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Aligning Human Resources and Business Strategy

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Aligning Human Resources and

Business Strategy Second edition

Linda Holbeche

AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO

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First edition 1999 Paperback edition 2001 Reprinted 2002 (twice), 2003, 2004 (twice) Second edition 2009

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Contents

Preface to the First Edition vii Preface to the Second Edition ix Acknowledgements xiii

Part I The Need for Strategic Human Resources 1 1. Introduction: From Business Partnering to Leadership 3

2. The Context for Strategic HR 29 3. Transforming HR into a Strategic Partner 66 4. Measuring the Impact of Strategic HRM 89 5. Aligning Business and HR Strategy 124

Part II Strategies for Managing and Developing Talent 163 6. Recruitment and Retention Strategies 165 7. Managing and Rewarding for High Performance 194 8. Strategies for Developing People 232 9. Developing Effective Career Strategies 263

10. Developing International Managers 288 11. High-Potential Assessment and Succession Planning 308

Part III Human Resources as a Strategic Function 339 12. Skills for HR Strategists 341 13. Working Across Boundaries 365 14. Global HRM 381

Part IV Implementing Strategic Change 405 15. Bringing about Culture Change 407 16. Mergers and Acquisitions 437 17. Creating a Learning Culture 460

Conclusion 477 Index 489

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Preface to the First Edition

So much has been written about the changing role of HR that the reader might wonder why I have sought to add to the debate. It seems that being an HR professional is a tough proposition these days and that there are endless require- ments to prove that value is being added by HR interventions. The pressures on the function are enormous and in many cases, resources are thinly stretched. The HR function is frequently accused of being reactive. Yet I believe that the situation need not be so bleak and that HR has potentially the most significant contribution to make of all the functions, if it manages to combine operational excellence with a really strategic approach.

My motivation in researching and writing this book is to find out how excel- lent professionals are delivering value. That is not to say that I believe that the practitioners featured in this book have a blueprint for success but some of the approaches described here are likely to provide food for thought for other organizations. Similarly, I am not attempting here to address all aspects of a stra- tegic and operational HR agenda. I have focused on some of the performance and developmental issues which I consider key if business and HR strategies are to be aligned. This is not therefore a technical book, but one which highlights what practitioners are doing with respect to strategic recruitment, organizational development, management and international leadership development and change management. I have tried to illustrate the theory with ‘ live ’ cases where time permitted, and have included checklists which I hope will be useful to HR teams and line managers in assessing their needs and service provision.

I hope that the ways in which the HR strategists featured in this book are approaching the challenges of aligning business and HR strategies in their organ- izations will provide evidence that outstanding value can be added by HR and offer encouragement to practitioners who are finding the quest to add value hard going.

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Preface to the Second Edition

Since the first edition of this book was published, so much has changed in terms of the employment landscape, HR theory and priorities, that simply updating the text has not been enough. HR is undergoing perhaps more rapid transformation than any other function on its journey to delivering value. In today’s fast-chang- ing economic context equipping organizations to deal with the pressures they are likely to experience calls for a truly strategic response from HR. And of all the functions HR has potentially the most significant contribution to make, if it man- ages to combine operational excellence with a really strategic approach. Building talent pipelines, changing organizational structures and cultures are just some of the opportunities for HR to exercise leadership.

At the same time, much has stayed as it was ten years ago. Alongside the opportunities sit the pressures. It still seems that being an HR professional can be a tough proposition and there are endless requirements to prove that value is being added by HR interventions and, in many cases, resources remain thinly stretched. As the HR agenda moves on so the nature of HR interventions contin- ues to expand, demanding new disciplines, skill sets and behaviours, even within HR’s traditional heartland. Strategic workforce planning can put organizations ‘ on the front foot ’ when it comes to optimizing the changing labour market and demographic trends. Employer branding, employee segmentation and other analytical techniques, and holistic approaches to reward enable organizations to attract and retain the talent they need for success. Organizational design and development, geared to building flexible, agile cultures are an essential part of the HR role. Continuous professional development is key to raising the game.

