Four Pillars for Developing a Human Capital Strategy

You've spent months planning an ambitious multi-year strategy. The conversations within your senior leadership team have been a little messy at times, but clarity is finally emerging. Then comes the uncomfortable question: "What's the people plan that will enable this strategy?"

Crickets chirp, followed by a comment like, "That's for each team to figure out," or "That'll be easy compared with all the work we've had to do to get this far."

For many companies, developing an explicit human capital strategy seems either too obvious or too vague a thing to worry about compared with the hard work of agreeing a business strategy in the first place. Compounding the problem is that many treat it in purely functional terms, such as improving the performance appraisal system. But that's not what's meant by impactful people strategies. Without an effective human capital strategy, you simply cannot achieve your overall goals.

Here's my framework for developing a human capital strategy. It draws on work by A.G. Lafley, Roger Martin and Jennifer Riel, as well as my own 30-plus years of experience working in various multinationals, including DuPont and Automatic Data Processing. It's built on the following four pillars:

1. What capabilities must be in place?

Every organization has some core capabilities -- the things you're distinctively good at, which form the basis of your competitive advantage. By distinctive, I mean they're difficult for others to replicate, and they work together in ways that are unique. In the process of formulating your business strategy, you should have determined what those are. 

But have you also understood which core people capabilities are needed? This is key, since building them might take years. Ask yourself: 

• What are the core people capabilities implied by my value chain?

• Which capabilities have to be strengthened under my current strategy?

• Is it possible to build those capabilities to competitive advantage in the timeframe of my strategy?

• If those capabilities represent a significant departure from what I currently have, what's my change management plan?

2. Do I have the right organization?

You want to grow in emerging markets, but you have insufficient people in that part of the world. You want to grow your digital business, but you only have classic marketing profiles. You have lots of managers and executives, but what you really need is more scientific talent for innovation. Sound familiar?

Ensuring you have the right people and that they're properly allocated and organized is essential, not least because labor is often your No. 1 expense. By "organized," I'm talking about much more than fiddling with the organizational chart. Rather:

• How well does my organizational model fit with the overall strategy?

• Are strategic areas properly resourced from a people point of view?

• Is my management overhead as efficient as it needs to be?

• Are the core work locations (manufacturing, scientific, administrative, managerial) in the right places, with a good balance between cost and quality of talent?

3. Do I have the right leadership talent?

It's one thing to spot talent shortfalls, quite another to address them, especially at senior management levels. You can't just make a few calls to find out who is and isn't performing. You need to be consistently and analytically assessing the critical roles in your organization, and in particular the capabilities and potential of the incumbents in those roles. 

Having "the right talent, in the right roles, at the right time" is important but not enough. To grow, you must also have a pipeline of future leadership talent. Growing the business by growing your leadership talent, and growing your leadership talent by growing the business, builds the kind of momentum that the management theorist Jim Collins refers to as "the flywheel effect."

To this end, ask:

• What are the critical leadership roles that my strategy hinges on?

• Do I have mechanisms to ensure that the strongest talent occupies those roles?

• Have I identified the leadership talent with the most potential?

• Do I know how to develop that talent for future roles, not just the current ones?

4. Do I have my employees' support? 

When a CEO speaks to Wall Street with a set of messages different from those employees hear, or when managers act in ways inconsistent with the company's stated direction or values, it gets noticed. Everyone needs to be pulling in the same direction. 

Answer these questions with data, not just hunches:

• Can all employees articulate the basic tenets of the strategy?

• Are they reasonably supportive of where the organization is going?

• Do they feel heard?

• Are they given opportunities to succeed and grow, regardless of personal background or circumstances?

In answering all these questions, be honest -- with yourself and your teams -- about whether you have really addressed them. You may give more weight to certain aspects over others, but at the very least you must have a point of view on each of them. If not, it's probably time to appoint a special team, which includes your chief HR officer, to work on this agenda. 

While HR is a natural advocate, developing a human capital strategy shouldn't be left solely to them. The entire senior management team must co-create it, support it, own it and monitor its implementation. Otherwise, it will just become another fruitless exercise.

View the original article in IESE Insight here.