It is often asserted that HCM and business strategy are closely linked and that a HCM approach provides guidance on both HR and business strategy. For example:
- ‘By linking good HR practice and strategic management to human capital measurement firms are able to make a number of better informed decisions that will help to ensure long-term business success’ (Scarborough and Elias, 2002: 17).
- ‘If HR people can demonstrate they can articulate the worth and contribution of the organization’s people by linking the human
capital strategy to the overall business strategy, they will not only prove invaluable but play a part in improving management practices’ (Manocha, 2005: 28).
- The HCM proposition ‘emphasizes the connections and value flows between strategy, statistical analysis and the key stakeholders – employees, customers and investors’ (Donkin, 2005: 3).
The issue is to determine what this link is and how to make it work. A bland statement that HCM informs HR strategy, which in turn informs business strategy, tells us nothing about what is involved in practice. If we are not careful we are saying no more than that all business strategic plans for innovation, growth and price/cost leadership depend on people for their implementation. This is not a particularly profound or revealing statement and is in the same category as the discredited cliché ‘Our people are our greatest asset’. We must try to be more specific, otherwise we are only doing things – more training, succession planning, performance management, performance- related pay and so on – in the hope rather than the expectation that they will improve business results.
One way of being more specific is to use HCM assessments of the impact of HR practices on performance to justify these practices and improve the likelihood that they will work. The future of HCM as a strategic management process largely depends on getting this done.
A second way of specifying the link is to explore in more detail the people implications of business strategy and, conversely, the business implications of HR strategy. This can be done by analysing the elements of the business strategy and the business drivers and deciding on the HR-supporting activities and HCM data required, as illustrated in Table 11.1.
A third (and potentially the most productive) way of linking HR and business strategy is to relate business results to HR practices to determine how they can best contribute to improving performance.