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If HR Were Really Strategically Proactive • 337

IF HR WERE REALLY STRATEGICALLY PROACTIVE:


PRESENT AND FUTURE DIRECTIONS IN HR’S
CONTRIBUTION TO COMPETITIVE ADVANTAGE

Wayne Brockbank

Current business conditions mandate greater competitive advantage from HR agendas and
processes. To add greater competitive advantage, HR must contribute strategic value against
criteria from customer and capital markets. HR can add strategic value either reactively or
proactively. In its strategically reactive mode, HR assumes the existence of a business strategy
and adds value by linking HR practices to the business strategy and by managing change. In
its strategically proactive mode, HR creates competitive advantage by creating cultures of
creativity and innovation, by facilitating mergers and acquisitions, and by linking internal
processes and structures with ongoing changes in the marketplace. This article defines and
describes these specific practices through which HR can contribute to greater competitive
advantage. © 1999 John Wiley & Sons, Inc.

Introduction value by being strategically proactive. The This article


stages of evolution between these two extremes begins by arguing
that HR’s
At the end of this special issue of Human will be defined and examined in some detail. centrality to
Resource Management on HR best practices, While this article is not intended to be a business success
it is appropriate to review the evolution of the quantitative analysis of the field’s evolution, it has never been so
HR field and to examine its future high value- is also not intended to be a theoretical essay. pronounced.
added practices. Over the last few years, Rather, this article draws on the author’s meth-
knowledge of the human side of business has odological observations with thoughtful HR
dramatically increased. While HR practices professionals from 66 outstanding companies
substantially lag behind HR knowledge, (see Appendix). Between 1990 and 1998, the
practices in the HR field are evolving at an author interviewed key HR professionals and,
accelerated rate, and the lag between knowl- in most cases, senior line executives about the
edge and practices appears to be shrinking. logic, strategic framing, and best practices of
The field is learning better how to learn and their HR organizations. This article is based on
more quickly apply what has been learned. insights1 gained from these companies.
This article begins by arguing that HR’s
centrality to business success has never been Emergence of HR’s Importance
so pronounced. It then provides a framework
for examining the field’s evolution in adding Substantial empirical as well as anecdotal evi-
competitive advantage. It concludes with an dence supports the notion of HR’s growing
examination of the progress of the field from importance. In 1992, 2,961 executives, con-
being operationally reactive to adding greater sultants, and academicians participated in a

Human Resource Management, Winter 1999, Vol. 38, No. 4, Pp. 337–352
© 1999 John Wiley & Sons, Inc. CCC 0090-4848/99/040337-16
338 • H UMAN RESOURCE MANAGEMENT, Winter 1999

study on the future of HR (Towers Perrin, Hewlett Packard, Herman Miller,


1992). Twenty-five percent of the respondents Sears, Disney, Intel, Texas Instru-
stated that the first or second most important ments, Ford).
goal for HR was that it be more strongly linked 3. Improvement in firm performance
to business strategy. Thirty-two percent stated is increasingly attributed to HR’s
that this goal would be adequately accom- contributions (Sears, Ford, Baxter
plished by the year 2000. Line executives alone International, Harley Davidson,
projected a 10% increase in the importance Quantum, Unilever, Arco).
of ensuring that HR be linked to business strat-
egy, whereas HR respondents projected only Finally, the fact that the membership of the
a 5% increase. Society of Human Resource Management has
In three rounds of data gathering in 1988, reached 120,000 in 1999 and that the mem-
1992, and 1997, more than 20,000 individuals bership of Human Resource Planning Society
participated in the Human Resource Compe- has increased 50% between 1992 and 1997 are
tency study at the University of Michigan further indirect evidence that HR professionals
(Brockbank, Ulrich, & James, 1997). In 1988, are finding a greater need for knowledge and
the HR departments of the highest performing professional development than ever before.
firms had a strong and equal focus on both the This increase in the importance of HR has
strategic and operational aspects of HR. In 1992 not happened accidentally. Rather, these trends
and again in 1997, firm performance was found are a function of specific changes in the busi-
to be higher as HR departments focused more ness environment. With the increased rate of
on the strategic aspects of HR and relatively less transnational wealth, a firm’s ability to compete
on operational agendas. High performing firms in a global environment becomes increasingly
In addition to reduced the time and effort spent on operational contingent on having the right people,
direct and HR activities so that they could focus on higher transnational learning systems, and optimal
indirect
valued HR agendas. The alternative mecha- measures and incentives for measuring and
empirical
evidence nisms for accomplishing the operational work rewarding individual and firm effectiveness.
concerning the done are discussed later in this article. Pressures from competitors, shareholders, and
emerging The seminal and ongoing work to date on customers require that people create new prod-
importance of the relationship between financial performance ucts, services, and processes ahead of the
HR, the field is and HR practices has been conducted by Brian competition. In a world of hyper speed,
rife with
supporting Becker and Mark Huselid (1998). In their study people ultimately create changes in micro-
anecdotal of 740 firms, they found that firms with greater chips, computers, disk drives, printers, and
evidence. intensity of HR practices had greater market grocery products. As the workplace becomes
value per employee. Specifically, they found that increasingly diverse (Cox, 1993; Thomas,
a standard deviation’s increase in a firm’s HR 1996), companies must leverage the full
practices resulted in a $45,000 increase in mar- capabilities of all employees regardless of
ket value per employee. If a firm with 10,000 differences in demographics, different lev-
employees were to make such an improvement, els, departments, functions, regions, and
the firm’s market value would increase approxi- disciplines. The explosion of service vocations
mately half a billion dollars. and the reliance of these vocations on people
In addition to direct and indirect empirical has likewise propelled the human side of the
evidence concerning the emerging importance business equation to the forefront. In 1998 the
of HR, the field is rife with supporting anec- dollar volume of mergers and acquisitions in the
dotal evidence such as the following: United States was three times greater than ever
before. Because people are required to concep-
1. The number of companies in which tualize portfolio opportunities, identify merger
senior HR executives report to the and acquisition candidates, conduct due dili-
CEO appears to be increasing. gence and negotiations, and make new alliances
2. CEOs in high performing firms are work, the HR systems that provide and support
giving greater focus to HR issues people and influence their mindset and
(General Electric, Allied Signal, technological capabilities become increasingly
If HR Were Really Strategically Proactive • 339

