Differentiated HR: The New Strategic Imperative

By Ian J. Cook, CHRP

Mickey Mouse is the super star of Disneyland, right? Yes, if you are a guest and visitor, but not if you are running the HR function. At Disney, they actually invest more time and resource in hiring, integrating and supporting the people who keep their parks clean than they do the people in the Mickey Mouse suits.

Why? They do this because relative to their strategy the role of sweeper has greater potential to make a significant contribution to organizational success than Mickey does.

This is worth saying twice. Mickey Mouse is important. His performance is important. However, there is relatively little difference between someone who wears the suit well and someone who wears it poorly. The sweeper role is different. It takes a kind of magic.

Disney is all about the magic. An impeccably clean environment sets the stage and maintains the entire experience. Mickey handles the photo ops; just about everything else is fielded by the sweepers and the questions come from all angles and ages. Moreover, there is a big difference between those who perform the role well and those who do not.

Who makes or breaks your organizations “magical experience”? Where should you invest your time and energy?

A New Norm for Tough Times

Disney’s approach is a strong example of a completely new way of thinking about HR strategy. Conceptually, this strategic approach is called Differentiated HR. In this scenario, HR invests its resources on a differential basis relative to a position’s potential to deliver value to the organization. Those roles or areas with higher potential to make a difference to the organization’s strategy receive more focus and utilizes different practices or processes designed to optimize their contribution.

This approach runs counter to the tradition of treating everyone the same based on level or title. It requires looking at all HR investments and initiatives through a different lens: one focused on maximizing the return through targeted and effective use of time, talent and dollars.

For those organizations looking to thrive in our tougher business world and who compete predominantly based on knowledge work differentiated HR will become the new norm. Two undeniable factors back this up.

Data and Demands Drive Differentiated Future

The first factor is the growing body of research and data which quantifies and identifies exactly how people contribute to organizational success. The cliché that people are our most important asset now has a significant body of evidence to support it.

However, this research has also made it clear that some people and, more importantly,  some ‘roles’ have more to contribute than others. As a result, business leaders and boards are beginning to understand and pay attention to how the organization’s “Human Capital” is being managed. Some are even starting to report on how effectively the talent in the organization is being sourced, deployed and developed.

This leads to the second undeniable factor. The pressure is on for HR to deliver on the promise of human potential in the workplace. Expectations have been raised and organizations can no longer solve their challenges by simply hiring more people. Put simply, HR is being called upon to silence its “cannot deliver” critics and provide confidence to business leaders that its valuable ‘human capital’ is being engaged, deployed and refreshed to maximum effect.

A Challenge to Tradition

In short, HR is being challenged to deliver more with less and the squeeze is tight. The only way to ensure that people practices and investments are optimized for organizational success is to focus on the areas of highest gain whilst maintaining the other elements of your HR function at an appropriate level. In other words, keep Mickey engaged, but target the sweepers.

Some organizations have been operating this way for some time. For others, this is a new concept and challenges some of the traditional ways in which HR has been both practiced and perceived. In many instances, the driving concept behind HR is that we need to treat people fairly and that this means treating them equally. Differentiated HR maintains the need to treat people fairly and draws a line of distinction between fair and equal.

The more traditional view of HR needs to change if we are to meet the expectations of business leaders and deliver on the promise of our people. The recent “Great Recession” has only accelerated the impetus and increased the urgency.

How Differentiation Impacts the Talent Cycle

What will a move to Differentiated HR mean in practice? If we look at recruitment, the start of the talent cycle, there are some clear differences in how hiring can be done. For roles that have been identified as critical or high value to the organization, it will be important to invest in the best possible hiring process.
This means potentially sacrificing time and money to ensure the quality of key hires. Instead of setting blanket goals for time to fill and costs per external hire, organizations will focus more on maintaining a high quality of recruit specifically for those roles that make the most difference.

To afford this, an organization’s core hiring process needs to be as lean and effective as possible. The challenge of differentiated HR is not just to introduce higher quality processes for key roles, but to do this in such a way that it does not increase the overall cost of HR to the organization – hence the need to refine or reduce costs in some areas in order to invest more in higher value areas.

This is not an impossible mission, merely one requiring HR to work smarter with the technologies and processes at their disposal. Advances in technology have generated a wider range of more affordable services. How these tools can save time and money in the broader hiring and retention context requires exploration.

Hallmarks of Differentiated HR

This differentiation then carries through the talent management cycle with more attention and resources being put against onboarding, performance assessment and development of key roles. Organizations that have adopted this approach undertake practices that include:

  • ensuring the CEO is part of the onboarding process for all key roles;
  • providing 50% more initial training hours to people going into key roles;
  • increasing the training and support for performance assessment to the people who manage those in key roles;
  • instituting “fast fail” processes which involve the achievement of high levels of performance in a short space of time in order to successfully complete the probationary period; and
  • commonly, a compensation structure that offers a market leading total rewards opportunity for key roles and maintains market average for all others.
  • Assessing the Role-Not the Person

HR is undeniably grounded in people. The key to differentiating your HR practice is revising your perspective of the roles they play. Rather than focus on high potential people, this model of HR looks to source, engage and enhance the contribution of people in high value roles. These are the roles within the organization that have a key impact upon its strategic goals.

Differentiation systematically re-aligns the HR processes for optimal success, filling key roles with the best possible people and investing in their ongoing performance.

Beyond the Concept Into Practice

Getting started with differentiated HR practices naturally requires that these key roles be identified. The decision can be made by asking six basic questions:

  1. Are the capabilities required by this role critical to our strategy?
  2. Does this role have the potential to generate unlimited value?
  3. What is the cost of mistakes by people in this role?
  4. How large is the performance gap between the highest and lowest performers in this role?
  5. Would improved performance in this role improve overall organizational outcomes?
  6. Is it difficult to hire and retain good people for this role?

Your goal is not to create lots of key roles, but to determine the fewest possible. For example, a local financial institution identified customer service representative as a key role since they interact directly with customers. A local retail chain has identified store manager as a key role based on their goals for growth via customer loyalty.

The step that follows is to review your core HR practices and determine which ones to alter and how to get the right results in the right roles with the optimal level of resourcing.

A Bold and Differentiated HR Future

There is no one set of prescribed practices which mean you have differentiated your HR function. The advantage of this approach is that you differentiate relative to your organization, your market, your strategy and your competitive position It is entirely possible for two competitor organizations to have separate approaches to differentiation and be successful.

This is because they are competing using a different strategy and most importantly they have aligned their HR approach and deployed their HR resources to optimize the achievement of that strategy. This takes careful analysis, debate, design and action.

The key to success with differentiated HR is not to follow the herd, but to carve a distinct path and create uniquely powerful HR practices.

(PeopleTalk: Summer 2010)

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