Taking into account Tyson and Witcher’s (1994) point that you can only study HR strategy in the context of business strategies, the processes of formulating both business and HR strategies in a number of organizations are described below.
ABC Distribution distributes food products, mainly to major retailers. The critical success factors for the organization as spelt out by its Managing Director and the Finance Director are its ability to meet its profit targets and to grow the business substantially on a consistent basis by developing a reputation for providing added value services, developing business with existing customers, winning new customers, and acquisitions. The company has doubled in size in the last four years. Underpinning the development of the company are the needs to grow the infrastructure, to develop management and leadership, and to extend quality and safety programmes.
The Managing Director agreed that in a sense their business strategy evolved in a semi-formal way, but this evolution took place ‘by the key people understanding what the total business was trying to do, and their part in it; then they went away and put their bits together; then we pulled all of it together’. He commented that: ‘Our strategy is very simple and very broad… it can be put down in a few sentences. It’s what lies around it that has to be developed.’
He emphasized that: ‘We sought to demonstrate to the rest of the business that we (the Board) were a team. Where a team hadn’t existed before, a team was now running the company.’
The Deputy Managing Director explained how he saw the formulation of the business strategy taking place: ‘We put our strategy together within the framework of the financial targets we have to meet and our values for quality, integrity and management style’.
In answer to the question: ‘How does your organization develop its business strategies?’ the Director of Finance said that: ‘It started off as being very simple in that we had an objective to grow in excess of the rate of growth demanded by our parent company… However, that process has become less naive, more detailed and more structured as the business grows… I see planning as a process that goes on and on and on and becomes more complex and more refined.’
He also made the following comment: ‘Don’t forget, not all strategies necessarily involve massive change… you can have a strategy to stay as you are.’
The Director of Marketing emphasized the dynamic nature of strategy in a growing business operating in a highly competitive environment: ‘We have a strategy document which is concerned with developing market share and growth and is being continuously updated… The update is driven by the Board… We have to make sure that we continue to refresh the strategy.’
The Director of HR commented that: ‘The longer-term strategy is developed basically by the Board getting together and working its way through… We also share that plan with the senior management team.’
The Managing Director described their approach to developing the HR strategy as follows: ‘Our HR strategy has to respond to our business needs… So we start with a business plan; we know we are going to grow at a certain rate. Then we do a skills audit and predict how many managers we are going to need. Out of this comes our HR development policy on skills training, leadership training and recruitment.’
The Deputy Managing Director thought that the HR Director was basically responsible for developing their HR strategy: ‘We all look at our business strategy and express a view on the people we need, but our HR director pulls it all together and interprets our ramblings into something coherent’.
However, in answering a question on how HR strategies were developed, the Director of Finance admitted that: ‘We probably have more HR policies than strategies because the strategies are there in a simple sense but not 100 per cent well-articulated – for valid reasons; we are a growing business’.
The Director of HR referred to the way in which strategic initiatives were developed: ‘First the HR people meet and we bounce ideas about and seek ideas. Then if we have a new initiative we put it to the Board for discussion.’
Loamshire Council is a District Council that is generally recognized as being a very well run and capable local authority. It is particularly good at dealing with the environment and, as the Chief Executive said: ‘We tend to care so passionately about our environment that we focus an almost disproportionate amount of our resources on environmental issues’. He further commented that the critical success factors for the authority were meeting the perceived needs of the community, creating customer satisfaction with the services provided and, importantly: ‘an overall appreciation of the effectiveness of members of staff and the contribution they make towards the organization as a whole’.
The following comments were made by the Chief Executive on how corporate strategy was developed:
We do not have a single document which says ‘this is the Loamshire Council corporate strategy’. What we do have are three processes which run in parallel and together represent the corporate strategy. These comprise a general strategy for developing services, a management strategy which concentrates on the managerial processes which we need to design to bring out the best in the organization, and the key areas for achievement document which focuses on specific actions.
Strategies are developed by a top-down, bottom-up process. The members of the Council, the policy makers, debate the strategic issues from which firm strategic proposals would develop. Individual members of staff are then given opportunities to contribute… A distinguishing feature of all our corporate strategy work has been the opportunity for widespread involvement in the process.