important. This is especially true given that must be done but are not critical to
65% of mergers and acquisitions fail to achieve financial and market success?
their stated goals (Krallinger, 1997).
In the last three or four years, the field has
Competitive Advantage: begun to use the term “proactive” as a criterion
From the Past to the Future for HR success. Two issues may cloud the use
of this concept. First, “proactive” is one of those
The human resource management field has words that is often a “feel good” word rather
responded to these conditions by conceptual- than one that actually describes what people
izing and implementing higher value-added do. For example, it is easy to agree on the
HR agendas. This section provides a general importance of being proactive, but being pro-
framework for analyzing current HR trends. active in “strategic” ways leads to very different
It then extends the logic of the framework to activities than being proactive in ”operational”
While there are
assess the emerging generation of value-added ways. Second, as “proactive” has become popu- times to be
HR agendas. lar, “reactive” has become less popular. While proactive, there
The distinction between the operational there are times to be proactive, there are clearly are clearly times
and strategic levels of HR has received con- times to be reactive. Being quickly reactive to be reactive.
siderable attention in the literature against strategic criteria can often create
(Brockbank, Ulrich, & James, 1997; Ulrich, substantial competitive advantage.
1997a). Operational HR activities generally Combining these two dimensions yields a
refer to the routine, day-to-day delivery of HR framework around which the HR field may
basics. The strategic level of HR activity is organize its thinking about the past, present,
more complex and involves five criteria: and future of HR.
Before examining each quadrant in detail,
• Long term—Is the activity conceptu- I will provide an overview of the model includ-
alized to add long term as opposed to ing a brief description of each quadrant and a
short term value? sample of associated activities.
• Comprehensive—Does it cover the Operationally reactive HR focuses on
entire organization or isolated implementing the basics; it addresses the ques-
components? tion of, given the day-to-day demands of the
• Planned—Is it thought out ahead of business, how should HR react to ensure that
time and is it well documented or does the basics are addressed? Such activities in-
it occur on an ad hoc basis? clude administering benefits, maintaining
• Integrated—Does it provide a basis for market-based salary grids, hiring entry level
integrating multifaceted activities that employees, and providing basic skill training.
might otherwise be fragmented and Operationally proactive HR improves on
disconnected? the design and delivery of the HR basics; it
• High value-added—Does it focus on addresses the question of how HR can improve
issues that are critical for business the quantity and quality of the HR basics be-
success or does it focus on things that fore problems occur. Such activities include

TABLE I Dimensions of Competitive Advantage for HR Activities.

REACTIVE PROACTIVE

STRATEGIC Makes strategy happen Creates strategic


alternatives

OPERATIONAL Implements the basics Improves the basics


340 • H UMAN RESOURCE MANAGEMENT, Winter 1999

reengineering HR processes, applying TQM HR should help its firm create value in the
principles to HR activities, and ensuring posi- marketplaces for said capital, products, and
tive morale in the workforce. services before its competitors do. As HR
Strategically reactive HR focuses on creates this kind of value in a timely manner,
implementing the business strategy; that is, it contributes to its firm’s competitive advan-
given a clearly formulated business strategy tage. Thus, some categories of HR practices
(e.g., growth, new product, innovation, cycle create greater competitive advantage than do
time reduction, new market entry), how can others. This is indicated by the HR Competi-
HR help support its successful implemen- tive Advantage Index in Table I. As discussed
tation? Such activities include identifying above, the strategic versus operational dimen-
and developing the technical knowledge, sion suggests that HR creates competitive
tactical skills, and business culture that are advantage when it creates, over the long run,
consistent with the demands of the busi- greater value than its competitors’ HR activi-
ness strategy. They may also include facili- ties, optimizes the entire organization instead
tating change management and organizing of subcomponents, and focuses the firm on
HR into service centers. issues that are critical for market success. The
Strategically proactive HR focuses on proactive versus reactive dimension suggests
creating future strategic alternatives. Such that value creating HR activities be done
activities include creating a culture of in- before they are done by the competition. It
novation and creativity; identifying merger requires that a firm’s HR function creates a
and acquisition possibilities; and creating temporal window within which the firm
internal capabilities that continually track can dictate competitive rules and command
and align with the marketplace for products, monopoly position. The combination of these
markets, and capital with their respective two dimensions into the HR Competitive
lead indicators. Advantage Index enables HR to calibrate the
This framework provides a basis not sim- extent to which an HR practice or set of
ply for describing alternative arenas for HR practices creates strategic value before the
involvement; it also suggests a measuring stick competition. Thus, an HR department
against which to assess the progress of HR’s increases its potential to create competitive
As HR creates value added at both the discipline and firm advantage as it moves from being operation-
this kind of value levels. This matrix from Table I may be ally reactive to being strategically proactive.
in a timely reconfigured to create a linear scale for mea- Given the pressures on HR to add greater
manner, it
suring HR as competitive advantage. value before the competition and the emerg-
contributes to its
firm’s competitive Competitive advantage entails having the ing arsenal of HR practices, it follows that
advantage. capability to provide better products, services, the above index may be superimposed onto a
or financial returns than the competition does. product life-cycle logic (see Figure 1).

Operationally Operationally Strategically Strategically


Reactive Proactive Reactive Proactive

Low High

Competitive Advantage

FIGURE 1. HR competitive advantage index.


