Strategic human resource management: an Australian case study.
By Foley, Pat
Publication: Human Resource Planning
Date: Wednesday, September 1 1993
HR strategy model
Our view of HR strategy is that it is a priority setting process. The key dilemma facing the HR function in organisations today is not what to do in orde to be making a contribution to the business as a business partner; but how to determine priorities in allocation of scarce resources (human, financial and physical) in a way that maximises their contribution to the achievement of the organisation’s business goals. Even if the resources for the HR function were doubled, or increased tenfold, the same issue would need to be addressed: how t determine priorities for the allocation of resources in a way that maximises th HR function’s contribution to the business.
The framework set out in figure 1 is one that has been developed, refined and used by the senior author over the past ten years in various assignments to assist organisations in developing their HR strategic plan.
Figure 1 simply identifies a range of key factors which impact on HR strategy. Many other factors which impact, but to a lesser degree, have been excluded in order to provide clarity in focusing on the key issues. Some of the key factors will be briefly discussed before looking at the case study on HR Benchmarking measures.
Figure 1 has been shaded into two components for the purpose of discussion within this article. The components on the left hand side (unshaded) are those that constitute the traditional model we have used and the shaded area represents more recent extensions.
Under the traditional model, four factors were seen as important in contributin to the determination of HR strategy. These factors were the strategic/business plan of the organisation; the workforce planning process; HR information; and external environmental factors. Each of these factors will be discussed separately.
In working with organisations, our experience has been that HR operational priorities have typically been determined by a combination of reactive service provision, crisis management and intuitive judgment. While these were not the formally stated ways of determining HR priorities, if you analysed the basis by which HR practitioners actually prioritised resources allocation, it tended to be reactionary and/or intuitive. Factors such as telephone calls, correspondenc across the desk, and meetings (formal and informal) often determine HR priorities. While there must always be a component of resources which are allocated on a discretionary (reactionary) basis, there must also be some process to determine HR priorities so that the function maximises its contribution to the achievement of organisational goals.
Business Planning Process
he first factor which is essential for determining HR strategy is the strategic/business planning process. This is likely to be the single most critical factor in shaping HR strategy and the linkage, in reality, it is a two way interactive process. While HR strategies must be developed to support the achievement of the business plan, HR factors can also be critical inputs in determining the business initiatives for the organisation. From our experience the actual format or structure for linking HR factors to the organisation’s planning process is less important than having a systematic process. The more critical factor is that the most senior HR manager is involved, and that this occurs at the early stages of formulating the business planning process for the organisation.
One approach which we have found effective in this area is to develop a summary of possible HR functional contributions to the various business initiatives (strategies). If we prepare a matrix then this becomes both a “check list” and summary of the HR initiatives required to support the various business strategies. The HR initiatives are set out on a functional basis (e.g. Staffing HRD, Compensation, etc.) on the vertical axis (selected examples only are shown in figure 2), and the specific business initiatives (strategies) of the (draft) business plan on the alternate axis. Supporting documentation would set out the details of each proposed HR initiative (e.g. 1.1. in Staffing may be about formulating an induction program which develops a new culture within proposed acquisitions. Within the matrix, we would show which business strategies are supported by each HR initiative. A specific HR initiative will often support several business strategies. This identification is done by a number between 1 and 9 which represents an assessment of the priority of the HR initiative in supporting the business initiative (based on urgency and impact assessment). In the above example the culture driven induction program may have a weighting of 7.
The matrix allows a visual summary within a column of the range of HR initiatives to support a particular business initiative (e.g. staffing, training, employee relations) as well as highlighting within a row the range of business initiatives being supported by each functional area of HR. Naturally a different mix of HR initiatives will be required to support the various busines initiatives.
