Is Your HR Function Strategic? – Take This Quick Assessment Test

Every HR function strives “to be strategic.” To actually qualify, I’ve found that all HR leaders need to be able to answer these 6 qualifying “Questions From Hell,” with the same consistent answers. Also, realize that simply having a goal of being strategic or stating that your function is strategic doesn’t make it so. The overuse of the word “strategic” is probably the best indicator that your function is not actually strategic. 

The Elements Of A Truly Strategic Function 

Start your assessment by realizing that most overhead and administrative functions do not normally qualify as being strategic. Next, understand that it’s corporate executives (and not functional leaders) that determine which business functions within their company are actually strategic. Normally, they make that strategic determination based on whether a function can prove that it has a large direct and measurable dollar business impact. They also expect the function to provide a competitive advantage in each of the three primary strategic business impact areas. These are impacts on 1) corporate long-term strategic objectives, 2) current and emerging corporate critical success factors and 3) current and emerging business (and not HR) problems. 

Questions From Hell – Revealing Whether Your HR Function Is Really Strategic

You can determine if your HR function is strategic by answering these 6 questions with data and facts, and not with guesses or opinions. They are called “Questions From Hell” because most HR leaders, unfortunately, struggle to answer them. The best answers to these questions can be found in the last section of this article.

1. What is the one single measure that best assesses the overall strategic impact of HR? Also, where is that impact metric reported and what percentage did it improve over the last year? 

2. What was the total dollar impact that HR had on corporate objectives, critical success factors, and business problems? Also, where is that dollar impact documented and reported to senior executives?

3. Which specific HR sub-function has the highest impact on corporate revenue and profitability? (i.e. comp., recruiting, retention, benefits, etc.). Also, did that high impact sub-function receive the highest percentage of your overall HR budget? 

4. Who is the primary customer of your organization’s HR function? Also, where is that documented so that all know? 

5. How does your HR department prove that it provides a continuing competitive advantage over your chief competitors? Also, where is that HR program by program competitive advantage documented and reported to senior executives?

6. What is the name of your HR strategy? If you were to survey 10 senior corporate managers, what percentage would actually know the name of your HR strategy?

Strategic Answers To The 6 Questions From Hell

Strategic answers to these strategic questions generally include these elements.

1. What is the one best single measure of HR’s impact? Start by realizing that not agreeing on the most important single measure is a problem in itself. HR’s primary success measure should be its improvement in workforce productivity over the last year. Workforce productivity is the ratio between total employee-related costs and the value of the outputs produced by your employees. It is the primary success measure because everything in HR directly relates to managing the workforce by minimizing its costs and increasing its output. Alternatively, when comparing HR productivity impacts between competitor companies in the same industry, the average revenue per employee in dollars is the comparison number that is most commonly used (it can be found on MarketWatch.com) 

2. What was the total dollar impact of HR on corporate objectives, critical success factors, and business problems? Unfortunately, even though it might have one of the highest impacts of all business functions. Seldom does an HR function work with the CFO to calculate and report its actual dollar impact. Even though the best-funded functions like marketing, finance, and supply chain always calculate and report their impacts in dollars. To be strategic, HR must have a direct and credible measurable impact on corporate objectives like revenue. HR can impact revenue for example by hiring, developing, and retaining better performing employees that work in revenue-generating positions. HR can also directly impact critical success factors like innovation, by designing jobs, incentives, and a work environment that directly increases innovation. HR can also directly help to resolve major corporate problems like low customer satisfaction, by hiring, retaining, and training better performing customer service reps. 

3. Which specific HR sub-function has the highest impact on corporate revenue and profitability? Research by BCG revealed that recruiting has the highest impact on corporate revenue and profit margins. These are often the two success measures that executives care the most about. Prioritizing its high impact sub-functions allows HR to prioritize and focus its resources to maximize its overall business impacts. Unfortunately, budgeting doesn’t usually match an HR program’s impact. For example, even though retention has the #2 highest business impacts, it is often budgeted near the bottom of all HR programs.

4. Who is HR’s #1 primary customer? HR’s primary customers are the senior executives that make strategic decisions. Unfortunately, it’s quite common for most within HR not to agree on your primary customer and their needs. And that confusion frequently leads to a lot of waste and misdirection. Frequently, many make an error by HR’s primary customers to be employees, managers, or external customers. However, corporate executives are the primary customers because they set corporate priorities and they are responsible for HR’s funding levels (a customer gives you money). 

5. How does your HR department prove that it provides a continuing competitive advantage? Most HR functions don’t provide a competitive advantage. And even if they actually do, most HR departments make no attempt to assess and prove that they provide their firm with a competitive advantage in the people management area. Critical competitive advantage key areas include workforce productivity, recruiting, retention, labor costs, and innovation. HR needs to periodically track and provide a side-by-side comparison of its programs and results against those of your firm’s primary competitors. 

6. What is the name of your HR strategy? Knowing the self-descriptive name of your HR strategy and those that are also used by the top firms in your industry, is the first step in having a strategic HR plan. It’s important to note that although it may seem like an easy task, most stumble with their response. Most HR functions don’t even assign a specific self-descriptive name to their overall HR strategic approach. Unfortunately, not knowing the name is only the tip of the iceberg. Most HR functions don’t have a supporting written strategic plan in document form. A written plan is essential to provide the details necessary to execute the plan. And of course, if everyone can’t from memory repeat at least the name of your HR strategy and its top three goals, there is literally no chance that your function is strategic.

Final Thoughts

I hope that you have found these “questions” stimulating. Those from the most strategic HR functions will be able to answer each of them with data and facts. But since most HR functions are not really strategic, don’t feel bad if you can only provide guesses and opinions. However, I suggest that you use these Questions From Hell to stimulate an internal discussion toning down the rhetoric or actually becoming more strategic. I find that it’s especially important during these turbulent times where budget cuts are common, to be more precise in assessing your actual strategic level and impact. Use that assessment to both become more strategic and to make executives more aware of your tremendous strategic impact. Incidentally, if you want to assess if you, as an individual HR professional, are being strategic, you can find that answer in my article How can I tell if I am being strategic?

Author’s Note: Please pass this article on to your team and network if it stimulated your thinking and provided actionable tips. Also, take a minute to follow and/or connect with Dr. Sullivan on LinkedIn and subscribe to his Talent Newsletter. 

Dr. Sullivan is interested in your questions and any additions you would make to this article.  He can be reached at [email protected]