People Strategy at the Heart of Business Strategy

This is an exclusive extract from  The Next Rules of Work.

A common refrain about the future of work is about the jobs that will change and the skills that will be needed.

Skills gaps are already a significant concern in most businesses. The mismatch between our systems of education and training and the world of work is apparent and growing. Education 4.0 will need to work closer with Work 4.0.

But we also know that businesses everywhere will have to step up in their abilities and investments in people and skills development. This will be essential to their ability to adapt and compete in the future.

It is essential, therefore, for any business to be able to understand its people, skills and capability needs in support of business strategy for the future. And the many options that exist in how to source the skills needed, to shape the organizational operating models and cultures and the jobs that get the best out of the people, and the core competencies that make each business unique.

These questions are as fundamental to strategy as any debate about markets, products and financial models. Without it, there is a missing leg from the stool.

Yet, most businesses historically have not done a good job in thinking these through. Workforce planning has often been along the lines of 5% more here and 5% less there, or how we can reduce levels of operating costs and people costs.

Operating models have often evolved rather than really being planned, and corporate cultures have not been well understood. Organizations are regularly changed with the view that a restructuring will drive a different dynamic and focus. As Peter Drucker famously observed, culture can eat strategy for breakfast.

These are the elements of people and organizational strategy. And in the future, they are going to become ever more important in determining any organization’s success and sustainability.

People and organization strategy versus HR strategy

In the past and even today, I still find too much confusion behind a very important distinction of the difference between HR strategy and people and organization strategy. Figure 10.1 is something I have used for a long time to explain it.

Figure 10.1 The different strategy domains

HR strategy is what HR needs to figure out how best to run the function. That will include the capabilities it needs, how best to structure and organize, and how to interact best with the business. Just like any other enabling function.

Much attention in the past has been paid to HR operating models and strategies. The pursuit of standardization and best practice, shared service models, and other solutions to make HR more efficient.

Some have worked well, but much of this work was very inward-looking. It wasn’t always about how best to work with the business, or to understand the specific and unique characteristics that required the best-fit solutions. Too often it was about standardizing and reducing cost of HR delivery as the key goal.

Shared services models were a goal of many, energized by the work of Dave Ulrich, a well-respected and longstanding academic and consultant in the field of HR. So much so that the model became known as the ‘Ulrich model’.

In reality, it was never unique to HR, as Ulrich would be the first to say – the idea of combining common transactional services into a central resource to serve across the business, the role of centres of excellence for specific specialisms, and for business partners to work closely with the business and understand their needs.

Much of this standardized thinking was hardly unique to HR in the past. The obsession with best practice and standard models or heuristics was pervasive in the 1980s, 1990s and 2000s. It was the drive to efficiency and business process reengineering.

The operating model for HR should be whatever best fits the business. Pushing a centralized shared service model with lots of standard processes onto a devolved, loose organization and culture will be hard to achieve.

It is also important that HR looks outwards to the business. Delivering effective HR – good people management, engagement and employee experience, and supportive open cultures – is much about training line managers and leaders at every level to be effective people managers.

As we discussed in the previous chapter, this has been a missing component in the past. HR don’t manage the people (apart from within the function), but they are there to understand the needs of the people and the business, to provide the insight and the changes and interventions that need to happen, and to enable, to guide, to support and to ensure compliance where it is needed.

Across all areas of HR or the people profession, we all now need to have the confidence to innovate more, to adapt our thinking. We must focus on the evidence base, the principles that should be driving us and the outcomes that are important.

Forget best practice and think more about best fit – what this problem or context needs, and the evidence that supports what we do to fix or improve it.

Core competencies and strategic workforce planning

One of the most important areas of people and organizational strategy is strategic workforce planning – the need to understand future demands for skills and resources, recognize the gaps between supply and demand and work through the many ways in which those gaps might be filled.

This has become recognized much more as a critical need in business thinking. As noted earlier, much workforce planning of the past wasn’t really strategic. It was more operational.

With all the changes happening in our economies, the geopolitical shifts causing talent supply lines to change, the changes in skills needs as work and job roles change with the impacts of automation, and the demands of new generations of workers, there is a lot to think about.

