Organizational strategy focuses on the future of the organization as a single unit—a general vision of the future it seeks and its long-term goals.

Business unit strategies address questions of how and where the organization will focus to create value.

Operational strategy reflects the way in which organizational and business unit strategies are translated into action at the functional level through functional strategies. Strategic planning and management processes are repeated at each level, and unit and functional leaders must assume the same strategic mindset that the organization's leaders have adopted.

These levels of strategy must be aligned. This means that the HR strategy will be interwoven throughout the organizational and functional strategies. It must be consistent with the organizational strategy and must support other functional strategies. All policies, programs, and processes are selected and evaluated for their strategic impact. HR resources must be spent on strategic activities that add value at all points in the employment management cycle: workforce planning, talent acquisition, engagement and retention, rewards, and development of necessary skills and future leaders. The function must organize itself and acquire necessary strategic competencies, such as the abilities to manage risk and change, to use data to make better decisions, to manage a global and diverse enterprise, and, most importantly, to lead the HR function as part of a larger organization. Strategy must be developed with awareness of an organization's stakeholders and their unique perceptions of the value the organization delivers and of the organization's context—the marketplace forces that affect strategic choices.

Consistent, long-term goals.

Consistent decision making by leaders.

Better competitive and external vision.

Better internal vision.

Strategic alignment is necessary to maintain organizational focus on a defined mission and goals. As the strategy is progressively elaborated at other levels within the organization—in business divisions and/or functional areas—each unit must examine its plan against the organization's. Will HR's activities help move the organization toward its goal? Are HR activities attentive to the logic behind the original plan and the value of the original goal?

Strategic drift is a phenomenon in which an organization fails to recognize and respond to changes in its environment that necessitate strategic change. Like a ship bound for the rocks, the organization fails to make necessary course corrections. It beats on against the current of external forces that drive it further and further from its goals. Drift is often caused by an organizational culture that is too deeply rooted in the past, in the ways things have always been done. HR can help develop leaders with vision and courage, and HR leaders can embody these values ​​as well.

Core competencies are usually unique advantages an organization possesses, abilities that are integral to creating customer value and difficult for competitors to imitate. For example, core competencies can be technical expertise or excellence in design, marketing, or operations. A core competencies can also be vision—the ability to see when and how the organization can reinvent itself. Strategic organizations know what they are good at and focus their efforts on where those competencies will have the most effect. Necessary but not core competencies can be outsourced to reliable suppliers.

An example of the complexity of these systems is illustrated by the “Beer Game” created by MIT. Players represent a brewery, a wholesaler, a distributor, and a retailer. There are four-week delays between: When the retailer orders beer from the distributor and when it is received. When the distributor orders beer from the wholesaler and when it is received. When the wholesaler orders beer from the brewery and when it is received. The brewery takes two weeks to brew the beer. A short-term demand spike is simulated, which triggers response actions from the players. As the short-term demand empties fixtures at the retailer, the retailer typically submits repeated, larger orders to the distributor. This action triggers a similar response between the distributor and the wholesaler and between the wholesaler and the brewery. However, due to the lag in processing and delivery time throughout the chain, by the time the brewery has created and shipped the orders that it has received and those orders have made it through the chain to the retailer, demand has fallen back off, and everyone—brewery, wholesaler, distributor, and retailer—now has far more product on hand than they really need. Each player in the game has acted in a way that they considered logical given the information they had, yet, because they did not consider what their actions would do within the larger system, each ends up in a less-than-ideal situation.

Strengths and weaknesses refer to the internal environment, while opportunities and threats come from the external environment. The opportunities represent favorable or advantageous circumstances that could be used to produce a desired effect, while threats are an indication of possible danger, harm, or menace. Strengths and opportunities can be leveraged; weaknesses and threats are problems that must be solved and are often more difficult to control.

The organization’s high-level strategic goals are used by functions to generate relevant unit- or function-level goals, as shown in the table below.

Finance: Financial KPIs may vary, but for HR they could include budgeting for recruiting services or controlling overtime expenses. Achieving these goals is of interest to management, employees, and shareholders.

Customers: This perspective captures the ability of the organization to provide quality goods and services and satisfy its customers. It might be measured by the number of managers using a self-service system to set up new employees, processing rates for changes in compensation or corrections in benefits , or employee satisfaction with dispute resolution services.

Internal business processes: This perspective focuses on the internal business results that lead to financial success and satisfied customers. For HR, key internal processes may be managing talent acquisition and retention, employee development, and providing consultation to other functions.

Learning and growth: This perspective looks at actions that will prepare the future organization for success—for example, by strengthening the employer brand to attract talent, making sure that employees have the most current skills, or implementing knowledge management systems.

The purpose of a balanced scorecard is to achieve balance in three key areas: Between financial and nonfinancial indicators of success Between internal and external constituents in the organization Between lagging and leading indicators of performance

The acronym SMARTER is used to describe the seven qualities that characterize effective objectives. The letters have been assigned to different words over the years, but SMARTER is usually seen as describing objectives that are:

Defining KPIs

Measuring current performance

Identifying appropriate benchmarks and securing their performance data

Identifying performance gaps between oneself and the benchmark organization

Setting objectives and implementing any necessary support activities

Firms that pursue a strategy of cost leadership aim at capturing market share within their industry by virtue of lowest price. There are many paths to cost leadership. Charles Schwab built a “no frills” investment firm by using technology—computerized order processing. IKEA accomplishes it through careful product design, transferring some activities to customers, and working closely with its suppliers.

Creating economies of scale, by which cost decreases with every increase in output.

Sharing knowledge and information so that workers acquire necessary skills and critical tasks are completed more quickly.

