Wayne Brockbank
Current business conditions mandate greater competitive advantage from HR agendas and
processes. To add greater competitive advantage, HR must contribute strategic value against
criteria from customer and capital markets. HR can add strategic value either reactively or
proactively. In its strategically reactive mode, HR assumes the existence of a business strategy
and adds value by linking HR practices to the business strategy and by managing change. In
its strategically proactive mode, HR creates competitive advantage by creating cultures of
creativity and innovation, by facilitating mergers and acquisitions, and by linking internal
processes and structures with ongoing changes in the marketplace. This article defines and
describes these specific practices through which HR can contribute to greater competitive
advantage. © 1999 John Wiley & Sons, Inc.
Human Resource Management, Winter 1999, Vol. 38, No. 4, Pp. 337–352
© 1999 John Wiley & Sons, Inc. CCC 0090-4848/99/040337-16
338 • H UMAN RESOURCE MANAGEMENT, Winter 1999
important. This is especially true given that must be done but are not critical to
65% of mergers and acquisitions fail to achieve financial and market success?
their stated goals (Krallinger, 1997).
In the last three or four years, the field has
Competitive Advantage: begun to use the term “proactive” as a criterion
From the Past to the Future for HR success. Two issues may cloud the use
of this concept. First, “proactive” is one of those
The human resource management field has words that is often a “feel good” word rather
responded to these conditions by conceptual- than one that actually describes what people
izing and implementing higher value-added do. For example, it is easy to agree on the
HR agendas. This section provides a general importance of being proactive, but being pro-
framework for analyzing current HR trends. active in “strategic” ways leads to very different
It then extends the logic of the framework to activities than being proactive in ”operational”
While there are
assess the emerging generation of value-added ways. Second, as “proactive” has become popu- times to be
HR agendas. lar, “reactive” has become less popular. While proactive, there
The distinction between the operational there are times to be proactive, there are clearly are clearly times
and strategic levels of HR has received con- times to be reactive. Being quickly reactive to be reactive.
siderable attention in the literature against strategic criteria can often create
(Brockbank, Ulrich, & James, 1997; Ulrich, substantial competitive advantage.
1997a). Operational HR activities generally Combining these two dimensions yields a
refer to the routine, day-to-day delivery of HR framework around which the HR field may
basics. The strategic level of HR activity is organize its thinking about the past, present,
more complex and involves five criteria: and future of HR.
Before examining each quadrant in detail,
• Long term—Is the activity conceptu- I will provide an overview of the model includ-
alized to add long term as opposed to ing a brief description of each quadrant and a
short term value? sample of associated activities.
• Comprehensive—Does it cover the Operationally reactive HR focuses on
entire organization or isolated implementing the basics; it addresses the ques-
components? tion of, given the day-to-day demands of the
• Planned—Is it thought out ahead of business, how should HR react to ensure that
time and is it well documented or does the basics are addressed? Such activities in-
it occur on an ad hoc basis? clude administering benefits, maintaining
• Integrated—Does it provide a basis for market-based salary grids, hiring entry level
integrating multifaceted activities that employees, and providing basic skill training.
might otherwise be fragmented and Operationally proactive HR improves on
disconnected? the design and delivery of the HR basics; it
• High value-added—Does it focus on addresses the question of how HR can improve
issues that are critical for business the quantity and quality of the HR basics be-
success or does it focus on things that fore problems occur. Such activities include
REACTIVE PROACTIVE
reengineering HR processes, applying TQM HR should help its firm create value in the
principles to HR activities, and ensuring posi- marketplaces for said capital, products, and
tive morale in the workforce. services before its competitors do. As HR
Strategically reactive HR focuses on creates this kind of value in a timely manner,
implementing the business strategy; that is, it contributes to its firm’s competitive advan-
given a clearly formulated business strategy tage. Thus, some categories of HR practices
(e.g., growth, new product, innovation, cycle create greater competitive advantage than do
time reduction, new market entry), how can others. This is indicated by the HR Competi-
HR help support its successful implemen- tive Advantage Index in Table I. As discussed
tation? Such activities include identifying above, the strategic versus operational dimen-
and developing the technical knowledge, sion suggests that HR creates competitive
tactical skills, and business culture that are advantage when it creates, over the long run,
consistent with the demands of the busi- greater value than its competitors’ HR activi-
ness strategy. They may also include facili- ties, optimizes the entire organization instead
tating change management and organizing of subcomponents, and focuses the firm on
HR into service centers. issues that are critical for market success. The
Strategically proactive HR focuses on proactive versus reactive dimension suggests
creating future strategic alternatives. Such that value creating HR activities be done
activities include creating a culture of in- before they are done by the competition. It
novation and creativity; identifying merger requires that a firm’s HR function creates a
and acquisition possibilities; and creating temporal window within which the firm
internal capabilities that continually track can dictate competitive rules and command
and align with the marketplace for products, monopoly position. The combination of these
markets, and capital with their respective two dimensions into the HR Competitive
lead indicators. Advantage Index enables HR to calibrate the
This framework provides a basis not sim- extent to which an HR practice or set of
ply for describing alternative arenas for HR practices creates strategic value before the
involvement; it also suggests a measuring stick competition. Thus, an HR department
against which to assess the progress of HR’s increases its potential to create competitive
As HR creates value added at both the discipline and firm advantage as it moves from being operation-
this kind of value levels. This matrix from Table I may be ally reactive to being strategically proactive.
