Human resources (HR) is a vital function for any business, responsible for managing its most valuable asset: its employees. The HR department shapes the company culture, attracts and retains top talent, and ensures employment laws and regulations compliance.
Keep reading to discover how a well-designed HR strategy can help businesses achieve their goals and stay ahead of the curve in a rapidly changing business landscape.
Table of Contents
What Is an HR Strategy?
An HR strategy is a comprehensive plan that outlines how an organization will manage its human capital — the employees — to achieve its overall goals and objectives.
Think of an HR strategy as a roadmap the HR department follows while making decisions about talent and employee engagement, compensation and benefits, performance management, and other critical areas of HR.
A well-designed HR strategy aligns the company's workforce with its overall business strategy, ensuring that the right people with the necessary skills are in adequate positions to drive the company forward to success.
The HR strategy businesses follow can vary widely depending on the organization's size, industry, and specific goals. However, the strategy typically includes a set of measurable goals and key performance indicators (KPIs) to track progress and adjust the strategy as needed.
However, all human resources strategies have a common ultimate goal — to create a high-performing, engaged and diverse workforce that supports the organization's mission and drives its success.
Why Is an HR Strategy Important?
The importance of HR strategy is in the efficient use of human capital, which contributes to the more effective achievement of company goals.
By developing an HR strategy tailored to fit their unique needs, companies can:
- Improve communication and collaboration between employees and supervisors. A strong HR strategy can build positive relationships between employees and supervisors by enabling a stable work environment. Clearly communicated performance feedback and opportunities for professional development can improve employee morale and job satisfaction, which leads to higher retention rates and increased productivity.
- Accelerate the rollout of HR policies and procedures. Effective HR strategy can help businesses introduce HR initiatives, like employee training or benefit programs, so that companies can stay competitive in an ever-evolving and overcrowded market.
- Promote positive workplace culture that aligns with company values. A well-developed HR strategy can create a positive work environment that fosters teamwork and employee engagement.
- Encourage diversity and inclusivity. A diversity and inclusion-focused HR strategy can create a workplace culture that values all employees, regardless of their age, sex, or background, which can lead to improved teamwork, less conflict, and higher job satisfaction and engagement.
- Boost employee loyalty. A strong HR strategy is equally oriented on employee satisfaction and business goals. By providing opportunities for development and carrier growth, recognizing and appreciating employee achievements, and promoting a positive work-life balance, HR can retain up to 94% of employees. This way, businesses can lower recruitment costs and create a more stable workforce.
Types of Human Resources Strategies
There are two main types of human resources strategies.
- Business-oriented HR strategy focuses on the entire business, which is ideal for large companies with a clear hierarchy. This strategy outlines how employees should be managed and developed to help achieve the company's goals.
- Employee-oriented HR strategy focuses more on individual employees and different areas of HR, such as rewards, learning and development, and training. This approach aims to improve employee knowledge management to enhance performance and bridge skill gaps.
Since every company is different, your business goals should align with your HR strategy for the best results.
Eight Steps on How To Create a Human Resource Strategy
While there is no one-size-fits-all way to develop an HR strategy, the following are steps you should take or further refine based on your needs:
- Step #1: Understand the Company's Purpose and Goals
- Step #2: Review Existing Employees' Performance
- Step #3: Conduct a Comprehensive Analysis
- Step #4: Develop a Talent Acquisition Program
- Step #5: Encourage Employee Growth and Development
- Step #6: Improve the Employee Retention Rate
- Step #7: Prepare To Fill the Gaps
- Step #8: Analyze KPIs To Improve Your HR Strategy
Step #1: Understand the Company's Purpose and Goals
To create an effective HR strategy, you must thoroughly understand the business first — its strengths and shortcomings, previous initiatives, current market position, and future objectives.
Talk to colleagues from different departments to fully understand the company's position and examine the organization's products or services to learn how they answer consumers' pain points. This insight will help the HR department align its efforts with the organization's overall goals.
Step #2: Review Existing Employees' Performance
Evaluate the abilities and competencies of each employee in a company by reviewing their past job performance, educational qualifications, project history, and any continuing education they may have pursued.
By understanding the collective skill level of the workforce, you can make informed decisions about employee training and development programs. Also, you will more easily identify areas where you may need new talent.
Step #3: Conduct a Comprehensive Analysis
After evaluating employee skill sets, you should conduct a gap analysis to determine if employees have what they need to maximize their productivity or if you need to invest in additional resources.
This analysis improves productivity by helping the HR department create targeted training and development programs that can fill skill gaps and improve employee performance.
Step #4: Develop a Talent Acquisition Program
You must offer a hard-to-resist work environment and conditions to attract and retain the best employees. Provide reasonable compensation and benefits for their work and a stable and encouraging work environment that will keep them happy and satisfied.
By regularly checking these things, you can ensure your employees are happy and motivated to stay with the company for a long time.
