What is a Strategic Plan?

This week I’m going to talk about what exactly a strategic plan is.

A strategic plan is a written statement about the future direction and goals of an organization or HR department based on an analysis of the organization’s current status, strategy, strengths, limitations, threats, and opportunities in the current and future business environment.  

An effective strategic plan helps the organization understand where it is now, where it would like to be in the future, and how it’s going to close the gap between its current reality and the desired future status in order to get to where it wants to be.

All good strategic plans support the organization’s vision, mission, and values as well as identify its strategic goals and needed resources.

Since I brought it up, let’s take a minute to define vision, mission and values even though most readers probably already know but it never hurts to revisit the definitions.

An organization’s vision statement provides a clear perspective of what it wants to have happen in the future. It includes a description of its operations as well as a compelling explanation of how the organization will look and function once the strategic plan has been implemented.

The organization’s mission statement is a clear description of it’s overall purpose. It identifies the essential reasons the organization exists and the principal products and services it provides to the marketplace.

Finally, the values of an organization represent the key core priorities of it’s culture. It’s what drives the organization’s priorities and how employees honestly behave.  An organization’s values typically remain the same over time.

A complete business strategy is made up of three parts – an operations strategy, a financial strategy, and most importantly IMO a people strategy.  I’m focusing on the people strategy, or HR Strategic Plan, as it provides the foundation of all the other strategies with the ability to identify, build, and reinforce the organization’s capabilities.  

The justifications for creating an HR Strategic Plan are that it provides a solid framework for value-added action, helps establish priorities, allows for the all important measurement of results, and creates a way for reallocating resources from the organization’s low producing activities to its high producing activities.

In addition, it helps increase and improve HR’s credibility within the organization by showing its positive impact on the organization’s bottom line. Which is always a good thing especially since, as I recently mentioned in a previous post, HR is still thought by many business leaders as pretty much an administrative function that operates separately from the rest of the other functions in the organization

In order for HR to take on a strategic role and be a strong strategic business partner, it must be represented in the leadership of an organization and be involved in defining the organizational issues before the strategic decision are made.  HR must be involved in turning those decisions into a set of organizational actions.  

According to my favorite HR thought leader, Dave Ulrich, there are several things an HR professional must do in order to be an effective Strategic HR Business Partner:

  • Understand and communicate that improvements are typically very difficult and complex and will take time to accomplish so watch out for quick fixes as they are typically very seductive but rarely work.
  • Align the HR Strategic Plan with the Business Strategic Plan which will ensure HR being seen as adding value to the organization.
  • Keep the strategic plan top of mind instead of shelving it and forgetting it.  The plan must be executed and managed in order to be effective.
  • Create a Capabilities Focus within the organization.

I want to focus a little more on that last bullet, Capabilities Focus, since the first three bullets are fairly self explanatory.

Capabilities are an organization’s ability to effectively manage its resources in order to gain a competitive advantage in the marketplace. They are anything the organization does well that improves business and creates a competitive advantage in the organization’s marketplace.  

Strategic HR Professionals are able to effectively identify and improve an organization’s capabilities that will help execute the organization’s strategy and leverage new products and services.

Some examples of organizational capabilities include knowledge, innovative designs, adaptability, cost competitiveness, and strong leadership.

Defining deliverables and showing how they can be measured and what actions need to be taken is critical in the strategic planning process. The Strategic HR Professional must focus on the deliverables which are, in other words, value added results.

The HR strategic plan is developed from looking, listening, questioning, clarifying and knowing what needs to be done.

The plan must include ways that HR can help the organization add value to its key stakeholders (employees, customers, and investors), improve organizational capabilities, improve employee competence, fulfill regulatory compliance, determine processes and activities that can be retained or outsourced, and align HR programs with organizational goals.

My next post in this series will discuss how the strategic HR Professional must be able to speak the language of business and define a few important strategic business terms that will need to be understood. Then after that, I’ll get into the steps of how to actually develop an HR Strategic Plan.

Adding Value: Align HR practices and investors’ requirements

This is the final post in the series of how HR can add value to investors taken from the classic David Ulrich book The HR Value Proposition.

The final action is to align HR practices and investors’ requirements.  By looking at the company through the investors’ perspective, HR pros can develop a more value oriented HR strategy for the organization.