Similarly, the capabilities HR is required to demonstrate have also moved on significantly in the last decade since I wrote the first edition of this book. No HR professional can expect to be taken seriously if he or she is unable to understand and speak the language of business, to translate the business strategy into rel- evant people processes and goals which are appropriate to the context dynamics facing their organization. HR needs the ability and credibility to work collabo- ratively with line managers to continually push up the standards and practice of people management and development.

Preface to the Second Editionx

The evolving HR role is moving ever more swiftly to becoming a core busi- ness leadership role, in which HR’s own contribution is to ensure that the organi- zation is equipped for success, now and in the future. And in the wake of various corporate failures, particularly within the global financial services sector, there is increasingly a spotlight on HR’s developing role in governance, raising questions such as what is HR’s role with respect to building cultures where accountability and ethical practice become the order of the day rather than letting high bonuses form part of a culture of excess and irresponsibility? Similarly, should HR pro- fessionals more obviously have a role to play as non-executives on boards, ensuring that good practice in appointments and reward at the most senior lev- els in organizations reflects the very best emerging practice and encourages high standards of executive behaviour?

So in writing this second edition of the book I have attempted to update my overview of the HR landscape, agenda, skill set and challenges in the light of the changing context, theory and practice. My motivation in researching and writing the book is to find out how excellent professionals are delivering value. I have tried to illustrate the theory with ‘ live ’ cases where time permitted as well as drawing on published research. In some cases I have revisited and updated where possible case studies featured in the first edition of the book as well as adding other examples of what I consider interesting practice. That is not to say that I believe that the practitioners featured in this book have created a blueprint for success but I hope that some of the approaches described here will provide food for thought for others. Similarly, I am not attempting here to address all aspects of a strategic and operational HR agenda. I have focused on some of the per- formance and developmental issues which I consider key if business and strategy are to be gainfully aligned.

This is not therefore intended as a technical book, but one which highlights what practitioners are doing with respect to strategic recruitment, organizational development, management and international leadership development and change management. In this edition I have looked again at the process of HR transfor- mation and the changing nature of business partnering. I have added a chapter on some of the key skills for HR strategists and suggested a process for develop- ing a business-aligned HR strategy. I have included checklists which I hope will be useful to HR teams and line managers in assessing their needs and service provision.

I hope that the ways the HR strategists featured in this book are approaching the challenge of creating aligned strategies will provide evidence that outstand- ing value can be added by HR and offer encouragement to practitioners who are finding the quest to add value hard going.

Overview of Contents

In Part One, The Need for Strategic Human Resources, I raise the question about what ‘ alignment ’ means in a fast-changing context, elements of which I discuss on Chapter 2. I present my case drawing on a range of HRM theory, and suggest

Preface to the Second Edition xi

that HR leadership should be the preferred direction of travel if the function is to really add value. HR leadership involves embracing a strategic culture-build- ing agenda geared to creating healthy and high performing organizations. The business context drives the HR agenda, especially as work becomes progres- sively more knowledge- and talent-intensive. It also drives the transformation of the HR role, organization, structures and skill sets. Delivering a value-adding agenda requires purpose, focus, a well-formulated strategy and effective meth- ods, as well as effective measurement to ensure that the right kinds of impact on organizational performance are being achieved.

In Part Two, Strategies for Managing and Delivering Talent, we consider a major aspect of HR’s role – that of attracting, motivating and retaining talent. I explore various aspects of talent management, a concept which for me has partly a feel of ‘ Emperor’s new clothes ’ about it, including all aspects of the conven- tional employment cycle from recruitment, development, performance manage- ment, reward, career progression etc. What is different is the rapidly changing nature of work and the global labour market, together with changing talent requirements and various forms of talent shortfall. Hence the growing empha- sis on workforce/talent planning, on developing enticing employer brands, on segmenting the talent base and personalizing employee value propositions, on ‘ engaging ’ employees at an emotional level, on creating the organizational cli- mate where people will give of their best. Debates rage about whether talent management processes should apply only to the privileged minority of ‘ high flyers ’ or whether more inclusive approaches are appropriate. In all of this, line managers are key partners, delivering the lived reality of the brand to employees.

