Human Resources (HR) has come a long way, since it first found its way into corporate consciousness in the early 1980s. Today, there are few companies left that do not have an explicit recruitment strategy, engage in talent management, have carefully thought-out incentive systems, and regularly run various leadership development initiatives.
But this — that pretty much everyone undertakes these processes — also means that they have commoditized. And with it, that they can no longer be a source of competitive advantage for a company. For that, there are further (and perhaps even tougher) nuts to crack.
As a professor of Strategic Management I see three key steps that form HR’s next frontier. The first one is that HR needs to become more strategic. What I mean with that is the following: When I ask a top manager about their HR strategy, I am typically shown a few PowerPoints with charts and frameworks. But when I ask the same manager about their company’s business strategy, usually a much more detailed expose follows: An explanation of a precise value proposition, exactly what customer profile they are aiming for and what the key internal processes are given the specific fit is between the two. Most companies have developed a much deeper and more detailed understanding of their product market strategy than of their labor market strategy.
But this isn’t always optimal. The first frontier for HR is to develop talent management strategies that are just as sophisticated and precise as their companies’ product-market strategies, in terms of their value proposition, employee profile and internal organisation. If done well, in some cases, such a sophisticated HR strategy might come to form the very heart of a company’s entire business model. For example, the strategy consulting company Eden McCallum offers a service that is not all that different from other, traditional consulting companies, but its talent management strategy — based on operating a pool of freelancers — is unique, giving it a competitive advantage in the labour market. More companies may find that real competitive advantage can be found in the market for employees rather than in their product markets.
The second frontier for HR is that it needs to move on from designing formal talent management systems towards the management of informal processes and mind-sets, because that’s where the real value lies. When Cisco, for example, reorganised from client- into technology groups, it found that its old informal employee networks, formed around customers, effectively complemented its efficiency-based technology groups. It obtained the necessary technological efficiencies through its formal, technology-oriented structure, yet maintained its famed customer focus and problem-solving skills through its informal networks. This created an efficient yet adaptable organisation. Deliberately managing such informal systems to complement the inevitable shortcomings of a firm’s formal structure, in my view, forms HR’s second, much-needed frontier. Managing the informal organisation is not an easy task, but it can create real, enduring value for a company.
Finally, all too often, I find that HR programs — and talent management in specific — are focused on individuals: recruiting, training and retaining superior employees. But genuine competitive advantage comes from superior organisations; not from superior people. For an HR strategy to deliver competitive advantage, it will need to shift from hiring and developing individuals to the management and creation of inter-personal processes.
Southwest Airlines’ founder Herb Kelleher understood this well. He grasped that in order to execute their low-cost strategy better than anyone else, the company did not need better people, but better internal processes, which fostered cooperation, informal coordination and a strong corporate culture among employees. Typically, Southwest’s recruitment strategy is not organised around the well-worn principle of “hiring the best and brightest from the country’s top schools” but focused on identifying otherwise perfectly normal people who can be socialized into their company’s particular culture and systems. It is such careful internal processes, diligently built over the course of many years, that eventually culminate into superior performance.
HR has professionalised enormously over the past few decades. The next frontier for HR is to move on from being a mere staff function to being at the heart of Corporate Strategy itself. Organisations are groups of people. Creating better and unique ways for those people to work together can add real, sustainable value to corporations. The three steps described above represent pivotal ways in which this can happen. Do them well and HR becomes the prime, long-term driver of a firm’s profitability..