If HR Were Really Strategically Proactive • 341

HR Competitive Advantage The HR agenda of the late nineties—the


state-of-the-art—is linking HR to the business
Placing the HR competitive advantage index strategy: Given the business strategy, what is
into a life-cycle logic provides a useful logic HR’s role in making the strategy happen?
for assessing the extent to which HR creates Again, articles, seminars, conferences, and
true competitive advantage (see Figure 2). Vir- university-based executive programs abound
tually all firms have HR departments or func- to help HR play a more powerful and effec-
tions that provide operationally reactive HR tive role in strategy implementation. Major
practices and processes. Even the most el- consulting firms have established specialty
ementary business requires that people are consulting in HR strategy, change manage-
paid, benefits are administered, people are ment, culture change, and other related
hired, and basic skills are ensured. areas (e.g., Arthur Anderson, Deloitte and The HR agenda
Operationally proactive HR agendas were Touche, Bain, McKinsey, Mercer, Watson- of the late
nineties—the
generally the state-of-the-art in the late 1980s Wyatt, etc.). In addition, many companies state-of-the-art—
and early 1990s. Reacting to the recognition including Sears, Lucent, Coca Cola, Dow is linking HR to
of the unacceptable cost of hierarchical Corning, and General Motors have made the business
bureaucracy (Ashkenas, Ulrich, Jick & Kerr, aligning HR with business strategy a success- strategy.
1995) and the recession of 1991–1992, many ful HR priority.
companies required reductions in the propor- Relatively few early adopters are ventur-
tion of their staff functions. The mandate of ing into the realm of strategically proactive
“more with less” became the order of the day. HR. Nevertheless, there are clear examples of
Thus, a dominant agenda of conferences, HR departments moving into this arena. Stra-
seminars, and professional publications tegically proactive HR agendas include identi-
focused on the application of reengineering fying portfolio requirements, selecting merger
and Total Quality Management (TQM) to HR and acquisition candidates, creating institutional
(Yeung & Brockbank, 1995). Service centers change capacity, building organizational cultures
were born (Ulrich, 1995). Today one must of radical innovation, and identifying social
look long and hard to find conferences and trends that can be parlayed into products and
articles on these topics. Late adopters are a services. These activities represent the logical
relatively small proportion of the total popu- extension of the HR field. Those HR depart-
lation, and the demand for HR expertise in ments with the capability to do so will lead the
these arenas is shrinking. field in creating competitive advantage.

Operationally Operationally Strategically Strategically


Reactive Proactive Reactive Proactive

% of
Adopting
Firms

Late Adopters Early Adopters

Low Medium High


HR Competitive Advantage

FIGURE 2. Lifecycle of HR Competitive Advantage


342 • H UMAN RESOURCE MANAGEMENT, Winter 1999

Application of the HR Competitive agers handle grievances), and the creation


Advantage Index of HR service centers (centralized transac-
tional work processing centers). Firms such
The remainder of this article examines each of as Intel, Hewlett-Packard, Sears, Cisco
the four levels of HR’s competitive advantage Systems, Amoco, and Texas Instruments
with major focus on HR’s role in being strategi- provided groundbreaking work in these
cally reactive and strategically proactive. arenas.
By applying the principles of TQM, the
Operationally Reactive HR HR field sought to improve the accuracy of
its HR work. Consistent with the requisites
As Figure 1 suggests, relatively few firms are of TQM, during the 1990s the field made con-
currently in the mode of adopting operationally siderable progress in its ability to set clear
reactive HR practices. The main reason is that standards of measurement for HR practices
virtually all firms already do the HR basics; that (Ulrich, 1997b; Yeung & Berman, 1997;
is, they pay employees, have benefits of some Wintermantel & Mattimore, 1997). Alcoa and
kind (even if nothing more than the processing Motorola developed robust lists of measure-
of federal and state tax information), hire entry ments for productivity in HR functional areas
By applying the level employees, and ensure at least remedial including recruitment, benefits and salary ad-
principles of competence through formal or on-the-job train- ministration, training and development, career
TQM, the HR
field sought to ing. Even sole proprietors and partnerships management, diversity, health and safety, com-
improve the ensure that these functions are carried out. The munications, and performance management.
accuracy of its fact that the great majority of college level HR Employee attitude surveys that focused on the
HR work. text books focus on this level of HR thinking internal customers’ perceptions of HR gained
evidences that this arena of HR involvement is substantial popularity with virtually every
a commodity (e.g., Cascio, 1995; Schuler, HR-related consulting firm providing internal
1997). Without these activities a firm will fail, HR audits. HR mission statements abounded,
but with them, little competitive advantage which promised to “surprise and delight” inter-
is gained. nal customers and to provide “error-free HR
work”. Finally, to ensure that employee dissat-
Operationally Proactive HR isfaction would be addressed before major
problems emerged, internal customers became
Firms in the operationally reactive mode fo- more heavily involved in designing key elements
cus on improving the productivity of their HR of HR practices.
departments and the quality of their HR
practices. Much of the breakthrough work Strategically Reactive HR
on improving quantitative and qualitative
aspects of HR occurred in the late 1980s HR may be strategically reactive in business
and early 1990s. Driven by global competi- strategy implementation through two domi-
tion in the 1970s and 1980s, firms were nant avenues: (1) supporting the execution of
required to improve productivity and effi- tactics that drive the long-term strategies and
ciency. A major response was the emergence (2) developing the cultural and technical
of reengineering that combined with infor- capabilities necessary for long-term success.
mation technology to enable the automated HR may also assist in the process of strategy
processing of considerable volumes of trans- implementation by providing change manage-
actional HR work (Yeung & Brockbank, ment support for tactical activities.
1995). During this time other practices took Tactical Support. The capacity of HR to
root that helped HR do more with less. be strategically reactive assumes the presence
These practices included outsourcing (e.g., of a business strategy with its accompanying
benefit and payroll administration firms), operational tactics. With the firm’s strategic
work elimination (e.g., reducing steps in and tactical logic in place, HR’s role becomes
answering benefit inquiries), reallocation of relatively obvious. How many people do we
activities to the line (e.g., having line man- need? Where do we get them? What training
If HR Were Really Strategically Proactive • 343