In Part Three, Human Resources as a Strategic Function, we consider the implications of the evolving HR role and structures for the skills, and behav- ioural competencies needed by professionals. These include a much greater emphasis than in the past on business acumen, consultancy skills, organizational design and development, as well as analytical approaches borrowed from other disciplines. We look at how these skills can be applied to specific challenges, for instance to support cross-boundary working. In particular, we look at some of the challenges facing global HR teams.

In Part Four, Implementing Strategic Change, we look at various ways in which HR teams are changing their organizations ’ cultures to meet business needs, for instance to become more customer focused or to enable greater knowledge- sharing. We consider the human dynamics of change and at what HR can do to support people through periods of change. We also consider how HR can contrib- ute to successful integration, for instance in mergers and acquisitions, and build more change-ready cultures.

Finally we look at what the future might hold for HR, and at how HR’s emerg- ing purpose and role may well crystallize further into several key elements. For me, these include attracting and mobilizing talent, building performance capabil- ity, creating healthy and successful organizations, building effective leadership, providing coherence and ensuring good governance. With an agenda such as this, I argue, the time has come for HR to get on the front foot and lead the way.

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Acknowledgements

I am extremely grateful to all the people, too numerous to mention, who have contributed to this book. From the first edition I would like to thank all the former contributors, including those whose case studies do not appear in this edition. I have tried where possible to include some of the case studies from the first edition, especially those where I have been able to gain updates. These include contributions from Dr Candy Albertsson, formerly of BP Amoco, Anthony J. Booth CBE, of Ericsson, the late John Bailey of KPMG, Roger Leek of Fujitsu Services (formerly of BNFL), Brian Wisdom and Chris Johnson, for- merly of Thresher, David Waters, formerly of Whitbread, Stephen McCafferty of Standard Life, Jane Yarnell for the case study on the National Air Traffic Services and Leslie Patterson of Dow Corning for her case study. I would like also to acknowledge the kind support I received from Professor Clive Morton and the late and sadly missed Professor David Hussey.

I would like to thank my former employer Roffey Park and Valerie Hammond, Roffey Park’s Chief Executive at the time this book was first writ- ten. In particular I would like to thank my former Roffey Park research col- leagues and associates Claire McCartney, Annette Sinclair, Drs Valerie Garrow, Christina Evans and Wendy Hirsh, Professor Peter Smith, Michel Syrett and Jean Lammiman and John Whatmore whose research is referred to in this book. I would also like to thank Pauline Hinds and colleagues in the Learning Resource Centre for their help. I would also like to acknowledge the help given in the preparation of the first edition by Personnel Today , particularly by the then Features Editor Scott Beagrie.

Revising this book to produce a second edition has proved a labour – not always of love – and I am extremely grateful for all the help and support I have received, especially from my employer the Chartered Institute of Personnel and Development (CIPD). I would like to thank CIPD’s CEO Jackie Orme and her predecessor Geoff Armstrong for all their help and encouragement. In particular my thanks go to those who have kindly contributed case study and other mate- rial, including Research and Policy team colleagues and external researchers

Acknowledgementsxiv

who have developed work for the CIPD and on whose published findings I have drawn. I am also grateful to Rima Evans, editor of People Management maga- zine, her predecessor Steve Crabb and their fellow journalists, and publisher PPL for the use of published examples of good practice. My thanks go to Dr Jill Miller, Barbara Salmon, Annie Bland and Noelle Keating for their kind assist- ance and to Dr Tim Miller, Director, People, Property and Assurance of Standard Chartered Bank for his ongoing advice and support.

I am extremely grateful for all the support I have received from Elsevier/ Butterworth-Heinemann. In particular I would like to single out for special mention former commissioning editor Ailsa Marks, without whose continuing support and encouragement I would not have undertaken this revision, and her successor Hayley Salter, who has enthusiastically spurred me on to complete the work. The production team, especially Deena Burgess and Elaine Leek, who has painstakingly read and corrected the revised version, deserve a gold medal.