It is incredibly important that within an organization there is somebody who has the personal responsibility for monitoring, evaluating and reviewing the effectiveness of that organization… That strategic management role lies at the heart of the Chief Executive’s responsibility.
The Director of Planning commented as follows on the process of strategic planning:
The reality is you choose directions and you move in particular directions, then all sorts of things happen that you can’t possibly have conceived of, and you weave these into your strategy.
Strategy is rooted in the vision and the culture… Life’s very complicated, there are no easy solutions, and you don’t start at Go when you throw a six and proceed from there. You pick up a very complex jigsaw and you work through it. But the vision helps.
On how the top team operates, the Director of Planning said that: ‘The things we bring to the team are personal characteristics as much as the management skills we all learn at various stages… the fact that we have a spectrum of personalities strengthens the team.’
The Chief Executive stated that:
Human resource strategy has got to be owned by the top management body within an organization. Their commitment must be absolute otherwise it simply won’t be applied in practice. Everything flows from the corporate strategies we have set down. It’s about having a very strong focus on the overall effectiveness of the organization, its direction and how it’s performing.
There is commitment to, and belief in, and respect for individuals, and I think that these are very important factors in an organization.
When asked how HR strategies were developed, the Director of HR replied:
Initially what I did was to list all the activities in which we were currently involved in HR and sent a questionnaire to all the directors stating ‘This is what we are doing’ and asking: ‘Do you want us to continue doing it? If so, do you want the same, or more, or less? Are we doing it well? Could we do it better?
What are the things we are not doing that you think we ought to be doing?’ The next thing I did was to have two open days in which I invited managers to come in and tell us what their perceptions of HR were. And this confirmed our eagerness to get rid of duplication and delays in HR matters. We were fast getting in the way and holding the whole process up. And that’s where we got the agreement of the organization that empowerment should be our strategy.
On this strategy for empowerment, the Director of Technical Services remarked: ‘The positive aspect of the devolution of responsibility for HR management is that it puts people management back where it should be’.
Megastores is one of the country’s largest and most successful high street retailers. It has a very powerful overriding commercial objective: to increase shareholders’ value, and to do this by providing value-for-money products and delivering consistently high levels of customer service.
The Managing Director made the following observations about strategic management: ‘Strategy is developing a route to better the business in the medium to long term. You cannot fully maximize the business opportunities unless you’ve got the proper management structure to create them. In business you have to look at the options available, make a decision and then drive that way.’
The approach to strategy formulation was described by the Director of Finance as follows:
Our strategy tends to be based on the resolution of issues. There is a base strategy and we continue to question whether that is the right thing to be going forward with. We have a strategic planning framework throughout the group. It’s called value-based management (VBM), the fundamentals of which are to make sure that whatever you do, you must maximize shareholder value… It provides us with a basis for looking at what we are doing and the resources we require we’ve never had before.
However, he also commented that: ‘We’re highly profitable, but in turn we invest an awful lot in our people. We spend a lot of money on the training and development of people throughout the organization. It’s probably one of our key differentiators.’
The Director of Stores gave these perspectives on the strategic planning process:
We have in place a formal business planning process in which we divide the planning into three levels. One is at business level where we identify issues that we deal with as a company, the second level is product-market planning, and the third level is local market planning.
Our business strategy is formed through value-based management, which is a discipline for pulling everything together and ensures that decisions are made on the basis of their real value to the business rather than someone’s strength of personality or hunch. This in itself required the involvement of all the directors in a more formal business planning process. Three or four years ago we worked more individually and now we work more as a team.
There are elements of our business which are incredibly value creating. There are others which are incredibly value destroying. The trick is to identify the ones which are value creating and funnel resources to them.
There are a number of blocks that make up our business strategy. The first is our overall objective. Against this we spin off a number of elements we call major initiatives. These are coordinated by our Director of Corporate Planning, but it is the functional directors who are really charged with taking ownership of these objectives.
The comments made by the Managing Director and a number of other directors on the formulation of HR strategy are given below:
- ‘The biggest challenge will be to maintain [our] competitive advantage and to do that we need to maintain and continue to attract very high calibre people’ (Managing Director).
- ‘All we do in terms of training and manpower planning is directly linked to business improvement’ (Managing Director).
