HR Metrics and Strategy

The idea that an organization's people represent a key strategic resource is widely accepted. The business press is filled with examples of top executives proclaiming how important it is to engage people's minds and spirits in the quest for competitive advantage There is also mounting scientific evidence that certain "bundles" of "high-performance" work practices (e.g., performance-contingent pay, team-based work structures, selective recruitment and hiring, extensive training, etc.) are associated with higher organizational financial performance (Becker & Huselid, forthcoming; Virtually every currently-popular business model emphasizes the key role of people in organizational success. Tracey & Weirsema (1997) suggest that organizations excel by becoming excellent at one or two of three basic strategies: Operational Excellence, Product Leadership, or Customer Intimacy. They note that each approach implies different organizational and human design factors: "the product leader thrives on ad hoc and fluid structure to foster invention and allow resources to be redeployed quickly. Operationally excellent companies, on the other hand, do best with the major brain-trust at central locations where standard operating procedures get refined and decisions are made about acquiring and using capital-intensive assets. A natural organizational structure for the customer-intimate company is to move more of the decision-making responsibility out to the boundaries of the organization, closer to the customer" (p. 44) In their book, each market discipline includes elements of "culture" "organization," and "management systems" that embody human attributes such as "discipline" and "desire to win." Kaplan & Norton (1996) have honed their "balanced scorecard" concept of Learning/Growth to note that employee learning and growth must be clearly linked and measured consistently with the organization's key strategic approach to success. They propose that a measurement system should embody a "theory of the firm," with measures serving as ongoing tests of that theory, and indicators to show when the theory or the HR Metrics and Strategy WP 97-21 Page 2 outcomes need to change. Similarly, Reichheld (1996) notes that the "Loyalty Effect" rests on creating loyal employees who engender loyalty among customers, customer retention and more rapid growth than competitors, which in turn leads to loyal shareholders, willing to provide capital for the long run. Clearly, human resources are widely recognized as fundamental to organizational strategy, and human resource strategy is seen as a key and leading determinant of organizational success, similar to capital, land, marketing, finance and operational investments. Yet, it remains rare to find organizations whose human resource investments …