A Human Resource strategy is a business’s overall plan for managing its human capital to align it with its business activities. The Human Resource strategy sets the direction for all the key areas of HR, including hiring, performance appraisal, development, and compensation.
The HR strategy is thus a long-term plan that dictates HR practices throughout the organization.
An HR strategy has a set of characteristics:
- It requires an analysis of the organization and the external environment
- It takes longer than one year to implement
- It shapes the character and direction of Human Resources Management activities
- Helps in the deployment and allocation of organizational resources (i.e. money, time, personnel)
- Is revised on a yearly basis
- It incorporates the expert judgment of senior (HR) management
- It is number-driven
- It results in a specific behavior
A very useful model here is the standard causal model of HRM, one of the key HR models. This model shows where HR strategy originates from and how it influences HR execution and business performance.
The model shows that the HR strategy is a result of the broader (business) strategy. It shows that HR activities create value when they are aligned with what the organization tries to achieve. When there is alignment (fit) between the two, HR will contribute to the performance of the organization.
The overall business strategy is formulated based on the past and the present. It is a result of what the company has been doing in the past and its current internal capabilities. An often used tool to arrive at this strategy is the SWOT analysis.
In the SWOT analysis, the organization’s internal Strength and Weaknesses, and its external Threats and Opportunities are mapped. Strengths include the company’s core know-how and know-what. These are its production capacity, existing brand, marketing channels, sales capabilities, R&D expertise, and other human capital factors.
The company’s strategy leverages its Strengths to capitalize on the Opportunities in the market. At the same time, it tries to circumvent Threats and minimize the impact of Weaknesses.
The result of this strategy-setting is the company’s value proposition. For example, the value proposition of Walmart, a discount retailer, is “every day low prices”. This explains a number of internal HR practices, especially the ones related to worker compensation.
The HR strategy is based on the organizational strategy. The HR strategy touches on all the key areas in HR. These include recruitment, learning & development, performance appraisal, compensation, and succession planning.
An example of an HR strategy is an HR mission statement and HR vision, with concrete, high-level actions about how to execute on this mission and vision