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Human Capital Strategy – What is Human Capital Strategy Planning?

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“One of the greatest ironies of management is that the processes of building and utilizing our organizations’ ‘most important resources’ in the most productive and effective way possible is probably the least understood of all the dimensions of management.”  Clayton Christensen, Harvard Business School

Introduction

Organizations that fail to invest in their Human Capital and the next generation work place environment will face erosion of products and services as well as diminished capacity to compete globally as a result of growing employee malaise.[1]  A comprehensive Human Capital Strategy addresses the need of the organization to accurately measure and improve human productivity and profitability at every level.

What is Human Capital Strategy?

Human Capital Strategy is a systematic process for identifying the resource pool and its capabilities to meet organization goals and developing the strategies and action plans to meet the requirements to fulfill those goals.

The Human Capital Strategy process ensures that the organization has the right Human Capital in the right jobs at the right time and for the right cost.

Human Capital Strategy Process

The Human Capital Strategy process can be depicted as follows:

 

Strategy Planning Models

Carter McNamara, in his article “Basic Overview of Various Strategic Planning Models” identified the following Strategic Planning Models.

“Organic” (or Self-Organizing) Planning

Self-organizing requires continual reference to common values, dialoguing around these values, and continued shared reflection around the systems current processes.  General steps include:

  1. Clarify and articulate the organization’s cultural values.  (Use dialogue and story-boarding techniques.)
  2. Articulate the group’s vision for the organization.  (Use dialogue and story-boarding techniques.)
  3. On an ongoing basis, e.g., once every quarter, dialogue about what processes are needed to arrive at the vision and what the group is going to do now about those processes.
  4. Continually remind yourself and others that this type of naturalistic planning is never really “over with,” and that, rather, the group needs to learn to conduct its own values clarification, dialogue/reflection, and process updates.
  5. Be very, very patient.
  6. Focus on learning and less on method.
  7. Ask the group to reflect on how the organization will portray its strategic plans to stakeholders, etc., who often expect the “mechanistic, linear” plan formats.

Certain cultures, e.g., non-profit organisations, might prefer unfolding and naturalistic “organic” planning processes more than the more mechanistic, linear or scenario-based processes.

“Basic” Strategic Planning

The basic strategic planning process includes:

  1. Identify the purpose (mission statement, vision, etc.)
  2. Select the goals necessary to accomplish the mission 
  3. Identify specific approaches or strategies that must be implemented to reach each goal
  4. Identify specific action plans to implement each strategy
  5. Monitor and update the plan

This process is typically followed by organizations that are extremely small, busy, and have not done much strategic planning before.

Issue-Based / Goal-Based Planning

The following table depicts a fairly straightforward view of this type of planning process.

  1. External/internal assessment to identify “SWOT” (Strengths and Weaknesses and Opportunities and Threats)
  2. Strategic analysis to identify and prioritize major issues/goals
  3. Design major strategies (or programs) to address issues/goals
  4. Design/update vision, mission and values(some organizations may do this first in planning)
  5. Establish action plans (objectives, resource needs, roles and responsibilities for implementation)
  6. Record issues, goals, strategies/programs, updated mission and vision, and action plans in a Strategic Plan document, and attach SWOT, etc.
  7. Develop the yearly Operating Plan document (from year one of the multi-year strategic plan)
  8. Develop and authorize Budget for year one (allocation of funds needed to fund year one)
  9. Conduct the organization’s year-one operations
  10. Monitor/review/evaluate/update Strategic Plan document

Organizations that begin with the “basic” planning approach often evolve to using this more comprehensive and more effective type of planning.

Alignment Model

Overall steps include:

  1. The planning group outlines the organization’s mission, programs, resources, and needed support.
  2. Identify what’s working well and what needs adjustment.
  3. Identify how these adjustments should be made.
  4. Include the adjustments as strategies in the strategic plan.

The overall purpose of the model is to ensure strong alignment among the organization’s mission and its resources to effectively operate the organization. This model is useful for organizations that need to fine-tune strategies or find out why they are not working. An organization might also choose this model if it is experiencing a large number of issues around internal efficiencies.

Scenario Planning

  1. Select several external forces and imagine related changes that might influence the organization, e.g., change in regulations, demographic changes, etc. Scanning the newspaper for key headlines often suggests potential changes that might effect the organization.
  2. For each change in a force, discuss three different future organizational scenarios (including best case, worst case, and OK/reasonable case) which might arise with the organization as a result of each change. Reviewing the worst-case scenario often provokes strong motivation to change the organization.
  3. Suggest what the organization might do, or potential activities, in each of the three scenarios to respond to each change.
  4. Planners soon detect common considerations or strategies that must be addressed to respond to possible external changes.
  5. Select the most likely external changes to effect the organization, e.g., over the next three to five years, and identify the most reasonable activities the organization can undertake to respond to the change.

