Integrating human resource strategy and strategic planning to achieve business excellence

Introduction

Developing a human resource (HR) strategy to support the business plan requires human resource management (HRM) planning to be recognized as a fundamental part of the business planning process. This paper argues that integrating HR strategy and strategic planning is fundamental to achieving business excellence. This is demonstrated in the alignment model shown in Fig. 1 (NB in part based on Kanji's model, Kanji, 1995).

There are four underpinning themes to this paper: first, that achieving business excellence is more than a simple accumulation of a range of best practices (Dahlgaard et al., 1998); second, that achieving excellence in corporate business strategy (process and inputs) is the single most important factor in achieving vision, mission and goals; third, this provides a unique opportunity to view the organization holistically, with the principle focus being on the `total organization' and the `total team' as the underpinning concepts (Senge, 1990); and fourth, that people tend to do two things well, i.e. the things they regard as important and/ or enjoy and those things that the boss regards as important and will check. The themes are explored in relation to empirical research investigating the importance of HR within a sample of new technology-based small-medium enterprises (NTBFs) where the knowledge of key individuals is crucial (Keogh & Evans, 1999).

Recent years have witnessed the decline of organizations that ought not to have failed and the failure of others that ought to have been able to see off the challenge of merger or acquisition (Peters & Waterman, 1982). Despite the search for better ways of doing business and the adoption of survival strategies, including business process re-engineering and total quality management (TQM), some organizations continue to struggle to retain their competitive edge. Organizations may seem to `weather the storm' short term (e.g. Rover at Longbridge), but ultimately have not learned the 'excellence' lesson as once again they become vulnerable to acquisition. The long-term failure of companies, who have reengineered or attempted TQM, is often regarded as an implementation failure rather than a fundamental conceptual failure (Dyason & Kaye, 1995). Alternatively, there is the view that the long-term organizational stress that goes with sustained improvement effort is too much for some organizations. As a result, more emphasis is placed on the quick fix solution and short-term financial gain.

Organizations have now to respond to change faster and with greater risk whilst operating in an imperfect internal and external climate. The shift has been towards the knowledge economy, global trading, information management, and the employment of people for their creativity and knowledge. This has emphasized the importance of investment in employee development as the means of retention and reward, rather than crude pay, and a total realignment in mind-set about HRM, motivation, reward and development strategies. If we extrapolate these trends we have valuable evidence as to what will succeed in the future. A mixture of short- and long-term strategies underpinned on the one hand by an alignment of aspirations of the business with, on the other hand, the aspirations of the organization's greatest asset (increasingly the only asset), its people.

Methodology

The sample for this study comprised 20 NTBFs. NTBFs are often involved in the creation and sale of relatively sophisticated products and services in industrial markets. The staff may contain a disproportionately large number of individuals with high levels of academic qualifications in technical areas, and often the management teams lack experience and training in the strategic management of companies. Additionally, owner-managers can find it difficult to understand the processes which have evolved in their own organization.

The methodology was developed to investigate key issues relating to the NTBFs and strategic planning. This included policies senior managers may have put in place to achieve their strategic goals, including how they managed quality and HR. An exploration of the process of innovation within the organizations was included in the research design. An instrument was developed which provided the structure for in-depth interviews with owner-- managers or founder directors of the sample organizations. Areas of interest included:

• the importance of strategic elements in the planning process (including quality);
• self-assessment and the approach to improvement effort;
• HRM, motivation, reward and development strategies;
• the identification and definition of organizational processes within the companies.

Strategic decision-making

Strategic decision-making begins with the identification of vision and mission and their articulation to all stakeholders. Making the mission and vision a reality requires the identification of processes in which organizations must excel if they are to add value. Since the process by which business strategy is developed and defined is the highest level process the organization can engage in, and is the starting point for realizing vision and mission, then excellence in business strategy becomes the single most critical issue (Oakland, 1995).

Clear and relevant vision, mission and objectives are fundamental and have to be articulated at all levels to foster commitment, ownership and involvement. Relevance here means relevance to the employees who are challenged to deliver it. Organizations fail at this first hurdle for two reasons: first, the intellectual capacity to understand the `umbilical cord' that connects each level of strategy is not harnessed at organizational level-rather, senior managers may agree whilst remaining committed to their own functional missions; second, the absence of leadership competence, as opposed to management, ensures that mission and vision are not articulated and championed at all levels (Bennis, 1989). This means that the organization and its people have no shared sense of purpose or direction. There is still an entrenched belief in Taylor's principles, with management on one side and workers on the other (Seddon, 1995). Consideration of the barriers to TQM will help to identify the more common problems in order to deal with them (Morris & Haigh, 1996).