do they require? How do we measure and re- alternatives. In the automotive industry, for
ward desired behaviors and results? example, both cost and quality are important;
Creating the Strategy-Focused Culture. however, if cost is assumed to be 90% and
The second channel through which HR prac- quality 10% of a firm’s competitive focus, a dif-
tices may be linked to business strategy is ferent culture should dominate than if it is
through the establishment of a powerful and assumed that cost and quality should receive
strategically focused culture2 and in the con- equal focus.
tinual availability of state-of-the-art technical Step 4: Define the required culture (in-
knowledge and skills3 . The process by which cluding specific behaviors) and technical
this linkage may be established can be divided knowledge and skill areas that the firm re-
into eight steps. quires to create and support the sources of
Step 1: Define the business unit for which competitive advantage that were identified
the HR practices are being designed. Is the pro- in Step 3. In the past few years, companies
cess used defining an HR strategy for a plant, have moved beyond superficial culture defi-
business unit, division, sector, department, or nitions and are now specifying cultures and
for the company as a whole? behaviors directly aligned with marketplace
Step 2: Specify the key trends in the external requirements. A sampling of such cultural
business environment. What are the dominant definition includes restless creativity
trends that indicate key threats or opportuni- (Unilever), lean and unencumbered teamwork
ties? Trends among customers, competitors, (Cathay Pacific Airways), and focused agility
informational technology, owners’ expectations, (Enron Corp). While the meaning and pas-
regulatory requirements as well as product and sion behind these constructs may not be ac-
process technologies must all be considered. cessible to the outsider, to those who develop
Since it is difficult to define a company’s cul- and apply them, they convey definitions of
ture around a large number of such trends, culture that serve as key supporting elements
however, it is imperative that a clear and of business strategy. Complementing the
weighted prioritization be established among the cultural competencies are the required tech-
frequently competing and contradictory require- nical competencies. With the ever-decreasing
ments (Brockbank, 1995). The rationale for life span of technical knowledge and skills,
beginning with the environmental analysis in- cultural competencies become increasingly
stead of with the business strategy is threefold. important. Nevertheless, a substantive base
First, the business strategy should be based on of technical knowledge and skills is warranted
the environmental analysis. Second, it is useful in virtually every industry.
In the past few
practice for those who develop the business- Step 5: Identify the cultural characteris-
years, companies
based human resource strategy (including but tics that the firm should reduce or eliminate if have moved
not limited to the firm’s key HR profession- it is to optimize competitive advantage. Such beyond
als) to examine marketplace realities in a clear undesirable cultural traits might include being superficial
and focused manner. Third, many business internally focused, slow, complacent, arrogant, culture
definitions and
strategies are not HR-friendly; that is, they are oblivious to competitive realities, or risk averse.
are now
not formulated to facilitate the mindset and Step 6: Design the HR practices that will specifying
technical requirements of individuals who have greatest impact on creating the desired cul- cultures and
make strategy happen. ture. This can be accomplished by evaluating behaviors
Step 3: Identify and prioritize the firm’s the extent to which each HR practice is aligned directly aligned
sources of competitive advantage. The key issue with the desired culture. If an HR practice is with
marketplace
here is identifying how the company is choos- not aligned with the desired outcome, then an requirements.
ing to compete. Is it choosing to compete on evaluation must be made about the extent to
the basis of cost, quality, speed, innovation, which the practice would have impact on creat-
service, relationships, convenience, branding, ing the desired culture if it were aligned. It is
and/or distribution? Since a firm’s culture should useful at this stage to distinguish between
be defined in a way to be consistent with these traditional and nontraditional HR practices. Tra-
foundational strategic assumptions, it is neces- ditional HR practices are generally under the
sary to have a clear sense of priority among these direct influence of most HR departments. They
344 • H UMAN RESOURCE MANAGEMENT, Winter 1999

include staffing, performance management, • Ensuring support from key executives


financial and nonfinancial incentives, and train- • Creating a shared need for change
ing and development. Nontraditional HR prac- among those who live with the
tices, on the other hand, are those not generally change, including both employees
under HR’s direct influence, but which have and management
substantial influence on the mindset and tech- • Ensuring a clearly articulated vision
nical capabilities of the firm. Such practices in- of the end-state of change
clude organization design, reengineering, office • Eliciting the commitment of key
or plant layout, job design, leadership commu- stakeholders to the change vision and
nications, information systems design, and cus- to the steps necessary to achieve de-
tomer contact programs. It is HR’s task to ensure sired outcomes
that both traditional and nontraditional HR • Leveraging the management and HR
practices are mutually consistent in influenc- systems that support and drive the
ing the human side of the business equation. change
Identifying action plans for enhancing the • Defining insightful measurement by
technical knowledge and skills is relatively which the progress of change can be
easy. Two questions must be addressed. Do a monitored
lot of people require them or few? Are these • Establishing learning loops through
HR’s position at
the proactive technical capabilities best acquired through which change efforts may ensure on-
strategy table can training, though recruitment or through bor- going improvement and progress
be earned in two rowing (in the form of consultants and other
ways . . . external vendors)? While each of these phases contains much
Step 7: With these decisions made, the firm of what has been documented over the years’
should establish action plans for detailed de- experience with change management, the pri-
sign of the HR processes. Who will do what, mary utility of this model is the structuring of
by when, with whom, with what resources? the many details of change management into
What will be the mechanism of reporting to compact bundles of actions. When applied to
line management? the implementation of specific strategies and
Step 8: The final step specifies the means tactics, this model can assist HR profession-
by which effectiveness of the entire process is als in reacting to strategic direction and tacti-
measured. Are the HR practices successfully cal initiatives. It is also possible, however, for
creating the strategically targeted cultural and companies to use these steps not simply to
technical capabilities? implement change but to develop the capac-
This framework has been widely used by ity for change. This potentiality will be ad-
many companies such as Texas Instruments, dressed in the next section.
Alcoa, General Motors, Coca Cola, ITT,
Dow Corning, and Unilever as the logic and Strategically Proactive HR
process by which to link HR practices to
preestablished business strategies. As discussed above, being strategically proac-
tive prompts the question, “What is HR’s role
Management of Change. The third set in creating strategic alternatives?” HR’s position
of activities by which HR is strategically at the proactive strategy table can be earned in
reactive is found in change management two ways: (1) by learning enough about the other
programs. Organizational development and functional areas (i.e., finance, marketing,
other change management activities assist production) to be able to contribute to business
in the implementation of general strategies discussions in the terms and concepts of the
and/or specific tactics. Multiple frameworks other functional areas, and (2) by expanding and
for change management may be found in enriching the parameters of HR agendas
the literature. One that has appropriately through which strategic alternatives may be
received considerable recognition (Ulrich, defined and created. To be a full partner at the
1997a) specifies seven critical success strategy table, HR professionals must be capable
factors for change: of contributing at both levels. In the first, HR
If HR Were Really Strategically Proactive • 345

