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What Is HR Strategy?

By Alex Larralde
Updated May 16, 2022
8 minute read

Human resources has proven its strategic value to the business countless times in recent years. Now that business leaders understand the tremendous value HR can deliver, organizations will be looking to you for people solutions to business challenges. Develop an HR strategy that delivers value to your organization.

There’s much more to strategic HR than just getting a seat at the table. In many organizations, HR has become a vital business adviser, helping businesses bounce back from or navigate through the pandemic’s challenges.

Your HR strategy functions as a road map, providing direction for people policies, processes, and programs. It should define clear outcomes for overcoming business challenges using HR solutions, along with clear actions for achieving those desired outcomes. Stemming from the business strategy, your HR strategy’s primary goal is to keep all of your HR functions aligned and pulling in the right direction.

Here’s how to develop an HR strategy to drive your business forward.

Why HR Strategy Matters for Your Company

An effective HR strategy produces several important benefits for the business. Your people strategy, when aligned with the business strategy, tells you what to prioritize. It guides purpose-driven actions so that you can make the most of your resources.

Your people strategy pulls all of your HR functions together — talent acquisition, retention, succession planning — and functions that fall under the HR umbrella, like learning and development and diversity, equity, and inclusion.

If business leaders want to reduce production time and expenses, for example, consider how each HR function affects that outcome. Cutting labor costs could come down to hiring more qualified manufacturing employees or providing better training to employees already on the production line. Or it could mean improving the employee experience to increase engagement and productivity.

Every HR decision you make has tangible effects on the business. Your HR strategy harnesses that power to help you make targeted decisions that drive business results.

How to Develop an HR Strategy

A lot of thought and planning goes into developing an effective HR strategy. The process starts with understanding the business strategy and continues through stages of assessing HR programs and resources, implementing strategy, and evaluating its impact on the business.

Here are nine steps for developing an HR strategy for your organization.

Evaluate Your Business Strategy

The first step to developing an HR strategy is understanding the business’s goals. If your people strategy isn’t working for the business, it’s diluting your impact and maybe even working against the business. But when HR is in sync with the organization’s priorities, you can deliver an impact that drives results.

It’s crucial that HR leaders have a seat and a voice at business planning meetings. Just like finance and operational leaders, you need to be able to see where executives want to go so you can advise them on how to get there. In the past, HR has relied on direction from business leaders, but today’s HR leaders have to be able to push back against unrealistic expectations and suggest a better course of action.

Address Stakeholder Interests

Build stakeholder perspectives into your strategy plans. Business stakeholders typically include shareholders, consumers, and employees. The business plan addresses the interests of the shareholders and consumers, so the HR strategy planning process must account for employee interests.

By proactively addressing employee interests, you increase the likelihood of buy-in for any process or policy changes you need to make. While your primary goal is to serve the business, making decisions that employees don’t support can set back your strategy, while addressing employee interests helps you execute your strategy much more smoothly.

Perform a Gap Analysis

To serve the business, you need to compare where your HR and people operations stand now compared with where they need to be to meet strategic goals. Perform a gap analysis to determine your priorities moving forward.

In HR, a gap analysis usually assesses the current workforce and the skills it contains, then compares the findings to the skills you’ll need to execute key business functions. With a clear understanding of gaps to fill, you can formulate a plan to bring your HR strategy to life.

Establish Clear Human Capital Goals

With a comprehensive understanding of the business plan and insights into where the workforce’s biggest gaps are located, you can set clear, realistic human capital goals. HR’s strategic objectives should be clearly tied to business priorities and should include clear key results indicating their achievement.

If the business plans to expand into a new market, for example, then you’ll likely have to hire, train, or upskill talent to fill that need. If you have employees interested in learning more about the product, service, or industry you’re expanding into, then you can set a clear goal for developing those employees to serve the business’s strategic goals.

Assess Your Team’s Skills and Resources

Developing a realistic strategy requires a detailed understanding of your resources in HR. Once you’re aware of your limits, you can prioritize what’s most important. Consider your HR team members. Do you have the resources you need to fulfill your HR goals?

If part of your people strategy depends on improving learning and development, do you have the resources to implement and oversee new programs? If executing the business strategy relies on hiring and training hundreds of employees, do you have the resources to manage that?

Think about the skills you have on your staff, for example. You may be really strong on people management skills, but lacking in data analysis. Consider technology and tools, too: Implementing AI in HR can support your team’s data analysis skills, even if you don’t have a dedicated people analytics professional on staff.

It’s important to be honest about HR’s resources and abilities. If you don’t have the resources to execute HR strategy, you risk making a commitment you can’t keep. Given your resources, what do you need to prioritize to keep the business moving in the right direction?

Create a Road Map and Develop a Strategy

Your road map is an action plan for executing your HR strategy. As you develop your strategy, convert the road map into concrete actions with clear timetables. Having clear deadlines creates a sense of urgency and supports greater accountability.

This road map will help you stay on course, and it’s also useful in communicating goals and priorities to the rest of your team. Use goal alignment software to turn your road map into clear objectives with specific owners.

Establish a Performance Management System

Before you can implement your HR strategy, you need one final planning piece: You must set clear metrics for assessing your progress toward HR goals.