The second factor shaping HR strategy is the result of the workforce planning process. The key results from the workforce plan will be:
* identification of projected shortages by occupational group
* identification of projected surpluses by occupational group
* identification of forecasted job role changes
Within Australian organisations today, it is more likely that there will be a forecast of surplus staff rather than of staff shortages, particularly in large organisations with downsizing. A key requirement in the forecasting is to develop alternate scenarios and to develop the forecast consistent with each scenario. The variations between the scenario forecasts is often more important than the actual results of individual scenario forecasts. The forecasting of jo role changes often has a more significant impact in determining HR strategy tha forecasting workforce numbers. Job role changes are generally expressed in term of competency profiles. Included in job role changes are forecasts for new job roles which do not currently exist in the organisation
The workforce planning (or strategic staffing) in Figure 2 is a subset of a broader human resource planning model. The relationship between matching supply and demand and HR strategy is the same in the broader model.
The results of the workforce plan can have a major impact in shaping HR strategy. An example is the lack of any promotional prospects in many organisations. This requires new concepts of a career and new approaches to rewards and recognition, and a stronger focus on developing the motivational potential of the job itself.
The third input in determining HR strategy is information from the HR data base It has been our experience in Australia, that the HR function has traditionally been information illiterate. This has been caused by a combination of lack of formal training and lack of organisational experience.
In a review of undergraduate and post graduate programs on Human Resource Management, we have found virtually no focus on developing skills in the interpretation of HR information. Text books in Human Resource Management have included references to information systems for human resource activities. Adaptations of American textbooks used in Australia, such as Schuler et. al. (1992) and Robbins et. al. (1986) as well as texts written in Australia such as Clark (1992), have chapters devoted to HR Information Systems. Most texts however, focus on techniques (e.g. selection HRIS systems) rather than on developing skills in interpreting HR information.
In organisations, we again have found little evidence of structured approaches to develop the skills of HR practitioners in the interpretation of HR information and trends. Because of this lack of skills and experience, and because of limitations of HR software, we have found little evidence of organisations systematically using HR information as an input for determining H strategy.
Our rationale for including the HR information linkage into figure 1 is because of the rate of change occurring in organisations. If we accept that the rate of change is accelerating (reduced product life cycles, reduced life time of particular technologies, time to market, etc.) then the value of historic experience is also diminished as the past is less predictive of the future. Consequently a change in the mix of inputs into decision making will be necessary. We believe information will need to be analysed to determine organisational trends and implications which cannot be determined on the basis of experience alone.
An example of using HR information can be seen with absenteeism. All organisations and HR systems will keep a record of unscheduled leave by each employee. Less than half of the HRIS systems used in Australia will automatically calculate absentee rates for the organisation as a standard menu based report (where unscheduled leave is calculated as a percentage of rostered hours for a period e.g. one month). In a review of 60 organisation’s Human Resource Information Systems, we found that very few HRIS will allow an organisation to automatically generate absentee rates on a three dimensional table when the user selects the dimensions e.g. absenteeism by occupational group by tenure by location. Training hours and costs, recruitment costs, and occupational health and safety costs are also areas that generally can not be accessed easily by HR departments within these organisations in the format of three dimensional tables.
any HR functions are caught in a Catch 22. They cannot extract HR information automatically on an aggregated basis in two or three dimensional tables so, consequently, they do not use this information in helping to determine HR strategies. Because of the lack of automatic availability of multi-dimensional information, HR practitioners do not develop skills in using HR information in decision making.
One of the important reasons why HR practitioners have not developed the HR skills to interpret and use HR information is that they have not had standards against which to compare their performance. The lack of industry, or cross industry standards, have made it more difficult to determine the implications o HR data and how it might impact on HR strategy.
By way of comparison, if we look at other professions such as the Accounting profession, in both financial accounting ratios (e.g. debt to equity) and managerial accounting ratios (e.g. percentage of debtors beyond 30 days) it has always been possible to have some external benchmarks for comparison points. Th teaching of these ratios has traditionally been part of the formal University training of accountants. The same has not been true for HR professionals.