Ulrich suggests four HR practices to consider when viewing the company as an investor.  These practices focus on senior management.

  1. Staffing: HR pros should try to involve and engage the largest shareholders of an organization in the hiring and promotion decisions.  When looking at these decisions from the investor’s perspective, the staffing process may be more disciplined and rigorous.  Since Ulrich’s book was published, the Dodd-Frank Act has given investors some engagement with the Say on Pay provision.
  2. Training and Development: When designing and conducting leadership programs for senior management, consider how the largest single investor would think of the program if they participated in it.  Would they add to their position, hold, or sell off?  Ulrich believes, and I agree, that investors want the participants to focus on real business issues withing the company, instead of reviewing case studies of other organizations.  They would want the participants to have a clear understanding of actions to take to move the company forward after an open and candid dialog of the challenges facing the organization.
  3. Appraisal and Rewards:  Many organizations tie performance and management behaviors to investor focused rewards by putting a large portion of total compensation into stock based incentives like stock options and RSUs.  The theory is that when managers become investors through stock ownership programs, they will think and act like investors.
  4. Governance and Communication:  This practice anticipates that investors will become more interested in the intangibles contribute as much to shareholder value as financial performance does.  Behaviors like decision making, responsibility allocation, etc.
The goal, of course, is to increase investor confidence in the company’s ability to deliver profitable results through applying these HR practices.
This concludes the series of Adding Value from David Ulrich’s book, The HR Value Proposition.  The six parts of the series are listed below.

Introduction to How HR Adds Value to Investors

 

Adding Value: Design and deliver intangibles audits

Continuing the series of how HR can add value to investors, I will discuss the importance of conducting an “intangibles audit”.  According to Dave Ulrich, the audit assesses what is necessary to deliver investor value given an organization’s history and strategy, measures how well intangibles are being delivered, and leads to an action plan for improvement.

There is no info on the internet about the audit so I recommend you get a hold of the book where you can get more detail.  For the purpose of this post, I am just summarizing.

The audit measures four core dimensions of the organization:

1.  Keeping Promises
2. Growth Strategy
3. Core Competence
4. Organization Capabilities (this dimension has 11 possible strengths listed below)

  • Talent
  • Speed
  • Shared Mindset
  • Accountability
  • Collaboration
  • Learning
  • Leadership
  • Customer connection
  • Innovation
  • Strategic unity
  • Efficiency
Each dimension is rated from 1-5.  Scores of 4-5 mean you are doing a good job; scores of 3 mean that you may need to do some work to improve; and scores of 1-2 mean that your intangibles are probably hurting your value to investors.
Again, get the book for more detail on how to conduct the audit and interpret the results.

Adding Value: Highlight the importance of intangible value to total shareholder return

In my continuing series on how HR adds value to investors, I will now look at how to present the value of HR related intangibles to an organization’s leaders in the financial terms they understand.

Ulrich presents “three visual exercises that highlight the importance of intangibles and spotlight HR’s impact on shareholder value”.

1.  Earnings and Shareholder Value:  Ulrich suggests going through the last ten to fifteen years of a company’s financial results and plot earnings and stock prices (or market cap) by quarter.  This will show if the company’s market value is above or below the earnings line – a way to determine if the company has a net positive or negative intangible reputation.

2.  Price/Earnings Ratio Race:  This exercise compares a company’s intangibles to their competitor’s. Compare ten or fifteen years of the company’s quarterly P/E ratio against their leading competitor’s.  This chart will show how investors perceive the company and its competitors.  The real life example Ulrich uses is when they discovered a company had a P/E ratio consistently 20% below that of their largest competitor which suggests that investors were less confident in their management vs their competitors.  With the company’s market value at $20 billion, it further suggested that their reputation cost them about $4 billion.

3.  Management View of Impact f Organization and People:   This exercise recommends that each member of the management team to plot, on a piece of blank graph paper, their assumptions showing shareholder value on one axis and the quality of the organization’s people (HR) on the other.  This will help start a discussion about how HR issues matter in their perceptions of shareholder value.  Most leaders believe that increasing the quality of people will lead to increased shareholder value.   This exercise helps them visualize it better and opens up the discussion for better understanding.

