First, let me say welcome back and thanks again for the opportunity in this column to talk with you about all things HR. I hope you had a very successful quarter since the last article. Let’s jump in.

HR Business Partner

In our last column, we started talking about the often requested subject of ‘HR as Business Partner.’ What is it? How do we become business partners? Let’s take the next step in this subject. Let’s talk about the foundation of business partnership – understanding business strategy.

It is my belief that understanding business strategy makes the daily work of HR so much more meaningful. It is business strategy that provides context to our functional duties such as staffing, training, compensation, performance management systems, developing the next generation of leaders, and so on.

Somewhat surprisingly, there are only four general business strategies. Organizations will try to focus on only one strategy for the long-term, as it takes years to implement strategy by aligning all the organizational bits and pieces. Also, maintaining long-term strategic focus is important so that the marketplace will come to know the organization by its strategy.

The four strategies are: 1) low-cost leadership, 2) innovation, 3) customer intimacy, and 4) systems lock-in. Let’s explain each one, and then try to connect it to the idea of HR as a business partner.Low-cost leadership is pretty easy to understand but difficult to do. It’s the strategy of ‘whoever has the lowest price, wins!’ Usually, low-cost leaders are selling very standardized products (e.g., computers) or commodities (wheat, cement, tires, etc.). They tend to use very standardized production processes and focus on operational excellence (eliminating operational waste and error). For example, Dell is a famous low price leader that sells standardized computers at a low price.

Innovation is about bringing new ideas and solutions to the marketplace. This strategy requires a lot of tolerance for creativity and non-standardized processes. Customers who value innovation often want a high-degree of customization, interesting design, and brand-image. Apple is a famous brand that sells innovative products. It is more expensive to produce innovative products, but the profit margin can be higher because customers are willing to pay extra for the features and performance they desire.

Customer intimacy is a strategy that requires the organization to have a deep knowledge of its customers and to use that knowledge in unique ways that create value for the customer. Google is an example of a business using its knowledge of customers for business success. Google is not really in the business of search. It is in the business of advertising. Search is just one tool used by Google to understand its customers’ interests. Google gains an understanding of its customers by observing which web content attracts the interests of customers, and then presents to the customer advertisements that should match their interests. If you do a search on Google and see advertisements for, say, buying a new car it is probably because Google saw you reading articles about cars.

Systems lock-in is a strategy used by, for example, Microsoft. This strategy requires a degree of built in customer loyalty, such as when the customer makes his initial investment in the Microsoft operating system, the customer will likely stay with Microsoft forever. The customer is locked-in to the Microsoft OS because the customer wants the benefit of the inter-operability of the system. Inside the Microsoft OS, the customer can use spreadsheets, word processors, databases, desktop publishing, and much more. The Microsoft customer is very unlikely to want to spend the money and suffer the inconvenience of switching to, say, Apple or Linux OS. Makers of document printers do the same thing by selling you an inexpensive printer which requires you to repeatedly buy proprietary ink cartridges (which have a higher profit margin). Printer companies are actually in the ink business, not the printer business.

To implement a strategy, the organization must find the right balance of product and service attributes that create value for their customers in terms of cost, timeliness (how quickly the customer can get the product – days/weeks/months), product features (what the product can or cannot do), quality, delivery/installation, and longer-term relationship support.

For example, Apple’s iPod customers are willing to pay more for cool design features and high quality. Customers who just want cheap MP3 players can save a lot of money by buying some no-brand player on the street corner. Organizations that spend millions to buy Enterprise Resource Planning software (ERP system) care a great deal about how that software is installed and they want strong relationship support to make sure the software works, is maintained and updated regularly.

Now that we have the four basic strategies in mind, let’s break-down the innovation strategy to see how it connects to HR work. Any of these four strategies can be decomposed to more detailed activities which HR can work to support.

To manage innovation, the organization needs to be good at certain activities such as 1) anticipating customer needs, 2) extending existing products to new applications, 3) discovering new opportunities in the marketplace, 4) managing the total mix of products being offered and, 5) reducing new product development cycle times and costs. You want to reduce cycle times so you get your new products to market before the competition does.

So which positions in your organization have the most impact on new product development cycle times? If you are a software development organization, your new product process involves activities such as 1) gathering customer requirements, 2) designing specifications to meet requirements, 3) writing program code, 4) testing code and, 5) releasing stable code to customers. Each of these steps requires the right people in the right positions to do the work. Great programmers, for example, write much more code (efficiency) with far fewer mistakes (effectiveness) than average programmers. In fact, great programmers can write up to 25 times more code than an average programmer.

HR can contribute to the innovation business strategy by reducing new product development cycle time. How? By hiring, developing and retaining great programmers who write fast and write without mistakes. Strategic HR measurements would focus on how fast HR can hire great programmers, but also measure how many great programmers stay with the company for the long-term. Training programs should be measured on how many average programmers become great programmers and how long the training cycle lasts. Compensation should be designed to motivate and retain great programmers.

Ok, so now you know a little bit more about how to break-down business strategy to a detailed level which HR can affect. This is how HR becomes a business partner. Next issue, we’ll elaborate.

Leadership Development

Since a lot of HR professionals have so many questions about developing leaders, I want to start a dialog with you about this subject, which we can expand in future columns. Let’s talk about some best practices for leadership development.

There are four processes to keep in mind to support a leadership development program:

• designing an infra-structure
• identifying talent
• tailoring individual development plans
• selecting candidates for vacant leadership positions

Infra-structure is about creating the conditions necessary for leadership programs. It involves the design of the process, how the leadership program is connected to other management processes (such as implementing the business strategy), deciding who owns and acts as champion of the process (owned by HR or by business leaders?), and the roles and responsibilities of key stakeholders.Talent identification requires developing processes for understanding leadership competencies and leadership performance in a variety of business situations. Your organization will need to focus on different competencies depending on whether you are just starting-up the business, trying to turn-around a failing business, going through accelerated growth, trying to re-align a successful business that has lost its focus, or just trying to maintain a currently-healthy business.

It can take 10 to 20 years to develop a top level manager, but organizations in China need to do it in 7 years – there just are not enough qualified leaders. That means that challenging on-the-job experiences must be organized and tailored to fit the learning needs of each leader-in-development. These job challenges must generate crucial learning where the leader must actually do something. It is simply not the same quality of learning to be exposed to customers as it is to actually have to deal directly with an irate customer who has just taken his business elsewhere.

Selection of candidates requires the organization have the knowledge and insight needed to make rapid decisions. The selection process must take into account the strengths and weaknesses of the organization, the short- and long-term needs of the business, the capabilities of the internal candidates, and the need to develop the overall capability of the entire leadership team. Selecting a specific candidate for promotion to leadership requires considering the good of the whole leadership team, not just the qualifications of the specific candidate.

Of course, if an organization does not view leadership as a key source of competitive advantage, or does not believe leadership can be learned, it is unlikely to produce a meaningful leadership development system. But beware. Failure to develop leaders is a certain way to give an advantage to your competitors.More, next time!