External Environmental Factors
The fourth input into determining HR strategy is a combination of external factors. These range from legislation, traditional (e.g. EEO) and new (e.g. workplace reform); changing demographics (aging of workforce, changing workforc participation rates, changing retirement age, mix of full-time and part-time employment); and changing ethnic mix. While many aspects of the external environment impact directly on the organisation’s business plan (e.g. economic conditions), the HR function needs to systematically look at the external environment and assess its impact when determining the HR strategy. The externa labour market will have a direct impact on supply forecasts by influencing the labour turnover rate in the organisation.
Over the past two years, we have been involved in developing additional inputs into the process of determining HR strategy. These additions have been related to the HR data base and measures of HR.
Internal HR Benchmarking Measures
The first additional input, particularly for larger organisations, has been the determination of internal HR benchmarking measures. This consists of comparing across divisions the relative performance of the HR function on a range of measures. These might include broad measures such as HR headcount as a percentage of total workforce, to more specific measures such as absentee rates cost of selection, percentage of internal promotions to external recruits, average tenure in a position, or training and development expenditure. By comparing results for various measures across the organisation, it is possible to identify variations between divisions. The next step is to investigate the reasons for the differences, to determine the causes, and, in particular, to se if there are variations in HR practices across the organisation. Companies need to determine if HR practices in particular divisions constitute organisational best practice and can this be incorporated into the overall organisation. If so this information can make a contribution in determining HR strategy.
External HR Benchmarking Measures
The extension of the internal comparison is to undertake some external benchmarking of HR practices. This step will involve comparing the organisation’s performance on a particular measure with external organisations both within the organisation’s industry and in other industries. If the externa measures are better than for the organisation, then it is necessary to investigate the HR practices which support these results. The determination of external best practice in HR (both nationally and internationally) should also be an input into the determination of HR strategy.
The external benchmarking measures provide the opportunity for an organisation to compare the performance of its HR function. It is preferable for organisations to use international and national measures as a basis for comparison. This is particularly true for nations such as Australia with high levels of international trade as a percentage of GNP or for any organisation with significant export sales or competing against imported products. It is essential that the FIR function has a focus on its contribution to the organisation’s international competencies.
HR Best Practice
The final input into the model for formulating an organisation’s HR Strategy is a HR Best Practice process. We believe the two issues of best practice and strategy must be linked because of the concept of competitive advantage. It is not possible for any organisation to have world best practice in all aspects of human resource management, or more correctly it is not cost effective. If we accept a concept of competitive advantage and for organisations to focus on its strengths which match external opportunities then we should apply the same concept to the HR function.
The priorities of the HR function are determined by many factors as set out in figure 1. With increasing rates of change in organisations then the HR initiatives required to best support the organisation achieve its business goal will continue to change. In order to achieve best practice when changing initiatives it is preferable to review the practices of external organisations as a basis to develop best practice. In looking at any new initiatives required to support the business plan (e.g. shaping organisation culture) it is desirabl to investigate those organisations where this initiative (shaping organisation culture) has been an important commercial imperative for a number of years. In our experience, the investigation of emerging HR practices is generally most effective when it is reviewed in other industries rather than that of your own organisation.
Based on our experience in conducting several best practice studies, on both a national and international basis, most innovation in HR best practice is identified in different industries. Once the emerging HR issues are identified there is a question of identifying industries where HR issues have been important for a number of years and identifying best practice in organisations within that industry. The link between HR strategy and best practice is consequently a two way flow.
n summary we see HR strategy as a process of identifying the priorities for th HR function. The key determinant of HR strategy is the business plans of the organisation. Other factors, however, as set out in figure 1 are also important inputs in determining priorities for the HR function. The process will make a greater contribution to the organisation than those relying on intuitive judgement.
A recent Australian case study illustrates this model. The organisation described in this case study feels their approach to Strategic Human Resource Management is an integral part of its competitive advantage. For this reason, the organisation is not identified and we have given the organisation a fictitious name, Australian Global Insurance (AGI).
