Corporate Training Magazine

Transitioning HR from Transactional to Strategic
Vol 2 Issue 1- Jan 2006

By Ed Moretti

There is no doubt that having an effective HR strategy has a positive effect on an organization. The Global Human Capital Survey conducted by PriceWaterhouseCoopers in 2003 identified that "organizations that have a documented HR strategy have 35% higher revenue per employee and 12% lower absenteeism rates than those with no documented strategy". A similar study by Watson Wyatt in 2001 revealed numerous key links between human capital and shareholder value creation.

Despite this, the work being done today by a majority of human resource departments is still either totally or largely transactional in nature – hiring, pay, benefits administration, policies and process development. To some extent this is to be expected as HR practitioners in growing companies are first hired to take care of the people transactions. However, HR is playing a more strategic role in some organizations because the organization realizes that it can gain a key competitive advantage through its employees. Here, the HR role is to develop, improve and maintain organizational capability and is much different than a focus strictly on employee transactions.

Human resource consultant Dick Robinson affirmed, "When an organization wants to develop a performance culture where leadership and people development are key strategic goals, HR can play a key role in building and supporting the necessary infrastructure to align people and people practices with organizational goals. HR can help design and implement people practices and processes that are aligned with the organization's mission, vision and values, and are driven by desired business results. This helps get everyone on the same page and stay there. HR can then help build and strengthen organizational capability."

One of the most important factors is corporate culture. HR, on its own, cannot simply decide one day to take on a more strategic role. The organization must genuinely see people as being a key strategic advantage. A culture which values and wants to develop its human capital will insist on a strategic focus for HR. It is then a simple transition for the people practitioners that can move beyond the transactional.

Robinson believes there is no magic number in terms of company size or any specific industry where this new focus for HR is more prevalent. "While it is seen more in larger organizations, I have also met CEOs of companies with as few as ten employees with a clear vision of the importance of people and a desire to create the right culture. I have also worked in organizations with many thousands of employees that just don't get it.

"If there is an industry distinction, it is probably public sector versus private. Currently only a small percentage of public organizations operate with a genuine strategic focus on people capabilities. For the majority of public sector organizations there is simply no competitive advantage for them to do so. But there are a few, and over the coming years these may serve as role models that will bring the same strategic focus to HR as exists in the corporate sector."

One thing is clear: The process of transitioning HR to a strategic role starts at the top. Senior management must own and drive this. The executive and all levels below must believe in the people proposition and want to live that value.

"The transaction part will never go away; that piece still has to be done. But with the technology tools now available, the burden of the transactional component can be significantly reduced, providing a greater opportunity for HR to participate on a strategic capacity."