Updated: Sep 25, 2020
The Human Resources Ecosystems Framework uses 4 subsystems of alignment: strategy, workforce, capabilities, and culture. For international companies, HR strategies need to align both internally and externally.
Global competition and technological innovation require a complex approach to HR strategy. HR systems will differ across countries but must still be consistent within the organization. For example, what motivates employees in the United States might fall flat in China, but the general rewards systems for the entire organization must be coherent.
HR strategy is planning and executing practices to manage people in a complex, changing environment. The most effective strategies align both internally and externally. Why? When organizations are young or small, people issues are handled directly by founders or managers, but as the organization grows, decisions (and who makes them), become more complex. HR practices may begin to diverge from organizational objectives, causing the organization to get stuck or drift off course. Checking for both internal and external alignment gives us two important ways to calibrate HR effectiveness.
First, internal alignment means establishing HR policies and practices that are unified and mutually reinforcing. For example, if a firm wants people to collaborate on projects, it should hire collaborative employees and nourish a collaborative culture, rather than hiring solo flyers and trumpeting their individual achievements. Internal alignment eliminates noise in the system and avoids sending conflicting signals.
Second, external alignment recognizes that HR strategy will vary from one context to the next. A different country, a different incentive. Branches in the US may offer leisure to incentivize successful collaboration, but in China an annual bonus might get better results. Because the firm’s HR strategy is internally aligned (We encourage collaboration in how we hire, train and compensate), a skilled HR strategist can simultaneously plan the external alignment (trips or bonuses) to align with local conditions. By ignoring external alignment and not ensuring practices fit local preferences, the firm won’t get the results it hoped for and may end up in a ditch.
The concept of alignment is simple and powerful. It is like aligning the tires on your car to ensure that you are able to go where you want to go. However, as the complexity, size, and locations of organizations expand, we need to adjust the metaphor from aligned car tires moving in the same direction down a straight road to a differential driving system responding in real-time to challenging and unexpected road conditions. The automotive differential is designed to drive a pair of tires while allowing them to rotate at different speeds. When you are driving off-road to explore new areas and hit a mud patch on one side, sometimes the best way for your tires to align is for one to spin faster than the other. Because conditions are constantly changing, the tires must be able to sense when one is slipping and put more torque behind the one that is not.
Early scholars like Michael Beer at Harvard University paved the way by inventing the HR strategy “Model T” that pushed a stable business down a straight road. However, the emergence of complex businesses operating in wildly varied contexts requires differential steering mechanisms to drive organizations safely into new territories.
Off-roading into new territory is a source of rich experience and value, but can also be a big headache. Professor Scott Snell at the University of Virginia and Shad Morris at Brigham Young University have developed the “HR Ecosystem” framework to help firms successfully navigate a varied new ecosystem and steer their organizations using four subsystems of alignment: strategy, workforce, capabilities, and culture.
Strategy is about HOW people and resources are allocated to accomplish a firm’s objectives. HR strategy is a set of guiding principles that–when communicated and adopted–generate a desired decision-making pattern.
A simple strategy such as “Collaborate!” sounds nice, but the Law of Requisite Variety suggests that a strategy needs to reflect the complexity of its environment, or it won’t be able to respond to the diversity of problems and opportunities it faces.
Consider also the Law of Entropy: All systems are predisposed toward disarray and randomness, dissipating energy along the way. A system requires energy inputs to stay organized and aligned. Diversified companies like GE, Tata, or even Google are examples of companies that face the challenges of complexity and entropy. Their success in creating a unified portfolio of diverse businesses comes down to a complex strategy. Senior executives need HR managers to both support variation (grow the rich ecosystem), and to continually integrate that variation into their vision (re-align the tires.)
Workforce composition is the WHO of an organization. Working with people who are aligned with your goals differentiates high performing firms from their competitors. Today’s workforce extends even beyond the firm. Organizations rely not only on their own talent but on those from other firms to generate economic value. Work tends to be carried out in cross-boundary contexts of inter-organizational networks, and the upshot is that firms manage people they do not directly employ and employ people they do not manage. Still, HR can influence the alignment of everyone’s efforts.
Capabilities represent the WHAT of a company, what the company does in delivering its products and services to customers. Seen this way, the HR ecosystem is not just useful for implementing strategy, it is essential for catalyzing capabilities. Companies like Google, 3M, and Gore are widely recognized for their innovation and capability development. Their allocation of “free” or personal time to employees gives them the discretion to propose new ideas, seek others in the community with similar prospects, and the capacity to self-organize and explore new ideas and potential innovations. Google News, Gmail, and AdSense were ostensibly germinated from this capability of self-driven innovation.
Culture conveys the WHY of an organization—why the organization exists. A strong workplace culture established by leaders and members steers workers toward a shared goal, whether it aligns with the strategy of the firm or not. As organizations grow their culture can fragment into subcultures. For example, members of the Chinese division of Microsoft often feel isolated from their counterparts in Redmond, Washington, reporting very little trust or shared belief about the purpose of Microsoft in China vs. in America. Such culture segmentations can be good for helping the China team adapt and develop products for the local market, but aligning their products across countries becomes much more difficult as a result.
By continually aligning these four subsystems, organizations seek not to simply homogenize the organization, but rather to harmonize complementary assets to capture the richness of variety while preserving the integrity of the whole. In our metaphor, they seek to drive their organizational vehicle into new and challenging territory while keeping the wheels turning at their optimal speeds–responding to local conditions–and reach new and valuable destinations.
Many of the Fortune 500 companies are steering their diverse conglomerates into new territories and terrains. A senior HR executive at Royal Dutch Shell pointed out to us that part of the difficulty (and advantage) they recognize is the tension of managing multiple strategic objectives, cultural norms, unit-level capabilities, and workforce compositions across the globally distributed organization.
Bob Calamai, an HR executive from IBM, pointed out that part of his challenge was to manage the rapid changes and complexities in strategies within the company while also dealing with shifts and complexities in internal culture and workforce composition. He felt that a key to HR strategy at IBM was to get people to constantly adapt what they were doing while also trying to integrate and solidify the new practices into existing operations.
So when your organization is ready to leave the safe, straight road of the known and head into the rich and challenging jungle of the possible, be sure to pay attention to your alignment, and engage the differential when necessary.