Improving Alignment of HR and Business Strategies Is a Key Growth Area for China

By Piotr Bednarczuk, Organizational Consulting Practice Leader, Asia Pacific

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Introduction The solution Conclusion Contact us

Like companies and organizations all over the world, businesses in China face many opportunities and challenges related to human resources (HR). HR divisions are under pressure to demonstrate their value to the company, to provide the talent and organizational capabilities that will drive business results for the company.

Progressive business leaders understand that human capital is a critical differentiator in business success. What an organization does with its people — its investments in and decisions surrounding human capital — will distinguish it from the competition. They also know that up to 70 percent of a company's market value can come from intangibles such as its human capital, its brand, and its culture.

But human capital is only valuable if it is targeted properly. The key to a company making the most effective use of its most important asset — its people — is to align its HR functions with its overall business goals. The most effective way to do this is for HR leaders to be involved in the company's strategic planning process. Company leaders must realize that HR needs to play a more decisive role in the company's strategic planning so that HR planning can be integrated within the overall business planning cycle.

There are multiple reasons why companies and HR are struggling to contribute strategic value to the business. HR is still too focused on administrative tasks. Based on Aon Hewitt's research, more the 60% of HR's time is transactional, administrative in nature. In addition, HR is often not included "at the table" with business and so end up being informed too late about the potential workforce challenges related to the execution of business strategies.

In China, a large majority of China-based companies are failing in this basic alignment of HR and core business goals. This article will discuss some of these failings in more detail and describe a useful four-step process that can help companies map their HR functions and business goals.

The table below summarizes the most important global human capital challenges commonly faced by business leaders around the world as well as the major HR challenges identified by China-based companies in a recent survey. Responding to these HR challenges will be essential for China-based companies to continue competing effectively in a global business environment.

Most companies participating in the survey agreed that they are deficient in the key area of integrating HR strategies with the company's overall business goals and strategies. Only about half (52%) of the responding companies reported having a clearly defined HR strategy that is aligned with its business objectives. Other areas of concern identified by the survey include benchmarking and measuring HR's performance. Only about one-third of responding companies reported using benchmarking to compare their performance in key areas against other companies and only 14% of companies reported using a formal metric framework (such as a balanced scorecard) to measure the effectiveness and efficiency of their HR functions.

 

  

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The solution: A deliberate HR planning process

To implement an HR planning process that is aligned and integrated with the company's overall business goals, it is important to use a deliberate, disciplined approach that helps to facilitate a business-oriented discussion of HR capacity and performance. We lay out here the step-by-step approach used by one China-based financial services company to create an HR planning process. This approach follows the accepted leading practices in this area. 

 
This four-step process was conducted within a three-month period through three major workshops, each focused on one of the key elements of the process – workforce capabilities, HR alignment, and HR initiative definition (including prioritization and metric identification). The result was an auditable trail of strategic priorities aligned to concrete HR action steps, as described in Figure 3.

1. Review external and internal human capital data 

To help leaders understand the current human capital environment and to set the stage for a review of the business strategies, the first step was for the assembled leaders to review relevant data. The data was presented by the HR function in leadership strategy workshops to ensure that human capital aspects were taken into account while developing strategic priorities.

The data focused on the following areas:

1. Internal data on the existing talent and leadership landscape (existing talent capabilities in critical business areas and talent capacity, e.g., leadership bench strength). Most of the data is derived from companies' succession management processes and through talent/leadership assessment processes.
2. Current performance of the workforce (headcount, engagement, productivity)
3. External data on potential talent supply challenges for key capabilities
4. External data on competitors' human capital strategies.

2. Workforce capability

The leadership of the company defined the future HR capabilities that would be required to succeed by answering the following key questions during a discussion facilitated by HR:

Organization requirements 

• Does the current organization support your business unit needs and future development? (e.g., flexibility, customer service, decisions close to customers, fewer organization layers)
• Please describe the core organizational capabilities of your business unit? What capabilities will you need in the future?
• What are the current and future critical positions for the company?

Talent requirements 

• What are the key capabilities needed in critical positions? Separate by different target groups (e.g., leadership, technical roles, other job families, countries)
• Do we currently have the required capabilities? Can we source the talent internally (e.g., talent pool, succession management process)?
• Can we develop the required capabilities in the necessary timeframe?
• Can we source the required capabilities externally?
• Which capabilities need to be developed that do not currently exist? What are the three-to-five core capabilities we need to win in our markets? Which capabilities are no longer needed?

Culture

• Do the company's current values and norms support the future business strategy?
• What behaviors from leadership and critical employees are required for success? What behaviors may have a potentially negative/positive influence based on the strategic style of the company?

3. HR strategic initiatives development
Based on the priorities established through the processes described above, the current HR programs and processes were analyzed and assessed for alignment with the workforce requirements. Based on this gap analysis, HR identified the key areas of focus and key initiatives. All of the initiatives were prioritized, which defined the HR service portfolio for the next business year. For example, in one case for the successful globalization of its operations, the company required a more international leadership team and a stronger localization strategy. The existing development programs and sourcing strategies did not support this requirement and therefore needed to be adapted to the new requirements.

Initiatives with strong strategic focus were to be tracked via a separate HR Project Management Office function.

4. HR metrics

For each strategic initiative developed, the HR team identified the key results and metrics that were expected to be achieved. Figure 3 provides an "audit trail" from the business priority (Stronger globalization) to the concrete HR initiatives that would lead to a higher retention rate of local talents (such as specific development programs focused on local talent).
 

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Conclusion

A key challenge facing China-based companies is to clearly align their HR strategies with their overall business goals. To meet this challenge, HR professionals need to "sit at the table" with business leaders while they are discussing strategic priorities and provide relevant human capital inputs. At this stage, HR professionals can identify gaps in people and skills that the company needs to execute its business strategy, and can develop initiatives to fill those gaps. This integrated planning process will help to ensure that the company will have the people and skills it needs to meet its business goals.

One effective way to ensure alignment of business goals and HR strategies is for companies to conduct a deliberate planning process designed to bring together HR and other business leaders in reviewing the company's business objectives and the human capital resources necessary to meet them. Through this simple but systematic planning process, supported with valuable information and data, the HR function can ensure that it will provide solutions for the business that create the desired business results.

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Piotr Bednarczuk is a Practice Leader of the Organizational Consulting at Aon Hewitt in Asia Pacific. He can be reached at piotr.bednarczuk@aonhewitt.com.

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