To set the context, it is an important part of business strategy to be able to understand what the organization’s critical and core competencies are and need to be. It is impossible for any organization to be good at everything, even though in the past perhaps many have tried.

The idea of core competencies was first put forward in a 1990 article in Harvard Business Review, ‘ The core competence of the corporation’ by CK Prahalad and Gary Hamel. They described three conditions a business activity must meet in order to be a core competency:

The article pointed out the contrast of how businesses operated in the 1980s versus how they should operate in the 1990s. It asserted that in the 1980s, business managers were ‘judged on their ability to restructure, declutter, and delayer their corporations. In the 1990s, they’ll be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible.’

This thinking definitely still applies today, and if anything, needs to be sharpened. Not only must organizations be able to understand and focus on their core competencies, they must also be acutely aware of where those competencies might start to hold them back, can be reproduced in another way or be digitally disrupted, or need to be upgraded.

Too many businesses got lost in the past because they did not understand that what had made them distinctive and unique in the past was no longer what was going to make them successful in the future.

Schumpeter’s creative destruction again. Think of Kodak, Polaroid, Palm, Wang, Blockbuster, or the more recent spate of traditional retailers like Woolworths, Debenhams and Top Shop losing out to more nimble digital rivals. Michael Porter’s famous five forces model is alive and kicking.

Incidentally, the same can be said of people and leaders. An attribute of a good leader is also knowing when they become more part of the problem than part of the solution.

But there are many great examples of highly durable core competencies such as the globally standardized operations of McDonald’s, Walmart’s huge buying power and supply chain management, or Apple’s style and product innovation.

So, with our business strategists having figured all this out and established what the company really needs to be built from, of course, there will still be many competencies and functions that may be less distinctive but are nonetheless essential. Finance, marketing, HR, procurement, IT, legal, for example. But all these functions also can come under scrutiny as to how to best deliver what the organization needs – indeed, they have all been popular areas in recent years for outsourcing.

Strategic sourcing and partnering capabilities, therefore, don’t just apply to the traditional areas of procurement, they also apply to how we think about organizational capabilities and skills.

The most agile businesses are able to work with their partners in adapting and responding, and that becomes an essential part of their operating model. It should also be regarded as an essential competence in almost every business today.

As we then focus on all the skills and capabilities we still need, there are many options to think through. A simple but comprehensive mnemonic is whether to ‘Build, Buy, Borrow or Bot’:

'Build' is an essential part of any people strategy and a strategic capability even the smallest of businesses need: how to develop people and skills efficiently and effectively.

The 'bot' option is what is covered in the next chapter on good work. Automation and AI are great enablers of agility, productivity and efficiency. But as has been a core theme throughout, we need to use technology responsibly and with a strong people-centric focus.

As we innovate and reimagine jobs, roles and tasks working with technology, we must actively design the work around people so that we are creating good work and quality jobs. And this needs to come together as part of the overall organization and operating models for the future.

The 'buy' option is all about talent sourcing and acquisition, finding the diversity of the talent and skills we need and attracting it into our organizations.

Talent sourcing and recruitment - diversity

I have emphasized throughout the importance of inclusion and of diversity, of having diversity in our leadership teams, the importance of diversity of experience, and organizations that reflect the customers they serve and the communities they are part of.

Another big strategic driver for businesses to act on diversity is in being able to open up new talent pools and supply chains. Businesses that have most complained of talent and skills shortages in the past have often not done enough to open up their thinking to different sources of talent.

In the McGregor-Smith review, a strong economic case was described for more diverse workforces, estimating that the UK’s GDP would be 1.3% higher if black, Asian and ethnic minorities were fully represented across the workforce.

Sources of talent are everywhere, but many segments of the workforce or working-age population have not been sought out or given the opportunity. Organizations have stuck to the tried and tested, and HR and recruitment teams have been pressured to get people in quickly, to minimize risk – often code for bringing in people like the ones we already have.