With clear and relevant vision, mission and objectives, the challenge is to address the strategic planning process in order to identify the routes an organization needs to take in order to achieve them. The key questions are what the critical success factors are (the key processes that will enable maximum leverage and customer satisfaction) and how to address these to achieve tangible benefits in profit and customer and employee satisfaction.

A key activity at this stage is to identify a total quality improvement process. Evidence emerged from the study that quality and quality improvement play a vital role in the companies. Without having a reputation for supplying quality goods or services these small and medium enterprises (SMEs) would find it extremely difficult to operate in their respective markets. The managers were asked to rate key aspects of their strategic planning process on a Likert scale, with '5' being most important. Thirteen out of the 19 who responded rated quality at '5'. It was explained to respondents that 'quality' was not necessarily about ISO standards (eight companies indicated that they had ISO 9001 or ISO 9002) but about their views of the importance of quality to their companies. Two respondents indicated that quality systems were used as an integral management tool.

The strategic planning process is in reality a process of honest self-assessment that clearly identifies what business the organization is in, how it should improve or reinvent itself and how it intends to make the transformation. In today's world change has to be categorized, and sometimes improving what the company does now will not be good enough (Wiseman, 1995). Self-assessment can help organizations build quality into their strategic planning activities. This calls for honest benchmarking internally and externally to gauge the enablers and results content of all activities. Only by objective examination of the current status of processes and performance can an organization identify how and what to improve in the short- and long-term (Zairi, 1994). For the most part there were few examples of real selfassessment within the sample companies, perhaps because few organizations can sustain such capacity for direct, accurate self-assessment.

Successful strategic planning is about releasing the potential of the whole organization, the success of leadership is about inspiring people to share in the vision so that they both embrace it and seek to fulfil it (Crosby, 1986; Juran, 1989). In strategic planning, it is essential to take a holistic approach to identifying future market trends and identifying goals to capitalize on these trends. Too many strategic planning processes are reliant on partial filtered information from divisions or functions where personal agendas and blocking initiatives dominate. Additionally, organizations do not put enough effort into making the strategy a reality and success is increasingly about those that deliver their strategies. Self-assessment bridges the gap between strategy and action.

In the holistic view a shared vision of the future is addressed and reinforced by ownership and mutual support (Argyris, 1993). It seems obvious that if employees feel comfortable with change, they will at least embrace it or at worst not obstruct it. Ownership accommodates the most effective `comfort zone' available.

HRM

The study also considered how the sample group managed HR in terms of how they harnessed their intellectual capacity, attracted and kept the best people and rewarded excellence. Scott et al. (1996) discuss the problems and prospects in enhancing skills in SMEs and state:

... it can be argued that the successful exploitation of technology in a dynamic environment depends crucially upon a skill base capable of identifying opportunities for, and managing technological development.

The majority of respondent companies had no strategic approach to HRM. Most identified current and future staffing needs by discussing training and development needs with the relevant individuals as and when necessary.

The sample companies rely on identifying needs based on existing staff profiles and loose projections for new business. Their ability to react to change is thus limited. Time spent on identifying needs at an organizational level would facilitate a more strategic view of requirements. Companies employed different strategies to stimulate and maintain staff, including bonus schemes, share opportunities and support for leisure activities. The sample size was small so care must be taken in generalizing from the findings.

Some companies in the study appear to be addressing the question of management development for the senior team within their overall consideration of planning. This was an encouraging finding. Building a team needs to reflect the organizational development priorities which may be part of a management development strategy within the strategic management process.

Harnessing intellectual capacity by truly involving all of an organization's people in the strategy formulation is critical to successful implementation, but it can introduce difficult and often uncomfortable analysis that may find managers adopting a defensive posture. Often managers confuse involvement with interference and fail to recognize the leadership opportunities this presents. Some still find involvement of employees threatening and this leads to a defence of the status quo. The total quality approach calls into question all the traditional approaches to HRM and argues for a more proactive people-focused approach in which HR professionals adopt total quality to become strategic partners in improvement and business planning. The really successful companies have used TQM to put the spectre of Taylorism behind them, recognizing that TQM could provide a holistic approach (Macdonald, 1995). Consider Fig. 2, where the company and individual requirements are aligned.

The introduction of an effective HR strategy aligned to strategic business planning is thus a prerequisite to ensure that underlying power structures, procedures, practices, values and norms are in place to facilitate the necessary pace of change that can be sustained within the psychological capacity of the business. There are many different ways of managing the improvement process, including a consultative approach through participation, intervention, education and communication and the style adopted has much to do with the nature of the change proposed, its pace and sustainability. The style of management and blend of skills play an enabling role in the development of strategies within small firms (Jones-Evans, 1996; Smallbone et al., 1995) and the examples in this paper illustrate that there are different ways to meet end objectives.

Of equal importance is the need to put in place appropriate reward systems linked to the process improvements required for excellence. Without a reliable assessment of performance it is impossible to relate rewards to performance in a way that is motivating. A holistic approach recognizes that business processes cut across functions, therefore it is important to link reward systems to recognition of the accomplishment of teams rather than individuals. Performance goals then have to be tailored specifically to what the work team needs to accomplish and it is also important to link the goals of the individuals to those of the team. Team reward systems reduce the threat of conflict, increase the rewards to individuals who have a shared set of goals and produce more consistent behaviours than is evidenced in individuals alone. If this is the reality, then `whole organization' reward becomes the preferred approach. Add to this the notion that in the new economy 'reward' embraces knowledge, acquisition and personal growth, and these beliefs begin to prescribe an approach to HR planning that supports rather than obstructs excellence. It prescribes a solution based on achieving a balance of individual, team and organization, a balance that allows for comfort zones within which employees can embrace true ownership.

Discussion

The process of carrying out change is not just about strategies and plans for their delivery, it is also about relationships between people and the management of workforce diversity in the context of the changing business environment. The increased emphasis on excellence through recognition of the individual and the team gives a balanced approach to HR planning pivotal to overall strategy achievement. Since strategy is related to what customer satisfaction means for an organization and to the ever-changing environment it operates in, there is no blueprint for choosing how to manage a company's resources, no best way that is appropriate under all circumstances. Strategic planning becomes a process of planning within a range of parameters rather than formal targets; the emphasis is on the overall direction and pace of change rather than detailed milestones.

There is a belief that if you tell people what is happening, what is necessary to achieve excellence, then they will perform accordingly. Some education strategies have effected improvement this way but others have foundered because informing and involving people does not guarantee the desired changes will happen.

People have to believe in a strategy and this requires that leaders create the right environment for the change to occur and for believing that it can. People management systems must be tailored to fit each unique business. But to create business excellence with HRM processes that intrinsically add value, all organizations need to develop HR strategies to support the integration of business planning with business excellence. A holistic approach nurtures proactive incremental change. It also avoids the sudden traumatic change that so many organizations endure as a result of radical improvement programmes and the inevitable stagnation that follows. In a sense the organization runs out of sustainable energy.

Summary

Excellence is not just about best practice or keeping pace or leapfrogging the competition on Monday to be caught again on Wednesday. Nor is it simply about establishing customers' requirements, important though that is. Excellence is increasingly concerned with having the individual intellectual capacity and the collective business intelligence to predict today what will happen tomorrow. Against this background, the integration of HR planning, in particular of an organization's intellectual capacity with strategic business planning, is likely to be the most effective route to true integration with business excellence. It implies a balanced approach to excellence based upon a different interpretation of motivation theory, recognizing a new balance between financial and non-financial rewards. A context in which enabling personal growth and successful contribution through opportunities to learn and apply learning successfully are the dominant drivers both for personal and for organizational advancement.

Successful strategic planning seeks input from all stakeholders, including the shareholders, customers, suppliers and people, to identify the part each has to play to ensure the delivery of the business strategy. Given the global trends referred to earlier, the 'people' part of the strategic planning takes on new significance, since the capacity of the organization to learn is fundamental to improvement. The learning component of HR strategy becomes the business's own learning strategy.

To harness intellectual capacity and to get and keep the best people, far more innovative approaches than performance-related pay are necessary. Organizations have to create fluid structures of employment. This may mean that it is prudent to accommodate employees' own business interests within the umbrella of the organization. To get value from their key assets, organizations need to build environments in which their people are prepared to share their ideas rather than leaving the company to develop them. Whilst many organization are investing heavily in employee development to retain the best, the future suggests more fundamental rethinking of the employee relationship. Knowledge and intellectual capacity are likely to be the tradable commodities of the labour market (in higher education they already are). They will also be the competitive edge in organizations where they are the only tangible asset. Effective integration of HR planning and business planning offers a credible vehicle for achieving business excellence.

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SENGA BRIGGS & WILLIAM KEOGH, Aberdeen Business School, The Robert Gordon University, Aberdeen, Uk.
Article published in "Total Quality Management", Abingdon; Jul 1999;v.10, # 4/5, pp. 447-453