfers,