The basic talent tools in every HR professional’s toolkit can be leveraged to create an organisational advantage if used the right way

As the chief HR officer of her firm, Jessica was feeling quite pleased with her department’s progress in implementing its talent agenda. Her recruitment team had hired outstanding talent; her succession team had helped to promote outstanding leaders; her development team was building the competencies for outstanding performers; and, her compensation team had successfully implemented its pay for performance initiatives. All seemed well. By chance, at that year’s Australian HR Institute conference, she happened to run into her counter-part from her firm’s primary competitor. They tentatively and carefully compared notes about the progress of their respective HR departments.

Through the conversation, it became clear that her competitive counterpart was applying the same talent tools with roughly the same talent outcomes. Jessica became thoughtfully concerned. While her efforts were successful in building outstanding talent, so were her competitors. Jessica aspired to build competitive advantage for her firm with the same differentiating aspirations that she expected from every other department in her firm. Then she recalled her graduate class in labour economics.  Her professor had pointed out that, in an efficient labour market, major competitors in the same industry will have about the same individual talent. As Jessica thought about this situation, she contemplated how she might create competitive advantage through HR.

“In an efficient labour market, major competitors in the same industry will have about the same individual talent”

The research from the Ross School of Business helps Jessica to address her quandary.  She must raise her focus beyond talent to cultural capability. The Michigan research clearly shows that HR departments that focus on cultural capability will have four times the impact on business results than HR departments that focus primarily on individual talent. This finding holds true across virtually all HR stakeholders including external customers, investors, line managers, employees, and regulators.

How might Jessica act on this insight? Michigan’s research again sheds light on this question.  We asked over 31,000 HR professionals and line managers to examine virtually every area of HR’s involvement. These activities statistically combined (factored) into four categories: employee performance HR practices (goal setting, performance measurement, incentives), HR analytics (measures that track HR’s performance impact), HR’s role in information management (HR’s role in identifying, accessing, analysing, sharing and utilising external information) and integrated HR practices (integrating business strategy, cultural and other organisational capabilities with the full breadth of HR activities and policies). While employee performance HR practices have the greatest impact on short-term financial results and HR’s role in information management has the greatest impact on customers and shareholders, integrated HR practices create the greatest value across the full range of HR stakeholders. Thus, ensuring the tight alignment among business strategy, organisational culture, and the combined HR activity areas is key to creating competitive advantage through HR.

“HR departments that focus on cultural capability will have four times the impact on business results than HR departments that focus primarily on individual talent”

A more detailed review of these findings results in a potentially important insight. HR activity areas are essentially the tools for HR’s talent agenda; that is, recruitment, performance management, promotions, outplacement, rotation, incentives, training and on-the-job development.

Thus, if Jessica seeks to create competitive advantage through HR, she will continue to build individual talent through the HR talent tools. But substantially more important, she will focus on building an HR department that is integrated around strategy and culture. She will have a clear definition of the organisation culture that is required to implement the business strategy and then she will apply the culture definition to the design and delivery of all of her HR talent tools. By so doing she will optimise HR’s value across the full breadth of her firm’s stakeholders, thereby creating a competitive advantage through her HR department.


Action items

HR professionals should remember that, in an efficient labour market, major competitors will, over time, achieve the same level of individual talent. This will result at best in competitive parity. To create competitive advantage HR departments should implement the following three steps

1. Have a clear understanding of the business strategy

2. Ensure that the culture that is required to fully implement their business strategy is clearly defined and communicated

3. Design and deliver the full breadth of their talent tools with a focus on creating, reinforcing and sustaining the strategy-focused culture

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