Research has shown that companies with effective HR practices have up to 3.5 times the revenue growth and as much as 2.1 times the profit margins of companies with less capable HR practices.
That sounds great. But what do effective HR practices include?
To compete in today's competitive business environment, your HR practices must include strategic HR—HR that goes beyond just filling seats, complying with labor laws, and performing the administrative tasks of managing employees.
What is strategic HR?
Strategic HR is the ongoing process of optimizing the management of human capital and HR programs to support your strategic business objectives and impact the bottom line.
A strategic approach to HR helps your business adapt to the current business trends, technology advancement, changes in workers' attitudes, and changes in the employment landscape.
A transactional, reactive approach to HR will fail to attract, develop, and engage the talents needed to drive productivity and business performance. It might even hurt your employer brand.
Let’s dive into some of the reasons a strategic approach to HR is critical in today’s business environment.
Why you need strategic HR
People are every company’s most important asset, and often the most expensive. That's why it's important to develop and implement strategies to engage your employees and unleash their potential.
Here are the reasons why strategic HR matters in the modern business world:
1. Talent acquisition & recruiting
In today’s market, skilled and qualified candidates are scarce, making finding talented employees to grow your business more challenging. One study estimates that 86% of the most qualified candidates for open positions are already employed and not actively seeking a new job.
Every business competes against other employers that may be offering better benefits and perks, higher compensation, and better growth opportunities. Strategic HR addresses the current employment landscape and keeps your company current and competitive with other employers.
2. Retention
Whether or not your company is in hiring mode, attrition is always a concern. Replacing those employees costs money: it’s estimated that businesses spend an average of 21% of an employee’s annual salary to replace a lost worker. Strategic HR addresses the factors that contribute to turnover, and helps to address it with concrete programs and plans.
3. Culture and engagement
When HR is reactive rather than strategic, there’s less opportunity to be deliberate about shaping company culture.
Company culture is an important factor in attracting new employees and retaining the ones you have. A study examining career moves of Glassdoor users found that they were more likely to leave their role for a company with a higher rating. A 1-star improvement in a company’s overall rating increases retention by 4 percent.
The bar for employee engagement is low, with just 34% of employees claiming to be engaged at work.
A strategic HR plan that focuses on engagement and culture will move the needle on retention and recruiting, and ultimately helps you drive better business outcomes.
4. The changing workplace
The workplace is constantly changing as it adapts to changes in technology, demographics, and cultural norms:
- Cloud computing, big data, and AI have impacted how work gets done
- The changing political landscape has given people from all walks of life a voice, bringing diversity and inclusion to the forefront for employers
- The Baby Boomer population’s longer life expectancy means that people from three or four generations are now interacting in the workplace
Strategic HR takes into account all of these factors and designs programs and policies that reflect today’s business environment.
5. Business results
Studies on companies that invest in HR efforts such as employee experience, talent acquisition, and diversity & inclusion have shown that they have higher profits than companies that don’t. The following research results demonstrate just how significant the gap is between companies that invest in strategic HR initiatives than those that don’t.
- Employee experience: MIT research shows that enterprises with a top-quartile employee experience achieve twice the innovation, double the customer satisfaction, and 25% higher profits than organizations with a bottom-quartile employee experience.
- Diversity & inclusion: Highly inclusive organizations generate 1.4 times more revenue and are 120 percent more capable of meeting financial targets.
- Talent acquisition: Mature talent organizations exhibit 18% higher revenue and 30% greater profitability compared to organizations with low maturity talent acquisition performance.
Now that you’re ready to create a strategic HR plan, what do you need to consider?
What to include in your Strategic HR Plan
The first thing to do is take a step back and look at your company’s overall purpose, vision, culture, and values.
A strategic HR plan involves working with other departments and the leadership team to come up with proactive plans and programs designed to align with the long-term strategies, objectives, and goals of the business at its current stage and where it is headed.
Next, look at your company’s business goals for the next 1-5 years. Consider what will be needed from your employees and other resources to achieve those goals. Then consider how the following HR practices support your long-term business objectives:
1. Culture
What’s the culture you want to build that will attract, develop, and retain the right employees who are a good fit and are going to help you achieve your business goals?
If innovation and creativity are important, how do you build a culture that fosters innovation and creativity?
2. Talent management
A bad hiring decision not only costs your company lots of money, but it can also damage morale and your company's reputation.
Do you have a talent strategy and process defined to help you attract and hire the right talents? Are your hiring managers trained on best hiring and interviewing practices? What is the availability like for people with those skills? How do you upskill your employees to fill new positions?
3. Employer branding
How do candidates find out about what it’s like to work at your company?
