Is Your HR Strategically Aligned With Your Business Interests?

What is strategic HR?

The idea of strategic HR is a relatively recent invention in the world of business. It dates back to 1984 with the publication of Strategic Human Resource Management by Charles Fombrun, Noel Tichy, and Mary Anne Devanna. A historical overview of the concept of strategic HR neatly summarized their definition as:

“A process through which the basic mission and objectives of the organization are set, and a process through which the organization uses its resources to achieve its objectives. But their most important conclusion was that ‘HR systems and organizational structure should be managed in a way which is congruent with organizational strategy.’”

This kind of approach to the HR function diverges from what is often called “transactional HR.” Transactional HR is instead more focused on day-to-day administrative tasks associated with workforce management, like payroll and labor law compliance.

What differentiates transactional HR from strategic HR?

At heart, transactional HR is process- and administrative-oriented. This is important! Payroll, benefits administration, and similar functions are critical for organizations to build and maintain successful workforces.

But this transactional understanding of HR’s role is also distinct from strategic HR, which is more planning-oriented and forward-looking. Strategic HR also tends to incorporate some of the more recent trends and innovations in HR. Ideas like “employee experience” and “design thinking” are fundamentally about strategy.

Importantly, transactional HR is traditionally viewed as a cost center, while strategic HR is a value generator; and how HR is seen can impact HR’s reputation and role throughout an organization.

Companies that see HR as a cost center, for example, may be more likely to have their HR team report to the Chief Financial Officer rather than the CEO, but this can divorce HR from the strategy side of the business. Whether an organization sees HR as more transactional or more can influence both how HR approaches problem-solving and how successful it is at facilitating the organization’s larger strategy.

Consider a diversity initiative. 

Any company can just set a target to hire more people from diverse populations, which a transactional approach to hiring can achieve.

That may not solve underlying problems, however. What if you can’t keep those hires? What if they end up subject to harassment or discrimination? What if just making the new hires doesn’t deliver the expected secondary benefits because they’re constantly sidelined or ignored? It takes more strategy to build a workforce that is not only diverse but is primed to leverage that diversity for the creativity and productivity it can produce. That’s the difference between transactional and strategic HR in application.

CoAdvantage, one of the nation’s largest Professional Employer Organizations (PEOs), helps small to mid-sized companies with HR administration, benefits, payroll, and compliance. To learn more about CoAdvantage’s ability to create a strategic HR function in your business that drives business growth potential, contact us today.