- ‘The key differentiator on anything any company does is
fundamentally the people, and I think that people tend to forget that they are the most important asset. Money is easy to get hold of, good people are not’ (Managing Director).
- ‘The influence in terms of strategic direction must always be based on the key areas of marketing and operations’ (Director of Finance).
- ‘We have to help the business achieve its objectives and the HR strategy has to be very much tailored towards those objectives’ (Director of HR).
When questioned on his approach to the development of HR strategies, the Director of HR replied: ‘I start with the top line, the four or five things which are the strategic platform for the company. I get my managers together to look at the implications. We then pull it together so that it is all derived from the original strategic platforms and then work top-down and bottom-up to get the amalgam of what we can achieve. This then feeds into the final operating plan so we can agree budgets.’
Mercia Systems is engaged in the business of precision engineering, including the development and manufacture of specialized optical, mechanical, electrical and electronic equipment primarily for defence purposes. Two major factors have affected the company: first, the contraction in the defence industry and, second, the change in government policy from costplus contracting to competitive tendering. This compelled the company to develop an entirely new business strategy and to carry out a comprehensive re-engineering process.
Critical success factors
The Managing Director stated unequivocally that: ‘The things that are essential to an organization’s success, any organization, not just this one, are the people. They are the common denominator throughout the organization.’ The critical success factors for Mercia Systems were defined as follows:
- ‘The one factor that drives us is technology know-how. This means we offer solutions, not products. That is really what we have to sell and it depends on people strength’ (Managing Director).
- ‘We have a vision of what we want to be and are advancing
more quickly than the rest of the competition. CIM [computer integrated manufacture] is at the heart of it. We have tackled MRPII
[manufacturing resource planning] as the first phase of CIM and this means that we are faster than our competitors and are more likely to deliver on time than them’ (General Manager).
- ‘We are characterized in the marketplace as a high-tech company with specific expertise in the field of optics and particularly electrooptics. We are known for the excellence of our technical solutions and the quality of our products. In the past we have been criticized for asking a premium price for high technology products. Part of the message we are now getting across is that we can battle it out on value for money as well… People like working with us because they get straight answers to their questions, including ‘we don’t know’ if we really don’t know. So our basic competences are high technical quality and people with the skills needed to forge good relationships with customers’ (Marketing Director).
Business strategy is stimulated and reviewed centrally by a business strategy group. The business is split into a number of sectors (three in Glasgow) and each sector submits its business plan to the strategy group. This is a simple three-page summary that describes the broad objectives of their business sector, discusses the key competitive factors affecting it and sets out specific short-to-medium-term objectives, which are then translated into an operating plan. The plans look at a horizon of 10 years but for practical purposes there is a rolling three-year budget. This means that besides looking at the immediate budget, the two key questions asked are, as the General Manager put it: ‘Where are you going to be in three years’ time? and What are you doing now to get better?’ And this, he said, ‘is a very demanding discipline’.
The Marketing Director explained the approach as follows:
The key to the business planning process is that it has to be a linked story from the top to the bottom of the company and MRPII [manufacturing resource planning] is part of the vehicle for doing that. Our Director of Strategic Planning works with the Technical Director to involve and guide the Board on the overall strategic direction of the company. This is communicated as the strategic vision. Working from that, my role is to work with the group directors to evolve strategies for each of the businesses we have chosen to be in. These are then reviewed and agreed by the executive and a strategic development group. One of the roles of that group is to check that our activities relate to and support the strategy established by the executive. If they do not, this may not be because they are wrong, and we may have to go back and review the strategy.
The formulation of business strategy is very much a team effort. As the Managing Director said: ‘Tell all the top executive people, including the HR and finance directors, that they are directors first and foremost and all must make a contribution to strategic planning’.
The lead may be taken by the Managing Director and the strategic team, of which the HR Director is a member, but the heads of the business groups make a major and continuing contribution. The broad thrust of the strategy as a means of realizing the vision is quite clear, but it is in a constant state of evolution, reacting as necessary in response to changing situations but also proactively anticipating new opportunities.
The overall approach to the formulation of HR strategies was summarized by the Managing Director as follows: ‘The main thing we have to do is to ensure that we have the right core technologies and the right competences within the company to achieve the vision and strategy’.
