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HR StrategyCreating Business Strategy with Human Capital
By Paul Kearns
Butterworth-HeinemannCopyright © 2010 Elsevier Ltd.
All right reserved.
Chapter OneWhat is the Purpose of HR-Business Strategy?
PREDICTING THE FUTURE FOR YOUR PEOPLE
Producing a strategy is all about predicting the future or, more accurately, winning the argument about what the future might hold. Yet life is so complex that boards of directors can prove to be just as fallible in this endeavour as any other, mere mortals. The boardroom is not somewhere to expect absolute truths, only best guesses. The most we can hope for is that these guesses are based on the best evidence available. Furthermore, CEO's have to convince their peers they have a strategy for creating the greatest possible value from all of the capital at their disposal and that has to include achieving the greatest returns from their 'human' capital as well.
Whatever strategy you dream up though it will have to be competitive. We should not have to remind ourselves of this fact, but Kenichi Ohmae made it so plain in his classic book The Mind of the Strategist (McGraw-Hill 1982) and hinted at the need for a really effective people strategy when he said
What business strategy is all about – what distinguishes it from all other kinds of business planning – is, in a word, competitive advantage. Without competitors there would be no need for a strategy ... Corporate strategy thus implies an attempt to alter a company's strength relative to that of its competitors in the most efficient way.
What better way is there to 'alter (your) company's strength relative to that of (your) competitors' than to ensure you manage your people better than they manage theirs? We will eventually push this case even further in suggesting that any business strategy that does not explicitly and consciously integrate with an HR strategy will no longer qualify as the best strategic option. Stakeholders will not be getting the value they should expect if you fail with your people.
As with all 'simple' advice though let us not be fooled into thinking this will be easy. Really serious issues quickly mount up as soon as you try to put a strategy for people management into practice. Consider, for example, what difficulties you would face in telling all your employees that you now expect as much value as possible from everyone, and your chagrin at realising you have not already done so! Never mind, we will come back to that later. For now the first step, or should we say hurdle, is how will you predict what the future holds for your employees whilst also ensuring they might want to take this journey with you?
How good are you already at making predictions about your business, its markets and customers? However impressive your track record might be there are no guarantees your next prediction will be well founded. Stakeholders should expect that your strategic predictions are at least based on the best information available and have been subjected to the most rigorous analysis. Only then can your strategy provide a robust springboard for action. It is self-evident and inevitable that organizations with the most accurate predictions will enjoy the highest rates of success.
Yet history has a habit of reminding us that we get predictions horribly wrong. One only has to look at the global credit crunch of 2008–2009 to realize that even the experts – economics professors, investment analysts and financial regulators are all fallible human beings. Spot-on prophecies are sometimes uttered, but because the news is not what the crowd wants to hear, they are drowned out. Peter Schiff, President of Euro-Pacific Capital, famously predicted in a television debate on America's CNBC in August 2006 http://www. youtube.com/watch?v=LfascZSTU4o that the USA was heading for a debt crisis. His co-debater, a previous adviser to the Reagan government, took precisely the opposite view declaring that the US economy was in great shape. They could not both be right, of course, and history duly declared Schiff the winner, but only when it was too late to prevent the disaster.
It is because life is precarious that we crave some semblance of certainty and direction from our leaders. One prediction we can make, with absolute certainty, is that having the wrong strategy will always lead to disaster. The only matters left open to debate are how long it takes before catastrophe strikes and how much longer before we acknowledge our mistakes and learn some painful lessons. In times of societal upheaval and change we can be talking very lengthy timescales indeed before we realise some of society's worst mistakes: take political strategies of socialism versus capitalism, or how to tackle global warming.
The determined leader will never dodge or shy away from the sheer size of the challenge though. Trying to avoid making predictions is not an option because you stop being a leader and become a victim of circumstance. So any prediction is better than none and to choose the best option you need to be a prescient predictor of human behaviour over substantial periods of time. Fortunately, this is not half as difficult as it sounds. Human nature is highly predictable, particularly the combined behaviour of large numbers of people, in fact worryingly so.
Psychologists Solomon Asch and Stanley Milgram, in the 1950s and 1960s, performed some of the most infamous experiments on human behaviour. Asch just confirmed much of what we already knew that social pressures on individuals to conform can result in them consciously providing incorrect information. The guinea pigs in his groups were the only persons who were not aware of the experiment and so conformed against their own common sense and better judgement. Milgram's experiments in obedience found that, in a controlled experiment, participants would obey instructions to administer electric shocks to people they had never met, simply for failing in a laboratory test. These findings are still controversial today, but we need to be alert to the possibility that organizational culture can be such that bizarre and dangerous behaviour can be exhibited by employees in the work environment, who would not behave in such a manner in their own home or when left to their own devices.