in a timely reconfigured to create a linear scale for mea- Given the pressures on HR to add greater
manner, it
suring HR as competitive advantage. value before the competition and the emerg-
contributes to its
firm’s competitive Competitive advantage entails having the ing arsenal of HR practices, it follows that
advantage. capability to provide better products, services, the above index may be superimposed onto a
or financial returns than the competition does. product life-cycle logic (see Figure 1).
Low High
Competitive Advantage
% of
Adopting
Firms
do they require? How do we measure and re- alternatives. In the automotive industry, for
ward desired behaviors and results? example, both cost and quality are important;
Creating the Strategy-Focused Culture. however, if cost is assumed to be 90% and
The second channel through which HR prac- quality 10% of a firm’s competitive focus, a dif-
tices may be linked to business strategy is ferent culture should dominate than if it is
through the establishment of a powerful and assumed that cost and quality should receive
strategically focused culture2 and in the con- equal focus.
tinual availability of state-of-the-art technical Step 4: Define the required culture (in-
knowledge and skills3 . The process by which cluding specific behaviors) and technical
this linkage may be established can be divided knowledge and skill areas that the firm re-
into eight steps. quires to create and support the sources of
Step 1: Define the business unit for which competitive advantage that were identified
the HR practices are being designed. Is the pro- in Step 3. In the past few years, companies
cess used defining an HR strategy for a plant, have moved beyond superficial culture defi-
business unit, division, sector, department, or nitions and are now specifying cultures and
for the company as a whole? behaviors directly aligned with marketplace
Step 2: Specify the key trends in the external requirements. A sampling of such cultural
business environment. What are the dominant definition includes restless creativity
trends that indicate key threats or opportuni- (Unilever), lean and unencumbered teamwork
ties? Trends among customers, competitors, (Cathay Pacific Airways), and focused agility
informational technology, owners’ expectations, (Enron Corp). While the meaning and pas-
regulatory requirements as well as product and sion behind these constructs may not be ac-
process technologies must all be considered. cessible to the outsider, to those who develop
Since it is difficult to define a company’s cul- and apply them, they convey definitions of
ture around a large number of such trends, culture that serve as key supporting elements
however, it is imperative that a clear and of business strategy. Complementing the
weighted prioritization be established among the cultural competencies are the required tech-
frequently competing and contradictory require- nical competencies. With the ever-decreasing
ments (Brockbank, 1995). The rationale for life span of technical knowledge and skills,
beginning with the environmental analysis in- cultural competencies become increasingly
stead of with the business strategy is threefold. important. Nevertheless, a substantive base
First, the business strategy should be based on of technical knowledge and skills is warranted
the environmental analysis. Second, it is useful in virtually every industry.
