This week I’m returning to discussing strategic HR and am going to define some important business terminology Strategic HR Professionals must know in order to be taken seriously by their organization’s leadership.
This is not a comprehensive list but simply some basic business terms that relate to developing an effective HR strategic plan.
The first term is Business Strategy. Business strategy as defined by Michael Watkins of the Harvard Business Review is the following:
A business strategy is a set of guiding principles that, when communicated and adopted in the organization, generates a desired pattern of decision making. A strategy is therefore about how people throughout the organization should make decisions and allocate resources in order accomplish key objectives. A good strategy provides a clear roadmap, consisting of a set of guiding principles or rules, that defines the actions people in the business should take (and not take) and the things they should prioritize (and not prioritize) to achieve desired goals.
The definition implies that a business strategy can be looked at from the perspective of creating shareholder value, competitive market position, and creating a strategic advantage within the constantly changing business environment.
This constantly changing business environment is influenced by things such as national and local politics, regulatory agencies, the economy, customers, suppliers, competitors, technology, economic trends and current and potential markets.
The second term is Strategic Intent. The business strategy, described above, is built upon the strategic intent and is defined by the website Simply Strategic Planning as the following:
Strategic intent is a statement of the course that the management of an organization plans to take the enterprise in the future. As many people as possible should understand these intentions. Then everyone can work consistently to achieve the corporate purpose.
Statements of intent aim to be more explicit than the usual directional statements. Most mission and vision statements point the way forward only in general terms. Sharp statements of intent can provide more clarity about what to do in the near future to achieve the vision and/or mission. Such statements convey the flavor of the strategic decisions taken through the planning process
In order to determine an organization’s strategic intent, the following questions must be answered: who we are and what we are trying to accomplish, what business are we in, what is our mission, what is our vision, what are our core values, how do we compete, and how do we add value to the marketplace.
The third term is Strategic Focus. A good description of strategic focus comes from Ann Latham at Forbes where she writes the following:
A good strategic framework provides focus by limiting the number of directions the organization runs. You’d be foolish to try to extend all your products while simultaneously expanding all your markets while also ramping up capacity or shifting your business model to include new types of production, sourcing, sales, delivery, and partnerships. This isn’t just an issue of capacity. It is also an issue of risk, learning, complexity, and credibility.
A great way to identify an organization’s strategic focus is to take a close look to the classic Generic Strategies by Michael Porter where he identified three strategies that address the question of how value is added by an organization.
These three approaches are cost leadership, differentiation, and focus as described in this article by the Institute for Manufacturing:
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments
In order for an organization to be successful and grow, it must have a business strategy that excels in all three of these strategies, not just one or two. All of the organization’s operating and management systems, which include HR, must support all three of these approaches.
Bottom line, for an HR pro to be seen as an effective business partner, they must fully understand such important basic business elements such as the operations of the organization, its sales/revenue LY and YTD, its profit margin, how those margins compare with competitors and industry, its cash flow, its growth rate, the metrics leadership tracks, and the top initiatives of each of the members of the leadership team.