What are they finding?
Work with your marketing department to ensure your employer brand is compelling and clearly communicated (on your Careers page, blog, social media channels) to ideal candidates.
4. Onboarding
What happens in the first few weeks and months on the job is critical to employee success.
Consistent onboarding practices set the tone for the entire employee experience. Be sure to develop onboarding practices that connect employees with the resources that will help them succeed on the job in the shortest amount of time.
5. Benefits & Perks
Health insurance, PTO, and paid leave are the most important factors for employees when thinking about benefits.
Make sure your benefit plans are competitive and reflective of the kind of company you want to be known as.
Do you offer perks related to the company’s business such as stock options or employee discounts?
If so, consider how they can be structured more strategically. Also, a commitment to a healthy workplace, flexible work arrangements, and employee wellness can help drive engagement and productivity.
6. Compensation
Compensation is another factor that affects hiring and employee longevity and happiness.
If your compensation package is not attractive and competitive, you will struggle to hire and retain top talent. What is your compensation philosophy?
If you cannot offer salaries in the high range, perhaps you can make it up with better health benefits and meaningful perks like flexible working schedule, work from home, time off to do volunteer works, or opportunities for growth and development.
7. Employee & leadership development
Career opportunities and continuous learning and development are key to employee retention and performance.
According to a Linkedin study, 94% of employees said that they would stay at a company longer if the company invested in their career development. Furthermore, continuous training and development are necessary to prepare your workforce for the advances in technology and shifts in the marketplace.
Begin by doing a skills-gap analysis. Next, provide a learning and development program that not only aligns with your company’s long-term business goals, but also supports the overall growth of your employees and preparing select candidates for leadership roles.
In addition to the technical skills, soft skills training in areas such as strategic thinking, creativity, design thinking, communication, team-work and collaboration, conflict management, emotional intelligence, and coaching are vital in today's workplace, especially for those in management or leadership roles.
8. Diversity & inclusion
The U.S. population is becoming more diverse and companies are beginning to recognize the business benefits of having a diverse workforce.
A strategic approach to D&I might include identifying areas where diversity is most lacking and addressing those first. To promote an inclusive culture where everyone's thoughts and voices are heard and valued, you'd also need to provide some training to the leaders in your organization.
9. HR tools and technologies
Technologies such as the cloud, artificial intelligence, big data are transforming the way we work.
How can your business take advantage of modern HR tools and technologies to streamline your HR operations, reduce administrative burdens, improve services, and improve your talent acquisition efforts?
Here are a few essential HR tech tools that your business should consider adopting:
- HRIS (i.e. ADP, Ceridian, Zenefits, BambooHR, Ultimate Software)
- Applicant Tracking System (i.e. Newton Software, Lever, Greenhouse)
- AI to improve HR operations, employee feedback
- Analytics platform (i.e. CultureAMP)
- Performance Management (Lattice).
10. Workforce planning
Planning out where your employees work, in what volume, and the skills you need today and in the future is a key strategic consideration for any business.
Consideration of talent supply and demand in a given location can inform business decisions for expansion or relocation.
11. Performance management
How employees get evaluated and rewarded should also tie back strategically to the business. Will the culture of your future workplace be aligned with your current performance management structure?
Consider how performance management can evolve in tandem with the way employees work and think about their jobs today (some organizations have killed annual performance reviews and are preferring on-going check-ins and feedback).
12. Analytics & Metrics
HR can’t be truly strategic and a valued business partner without a way to measure how you’re recruiting, retaining, and managing your people. By providing the management team with data and insights, they can see the trends and proactively adapt and respond accordingly.
Some of the metrics you can track include absenteeism, engagement rate, time to hire, revenue per employee, and turnover. Consider what employee data you currently have access to and how you can better make use of it.
Also, consider how employee surveys can be used to evaluate the success of your strategy moving forward.
How you can boost your HR management
As you can see, strategic HR plays a critical role in achieving your company's business goals and driving business results. When your HR function embraces a strategic role, you will be able to design better programs and leverage modern technology and HR practices to drive business value.
Unfortunately, most small and medium businesses lack the resources and expertise to properly manage tactical HR activities, let alone work on HR strategies.
The good news is that there is help available.
By partnering with an experienced HR outsourcing company, you get a complete team of HR, Payroll, Compliance, and Benefits specialists to help you manage your administrative HR activities.
More importantly, you will also gain access to the latest HR technology and get guidance on modern HR practices and strategies. In other words, you will get complete support and guidance to help you create a sustainable competitive advantage for your business.
If you want to learn more about how HR outsourcing services can help your business, chat with one of our HR solutions advisors today.