People diversity covers many dimensions, some of which are readily visible and some of which are not. Age, gender, socio-economic background, race and ethnicity, nationality and culture, personality, ability and disability, neurodiversity, life experience.

This mixture in our workforces brings richness of thinking, ideas and approaches, supports adaptability and relevance, and breaks down traditional barriers of conformity.

In talent sourcing and recruiting, there has been much more recognition in recent years of the importance of diversity and overcoming the biases in our systems, processes and behaviours. But we still have much work to do. It’s easy to get stuck in a mindset of recruiting the familiar.

René Carayol, the broadcaster, author and consultant, once challenged me and a group of colleagues by asking when we had last hired someone truly scary. By which he meant someone very different.

Behavioural science has long taught us about our inherent bias towards those that look and behave like us. As I’ve heard Tara Swart, a leading neuroscientist now at MIT Sloan, describe it succinctly: as humans we are deeply narcissistic.

In her 2016 book Pedigree: How elite students get elite jobs, Northwestern University professor Lauren Rivera examined bias in recruitment, particularly in the elite professional services firms. She found that when asking maths questions to potential new hires, teams of white, male managers paid little attention when white men got answers wrong, but close attention when women or ethnic minorities did. The testing, Rivera argues, amplifies bias rather than squashes it because we tend to treat people favourably if they resemble us.

There have been so many examples of this in the past. Recruitment adverts that don’t show diversity, or language that can be exclusionary, and assessment processes that favour particular groups. Even language like ‘cultural fit’ can appear quite innocent and appeal to the idea of cultural alignment, but it is sending a strong signal about conformity and preference for ‘people like us’.

It’s equally important that recruiters and hiring managers are taught better in understanding bias, to make them more aware as they recruit of the dangers of inherent bias, assumptions and generalizations.

There has been growing popularity in trying to address these issues also by ‘sanitizing’ CVs and applications – removing details such as names, indications of age, even qualifications. These have always felt more like addressing symptoms than causes. More evidence is needed as to whether these practices really work in the longer term, particularly on how people from more diverse backgrounds then stay and progress within the organization.

I touched on AI in recruitment earlier and the particular challenges being addressed in eliminating the building in of bias, but also how AI can help us better understand human bias. This must be an important focus, but AI will continue to roll out in the area of recruitment and can genuinely help in sourcing, acquisition and selection of talent.

Other stereotypes are being broken down, and some notable organizations are showing they are prepared to take more risks, to be more imaginative in how they recruit.

For example, companies like Timpson and National Grid working actively to recruit people with criminal records. Business in the Community has for some time run a campaign to ‘ban the box’ – to remove the need for people to have to declare a former criminal record for minor offences. This has now been extended into UK law with some relaxation around DBS (Disclosure and Barring Service) checks for minor offences.

Timpson, a family-owned specialist retailer, has recruited several hundred members of its staff from jail, many working in the day and returning to their cell at night. Great for their rehabilitation and positive for Timpson in terms of accessing good skills. Ex-offenders now make up 10% of the company’s staff (what it terms foundation colleagues). This has also proved to be positive for Timpson’s reputation in demonstrating social responsibility and support to the communities it is part of.

In conclusion

Any business strategy requires a real understanding of skills and capabilities that will be needed, the best ways of working and organizing, and cultures that help get the best out of people.

This requires a clear understanding of what makes the organization unique, what its core competencies are, but also its culture and style of operating. These are not immutable and should be considered as part of the overall strategy for the business and how it needs to adapt for the future.

HR has a big role to play and should lead on all these areas of strategic thinking, working closely with business leaders and aligning to the overall strategy, purpose and mission of the organization.

In fulfilling skills and capability needs, there are many different sourcing options that must be part of an overall strategic framework for the organization.

Opening up channels of recruitment and acquiring talent to embrace diversity in all its forms is a strategic capability that helps to fill the skill gaps, to create more diverse cultures and breadth of experience and ideas, and to meet other stakeholder goals.

Operating models and organizational structures and principles should be challenged. Look for the opportunities to simplify, to ease decision-making, and in particular to empower, engage and give voice to people at all levels.