Tuesday, 4 August 2009

Organisation capability and strategy


    Thanks (Jo, Andy) for your further comments on my post on Ulrich’s new HR Transformation book, and also your comments on those left by one of Ulrich’s co-authors.

Here are some further thoughts justifying my perspective and emphasising why I think readers should use my approach to HCM Strategy as the basis for their HR Transformations.


Outcomes vs activities

Firstly, I do agree with the books’ author that one of the problems with HR for the last 40 or 50 years is that it has focused from the inside/out – or rather, more specifically than this, the problem has been that the function has been focused on activities – on doing recruitment, performance management, development etc.

I believe one of the highest value interventions Ulrich has provided the HR profession (and I agree there have been a few) has been to help us refocus on outcomes, or organisational capabilities.  But I don’t think this has gone far enough.  Particularly because I disagree with Ulrich (in his David Creelman interview) that almost every company with a good HR plan designs it around capabilities.  I don’t see this happening – at least if we think about capabilities as strategic differentiators – so the Google, Apple and Pfizer, rather than the Rockwell type.

By the way, I do understand organisational capability includes much more than just human capital and especially talent.  But I think it’s useful to think of capability split into its three constituent parts – human, organisational and social capital – as each of these need to be developed in very different ways.  Even if this means that HR needs to think about the development of organisational, human and social capital elements to support one particular capability eg for innovation.


Creating vs adding value

The problem I think is Ulrich’s insistence on measuring value by the receiver, not the giver.  I think this is an out-of-date distinction.  For any level of value, HR and the business need to work together to identify and deliver value.  And much of the value that HR provides is going to be opaque to customers and investors.

But value is certainly the key concept.  And in particular, the distinction between creating, and adding value.   Adding value is about HR providing value through what is does in HR terms.  And about using people as resources to help achieve existing business objectives.  This is where I think Ulrich’s outside-in perspective leads.

But I think that people are much more important than this.  They deserve, and to maximise value, require, being seen as providers of human capital, and other organisational capabilities (rather than resources), and also to be treated in a way that recognises the way they provide the basis for competitive success.

This is about creating value – HR providing value for the business by going beyond current objectives and looking at how people can help transform organisations in new and imaginative ways.  And how people can be the basis for organisational capabilities which lead directly to competitive advantage.


Inside-out vs outside-in

This perspective comes from looking inside-out.  By looking at the existing capabilities or potential capabilities inside the organisation, and only then, checking on the external market conditions to identify those capabilities that can provide the basis for competitive advantage.  True organisational capabilities have to be based on strengths that already exist, or other attributes of the organisation that can be developed into strengths.  Organisational capabilities can’t be developed quickly if they don’t already exist.  And this is the reason that an inside-out rather than outside-in approach is required for capabilities’ identification and development.

I don’t think Andy’s challenge on GM is helpful either.  I don’t think GM did have any differentiated capabilities – this is what led if to continue building unprofitable cars.  If they had identified capabilities that existed in the organisation that would have enabled them to do things differently, I still think their future could have been very different for them than it has.

So, as the HCM value chain shows, in an HCM approach, the focus moves from business impacts (outside-in) to organisational outcomes – or capabilities (inside-out).


HR driving competitive success

This, by the way, does much more than just ensures “HR is not just an afterthought of business” (which I would suggest corresponds to my value for money level in the HCM value matrix), and that  it is also more than “part of business” (adding value) as well.  Ensuring that HR creates as well as adds value, ensures HR is a driver for business success, a business player rather than a business partner, and a key source of competitive advantage.

And this, I believe, is the future of HR for the next 40 or 50 years.





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