In the past few
practice for those who develop the business- Step 5: Identify the cultural characteris-
years, companies
based human resource strategy (including but tics that the firm should reduce or eliminate if have moved
not limited to the firm’s key HR profession- it is to optimize competitive advantage. Such beyond
als) to examine marketplace realities in a clear undesirable cultural traits might include being superficial
and focused manner. Third, many business internally focused, slow, complacent, arrogant, culture
definitions and
strategies are not HR-friendly; that is, they are oblivious to competitive realities, or risk averse.
are now
not formulated to facilitate the mindset and Step 6: Design the HR practices that will specifying
technical requirements of individuals who have greatest impact on creating the desired cul- cultures and
make strategy happen. ture. This can be accomplished by evaluating behaviors
Step 3: Identify and prioritize the firm’s the extent to which each HR practice is aligned directly aligned
sources of competitive advantage. The key issue with the desired culture. If an HR practice is with
marketplace
here is identifying how the company is choos- not aligned with the desired outcome, then an requirements.
ing to compete. Is it choosing to compete on evaluation must be made about the extent to
the basis of cost, quality, speed, innovation, which the practice would have impact on creat-
service, relationships, convenience, branding, ing the desired culture if it were aligned. It is
and/or distribution? Since a firm’s culture should useful at this stage to distinguish between
be defined in a way to be consistent with these traditional and nontraditional HR practices. Tra-
foundational strategic assumptions, it is neces- ditional HR practices are generally under the
sary to have a clear sense of priority among these direct influence of most HR departments. They
344 • H UMAN RESOURCE MANAGEMENT, Winter 1999
used as a selection criterion? Are individuals stated to the financial community. The cause of
transferred across business units and functions these failures may occur at any phase in the
to enhance the likelihood that the resultant acquisition process. The stages of mergers and
diversity of ideas will spawn innovation? Are acquisition include conceptualizing the firm’s
people promoted who have evidenced creative portfolio needs, identifying and selecting can-
capabilities or who are committed to foster- didates, negotiating the deal, and integrating the
ing and nurturing creativity in others? Are two entities. HR can play an active role at each
nonhierarchical promotions (i.e., fancier titles) phase of the acquisition4 process.
applied to allow creative people to continue The merger and acquisition process be-
to be creative rather than moving them to gins with conceptualizing the firm’s portfolio
managerial roles and responsibilities? logic. A key element of this logic is the ability
Training and Development. Are creativity to understand the firm’s core capabilities
skills included in corporate-wide training (Prahalad & Hamel, 1990) and the demand
initiatives? Are customers included in action of the marketplace for these core capabilities.
learning in order to directly access customers’ Three categories of core capabilities can be
needs and passions? Do training efforts in- distinguished: what the firm knows (knowl-
clude competitive benchmarking to create edge); what a firm does (skills); and how the
urgency around proactive innovation? Do cross firm thinks (culture). It may be assumed that
functional developmental efforts facilitate the unique value added of the HR function is
exposure to nontraditional sources of creative the creation and maintenance of the human
supply and demand? Do on-the-job develop- element, HR has greater responsibility for
mental expectations and experiences explicitly conceptualizing and understanding the firm’s
focus on innovation? Are senior executives in- core capabilities than any other function (with
volved as trainers to role model and encourage perhaps the exception of the CEO). The HR
openness to innovative ideas? professional should then conceptualize exist-
Measurement and Rewards. Does the firm ing portfolio deficiencies and opportunities
have clear output as well as behavioral mea- and identify the core capabilities that might
sures of creativity? Are there formal mecha- be acquired through a merger or acquisition.
nisms to acknowledge and reward important For example, a dominant logic in Microsoft’s
As noted above, creative contributions? Does the firm reward acquisition strategy is not just the acquisition
65% of mergers risk-taking without tolerating long-term of technological, market, or financial syner-
and acquisitions
failure? Does the reward system encourage the gies but also the acquisition of fast and brash
fail to achieve
the commitments excitement of innovation without displacing innovative cultures. An HR professional who
that are stated to it with extrinsic greed motives? Are rewards is effective in this area will not be limited to a
the financial for innovation publicized to enhance the value domestic perspective. In Enron Corp, HR
community. of the reward to the innovator and to signal professionals have played a central role in iden-
the importance of innovation as a corporate tifying potential merger and acquisition
priority? Do the rewards for innovation rec- candidates in South America.
ognize contributions of both individuals and When a potential buyer has conceptual-
teams? Are innovative breakthroughs quickly ized its portfolio needs, it then begins the pro-
rewarded to enhance the motivating value of cess of identifying potential candidates and
the reward? making a final selection. Finding a suitable
HR can also exert strategically proactive candidate requires evaluating up to 100 firms
influence in the arena of mergers and acqui- in order to find one that meets the criteria of
sitions. Defining the corporate portfolio is a availability, fit, and price (Krallinger, 1997).
