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.
If you want to attract, hire, and retain top talent and drive business performance, you’d need a solid HR strategy.
What is strategic HR?
Strategic HR is the ongoing process of optimizing the management of human capital to support business goals and impact the bottom line. A strategic approach to HR helps companies adapt to current workplace and business trends, technology advancement, changes in workers’ attitudes, 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.
1. Talent acquisition & recruiting
Businesses in growth mode know the challenges of finding new talent. In today’s market, skilled and qualified candidates 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 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. 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
- 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 involves working with other departments and the c-suite executives 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:
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?
Talent management: A bad hiring decision not only costs your company lots of money, but it can also damages 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 training on best hiring and interviewing practices? What is the availability like for people with those skills in your current area? How do you upskill your employees to fill new positions?
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.
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 resources 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 help drive engagement and productivity.
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.
Employee 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 is necessary to prepare your workforce for the advances in technology and shifts in the marketplace. Begin by doing a skills-gap analysis, and then 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, communication, team work and collaboration, conflict management, emotional intelligence, coaching, etc are vital.
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.
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: 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 and analytics platform (i.e. CultureAMP), Performance Management (Lattice).
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.
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).
Analytics: HR can’t be truly strategic without a way to measure how you’re recruiting, retaining, and managing people. 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.
Conclusion: Strategic HR is a must for businesses to be competitive
A strong HR strategy plays a critical role in achieving your company’s business goals and driving performance. Most importantly, it helps you attract, retain, develop, and engage the talents needed to compete in today’s competitive business environment.
Since small and medium-sized businesses are short on HR resources and expertise, it is helpful to work with an experienced HR outsourcing company like Melita. An experienced HR outsourcing company can provide your business with the complete HR, Payroll, and Benefits admin support in addition to helping you develop effective HR and people strategies to create a sustainable competitive advantage for your company.
Get a free consultation with a Melita HR advisor today!