Adding Value: Support the Practices That Build Value

In Investors and HR section of his book, “The HR Value Proposition”, Ulrich discusses a “pattern of
techniques” that increase organizational intangibles and make them tangible.  He calls the pattern the “Architecture for Intangibles”.

This “Architecture” is a sequential hierarchy that follows the steps below:

  1. Keep your promises – build and maintain a relationship with external and internal stakeholders for doing what you say you will do. 
  2. Imagine the future while investing in the present – define a growth strategy and manage trade-offs in customer relationships, product innovation, and geographic expansion.
  3. Put your money where your strategy is – financially support the intangibles of R&D, brand names and brand equity, reputation, quality management, quality and well trained workforce, and institutional knowledge.
  4. Build value through the organization and people –  Develop the capabilities of corporate culture, talent, innovation, collaboration, leadership, leaning, efficiency, etc.  This is where HR can have the biggest impact as it shifts HR’s focus from being on people to the organizations where the people work.
An organizations capabilities are basically how an organization uses resources and gets things done. As Ulrich states in this section of his book:

An organization’s capabilities are the deliverables from HR efforts.  These capabilities enhance (or reduce) investor confidence in future earnings and increase (or decrease) market capitalization.  HR professionals who link their work to capabilities and who then find ways to communicate those capabilities to investors deliver shareholder value.  

An example would be Apple’s capability to innovate an how they have turned that intangible into a key factor in how investors view the company.  They have seen amazing market cap growth with the introductions of their iPods, iPhones, and iPads over the past decade.  It now seems that the level of innovation has stalled and as a result, investor confidence has been suffering along with the stock price.

Adding Value: Understand the Importance of Intangibles

According to HR expert, Dave Ulrich, the second step where HR can adds value to investors is to have a solid understanding of the importance of intangibles – what they are in your organization and how the investor community values them.

To an investor and the investing community, the value resulting from choices and activities that occur within the company and how those investors value them are considered intangibles.  In order for these intangibles to have any value to investors, they need to be visible to the public.

Intangibles consist of things like copyrights, trademarks, patents, R&D, brand names and brand equity, reputation, quality management, quality and well trained workforce, and institutional knowledge.

As Ulrich states in his book “The HR Value Proposition”:

It is all too easy to focus intangible value on what is easy to measure – investments in R&D, technology, or brand – but that leaves crucial intangibles, involving investments in organizations and people, under the radar.  Organizations and people become intangible assets when they give investors confidence in future, tangible earnings, and this is an area where HR can make a major contribution.

Adding Value: Become Investor Literate

As I mentioned in the introduction post, according to HR guru Dave Ulrich, there are six steps that HR should do to add value to the investors of an organization.

The first step is to become investor literate.

To become investor literate, you need to learn who is investing in your company and why.  Who are your top five major shareholders by percentage of shares owned and why do they own your stock?  What is your company’s price/earnings (P/E) ratio and how does it compare to the industry average? Who are the analysts that follow your industry and company?  If possible, you should read their reports on your industry and company which will give you a good idea of how you are perceived by the marketplace.

It is also important to understand the company’s corporate governance policies and processes within your as well as recent securities legislation, Sarbanes-Oxley (SOX) and Dodd-Frank.

This information is available from your Investor Relations Department or your CFO.  It’s a good opportunity, if you are not doing so already, to build relationships with another function in the company.

Introduction to How HR Adds Value to Investors

As a student of the HR profession, I’m currently reading Ulrich and Brockbank’s book “The HR Value Proposition” and am gaining a lot of very useful and valuable information from it.  As I stated in this post, I am going to explore how HR can add value to strategic business decisions that the CEO and Exec team can use when planning.

My first post will be the introduction of a series on how HR can add value to the company’s investors.  Since I am also involved in Investor Relations, this topic was very interesting to me so I want to start and spend some time exploring it since it blends both my responsibilities.

Investors mostly care about the price of the stock since it represents how the marketplace values the current and future value of the company.

Ulrich and Brockbank list six actions that HR must do in order to show they can have a direct affect on shareholder value:

  1. Become investor literate
  2. Understand the importance of intangibles
  3. Support HR practices that build intangible value
  4. Highlight the importance of intangible value to total shareholder return
  5. Design and deliver intangibles audits
  6. Align HR practices and investors’ requirements

Future posts will explore each one of these actions.

This is re-posted from www.RichBoberg.com