professionals create business alternatives likelihood of innovation. Underlying nearly all


through their ad hoc knowledge of other fields; discussions of creative breakthroughs in cor-
in the second, they create business alternatives porations is the conclusion that HR practices
through the application of HR assumptions play a major role in the success of virtually
and logic. every innovative organization.
As suggested in Figure 2, a relatively small To enhance the probability of innovation,
number of HR departments are early partici- two preconditions generally must exist. First,
pants in strategically proactive HR activities, so there must be a conscious decision by key deci-
few reap the resultant competitive advantage. sion makers that innovation is a desirable cor-
As an initial foray into the arena of strategically porate focus or agenda. While this condition is
proactive HR, this article suggests three avenues reasonably obvious, it bears repeating since
through which HR can be strategically proac- many management teams fail to make innova-
tive: (1) creating the culture of creativity and tion a company focus even as they contemplate
innovation, (2) being involved in the full breadth why their firms lack creative breakthroughs
of mergers and acquisition activities, and (3) (Robinson & Stern, 1997). Second, obstacles
creating internal capabilities based on future to creativity must be removed. Such barriers
external environmental requirements. include overly bureaucratic infrastructures, too
HR can proactively add strategic value by many layers of approval, and supervisors who Many
enhancing the innovative capability of the are threatened by subordinate initiative. The management
firm. In so doing HR can improve the prob- reduction of such barriers is well reviewed by teams fail to
make innovation
ability that the firm will bring to market new Ashkenas, Ulrich, Jick, and Kerr (1995).
a company focus
products and services before the competition, With these preconditions in place, firms even as they
thereby reaping the pricing benefits of short- may then build the HR infrastructure that fos- contemplate why
term monopoly market positions. The firm’s ters and maintains the innovative ethos: their firms lack
innovative capability may be evidenced in Communications. Is there an orchestrated creative
providing new and improved products and communications initiative through which the breakthroughs.
services, reducing costs, improving quality, priority of innovation is communicated? Do
entering new businesses, and discovering new senior leaders discipline themselves to consis-
applications for existing products in either tently communicate the innovation agenda and
existing or potential markets. As HR plays a avoid the “crisis-of-the-week” communication
central role in these activities, it enhances the pattern? Are role models of creativity publicly
firm’s ability to create market turbulence to acknowledged through multiple media? Are
which its competitors must respond rather upward communication channels available
than being in the position of responding to through which important breakthrough ideas are
the rule-defining turbulence that its competi- passed to potential senior level champions? Has
tors may create. management legitimated forums for the discus-
Of course, no set of practices can guar- sion of innovative ideas both in existing teams
antee that creativity will occur in a given as well as in ad hoc groups? Are the time, space,
situation. Innovation may not occur even and other resources available to support the
where the conditions appear correct. Likewise, effectiveness of such forums? Are channels es-
serendipitous innovation may occur where tablished through which creative needs and
least expected. A reasonable expectation is innovative ideas can be communicated across
that HR will enhance the firm’s probability business units and departments? Are informa-
that innovative breakthroughs will occur. tion technology systems designed to provide easy
Books and articles contain hundreds of access to information that might prompt inno-
anecdotes and stories about innovation in vative thinking? Is the physical setting designed
organizational settings (see, for example, to facilitate communication within and across
Robinson & Stern, 1997; Isaksen, 1987; teams and among organizational layers?
Drucker, 1985). Anecdotes and stories may Staffing. Is the evidence of creativity explic-
inspire and reveal the possibilities, but they itly applied as a criterion for hiring at all levels?
often fail to make explicit the levers that or- When members are selected for major task
ganizational leaders apply to increase the forces, is a history of innovative contributions
346 • H UMAN RESOURCE MANAGEMENT, Winter 1999