Redesigning processes to root out actions that do not produce value, that create delays and expense, or that are duplicative.

Designing products and services that can be replicated easily.

Lowering operating costs (such as investing in energy efficiencies, using cheaper labor, or locating near markets to lower transportation costs).

Adjusting capacity to demand quickly (for example, being able to shift work to different production centers or idle production lines).

Creating a supportive workforce—effective managers and motivated workers.

Firms that pursue a strategy of differentiation aim for being able to charge a higher price by offering something different or by offering the same thing in a different way from competitors in their industry or market—or by creating the perception that a product is different through superior marketing. For example, it is possible to buy prescription lenses in expensive frames from many online retailers, but Warby Parker distinguishes itself from those competitors by, for every pair sold, donating a pair of glasses to someone in need. Mercedes-Benz differentiates itself from other luxury car manufacturers by using marketing expertise to access customers, target messages to changing interests and needs, and flex its product line to meet different price points.

Focus strategies apply cost leadership or differentiation within narrow industry segments or niches. For example, a financial services company may choose to focus on only high-net-worth individuals. Ryanair applies an aggressive low-cost strategy to the leisure travel segment of the airline industry. Some larger corporations may use focus strategies for their separate business units. HSBC (the Hong Kong and Shanghai Banking Corporation) has a unit that specializes in cross-border banking for expatriates and transnationals.

The perceived value of a subsidiary or its opportunities may be increased. Sometimes the parent company may not have the necessary talent to take the “child company” to its next level of growth.

Investment may be recouped through the sale of a high-value subsidiary and the cash used to increase the parent’s value in other ways.

The enterprise’s activities may be refocused on new priorities, perhaps as the result of competitive threats and/or opportunities.

Risk that might derive from financial positions (such as poor cash flows or high debt load) or strategic prospects (such as declining market growth or the possibility of a hostile takeover) can be managed.

Providing enhanced severity protection if employees are laid off soon after the close of the deal.

Making managers accountable for employee retention.

Benchmarking compensation and benefits.

Identify the candidate for divestiture The candidate might be a valuable but strategically unaligned business, or it might be a subsidiary competing in a market with low growth potential or competing ineffectively in the market. HR plays a role in this stage by performing due diligence as a seller: identifying potential risks connected with diving particular candidates—for example, loss of talent, impact on employee career development opportunities or on labor contracts. HR can also participate in a SWOT analysis of the candidate.

Identify a target buyer The strongest candidate will be an enterprise that needs the strengths and opportunities the divested subsidiary can provide and that can address potential weaknesses in the workforce. Some parent companies want to be sure that employees will thrive in the new company. HR can provide accurate information about the value of the workforce and can work on behalf of the employees to obtain favorable compensation and development opportunities.

Restructure Even before an actual sale or spin-off, the parent company should prepare the subsidiary for its new identity by defining new leadership, board composition, and organizational structure. This will increase the value and potential of the carved-out or spun-off subsidiary . Again, HR plays an important role here. It may help identify and prepare strong leaders for the subsidiary (without harming the talent of the parent company). Leaders may be drawn from other parts of a global organization. HR will also be involved in designing incentive offers for the subsidiary's new leaders.

Execute the deal Transition service agreements are often established to support the new entity. Agreements might cover financial (treasury and tax), legal, IT, business processes, and HR—including such capabilities as HRIS, payroll, and benefits. HR can assemble a balanced transition team , composed of parent and subsidiary employees, to empower departing employees without ceding control over sensitive decisions.

Throughout this process, HR can help capture what the organization has learned from its decisions and actions, analyze the experiences, and communicate useful lessons for future divestiture activities.

focuses on eliminating waste by: Maintaining a tight focus on the intended value of the project. Empowering the team to make decisions. Analyzing and solving problems rather than working around them. Emphasizing continuous learning.

derives from quality principles. “Six Sigma” refers to a level of quality so high that very few errors occur. It emphasizes focusing on projects with a quantifiable return of value, encouraging team commitment to quality and involvement in problem solving, measuring results in a manner that allows empirical analysis, and fact-based decision making.

is used when the assumptions on which a project is based are unclear or may evolve as project work proceeds. The project focuses on iterations of the deliverables—completing one iteration and then using customer input to plan the next iteration.

is used when resources cannot be increased to meet deadlines. For example, an HR department may be able to allocate no more than 10 hours per week of staff time to do project work. Project activities are scheduled accordingly. Buffers are built into the schedule both to account for dependencies (i.e., having to wait for another task to be completed) and to allow some room for variance for the estimated task requirement. Once the buffers are set, however, they are strictly enforced.

is a systematic approach for business improvement, requiring that all people and processes in an organization work to continuously improve. It is based on five principles: Know your customer. Without knowing the desires of the recipient of a product or service, it is difficult to create value. Let it flow. Continuously attempt to reduce waste to zero, which helps create value. Go to Gemba. Understand what is happening at all levels at an organization, and focus on the places that actions are actually taken that produce value. Empower people. Teams and people must have attainable goals and the systems and tools necessary to achieve those goals. Be transparent. Track goals using tangible data to show progress over time.

places the customer at the center of the project by understanding the in-depth requirements of the project's intended end user or beneficiary. It focuses on empathy in order to ensure that the intended stakeholder receives value from the project. The first step in the iterative process involves understanding the needs, followed by gaining an understanding of the problem that is being addressed. Solutions are then designed and tested. Refinements are made based on the results of the testing process, and this is followed by eventual launch of the solution. More feedback is gathered and the solution is adjusted, a process that may include returning to step one to better understand the customer and using that improved understanding to continue to refine the solution.

Effectiveness

Efficiency

Impact

Key performance indicators

Effective Performance Measurement