AGI is a large multinational Australian company with branches in Australia, South-East Asia, America and Europe. It employs 42,000 people world-wide, with over half of its employees being based in countries other than Australia. AGI consists of nine interlinked companies.
In the last 3 years, AGI has placed an increased importance on the Human Resource function. First, it reorganised the HR function so that the senior HR professional was at the chief general manager level. This resulted in this person being a member of the senior executive group. AGI recruited outside specialists and formed a group human resource section. Included in the specialists was a manager of research and analysis whose role was to identify and establish HR best practices within the organisation.
This case study will focus on:
1. How Internal Benchmarking Measures were identified.
2. How these were linked to External HR Benchmarking.
3. How HR Best Practice was identified.
The Identification of HR Benchmarking Measures
There were 5 main reasons why AGI adopted a benchmarking strategy within its human resource function. These were:
1. To achieve HR productivity improvements.
2. To have a more proactive role within the organisation.
3. To identify and emulate HR best practices.
4. To establish effective and measurable HR goals and objectives.
5. To be seen as a strategic business partner that adds value to the organisation.
Within AGI it was seen that the only way that the HR benchmarking process could be sustained was by marketing the concept. The best way to do this was to ask key HR customers what they saw as the most important measures of HR’s contribution to the organisation. Once the HR function had developed some ownership of the measuring process, the benchmarking concept could then be sold internally.
The first attempt to do this involved a survey of senior line managers (CEO and two levels of direct reports). This survey asked them what they thought were th key success areas that HR should measure. The survey was unsuccessful. The main reason it failed was that managers needed an explanation of the context and the potential actions that may arise for each of the measures. An alternative approach using a semi-structured interview was then developed.
Identifying Strategic HR Performance Indicators
The main advantage of the structured interview process was that it allowed each of the measures to be clearly defined to an extent that was not practicable using a questionnaire format. In addition each of the measures was now to be described as a potential HR performance indicator that may or may not have valu in strategic decision making within AGI.
After careful review, 52 HR performance indicators were identified as having potential importance in the decision making of senior management within AGI. Most of these measures were adapted from the Australian HR Benchmarking Survey we have developed. For the survey the 52 measures were broken into 7 major categories:
* Organisational Effectiveness
* Absence and Turnover
* Transfers Promotions and Staffing
* Training and Development
* Occupational Health and Safety
Each measure was defined using terms commonly used within the organisation. The measure’s current availability within AGI’s different human resource informatio systems was also highlighted. Only some measures were available on all of AGI’s Human Resource Systems.
Twenty senior managers were interviewed within the AGI group. It was anticipate that a manager’s ranking of the importance of HR would vary according to their degree of human resource specialisation and organisational seniority. To balanc this, a structured sample of senior and general managers was constructed and al chief general managers within the organisation were interviewed.
he interview consisted of 4 broad questions. The first asked the respondents what were some of the major decisions they had made in the last 12 months that they needed up-to-date human resource information for.
The second question focused on where this information was available. Did they have difficulty getting it, and did they want to use any other HR related information? This question also explored what other HR information they regularly used in their decision making. Since all the respondents were at the strategic apex of the organisation, the HR information needs were seen as havin potential strategic importance. When particular areas were identified, respondents were directed to whichever of the seven measurement categories were seen as having the most relevance to their decision making processes.
The third question asked respondents to rank the measures in order of the potential importance they felt them to have in improving the quality of their decision making. Question 4 asked managers: “if AGI was to develop a number of HR benchmarks, to compare itself internally and externally, which indicators would they consider to be the most useful?” In addition TABULAR DATA OMITTED respondents were asked how often the indicators would have to be updated in order to maintain their usefulness in decision making.
The structured interview approach allowed the rationale behind each of the managers answers to the given questions to be carefully explored. It became clear, at the end of the interviews, that HR benchmarking measures had very different uses depending on the level of comparison. In total 19 HR performance indicators were ranked as having a high value in senior managers’ strategic decision making. These are contained in Table 1.