used as a selection criterion? Are individuals stated to the financial community. The cause of
transferred across business units and functions these failures may occur at any phase in the
to enhance the likelihood that the resultant acquisition process. The stages of mergers and
diversity of ideas will spawn innovation? Are acquisition include conceptualizing the firm’s
people promoted who have evidenced creative portfolio needs, identifying and selecting can-
capabilities or who are committed to foster- didates, negotiating the deal, and integrating the
ing and nurturing creativity in others? Are two entities. HR can play an active role at each
nonhierarchical promotions (i.e., fancier titles) phase of the acquisition4 process.
applied to allow creative people to continue The merger and acquisition process be-
to be creative rather than moving them to gins with conceptualizing the firm’s portfolio
managerial roles and responsibilities? logic. A key element of this logic is the ability
Training and Development. Are creativity to understand the firm’s core capabilities
skills included in corporate-wide training (Prahalad & Hamel, 1990) and the demand
initiatives? Are customers included in action of the marketplace for these core capabilities.
learning in order to directly access customers’ Three categories of core capabilities can be
needs and passions? Do training efforts in- distinguished: what the firm knows (knowl-
clude competitive benchmarking to create edge); what a firm does (skills); and how the
urgency around proactive innovation? Do cross firm thinks (culture). It may be assumed that
functional developmental efforts facilitate the unique value added of the HR function is
exposure to nontraditional sources of creative the creation and maintenance of the human
supply and demand? Do on-the-job develop- element, HR has greater responsibility for
mental expectations and experiences explicitly conceptualizing and understanding the firm’s
focus on innovation? Are senior executives in- core capabilities than any other function (with
volved as trainers to role model and encourage perhaps the exception of the CEO). The HR
openness to innovative ideas? professional should then conceptualize exist-
Measurement and Rewards. Does the firm ing portfolio deficiencies and opportunities
have clear output as well as behavioral mea- and identify the core capabilities that might
sures of creativity? Are there formal mecha- be acquired through a merger or acquisition.
nisms to acknowledge and reward important For example, a dominant logic in Microsoft’s
As noted above, creative contributions? Does the firm reward acquisition strategy is not just the acquisition
65% of mergers risk-taking without tolerating long-term of technological, market, or financial syner-
and acquisitions
failure? Does the reward system encourage the gies but also the acquisition of fast and brash
fail to achieve
the commitments excitement of innovation without displacing innovative cultures. An HR professional who
that are stated to it with extrinsic greed motives? Are rewards is effective in this area will not be limited to a
the financial for innovation publicized to enhance the value domestic perspective. In Enron Corp, HR
community. of the reward to the innovator and to signal professionals have played a central role in iden-
the importance of innovation as a corporate tifying potential merger and acquisition
priority? Do the rewards for innovation rec- candidates in South America.
ognize contributions of both individuals and When a potential buyer has conceptual-
teams? Are innovative breakthroughs quickly ized its portfolio needs, it then begins the pro-
rewarded to enhance the motivating value of cess of identifying potential candidates and
the reward? making a final selection. Finding a suitable
HR can also exert strategically proactive candidate requires evaluating up to 100 firms
influence in the arena of mergers and acqui- in order to find one that meets the criteria of
sitions. Defining the corporate portfolio is a availability, fit, and price (Krallinger, 1997).
fundamental mechanism by which firms stra- In the process of examining firms against
tegically create their future. HR’s role in these criteria, HR may contribute in two pri-
merger and acquisition activities has emerged mary ways. First, the technical, market, finan-
quickly over the past few years (Mirvis & cial, cultural, and managerial capabilities of
Marks, 1992; Clemente & Greenspan, 1998). the potential seller must be evaluated. HR
As noted above, 65% of mergers and acqui- professionals with the knowledge to conduct
sitions fail to achieve the commitments that are internal cultural, technical, and skill audits
If HR Were Really Strategically Proactive • 347

should now apply that knowledge to the HR professional can facilitate this goal by be-
merger or acquisition candidate. The audit ing aware of key subtleties during negotiations
logic will be similar, although gathering data and by helping the senior executives of both
from indirect sources requires considerably sides maintain good working relationships
greater ingenuity. Since mergers and acquisi- while keeping them insulated from irksome
tions tend to fail not because of financial, tech- details. HR’s process role may also include
nological, or market reasons but because of knowing the negotiating style on the other side
people or cultural problems (e.g., Mirvis & of the table and providing negotiation train- HR should play
Marks, 1992), HR’s role in examining cultural ing as needed to her/his own team. Finally, an important
incompatibilities is essential. Second, HR also since the ultimate selling price is often a func- role in
determining the
contributes to the evaluation phase as it raises tion of the intervention of the seller’s board
staffing
important issues during due diligence. What of directors (Cotter, Shivdasani, & Zenner, requirements of
salary, benefits, and pension commitments 1997) the buyer’s HR professionals should the merger and
does the buyer incur? What is the nature of ensure their team is aware of the involvement acquisition team.
union relations and existing contractual obli- level and historical opinions of the seller’s
gations? Should the buyer’s reward system be board members.
superimposed onto the workforce of the seller? It is at the integration phase that the ma-
What are the strengths and weaknesses of ex- jority of the 65% of merger and acquisition
empt, nonexempt, and salaried workforces? Is failures occur (Clemente & Greenspan, 1998).
there pending litigation between the selling While this is the phase at which merger and
firm and any of its employees? What will the acquisition value is suboptimized, it is also the
staffing requirements of the combined enti- phase at which HR’s contributions can most
ties be? What is the age, gender, and racial easily rectify the most damaging problems.
profile of the firm and what are their implica- These problems include allowing cynicism-
tions? How is the seller organized? What are inducing politics instead of business logic to
potential pitfalls in merging structures? Third, dominate the selection and placement of people
HR should play an important role in deter- and failing to integrate the merged cultures
mining the staffing requirements of the merger around critical, market-based criteria.
and acquisition team. The technical and in- Two considerations are paramount in de-
terpersonal skills of the team members must ciding which individuals get which positions:
be carefully selected, because it is for these (1) ensuring that the “best” people are placed
reasons that deals often fall apart before they in the correct positions and (2) ensuring that
are consummated. the placement process is seen as fair and cred-
As the negotiation phase begins, HR again ible. The importance of the first consideration
brings important value to the process. Dur- is obvious. Fairness and credibility of the
ing this phase, HR has both a content role placement process are critical to ensure that
and a process role. In its content role, HR political considerations are minimized. If the
continues the in-depth probing of issues that placement is perceived to be tainted by poli-
it raised during due diligence, but now it is tics instead of achievement and capability,
done opportunistically, with the potential part- cynicism sets in; capable people leave; the
ner seeking the highest possible selling price legitimacy of leadership is eroded; and the
and with HR looking for potential problems organization turns away from the customer
that might influence the buying price. HR’s and into itself.
process roles during negotiations include The rules for deciding who gets what posi-
maintaining functional working relationships tions and for minimizing political influence are
within its own company’s team and with the well known and straightforward but often
members of the other company’s negotiating ignored. Exact and explicit criteria about per-
team. Everything else being constant, it is formance and capability should be specified for
better to begin the new relationship on a each relevant position in the merged or acquired
nonadversarial note. Thus, the creation of a unit. Considerable data should be gathered
merged whole that is greater than the sum of against these criteria from multiple sources
the parts begins during the negotiations. An including subordinates, peers, supervisors,
348 • H UMAN RESOURCE MANAGEMENT, Winter 1999