The General Manager commented that:
Within the Board one of the things that is constantly reviewed is human resource strategy. We have the long-term view of the type of organization we believe we need as a technology company and we have evolutionary plans of how we are going to get there. In the early stages we had a very strong functional organization; our evolution process now involves the development of problem-solving teams which are set up at a high standard to encourage getting it right first time. In manufacturing we have mixed discipline teams with a team leader and a much flatter structure than we used to have. We have two pilot projects where research and development engineers are part of the team on the shop floor with a common team leader. The eventual aim is for all engineering and manufacturing to be organized in this way. The next step is to develop product families in which business generation and sales are brought into the team as well. So the team leaders almost become general managers.
The Marketing Director pointed out that the HR strategy ‘was clearly established in the planning process and it had hard objectives in the same way as the business strategy’.
The HR Director explained that business strategy defines what has to be done to achieve success and that HR strategy must complement it, bearing in mind that one of the critical success factors for the company is its ability to attract and retain the best people. HR strategy must help to ensure that Mercia Systems is a best practice company. This implies that: ‘The HR strategy must be in line with what is best in industry and this may mean visiting four or five different companies, looking at what they are doing and taking a bit from one and a bit from another and moulding them together to form the strategy’.
Welland Water is a large water company operating, as pointed out by the Managing Director: ‘in a monopolistic situation providing a service that is absolutely fundamental to life’. But he also stated that: ‘we recognize that our organization must not abuse that situation and that we must implant in the company values that would be appropriate in a competitive environment’.
He went on to say:
We can demonstrate that the services we are giving our customers are improving dramatically, year on year… We have an ongoing commitment to involve our customers – we were the first water company to actually prepare an annual report for them… We carry out frequent tracking research which shows that our customers’ perceptions of us are improving, on occasions despite a contrary
trend in the national water industry… But the critical success factor which allows all this to happen is the level of employee satisfaction and commitment we have, because without that, we can’t achieve any of the other things. And we know about this because we get consultants to carry out periodical employee surveys which we discuss with everyone.
The Managing Director described the approach to formulating business strategy as follows:
Our strategic approach is very simple. It is summarized in our vision statement: we aim to provide the level of services our customers demand at a level of charges that our customers would see as acceptable. Our business strategies are formed essentially from top-down setting of the parameters and then bottom-up preparation of business plans in which all our people are involved. They prepare all their own business plans which reflect the top-down constraints, and because they are preparing them that automatically buys their commitment to them.
Our best ideas for policies and strategies come from the people who carry out the work. We don’t have people locked into little rooms thinking: ‘What’s the next strategic move for the business?’
What you need are people who are in tune with what’s happening throughout the organization; who are listening, talking, picking up all the ideas… What we try to do is to capture all that knowledge, all those initiatives, all that expertise, and reflect that in the way we take the business forward.
I like to talk about getting values in place rather than constructing strategies.
The Finance Director explained the significance of the vision statement in developing business strategies: ‘The company developed a vision statement which encompasses the key forward-looking strategy over a period of time but without timescales having been set down. This has set the guidelines for future initiatives and any such initiative in the rolling five-year business plan is judged on whether it fits in with that vision.’
The Managing Director made the point that: ‘The only human resource strategy you really need is the tangible expression of values and the implementation of values… unless you get the human resource values right you can forget all the rest.’
The Finance Director commented that: ‘There’s a lot of interaction, prior to and during the top board discussion, which tends to be concerned with culturally-based issues and the way we manage people’.
And the Director of Operations indicated that the organization developed its HR strategy: ‘Through evolution; it’s an aggregation of things that have come together, not necessarily in the right order’.
The approach to developing HR strategy was described by the Head of HR as follows:
In our original HR strategy we tried to encompass the emerging values and principles that we felt should determine how we should conduct our business in terms of people. HR strategies come from the ideas we share together and the problems and issues that managers are working on… It’s very much a team effort, working with line colleagues in whatever they do… I use e-mail to flash ideas round to groups of managers and thus build up draft policy papers. E-mail is a very powerful device for getting ideas back rapidly.
In all the organizations referred to above:
- there is a well-defined corporate or business strategy, although the extent to which it is formalized varies;
- HR strategy is seen as part of the business strategy;
- HR strategy or policy issues appeared to be of interest to all members of the board and, contrary to popular opinion, this included the finance director.