As you set goals for your HR function, be mindful of how you’ll know when goals are reached. Document these key performance results, indicating completion, as part of your road map so that it’s easy to see how your plan is performing — and whether you need to re-evaluate it.

Measure Results in Real-Time

Your work doesn’t stop with implementation, as you need to monitor results in real-time. If your key results are clearly articulated, there shouldn’t be confusion about when you’ve reached your goals. Monitor progress daily to catch problems before they become bigger concerns.

With clear metrics in place, it’s easy to see whether you’re meeting your goals. Incorporate your key performance results into your goal alignment software to improve transparency around goal ownership and completion. Relying on data-driven insights, which is just one of the HR trends and tools in play today, can help you monitor the effectiveness of your HR and people management strategy.

Account for Situational Factors

No matter how much planning you do on the front end, you’re likely to encounter setbacks you didn’t expect. Build some flexibility into your plan — and your timeline — so you can reassess and triage without derailing the entire strategy.

As you encounter setbacks, turn those experiences into opportunities to learn. The more you learn from developing and executing the strategy this year, the easier that process will be next year when you develop your new HR strategy.

3 HR Strategy Examples

There are several types of strategies you can use to move your business forward. HR researchers have developed models for creating optimal HR strategies. There’s no right or wrong HR strategy model: It’s simply a matter of finding what works best for your business.

Here are three examples of an HR strategy model to help you determine the best bet for your organization.

The Standard Causal Model

Among the most foundational HR models, the standard causal model of HR management starts with the business strategy, or the “cause” of the rest of the pieces in the model. The HR strategy sits below business strategy and governs HR practices (processes and structures used in daily operations) and HR outcomes (such as retention or skills development).

The standard causal model emphasizes internal performance — and how that performance is affected by the HR strategy — and, perhaps most importantly, financial performance. Financial performance, in turn, has an impact on the business and HR strategies. In this model, it’s especially important to understand how optimizing HR practices and outcomes affects the business’s bottom line.

The High-Impact HR Operating Model

Deloitte’s high-impact operating model prioritizes the needs of HR customers — primarily the workforce. This keeps HR focused on improving business performance by improving employee experience. The model also emphasizes digital connection to keep the workforce aligned.

Using HR tools and technology, the high-impact operating model frequently assesses HR’s capabilities and uses that information to inform the business strategy. The model also operates across HR functions, pulling down silos to encourage HR to work as a unified organization within the business.

The People Value Chain Model

In response to the changes to ways of working during the pandemic, consulting firm EY developed the people value chain model. This model relies on three primary components to deliver long-term value to the business: digital HR, people consultants, and virtual global business services.

Digital HR uses technology to empower and connect the workforce, no matter where employees are physically located. Referring to HR as strategic people consultants shifts how we think about HR. Instead of the historical notion of HR as a cost center, HR is positioned as advisers on people matters. Finally, virtual global business services emphasizes connection and cross-functionality across previously siloed business functions.

Customize Your HR Strategy Framework

Your strategy is a specific plan to support specific business goals. An HR strategy framework, on the other hand, isn’t tethered to a specific business strategy. Your framework provides ways to think about HR within the context of your company culture.

Here’s how to customize an HR strategy framework that drives your business and your values forward.

Define Your Preferred Approach

HR frameworks are intended to be customized to your business’s needs, and that starts with what you are as a company. What are your priorities for your strategic framework? Refer back to your foundational documents — mission, vision, and values — to decide what to prioritize in your approach to HR.

If your business values personal responsibility, for example, you’ll want to build out people processes and programs that empower employees to take responsibility for themselves. This might include using an objectives and key results (OKR) framework to align employees with the business strategy or creating programs to help employees see their impact on the organization.

Bring All of the Pieces Together

Your HR strategy has to account for several elements, from the business to the people and everything that falls between. A comprehensive framework brings all of these pieces together into a fluid HR organization.

Based on your preferred approach, build out your philosophy around HR planning and people management. Define the impact that people have on the business, and vice versa. This activity can help you determine which stakeholders to prioritize when your obligations to the business and employees are in conflict — and help you communicate why that’s the right course of action..

As a strategic leader, your role is to support the business by providing human resources, processes, and programs to keep the business plan on track. But it’s important to remember that a significant part of your job as an HR business partner is to improve employee experiences and opportunities so that you can drive engagement and retention.

Understand and Address Limitations

Your strategy should be aspirational, but it’s important to be aware of your limitations, too. While defining your capacity, also build potential setbacks and realistic expectations into your HR strategic framework.

An intentional HR strategy framework allows you to flex as circumstances change. The framework shows you what’s most important to prioritize and gives you a sense of how to respond to challenges.

Whereas your strategy itself includes specific actions to take, the strategy framework promotes options for actions you can take. When potential responses to challenges are grounded in company values, your HR strategy framework empowers you to become agile without losing sight of what matters most to the business.

Lead Business Growth Through Your HR Strategy

HR presents indisputable value to the business. Your HR strategy can close the loop between people, strategy, and results to carry the organization forward. Work with your peers in the C-suite to envision a clear path for the business, then develop an HR strategy that propels it forward.

Discover 3 ways HR can maintain company culture in the remote workplace.

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