customers, suppliers, board members, and the cess for merging the two cultures is fairly
candidate. To the extent possible, objective (i.e., straightforward. The first step is for both
politically impartial) individuals should evalu- entities to conduct a detailed analysis of the
ate candidates against these criteria. Such indi- requirements for their respective marketplaces
viduals may include a team of peer executives for capital, products, and services. This analy-
A third avenue
representing both of the merging organizations, sis should include viewing the marketplace from
through which
HR may be a team of internal staffing consultants such as an “HR-friendly” perspective, that is, each
strategically exists at General Electric, or senior HR execu- component of the marketplace should be ad-
proactive is in tives. This last step is the most difficult to do dressed, asking the question: “What should be
linking the correctly because political criteria such as whom known about this component of the business
external market a senior line executive knows and “feels” most environment in order to determine what cul-
environment with
key internal comfortable with have such a strong tendency ture my organization should have?” The second
factors. to dominate placement logic. One Fortune 200 step is to identify the sources of competitive
top HR executive submitted his resignation advantage that a firm must have, the accompa-
three times during a major merger. Several nying tactical actions that a firm must execute,
senior line executives demanded that their and the relevant measures. The third step is to
favorite candidates be placed in specific posi- identify the cultural mindset that both firms
tions without meeting the predetermined per- must have in order to execute their respective
formance and capability criteria better than strategies within their respective market re-
other candidates. In order to maintain the in- quirements. Fourth, the merged partners may
tegrity of the placement process, the senior then compare their environmental assump-
HR executive played his ultimate hand; he tions, business strategies, and required cul-
resigned from the process and the company tures. By so doing they can assess which
rather than succumb to subtle and not-so- culture should dominate.
subtle political pressures and threats. Luck- A third avenue through which HR may be
ily, in each case, the line executives backed strategically proactive is in linking the exter-
down, and the placement process continued nal market environment with key internal fac-
with full integrity and credibility. tors. HR’s most fundamental and important
Equally important is deciding which cul- corporate role focuses on optimizing the hu-
ture should dominate. Three assumptions are man side of the business equation. The prob-
necessary to ensure that the process for de- lem is that most HR thinking addresses only
ciding which culture should dominate results 50% of the human side of business focusing
in optimal outcomes. First, the most impor- on the internal “customer”—to the exclusion
tant element of organizational culture is of external customers. Yet, HR’s ultimate goal
shared mindset. Second, shared mindset is a is to link the external human requirements
key element of corporate success and, there- with the internal human capabilities, thereby
fore, shared mindset should be defined by the optimizing the utility of both. Several impli-
requirements of the competitive marketplace. cations follow from this premise.
Third, it may be the case that the dominant First, the HR goal is not to make employees
firm in the merger or acquisition situation has happy or satisfied at work; rather, the HR goal
the culture that is most aligned with the de- should be to make those employees happy who
mands of the marketplace. It may also be the are happy making the marketplace happy. This
case, however, that the less dominant firm may makes sense; yet, people in the HR field often
have a culture that is best aligned with indus- fail to act in accord with this supposition. For
try success criteria. It may also be the case that example, HR professionals support company
neither firm has the optimal culture and that mission statements that boldly proclaim “People
the combined cultures must be defined and cre- are our most important asset.” Not only do HR
ated anew. The key issue is to ensure that the professionals themselves not entirely believe
components of the merged or acquired entities such statements, neither do employees or even
both have the cultures required for success, the executives who penned them in the first
whether the cultures are similar or different. place. (This is the stuff of which Dilbert is
With these assumptions in place, the pro- made.) The problem with such mission state-
If HR Were Really Strategically Proactive • 349

ments is that in virtually every company there in creating a customer-focused organization,