Above all, I shall be always indebted to my dear husband Barney, and my mother Elsie, for their constant encouragement and faith in me.

Whilst every effort has been made to contact copyright holders, the author and publisher would like to hear from anyone whose copyright has been unwit- tingly infringed.

Part I

The Need for Strategic Human Resources

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Aligning Human Resources and Business Strategy Copyright © 2009, Roffey Park Institute and Linda Holbeche. Published by Elsevier Ltd 3

Introduction: From Business Partnering to Leadership

Chapter 1

HR passes the wallet test when it creates human abilities and organizational capabilities that are substantially better than those of the firm’s competitors – and thus move custom- ers and shareholders to reach for their wallets.

(Dave Ulrich and Wayne Brockbank, 2005)

In the decade since I wrote the first edition of this book, the pace of change in the global business environment has accelerated, new forms of organization and ways of doing business have arisen. Globalization has produced an interwoven set of challenges affecting business, organizations, consumers, workers and soci- ety as a whole. Indeed, the nature of work and the expectations of workers have been transformed and change is now a constant feature of most organizations.

In the rapidly changing global economy, external pressures mean that businesses need to innovate and act with speed if they are to keep ahead of the competition in their chosen market. Flexibility is just one feature of this changing competi- tive landscape as customers increasingly demand tailored products and services available round the clock. The drive to achieve high-quality continuous supply at reasonable margins has meant that production and customer service are increas- ingly carried out off-shore and virtual working has become more commonplace.

‘ Talent ’ and the ability to ‘ engage ’ that talent to produce ‘ high performance ’ are buzz-words which can be heard in organizations of every sector, reflecting the growing awareness of the importance of being able to attract, manage, moti- vate and retain the right people. People are no passive ‘ human resource ’ and if companies want to be flexible to meet changing market requirements, they also have to meet the needs of their staff, especially those with valuable ‘ knowledge skills ’ . Just as customers are increasingly demanding, now ‘ knowledge workers ’ are in a stronger position than a decade ago to make demands of employers as their skills are in short supply, especially in industries as diverse as construction, IT and pharmaceuticals. It would appear that the days of the ‘ War for Talent ’ are back with us, despite the challenging global economy.

PART | I The Need for Strategic Human Resources4

THE HR TRANSFORMATION JOURNEY

The HR profession too has been transforming itself, in many ways leading the way forward for other professional groups. Ten years ago, many HR teams were struggling to make more ‘ value-added ’ contributions to business success, and Dave Ulrich’s (1997) thinking has had a powerful influence on the evolving practice, roles and structures of HR. The past decade has seen an explosion of HR transformation activity as HR teams in every sector have changed their roles and structures, with over 80% of HR functions having undergone some form of change in the past five years alone ( Reilly, 2008 ).

Much of the change is to achieve greater alignment between business and HR strategy and to drive more cost-effective and improved delivery. HR teams have taken many routes to do this, such as reengineering the ‘ back-office ’ HR func- tions by using technology to transform service delivery and information, out- sourcing administration or setting up shared services, as well as devolving HR practices to line management and acting as internal consultants in their roles as business partners. However, despite the transformation journey, to some extent HR still experiences ongoing internal and external stakeholder pressures to dem- onstrate efficiency and added value. Therefore, whether HR transformation in some organizations is producing the right results, or advancing as quickly as it might, is up for debate.

Structural change has also brought with it a degree of role uncertainty for HR. Typical challenges include clarifying the scope and remit of HR, work- ing out how to maximize the performance of HR, where best to make a con- tribution, how to satisfy its customers and how to develop HR’s own skills and resources. In addressing these challenges, organizations and HR teams have choices to make. So must HR follow the rocky road or is there a high road to success? And if so, can learning from those who have been on the HR transfor- mation journey for some time help make the road ahead easier for those who are setting out on the journey today?

‘ OUR PEOPLE ARE OUR GREATEST ASSETS ’

And, assuming that HR does free itself up to deal with more strategic issues, the question remains: what do ‘ value ’ , and ‘ value-added ’ mean in today’s organizations?