The first eleven of these measures were seen as having a high value at a compan and group level. For domestic and international benchmarking they were also considered generally to be of high importance. Three however were only seen of being of moderate importance at the international level. These were management and non-management resignations and non-management sick leave. Managers generally felt that these measures made more sense when they were compared within the context of the host country.
The remaining nine measures were all seen as having a high value when compared within the domestic context in which the group company functioned. Therefore comparisons between companies functioning in Australia, America and England needed to be made with great caution when using these measures.
Using Benchmarks to Identify HR Best Practices
AGI sees itself as a global organisation. Once it had identified eleven HR measures that it could use to benchmark itself internationally it began a benchmarking study using these measures as a focus.
Initially AGI decided to benchmark itself against American organisations. Since the eleven HR performance indicators identified were derived from the Australia HR benchmarking survey which is associated with a similar survey conducted by the Saratoga Institute in America, comparative bench-marking data was available
At AGI’s request, we identified 15 American companies that were in the top 10% on these indicators. A Benchmarking study was conducted on these companies. As part of this study, extensive site visits and analysis of HR processes were conducted.
The study identified a number of HR best practices. AGI is now in the process o adapting these practices to suit its own organisational culture. It plans to implement a number of the practices and to monitor their impact on the above eleven HR performance indicators.
The development of this model has been influenced by a range of publications. Specific references having more direct influence are listed below.
Casio, W.F. Costing Human Resources.: The Financial Impact of Behaviour in Organisations 3rd ed.; (Boston; PWS/Cent, 1991).
Clark, R. Human Resource Management – Framework and Practice (Sydney, McGraw Hill Book Company Australia Pty Ltd, 1992).
Fitz-enz, J. How to Measure Human Resources Management. (San Francisco; McGraw Hill Book Company, 1984).
Fitz-enz, J. Human Value Management: The Value-Adding Human Resource Management Strategy for the 1990s. (San Francisco; Jossey-Bass Inc., 1990).
Robbins, S.P.; Low, P.S. and Mourell, M.P. Managing Human Resources (Sydney, Prentice-Hall of Australia Pty Ltd, 1986).
Schuler, R.S.; Dowling, P.J.; Smart, J.P. and Huber, V.L. Human Resource Management in Australia, 2nd Edition. (NSW, West Publishing Company and Harper Educational (Australia) Pty Ltd., 1992).
Ulrich, D. “Organizational Capability as a Competitive Advantage: Human Resourc Professionals as Strategic Partners”. “Human Resource Planning,” Volume 10, Number 4, 1987 pp.169-184.
Ulrich, D. Organisational Capability. (New York; Wiley, 1990).
Ulrich, D. “The Changing Expectations of Human Resources: Anticipating Human Resources in the Future.” Proceedings of Human Resource Planning Society 1991 Corporate Sponsor Forum
Walker, J.W. Human Resource Planning. (New York; McGraw Hill Book Company, 1990).
Walker, J.W. Human Resource Strategy. (New York; McGraw Hill Book Company, 1992).
Peter Howes (B Bus, MBA, FAHRI) is the Principal of HRM Consulting which is based in Brisbane, Australia. Over the past twelve years Peter has consulted to a large cross section of leading Australian organisations in human resource planning, strategic human resource management and HR information systems. Over the past three years, Peter has been involved in developing an Australian HR Benchmarking program in association with the Saratoga Institute of California. Prior to establishing his consulting firm, Peter was a member of the academic staff at the Queensland University of Technology for seven years and, prior to this, a HR practitioner.
Pat Foley is a Senior Lecturer at the Victoria University of Technology in Melbourne. Pat’s main areas of research interest are HR Benchmarking, Measurement of HR and evaluation of training. Over the past three years Pat has worked with HRM Consulting in researching the results of the Australian HR Benchmarking Program.