However we behave, it took many thousands of years for us to evolve into what we are today and this is not likely to be undone or undergo any radical change within one or two generations. It might seem distasteful to have to remind ourselves of what human beings are capable of but we can predict with a high degree of confidence, based on historical evidence, that we will still be witnessing wars, famines, genocides and totalitarian regimes in the future simply because we have not found a way to eliminate them yet.
We are also likely to have more asset bubbles and financial crashes if we do not do something to prevent them, but what can we do ? The same, primal, human urges that caused the Dutch tulip mania of 1637, the South Sea Bubble of 1720 and the Wall Street 'crash' of 1929 are the very same as the human behaviours that led to the asset bubble and the credit crunch of 2007. Nothing much changes when we are talking about man's most basic instincts and there will always be those, in the absence of any external constraint, who will allow their desires to rule their lives without considering the consequences of obesity, indebtedness or infidelity. This is not intended to infer any moral or value judgement on such individuals, simply to accept that these 'weaknesses' pose serious challenges, if not threats, to the way we all live.
They require complex, strategic solutions and, like love, the course of true strategy is unlikely to run smooth. If it were easy everyone would be doing it, but then it would offer no competitive advantage. It is precisely because strategy is so difficult that it offers such great opportunities. Its value lies in its complexity and the inability of the majority of CEOs to master it. Any CEO can produce an operating plan, but that is a very distant cousin to strategy and from a much lower order. Moreover, how many CEOs can develop a sustainable business strategy when the average tenure of a FTSE 100 CEO is less than 5 years? Fewer still could produce an HR-business strategy.
Large supermarket chains such as WalMart or Tesco can make an educated guess as to what their customers will buy every week. Most of their shelves would be stacked according to historical experience and their logistics would operate likewise. Business and operating plans work reasonably well when customer behaviour does not change too much in the short term. Plans can be cruelly exposed though when the world around them starts to change. Tastes can change, as with organic foods or when customers prefer ethical or Fairtrade products. Such developments force changes that demand a well-conceived, coherent HR-business strategy.
Supermarket policies on the quality, standard and shape of vegetables they think customers want will change when prices rise steeply: knobbly carrots and oddly shaped bananas suddenly become acceptable. Bureaucrats and legislators in the EU also changed their regulations to allow these, previously prohibited, misshapen produce onto the shelves but neither the supermarket managers nor the Brussels bureaucrats could be said to be acting strategically: a strategist would have stuck to some solid principles. Not so the EU, the arguments that justified laws outlawing the ugly and defenceless vegetables of yesteryear were suddenly unceremoniously jettisoned in the face of economic reality. No wonder the EU does not command the respect of all its citizens, when they act in such a fickle and decidedly un-strategic way.
A strategic change in the way supermarkets operate would acknowledge that a change in vegetable policy affects many aspects of the business, not just the shelf stacker. The procurement teams would not just buy different quality produce they would develop a different contract and relationship with their suppliers. This would require them to move away from their previous, rigidly enforced, standards and towards adopting an alternative negotiating stance. If they just ditched their high quality farmers for lower quality producers what would happen when low prices and higher incomes returned? New strategies always involve fresh thinking and different behaviours.
New strategies invariably mean moving into uncharted waters and this comes with risk, management paradoxes and apparent contradictions – neatly summed up in the oft-quoted phrase – 'the biggest risk of all is to take no risk'. Any CEO could be forgiven for wanting as much of a steady state income stream as possible, especially as they realise that change is likely to lead to disruption and cost. So strategy is as much about managing these risks as it is about opening up new opportunities. Trying to avoid risk stifles innovation. This is the very same dilemma that faces banking regulators, who have to weigh the cold hand of regulation against the wealth-generating advantages of unfettered entrepreneurialism. HR-business strategy should be viewed in precisely these same terms, needing to control employees whilst simultaneously wanting to allow them full rein to realize their greatest potential.
This will always be a complex balancing act because there is no such thing as a perfect strategy and all strategies, by virtue of the dynamic environment in which they exist, have to be dynamic. Conventional, textbook, economic theory produces a construct of perfect competition where customers have perfect knowledge of products and prices and can express their buying decisions through the existence of perfect markets bringing purchasers and suppliers together, in perfect equilibrium. Yet, in reality, we all know how imperfect markets are and many organizations make good profits from those imperfections. The Internet has certainly provided much better market and price information for purchasers, but the range of features and options on many products and services are just too complex for ready comparisons to be made, whether they are insurance policies or digital cameras. Some companies could even be accused of having a deliberate policy of confusing customers so that they cannot always find the lowest price comparisons so easily. This criticism could justifiably be laid at the door of most mobile/cell phone companies' tariffs.
Excerpted from HR Strategy by Paul Kearns Copyright © 2010 by Elsevier Ltd.. Excerpted by permission of Butterworth-Heinemann. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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