Value is what is generated by talent from which employers can derive profit or other forms of benefit. In today’s information age, where knowledge-intensive work is increasingly driving economic growth and when the value of intellectual capital is becoming more apparent, the truth of organizational values statements such as ‘ our people are our greatest asset ’ has never been more obvious.

While we all may be familiar with organizational values statements such as this, there appears to be a good deal of double-speak in many organizations and the reality on the ground is often different. Short-term business priorities, bottom- line considerations and the need to generate shareholder returns tend to take

Chapter | 1 Introduction: From Business Partnering to Leadership 5

precedence over employee considerations. Many executives understandably pay attention first and foremost to the bottom line and in many organizations ‘ peo- ple issues ’ are way down the agenda. Where these do appear they are often treated as short-term operational problems rather than as key areas of attention or investment.

This is ironic given that the growing reality for many organizations operating in a global marketplace is that talent – the lifeblood of competitive advantage – is in short supply. While global talent in some sectors may be abundant, local tal- ent is not, and vice versa. There is growing awareness in global companies that business fortunes increasingly depend on an organization’s ability to attract and retain key talent, while driving forward performance.

Awareness of the talent challenges is one thing; knowing what can be done about them is another. This is where HR, as the key people specialist function in organizations, should be uniquely well placed to make a difference to business success. Being able to attract and retain much-needed talent and drive perform- ance are vital ways of adding value. There seems to be a real opportunity for Human Resource professionals to play a key role in building the organization’s capability to adapt in the face of ongoing change. Indeed, HR has the potential to build organizational capabilities, such as the ability to innovate, improve cus- tomer relationships, move swiftly to market, which will lead to sustainable value. But in order to do so, HR has had to embark on a journey of self-reinvention.

Ulrich and Brockbank (2005) issue a cautionary note – HR should not attempt to assess value without regard to stakeholder perspectives:

Value in this light is defined by the receiver more than the giver. HR professionals add value when their work helps someone reach their goals. It is not the design of a program or dec- laration of policy that matters most, but what recipients gain from these actions. The HR value proposition means that HR practices, departments, and professionals produce positive outcomes for key stakeholders, employees, line managers, customers, and investors.

At this point in its evolution, the HR function has the potential to develop further, moving beyond HR management to more of a leadership role, given that HR’s core contribution relates to culture, processes and that most precious asset of all, people. And while day-to-day people management is mainly the responsi- bility of line managers, the HR function’s unique selling point (USP) is its abil- ity to develop healthy and effective organizations, with the right people, with the right skills, working in the right ways to achieve the right results. HR’s primary functions include finding tailored ways to attract and retain much-needed talent, to design systems, structures, roles and processes that allow talent to be well- deployed and utilized, to develop management and leadership capability and capacity and to build organizational climates and cultures that can be a source of sustainable competitive advantage. This USP should form the basis of a proac- tive leadership contribution from HR – if HR is ready to take the opportunity.

PART | I The Need for Strategic Human Resources6

Yet despite this USP, and the fact that the HR role is growing in scope and depth, challenges to add value remain.

Much of the double-speak with respect to the value of people also applies to the status of Personnel or HR professionals themselves. The terms often used to describe the function – ‘ back office ’ , ‘ support ’ , ‘ cost centre ’ , ‘ internal consult- ants ’ or ‘ business partners ’ – imply something that is non-essential to the organi- zation’s business and therefore of lesser value. In such cases, the actual influence of the HR director on management team colleagues can be limited.

It is often said that the battle to get a ‘ seat at the board table ’ has been won, yet it is still rare to find main board directors with an HR background and more often than not HR professionals who reach the main board find themselves with a wide range of responsibilities, of which HR is only one.

Similarly, HR is often perceived to be a ‘ junior ’ member of the board, expected to implement the board’s decisions rather than help shape them. Even in key organizational events such as a merger or acquisition, HR is often only peripher- ally involved in the due diligence process, let alone in shaping the emerging inte- grated culture of the new organization.

A Function under Threat?

Other factors that may explain why HR’s contribution may be less impactful than it might be include the micro-political context within which Personnel special- ists are operating and the skills and effectiveness of …