In the earliest days of a small business or startup, human resources is often an afterthought. Founders or owners often handle hiring themselves. Sometimes they even handle payroll themselves! Certainly, any talk of an “HR strategy” feels abstract at best.
But as an organization grows, whether it’s from a handful of employees to a few dozen, or dozens to hundreds, HR’s role must evolve in lockstep.
This evolution isn’t just about compliance with employment laws, payroll processing, or organizing files. It’s about maturing through a stage-by-stage transition from administrative to tactical to strategic HR.
In this context, HR strategy is about aligning people, processes, and culture to fuel growth. Rather than functioning solely as a cost-center, HR itself transforms into a business driver.
Yet, many companies remain stuck in a reactive, administrative-only HR model. In fact, fewer than half (44%) of HR executives agree that their organization’s current HR strategy proactively anticipates future business needs or prioritizes long-term growth, according to the Society for Human Resource Management (SHRM).
On the other hand, that gap represents an extraordinary opportunity: when HR planning moves beyond administration, it becomes one of the most powerful levers a business can pull. “Having a clearly defined HR strategy is essential for aligning your HR activities with your organization’s overall goals to enhance employee performance and drive business success,” writes SHRM.
The High Cost of Misalignment
One of the biggest risks for growing companies is when HR drifts out of alignment with business strategy. This drift is common, perhaps even inevitable, as companies scale. What worked when the founder personally screened every resume and trained each new hire quickly becomes unworkable. Layers of management appear. Communication channels multiply. Silos form.
That may be why fewer than half (44%) of non-HR executives, and even fewer (31%) of HR executives, believe HR strategy is “completely aligned” with organizations.
That perception gap has consequences. When HR planning isn’t integrated with strategic objectives, growth stalls in subtle ways. Roles go unfilled for months. High performers exit because they don’t see a future. Training and employee development get postponed. The organization becomes reactive, fighting fires rather than lighting the way forward.
Indeed, only 11% of companies have achieved a truly strategic level of HR sophistication, according to the Josh Bersin Company. Yet the benefits of doing so are extraordinary. These organizations are twice as likely to exceed financial targets, twelve times more likely to achieve high workforce productivity, and seven times more likely to adapt to change.
In other words, strategic HR isn’t just “nice to have.” It’s a genuine competitive differentiator that separates the wheat from the chaff as businesses grow. And when most businesses are still mired in reactive operations, the chance to lead the field is wide open.
Understanding What Holds HR Back
Before an organization can transition to a more strategic HR model, it has to confront the barriers that keep HR in a tactical box. The SHRM survey identified the two most common obstacles: resource constraints (cited by 55% of HR executives) and competing business priorities (50%)
It’s easy to see how these pressures add up. A fast-growing business might struggle to allocate budget to new HR initiatives when it’s grappling with product development, customer acquisition, or expanding facilities. But sidelining HR strategy comes at a cost that’s often paid in employee turnover, stalled innovation, and missed growth targets.
A perspective shift—seeing HR not as a service provider but as a strategic partner—marks the first step toward transformation.
What Strategic HR Really Looks Like
Moving from a tactical HR model to a strategic one isn’t an overnight process. But it starts by reimagining HR’s purpose. Strategic HR is built on the premise that every HR function, from recruiting to performance management, should enable business growth.
Here’s how that plays out in practice:
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Building stronger talent pipelines: Strategic HR planning doesn’t wait for a vacancy to post a job ad. It involves proactively identifying and nurturing future talent, whether through internships, networking, or succession planning. When a role opens, the organization has a warm bench ready rather than starting from zero.
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Boosting employee retention through development: A tactical approach to retention might rely on compensation adjustments or perks. A strategic approach goes deeper: creating clear paths for employee development, offering coaching and mentoring, and investing in learning opportunities that build skills aligned with future business needs.
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Scaling faster with proactive workforce planning: When growth surges, a strategic HR function can quickly identify where talent gaps will appear and then develop plans to fill them. That may include reskilling existing staff, hiring contractors, or partnering with external providers to bridge short-term needs.
Action Steps: From Transactional to Strategic
If your HR function still feels like a transactional engine, one focused on payroll and paperwork, it’s time to reimagine what’s possible. Here are practical steps to begin the transition:
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See HR as a strategic partner, not a cost center.
“It simply requires the alignment of every HR function with business strategy,” write researchers in the journal Strategic HR Review. “It establishes the relationship between HRM [Human Resource Management] and strategic management of the organization and facilitates HRM to change its image as a ‘cost center’ to that of a ‘strategic business partner.’”
This mental shift must happen at every leadership level, from the C-suite to frontline managers.
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Make collaboration with leadership bidirectional.
Too often, HR teams are briefed on decisions after the fact rather than engaged early. Encourage HR leaders to sit at the strategy table. Likewise, make sure HR shares insights (like turnover trends or engagement data) that can inform broader business decisions.
This two-way dialogue ensures HR strategy isn’t developed in isolation.
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Keep HR business-centric.
HR leaders should cultivate a deep understanding of how the business operates. That means tracking the same metrics other departments care about (revenue per employee, time-to-productivity, customer satisfaction) and connecting the dots between HR planning and business performance. Enderes suggests cross-functional exposure as a starting point: “Think about yourself as working on a project that helps you understand different parts of the organization a little better.”
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Make the business case for investment in HR.
Following directly from the previous point, a recurring obstacle to strategic HR is ROI; how can a growing firm dedicate valuable budget to a department that doesn’t generate revenue? When HR leaders can demonstrate how employee development fuels revenue growth and profitability, the conversation shifts from “nice to have” to “essential.”
Right now, there’s a huge gap in perception: only 27% of C-suite executives see HR programs as impacting revenue growth, compared to 83% of HR leaders. It’s incumbent on the HR function to make their case.
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Get help when needed.
Don’t underestimate the value of outsourcing for strategy to a Professional Employer Organization (PEO) that is expert in all matters HR. This is especially true if your organization lacks its own dedicated, fully resourced HR department.
Vinay Couto of consultancy PwC notes, “In those situations, it’s even more important for HR to step into the void.” A strategic outsourcing partner can deliver capabilities like advanced HR technology, compliance expertise, and workforce analytics that would otherwise be out of reach.
Why Now Is the Time to Transform
The good news? You don’t have to get everything right all at once. What matters is committing to the mindset that HR strategy is a growth driver, not a back-office function.
When HR strategy becomes part of the fabric of your business, you unlock the potential to scale faster, retain your best people, and build a culture that fuels long-term success.
For help building a strategic HR function at your own organization, CoAdvantage can help. With CoAdvantage, you unlock scalability, talent development, and business alignment with a long-term growth partner.
**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances. Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.