To Be Strategic or Transactional? That is the Question
The Case for Human Resources in Strategic Planning
Ask most business leaders and professionals, and they will describe human resources in transactional terms. “They are the department that hires people, fires people, manages our benefit plans, and tells us how much we can pay people.” A lot to unpack there for sure, but that perception misses the mark entirely.
While it is true that human resources has a lot of transactional components, it is no different from any other department or function within a business. For example, consider your Accounting Department. Arguably it is one of the most critical roles within the business as it has the power of the purse. Its transactional tasks include logging debits and credits into the general ledger, the monthly close process, development of quarterly and annual statements, or logging receipts and outflows through the AR/AP departments.
Human Resources also has its share of transactional components. Someone has to enter payroll weekly or biweekly, manage open enrollment, conduct onboarding, or even manage recruitment requisitions. If that is the extent of the value leadership perceives human resources brings to the table, there is a lot they are missing. We would argue that perception is precisely what is holding a business back from achieving its fullest potential.
At its core, a business is its people. Try starting a business without any people at all? You can’t do it. You know why? You are a person. If you start a business, even a company of one, say a single shingle consulting business, then a human is part of that business. Humans are the brainchild of every initiative and action internally and externally to the company. Even with all the automation being implemented today, from software to robots, people must maintain, repair, and monitor them to ensure they continue to perform as intended.
There is a strategic component that is often overlooked, and it begins with strategic workforce planning. When your business develops its strategic plan, you look at a 3-to-5-year horizon. With the fast pace of change in business today, it is almost always the case that many of the roles, skills, and competencies needed to fulfill that strategic vision do not currently exist. Absent strategic workforce planning, that vision is doomed to fail from the start.
Strategic HR professionals can work closely with executive management to flesh out a human capital plan according to organizational goals. Such a plan may include developing career pathing to move key talent from current roles that will be going away and into the new positions that will be created. It may also have a compensation analysis and benchmarking strategy to determine what to pay roles that don’t yet exist in your business (or even, possibly, anywhere). Plus, learning development programs to teach existing employees the very knowledge and skills they need to succeed in roles they don’t even know are coming, employee relations strategies that will drive engagement and retain key talent, and manage the impact on your people as the organization marches towards that strategic vision.
None of this is transactional. All of it requires a very strategic and planned approach aligned with the organization’s strategic plan, outcomes, and goals.
As with many areas of your business, there are laws and regulations involved. The EPA places restrictions on the output of carcinogens that can be expelled by smokestacks of factories or waste that can be dumped into rivers and streams. The SEC restricts actions they consider insider trading. Even your sales teams have restrictions to protect consumers from “bait-and-switch” tactics. Human resources is no different— well, maybe a little different.
Employment law is a fickle beast, constantly weaving and bobbing, changing all the time. A great example is a recent court case in Minnesota (Hill v. City of Plainview) that appears to have upended decades of legal precedence about the use of disclaimer statements that prevent an Employee Handbook from being interpreted as an employment contract. To the untrained and uninitiated in the ways of human resources, it can seem that the application of employment law bends with the proverbial wind. Though it is rare when significant landmark laws are passed (i.e., Affordable Care Act, Health Insurance Portability and Accountability Act, or even the Civil Rights Act), the way many of the laws are interpreted by the courts is what drives the most significant adjustments by businesses to comply with employment law. With the right strategic HR leadership in place, appropriate plans for implementing changes to employment law can be made that will protect the organization from costly fees, fines, and government-imposed remedies.
Strategic human resources leadership can also guide your business by executing transactional HR tasks and even positively impacting the bottom line. For example, there is a time in the business lifecycle when outsourcing transactional HR tasks are more cost-effective. That does not mean every aspect of human resources should get outsourced. That would be a huge mistake. It means that a strategic HR leader should guide or even lead the research, selection, and implementation of an appropriate Administrative Service Organization (ASO) or Preferred Employer Organization (PEO) to handle these transactions. That strategic HR leader should lead the selection and implementation of appropriate Learning and Development (L&D) programs, develop and direct a total rewards strategy, and even the selection and relationship management of the suitable recruiting partners to align human capital needs with the strategic workforce plan.
As an economy of scale is reached internally due to headcount and revenue size, it becomes more economically feasible to bring back the human resource tasks formerly outsourced to an ASO or PEO. The organization will further benefit from greater command and control over transactional HR tasks and align better with corporate strategy. There is no magic universal breakpoint to determine when to do this. You will have to look at your business’s demands, nature of employment, industry, and geographic reach as each impacts a company differently. However, the right strategic HR leader will make the correct business case leading to the most beneficial outcomes.
It’s a new year. We have weathered a pandemic, recession, social justice, and political upheaval, the likes of which happen perhaps once a millennium. There has never been a better time to assess your human resource function, to determine if you have the right strategic partnership to achieve your plan. What is the secret to success in 2021 and beyond? Strategic Human Resources.
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