Strategic Human Resource Management: Basic Terms & How To Create a Strategic HR Plan
Gain a more thorough understanding of what strategic HRM is, with tips on how to create the right HR strategy to better support your business goals. More profitable people management starts here.
What is strategic human resource management?
Strategic human resource management is a forward-thinking approach to managing an organization’s most valuable assets: its people. It takes a holistic long-term view to developing HR programs, policies and practices in direct alignment with the organization’s wider operational and strategic management objectives.
Put more simply, strategic human resources management means strategically managing human resources in a way that helps improve business performance in order to achieve strategic goals.
What is the importance of strategic HR management?
Good human resource management is critical to the success of any company. At the center of this vital function is the human resources department, which is responsible for attracting, sorting, hiring, onboarding, developing, and retaining the best talent. They also manage things like employee benefits, compensation, and training.
For decades Human Resources was considered an administrative task, and little more. This changed around 1984 when the concept of strategic human resource management was introduced.
In the framework of strategic human resources management, organizations need 3 core elements to function effectively:
- Mission and strategy
- Organizational culture
- Human resource management (see: What is employee management)
These first two elements dramatically expand the scope of the HR function—and the breadth of expertise required by HR personnel. For the first time, the average human resource department needed to have a thorough understanding of strategic planning.
Over time, this framework was increasingly embraced by businesses as a way to gain a competitive advantage.
Today, strategic HR management is generally considered the foundation of a strong business. It tightly connects human resources management with organizational goals and the employee experience.
Strategic HR involves everything from recruiting, hiring and onboarding employees to engagement, retention and professional development. It also entails creating a purpose organizational culture. All of this must be considered and carefully developed with the company’s strategic plan in mind.
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Strategic human resource management goes well beyond people management. It creates tremendous value for an organization by optimizing teams in a way that best supports business objectives.
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Goals of strategic HR
1. Increased profitability
2. Better customer service
Being more strategic about how you structure, build and train teams can improve your level of customer service, which will also positively impact profitability.
3. Stronger employee engagement
Remember, “strategy” is just a fancy word for “how we plan to win.” When human resource processes are approached from this angle, it changes the perspective of what a “winning” team might look like. Being able to build and retain highly effective teams will:
- Boost employee morale and productivity
- Reduce turnover rates
- Attract better talent
- Minimize business disruptions
- Improve quality standards
- Improve brand image and employer brand
- Positively impact profitability
Strategic HR planning process
1. Define goals
To be effective, strategic human resource management must be aligned with strategic business goals that are specific and measurable:
- Increasing sales revenues by 20% by next quarter
- Lowering costs by 10% within 60 days
- Expanding into a new market within 6 months
- Capturing 5% more market share by year-end
- Achieving diversity, equity & inclusion objectives within 5 years
Where you take your strategic human resource management should be directly linked to the business goals you have identified.
2. Do a SWOT analysis
To support the organization’s business goals, you also need to analyze your current HR capacity:
- Skills and competencies required to achieve the business goals
- Talent gaps in the current workforce
- Untapped talents that could be put to better use
- Opportunities for advancement or development
Only after a thorough skills inventory can the HR department start to address employee weaknesses, identify career opportunities and get to work on attracting the right candidates.
3. Create strategies
Next you need to determine the right HR policies and practices to put in place. Depending on the business goals identified and your current labor force, this could mean:
- Reducing labor costs by 15% within 6 weeks (See how using a free employee availability form can help reduce turnover and labor costs)
- Hiring 50 new qualified employees in the next 3 months
- Improving employee retention by 50% by year-end
- Increasing the number of women and visible minorities in the role of managers within the next 3 years
- Increasing internal promotions by 25% within 2 years
- Improving employee benefits immediately
4. Plan implementation
Now you need to decide how these new HR strategies will take shape—in other words, your strategic HR plan. For example, you might choose to introduce HR practices and company policies such as:
- Run recruiting campaigns on social media and at job fairs
- Offer referral bonuses for employees
- Create an internal training and mentoring program
- Provide financial assistance for pursuing a MBA
- Offering Friday afternoons off, free public transportation, a sports allowance or childcare subsidies
At this point, you will also need to determine the budgets, timeframes and resources required in rolling out these HR strategies.
5. Monitor progress
This vital and ongoing step will tell you if the implementation of your chosen HR practices and policies is on track and having the desired impacts. You can track progress with:
- Observation and internal records
- Employee interviews and survey
- Industry benchmarks
6. Evaluate results
This is another vital step—albeit one that may feel a little foreign to some HR departments, which have traditionally been less subject to KPIs (key performance indicators).
However, HR managers who adopt a more data-driven approach to measuring results say it is easier to demonstrate the quantitative and qualitative value their HR strategies are bringing to the organization.
Real-world examples of how using data-driving analytics can help HR departments demonstrate tremendous value:
- Consumer electronics retailer Best Buy reported that a 0.1% increase in employee engagement leads to $100,000 increase in revenue per store.
- Footwear retailer Clarks found that a 1% improvement in employee engagement (specifically the tenure of store managers) created a 0.4% increase in sales.
Improve the way you onboard employees, centralize employee records, collect feedback through surveys, and highlight good work every day. See how Agendrix HR software for small business makes it easy to manage teams and show the impacts of strategic human resources management policies and practices
Strategic human resource management examples
What does strategic human resource management look like in practice?
Below are examples of a few renowned companies that rely on strategic human resource practices to gain a competitive edge when it comes to attracting and retaining the best talent.
In turn, this has helped these organizations improve business performance:
- Career “sabbatical” of up to six months every four years of employment
- Free food and childcare on-site
- Comprehensive health benefits
- Employees get to spend 20% of their time working on projects of their own choice
- Employees receive $2,000 to move closer to the Facebook office
- Free food at work and free transportation to and from work
- Comprehensive health benefits
- Employees are encouraged to take a leave/break when needed
- Comprehensive health benefits
- Stock options for all employees
- Investment in employee development
- Culture of respect and inclusion
- Work-life balance
- Opportunities for employees to give back to the community
- Variety of job opportunities and career growth paths
- Competitive salaries and benefits
- Training and development programs
- Positive and supportive work environment
When the above examples are viewed on their own, it can be easy to think that these companies have simply decided to be generous with their employee benefits.
But take a closer look at their operational and strategic objectives, and it becomes clear that these HR strategies were purposely chosen in direct connection to business goals.
The above examples focus predominantly on IT companies, but a growing number of businesses in other industries are also taking a more strategic approach to their HR strategy.
Like Starbucks, other retailers such as Best Buy are taking a proactive approach to their human resource management strategy to improve employee satisfaction, customer satisfaction, and achieve the company’s long term plans.
This same strategic approach to human resource management can be equally used in the hospitality, healthcare, call center, restaurant, and other industries.
How to get started with strategic human resource management
Having the right tools will make it easier to get your human resource management strategy off the ground. Agendrix is an HR management software that can empower HR professionals to develop HR tactics that will lead to more efficient resource management.
Managing employees more strategically will bring gains across the board: increased job satisfaction, better business performance, a stronger competitive advantage, and a direct impact on your company’s growth.
A company is no stronger than the human resources fuelling it from within. And teams are no stronger than the tools they have to work with.
Just like with your other departments, if you give your HR department the right tools, it will do great things for employee performance. In turn, they will be in a better position to achieve great things for your organizational success.