are people whose leaving would be in the best HR itself must be relentlessly and intimately
interest of the company. So, management ra- knowledgeable about external customers. The
tionalizes, “Well, what we meant to say is that HR Competency Study at the University of
some of our people are our most important as- Michigan has provided initial findings that
sets.” And thus the cynicism begins. In fact what knowledge of competitors, customers, market-
we meant to say is: “People who are happy mak- ing, and sales are critical aspects of an HR
ing customers happy are our most important professional’s knowledge base (Brockbank,
asset. Other people we must either convert to Ulrich, & James, 1997). It has been further-
being happy making customers happy or make more suggested that a major contributor to
them so unhappy that they leave the firm.” the suboptimization in marketing activities is
A second implication is that HR adds the lack of marketing’s full integration with
considerable value when it creates a customer- HR (Ballantyne, Christopher, & Payne, 1995;
focused corporate culture. An important aspect Clark, Peck, Payne, & Christopher, 1995).
of HR is to enhance each employee’s under- In order to robustly link internal capability
standing and valuing of marketplace realities. and external requirements, HR must not only
In so doing, HR not only helps facilitate the be knowledgeable of specific customer issues
company’s reactive responses to short-term but also of key aspects of the macro-societal
market demands, but also helps to create the environment including the following: basic so-
organization’s capability to proactively track cial trends that are ultimately translated into
future market directions and create products market demands for specific products and
and services that either lead future markets or services, changing values and meaning struc-
that respond to current demands (Cespedes, tures, major problems and challenges that are
1995). shared by large segments of the population, and
Initial research on the practices that have structures of interpersonal relationships that in-
greatest influence on creating customer-focused fluence buying processes (Cespedes, 1995).
value systems suggests that HR plays a central Within the context of these broadly defined
role in creating and executing these practices social directions, marketing departments then
(Brockbank, Yeung, & Ulrich,1989). These prac- work on niche analysis, short-term customer
tices include the following: (1) providing a need identification, consumer communica-
free flow of information directly from buying tions, pricing tactics, field sales management,
customers through the entire organization via account management, competitive analysis,
customer focus groups, video tapes, audio tables, product positioning, channel management,
in-house visits, visits by employees to customer branding, and product development. To facili- HR professionals
settings, and employee involvement in market tate internal and external linkages, HR should must be highly
research; (2) orchestrating comprehensive also be knowledgeable in these marketing knowledgeable
communication programs with the involvement areas, though these areas of HR contributions about the
of key institutional leaders who communicate are secondary to the more fundamental so- marketplace for
capital, products,
the importance of the company being unified cial trend analysis. and services.
around winning the hearts, minds, and wallets These are agendas in which HR does not
of the marketplace; (3) ensuring that measure- traditionally have substantial expertise or re-
ment, rewards, training, and promotions rein- sponsibility; however, if HR professionals are
force the importance of customer focus; and to become strategically proactive, this type of
(4) designing organizational structures and expertise will be increasingly required.
physical settings that facilitate team work
around customer requirements. Summary
If HR is to play a more effective role in
linking internal capabilities with external This article has argued that HR can add
market realities, a third implication naturally greater value by holding itself to the standards
follows: HR professionals must be highly of being more strategic (as opposed to opera-
knowledgeable about the marketplace for tional) and more proactive (as opposed to
capital, products, and services. If HR is to lead reactive). As HR moves from operationally
350 • H UMAN RESOURCE MANAGEMENT, Winter 1999

reactive to strategically proactive, it moves management techniques and processes. Three


from a position of adding relatively less to agendas that help HR meet the criteria of
adding relatively more to a firm’s competitive strategically proactive include creating the
advantage. Specific HR agendas and activities corporate culture of innovation and creativ-
may be associated with each of these levels of ity, contributing to each phase of the merger
HR as competitive advantage. This article and acquisition processes, and leading the
focuses primarily on the strategically reactive effort to link internal capabilities to external
and strategically proactive HR roles. Among the market requirements. These are not meant to
strategically reactive arenas of HR involvement, be comprehensive lists of HR contributions
three stand out: linking HR tactics to specific in each of these areas of involvement, but they
business strategies and associated tactics, cre- are meant to be important examples of the
ating the culture that is necessary to execute ways in which HR can add greater value in
business strategies, and providing change creating competitive advantage.

DR. WAYNE BROCKBANK’S expertise focuses on the linkages between human resource
practices and business strategy, creating customer-focused organizational cultures, build-
ing competitive advantage through people, and competency development in human
resource professionals. He has published widely on these topics in Human Resource
Management, Harvard Business Review, Human Resource Planning, and Personnel Ad-
ministrator, and has contributed numerous book chapters. He has consulted with pri-
vate corporations on every continent. His clients have included Texas Instruments,
General Motors, Cathay Pacific Airways, Enron, Ford, General Electric, Unilever, Abbott
Laboratories, Citicorp, Xerox, Hewlett-Packard, and Perez Companc.
If HR Were Really Strategically Proactive • 351

Appendix

Corporate HR Information Sources

Abbott Laboratories ITT


Air Products and Chemicals Johnson Controls
Alcoa Johnson and Johnson
Allstate Kodak
American Express Levi Strauss
Arco Lucent Technologies
AT&T L’Oreal
Banco Rio (SA) Marketing Displays International
Bank of Boston Merck
Baxter International Michcon
Boeing Motorola
British Oxygen Norwest
Cathay Pacific Airways Perez Companc (SA)
Champion Paper Polaroid
Citicorp Quantum
Coca Cola Raytheon
Daewoo Royal Bank of Canada
DataCard Sears
Dow Chemical Sentara Healthcare System
Dow Corning Sheraton Inns
Edison Electric Singapore Air
Enron Singapore Civil Service
Exxon Smith Klein Beecham
Ford Steelcase
General Motors Techint (SA)
General Electric Texas Instruments
Godrej Group (India) The Timken Company
Harley Davidson Thompson Publishing
Herman Miller Unilever
Hewlett Packard University Hospitals of Cleveland
IBM Walt Disney Corporation
ICI (UK) Xerox
ICICI (India)
Intel
352 • H UMAN RESOURCE MANAGEMENT, Winter 1999

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ENDNOTES

1. Many insights about the “state-of-the-art” stem on (1) improving the organization as a whole
from my association with four esteemed col- rather than individuals or teams and (2) defin-
leagues: Dave Ulrich (University of Michigan); ing and creating the desired corporate culture
Steve Kerr (General Electric); Warren Wilhelm rather than merely enhancing short-term knowl-
(Global Consulting Alliance); and Dick Beatty edge and skills.
(University of Michigan). I thank them readily 3. In an informal survey conducted during the se-
and gladly. nior line and HR executive programs at the Uni-
2. Nearly all of the companies listed in the Appen- versity of Michigan, approximately 550 executives
dix focus on establishing the strategically focused indicated that culture and shared mindset were
culture as a key element of their HR strategy. more important to address as dominant business
Culture is discussed under multiple rubrics in- challenges than were technical knowledge skills.
cluding shared mindset, shared values, organi- The ratio of their relative importance was 3:1.
zation capability, human organization, and 4. This section is written from the buyer’s perspec-
organizational competitiveness. The underlying tive. The mirror image of much of this logic is
similarity of these concepts is that they all focus relevant for the seller.