This approach might be used in conjunction with other models to ensure planners truly undertake strategic thinking.  The model may be useful, particularly in identifying strategic issues and goals.

General Comment

There is no one-size-fits-all strategic planning model for each organization.  Each organization ends up hybridising from these recognised models to develop its own mixture of models for strategic planning.  Generally, organizations might choose to integrate the models, e.g., using a scenario model to creatively identify strategic issues and goals, and then an issues-based model to carefully strategize to address the issues and reach the goals.

Human Capital Management Strategy

With the advent of the Business Scorecard, the concept of a “scorecard” has proliferated and become integrated into the Strategic Planning process.

“The HR Scorecard” was introduced by Mark Huselid, Brian Becker and Dave Ulrich in 2001.  The HR Scorecard has five key elements:

  • Workforce Success – Has the workforce accomplished the key strategic objectives for the business?
  • Right HR Costs – Is our total investment in the workforce (not just the HR function) appropriate (not just minimized)?
  • Right Types of HR Alignment – Are our HR practices aligned with the business strategy and differentiated across positions, where appropriate?
  • Right HR Practices – Have we designed and implemented world class HR management policies and practices throughout the business?
  • Right HR Professionals – Do our HR professionals have the skills they need to design and implement a world-class HR management system?

“The Workforce Scorecard” was introduced by Mark Huselid, Brian Becker and Richard Beatty in 2005.  The Workforce Scorecard has four key elements:

  • Workforce Success –  Has the workforce accomplished the key strategic objectives for the business?
  • Leadership and Workforce Behaviours –  Are the leadership team and workforce consistently behaving in a way that will lead to achieving our key strategic objectives?  Have we identified and nurtured “A” Players in “A” Positions?
  • Workforce Competencies – Does the workforce, especially in the key or “A” positions, have the skills it needs to execute strategy?
  • Workforce Mindset and Culture – Does the workforce understand the strategy, embrace it, and do we have the culture we need to support strategy execution?

In 2008 Bradley Hall created a framework into which these scorecards may be incorporated in his book “The New Human Capital Strategy”.  His framework includes:

  • Setting the Human Capital Vision
    • Leading measures are defined by performance.
    • Success is measured against industry benchmarks, not best practice.
    • Compare cross-company performance of different groups of employees, e.g. sales people, management – if possible.
    • If not possible, compare year-on-year performance of individuals and groups.
  • Create Capabilities to Drive Change
    • Build the organizational capability to lead the change to effective Human Capital Strategy
  • Define Success
    • Define how people will contribute to performance excellence, and the indicator that will measure whether the organization has succeeded.
    • Set the Human Capital Strategy
  • Create an Integrated Improvement Process
    • Align activities to business strategy
    • Clarify roles and responsibilities
    • Align employees to business strategy
    • Improve performance of those in critical roles
  • Implement, Monitor and Refine
    • Measure on a regular basis
    • Address deviations from plan timeously and adequately
    • Review and refine

Benefits of Human Capital Strategy

HCM planning allows organizations to build and shape the resource pool prepared to achieve strategic objectives. It provides organizations with many benefits, some of which are:

  • Operational Level
    • More effective and efficient use of resources.  This will become increasingly important as some organizations find themselves having to do the same amount of work or more with fewer staff members.
    • Helps identify and source replacements to fill important vacancies.  Filling vacancies is especially critical as organizations face an increasing number of scarce resources.
    • Provides realistic staffing projections for budget and recruitment purposes.
    • Provides a clear rationale for linking expenditures for training and retraining, development, career counseling, and recruiting efforts.
    • Helps an organization to prepare for restructuring, reducing, or expanding its Human Capital.
  • Strategic level
    • Identifies the competencies needed to achieve strategy.
    • Identifies scares competencies, both within and outside of the organization.
    • Identifies possible risks in the future – e.g. risk of the rights skills not being available.
    • Identifies the core positions in the organization that drive strategy.
    • Enables high-level Human Capital Management practices that drive organizational performance.

Conclusion

Human Capital Management holds that business profits are generated and sustained when a company provides products and services that meet customers’ needs better than competitors do – in other words, when the company has a competitive advantage.  Businesses create and maintain that advantage over time when their core competencies, or the activities that customers value most, are superior to those of their competitors in the eyes of their current and potential customers.[2]

Human Capital Management is a system for improving the performance of those in critical roles – those with the greatest impact on corporate core competencies.

Human Capital Planning is the process for achieving effective Human Capital Management that drives organizational performance.

See also our ebook on “Developing a Human Capital Management Scorecard”

By Gail Sturgess, TalentAlign.com
January 2011


[1] Research paper. ”Predicts 2004: HCM and Financial applications,” 17 November, 2003 Gartner [1,2,3]

[2] Phalalad and Hamel, “The Core Competencies of the Corporation”, Harvard Business Review, March 2007.