Most companies set business goals every year and make a strategic plan on how to achieve them. Strategic plans may involve sales, marketing, product, customer service, and finance. And today, that strategic plan must also include HR—HR that goes beyond just filling seats, complying with labor laws, and performing the administrative tasks of managing employees.
I’ve worked for my fair share of bad companies with poor HR practices throughout my career. The reasons for my poor experiences were directly related to lack of the following: positive company culture, learning & growth opportunities, and trust in leadership and management. Naturally, I didn’t stay at these companies that long. Had these companies even made some efforts to practice strategic HR, they would be much more successful and have much higher employee retention.
If you want HR to play a key role in driving business results, it’s critical that your business starts implementing strategic HR practices.
What is a strategic HR?
Strategic HR is the ongoing process of optimizing the management of human capital to support business goals. A strategic approach to HR helps companies adapt to current workplace and business trends, technology advancement, ongoing generational shifts, and changes in the employment marketplace.
A transactional, reactive approach to HR will fail to meet employees’ need for meaning and purpose, offers lackluster support for employee engagement, retention, and productivity. Let’s dive into some of the reasons a strategic approach to HR is a necessity in today’s environment.
Why you need strategic HR
At its core, your business is about people. Without people, no products would get developed, made, shipped, marketed, sold, and the finance team would have nothing to report on. No services would be performed. People are every company’s most important asset, and often the most expensive: labor costs can be more than half of a company’s operating expenses.
1. Talent Acquisition & Recruiting
Businesses in growth mode know the challenges of finding new employees. In today’s market, job seekers are scarce, making finding talented employees to grow your business more difficult. One study estimates that 86% of the most qualified candidates for open positions are already employed and not actively seeking a new job.
In today’s competitive environment, 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.
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 well as helps plan for it.
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 employes 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. Any company that puts extra care into a strategic HR plan that focuses on engagement and culture is likely to move the needle on retention and recruiting.
4. The changing workplace
The workplace is constantly changing as it adapts to changes in technology, demographics, and cultural norms. New technology tools, robotics 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. And 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 world.
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 should have proactive plans and programs designed to align with the strategies, goals, and needs of the business at its current stage and where it is headed. It should also consider the unique career paths within your organization.
Next, look at your company’s business goals for the next 1-5 years. Consider what will be needed from your employees to achieve those goals. Then consider how your company’s purpose and long-term business goals impact the following:
Culture: What’s the culture you want to build that will attract and retain the right employees who are a good fit and are going to help you achieve your business goals?
Talent Acquisition: Will you need to invest more in talent acquisition in the coming years? Will you need to shift focus to recruiting for different types of roles? What is the availability like for people with those skills in your current area? How can you efficiently hire the people that are most likely to succeed and stay in your organization?
Employer branding: How do candidates find out about what it’s like to work at your company? What are they finding? Consider what’s currently being communicated versus what would be more beneficial for your company to communicate. Make sure your communications (on your Careers page, blog, social media channels) accurately reflect what’s like to work at your company for various types of employees.
Onboarding: What happens in the first few weeks and months on the job is critical to employee success. Consider how consistent onboarding practices set the tone for the entire employee experience, and develop onboarding practices that put employees in touch with the information that will help them succeed on the job in the shortest amount of time.
Benefits: 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.
Perks: 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 and employee wellness can also offset healthcare costs.
Compensation: Compensation is another factor that can affect employee longevity and happiness. A structured approach to salary increases and promotions with attention to pay equity builds your HR function’s profile as a strategic partner in the business.
Employee development: Career opportunities and continuous learning are key to employee retention. A strong 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 will help to retain your employees and keep your company stay on the cutting edge.
Diversity & Inclusion: The U.S. population is becoming more diverse and companies are doing more to attract diverse talent in the name of business results. A strategic approach to D&I might include identifying areas where diversity is most lacking and addressing those first.
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 simplify your HR operations, better manage, engage, and retain your employees, and drive better business outcomes? Here are a few essential HR tech tools that your business should consider adopting: Applicant Tracking System (i.e. Newton Software, Lever, Greenhouse), AI to improve HR operations, employee feedback and analytics platform (i.e. CultureAMP), Performance Management (Lattice).
Workforce planning: Planning out where and when your employees work and in what volume 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.
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.
Analytics: HR can’t be truly strategic without a way to measure how you’re recruiting retaining, and managing people. Current AI tools can also be used to supplement analytics. 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.
Conclusion: Strategic HR looks toward the future
A strategic HR function takes into consideration how every aspect of HR plays a critical role in achieving your company’s business goals. Most importantly, it helps you attract, retain, develop, and engage employees while contributing to business results.
Being strategic in your HR practices is no longer an option. It is a requirement to compete in today’s business environment!
If you’d like to learn more about developing a Strategic HR Program for your business, check out Melita’s HRElevate solution.