Step #5: Encourage Employee Growth and Development
The crucial step of any successful HR strategy is encouraging existing employees' growth. As an HR professional, you must create a development plan for employees capable of handling new challenges or those with skills beyond their current job description. These employees can work on their skills and abilities and progress in their careers. This way, they will become even more valuable assets to the company.
Encouraging employees to develop their skills will increase satisfaction, motivation, and loyalty, as they will feel that their value is being recognized. Additionally, the company will also benefit from having a highly skilled and engaged workforce because they are the ones who improve productivity and quality of work and bring innovation to the team.
Step #6: Improve the Employee Retention Rate
To retain a high-quality workforce, you must understand why employees leave in the first place and take steps to prevent it. By identifying the root causes of employee turnover, you can develop effective strategies to address the underlying issues and improve retention rates.
Reasons why employees may leave the company include dissatisfaction with the work environment, lack of opportunities for growth and development, disappointing compensation and benefits, or poor management practices.
You must proactively identify, resolve and prevent these issues from driving talented employees away. You'll need to create a more positive work culture, foster community and teamwork, provide better training, or improve communication and feedback processes. Offering better compensation and benefits can also be an effective strategy for reducing employee turnover.
Step #7: Prepare To Fill the Gaps
Identify employees who can take over important roles if someone unexpectedly leaves due to retirement, resignation, or other reasons.
Create a plan that identifies potential candidates through performance evaluations, skills assessments, or other criteria. Once you identify them, provide them with the necessary training to prepare them for future roles.
By doing so, you can ensure that you have qualified and capable employees in critical positions rather than leaving them empty or giving them to unprepared individuals. This way, you will maintain business continuity, minimize disruptions and ensure the company is well-positioned to meet future challenges and opportunities.
Step #8: Analyze KPIs To Improve Your HR Strategy
The most important key performance indicators (KPIs) in HR are absenteeism rate, overtime hours, training costs, employee productivity, talent satisfaction, cost per hire, etc.
Gathering and analyzing this data allows you to discover trends and patterns and make smarter business decisions based on facts and numbers instead of intuition and assumption.
For example, if employee engagement levels are low, you can use data to identify the problem and develop strategies to improve engagement.
Four Examples of Human Resources Strategies
As previously said, HR strategies can be either business or employee oriented. We've selected two examples of each to demonstrate how they work in practice.
Business-Oriented HR Strategy Examples
1. Outsourcing HR
Companies typically have in-house HR staff, but another option can provide numerous benefits: outsourcing HR. Delegating HR responsibilities to some of the top HR consulting firms can free up your time to focus on other critical elements of your organization.
You can choose between several types of HR outsourcing, depending on your unique business needs: talent acquisition, benefits administration, employment law compliance, payroll, employee engagement, and performance management.
2. Community Outreach
When evaluating their employees' performance, businesses usually focus on their contribution inside the workplace, but HR should remember that life is much more than work duties. Companies can benefit from encouraging employees to engage in community outreach activities outside the workplace. These activities can build a positive reputation, engage employees and potentially increase profits in the long run.
Employee-Oriented HR Strategy Examples
3. Quality Over Quantity
Prioritizing quality over quantity is essential for building a successful company. Google is the perfect example of a company that values quality — they hire innovative people who can boost productivity and creativity and fairly reward them for good work.
Google also promotes a learning and knowledge-sharing culture; it supports work-life balance and provides free time for employees to foster creativity. This approach builds a loyal and productive workforce, contributing to Google's success.
If you need help finding qualified workers for your company, contact the top staffing agencies who will connect you with the best job applicants.
4. Pay-per-Performance Approach
Pay-per-performance (or merit pay) is ideal for businesses that contract freelancers. Instead of paying a fixed salary, workers receive payment and bonuses based on their work throughout the month. Employees can select their schedules and projects and are motivated to work harder and earn more.
HR Strategy: Conclusion
Your company needs an effective HR strategy to flourish in today's dynamic and highly competitive business world.
An adequate HR strategy should encourage a good workplace culture, improve communication and teamwork, and support diverse and inclusive practices and loyalty among employees. Overall, it should efficiently manage your human capital and make them unitedly work toward companies' goals.
Designing an HR strategy can be challenging since every company has unique needs. To create one, analyze your company’s strengths, weaknesses, opportunities, and threats (SWOT) and consider your long-term goals. If you find it too demanding, hire a professional employer organization (PEO) to handle your HR requirements.
One thing is for sure — if your company implements a well-designed HR strategy, it can attract and keep the best employees, achieve its objectives, and stay ahead of the competition.
HR Strategy FAQs
1. What is HR strategy?
HR strategy is an action plan designed to manage and optimize a company's workforce and align them with its goals and objectives.
2. What are the types of HR strategies?
HR strategies can be divided into two categories: overarching strategies that manage an organization's workforce entirely and specific strategies that focus on particular aspects of HR, such as recruitment or talent management.
3. How to develop an HR strategy?
The best way to develop an HR strategy is to conduct a SWOT analysis — evaluate the organization's strengths, weaknesses, opportunities, and threats. By doing so, you will set realistic goals and determine strategies for achieving them.