fundamental mechanism by which firms stra- In the process of examining firms against
tegically create their future. HR’s role in these criteria, HR may contribute in two pri-
merger and acquisition activities has emerged mary ways. First, the technical, market, finan-
quickly over the past few years (Mirvis & cial, cultural, and managerial capabilities of
Marks, 1992; Clemente & Greenspan, 1998). the potential seller must be evaluated. HR
As noted above, 65% of mergers and acqui- professionals with the knowledge to conduct
sitions fail to achieve the commitments that are internal cultural, technical, and skill audits
If HR Were Really Strategically Proactive • 347
should now apply that knowledge to the HR professional can facilitate this goal by be-
merger or acquisition candidate. The audit ing aware of key subtleties during negotiations
logic will be similar, although gathering data and by helping the senior executives of both
from indirect sources requires considerably sides maintain good working relationships
greater ingenuity. Since mergers and acquisi- while keeping them insulated from irksome
tions tend to fail not because of financial, tech- details. HR’s process role may also include
nological, or market reasons but because of knowing the negotiating style on the other side
people or cultural problems (e.g., Mirvis & of the table and providing negotiation train- HR should play
Marks, 1992), HR’s role in examining cultural ing as needed to her/his own team. Finally, an important
incompatibilities is essential. Second, HR also since the ultimate selling price is often a func- role in
determining the
contributes to the evaluation phase as it raises tion of the intervention of the seller’s board
staffing
important issues during due diligence. What of directors (Cotter, Shivdasani, & Zenner, requirements of
salary, benefits, and pension commitments 1997) the buyer’s HR professionals should the merger and
does the buyer incur? What is the nature of ensure their team is aware of the involvement acquisition team.
union relations and existing contractual obli- level and historical opinions of the seller’s
gations? Should the buyer’s reward system be board members.
superimposed onto the workforce of the seller? It is at the integration phase that the ma-
What are the strengths and weaknesses of ex- jority of the 65% of merger and acquisition
empt, nonexempt, and salaried workforces? Is failures occur (Clemente & Greenspan, 1998).
there pending litigation between the selling While this is the phase at which merger and
firm and any of its employees? What will the acquisition value is suboptimized, it is also the
staffing requirements of the combined enti- phase at which HR’s contributions can most
ties be? What is the age, gender, and racial easily rectify the most damaging problems.
profile of the firm and what are their implica- These problems include allowing cynicism-
tions? How is the seller organized? What are inducing politics instead of business logic to
potential pitfalls in merging structures? Third, dominate the selection and placement of people
HR should play an important role in deter- and failing to integrate the merged cultures
mining the staffing requirements of the merger around critical, market-based criteria.
and acquisition team. The technical and in- Two considerations are paramount in de-
terpersonal skills of the team members must ciding which individuals get which positions:
be carefully selected, because it is for these (1) ensuring that the “best” people are placed
reasons that deals often fall apart before they in the correct positions and (2) ensuring that
are consummated. the placement process is seen as fair and cred-
As the negotiation phase begins, HR again ible. The importance of the first consideration
brings important value to the process. Dur- is obvious. Fairness and credibility of the
ing this phase, HR has both a content role placement process are critical to ensure that
and a process role. In its content role, HR political considerations are minimized. If the
continues the in-depth probing of issues that placement is perceived to be tainted by poli-
it raised during due diligence, but now it is tics instead of achievement and capability,
done opportunistically, with the potential part- cynicism sets in; capable people leave; the
ner seeking the highest possible selling price legitimacy of leadership is eroded; and the
and with HR looking for potential problems organization turns away from the customer
that might influence the buying price. HR’s and into itself.
process roles during negotiations include The rules for deciding who gets what posi-
maintaining functional working relationships tions and for minimizing political influence are
within its own company’s team and with the well known and straightforward but often
members of the other company’s negotiating ignored. Exact and explicit criteria about per-
team. Everything else being constant, it is formance and capability should be specified for
better to begin the new relationship on a each relevant position in the merged or acquired
nonadversarial note. Thus, the creation of a unit. Considerable data should be gathered
merged whole that is greater than the sum of against these criteria from multiple sources
the parts begins during the negotiations. An including subordinates, peers, supervisors,
348 • H UMAN RESOURCE MANAGEMENT, Winter 1999
customers, suppliers, board members, and the cess for merging the two cultures is fairly
candidate. To the extent possible, objective (i.e., straightforward. The first step is for both
politically impartial) individuals should evalu- entities to conduct a detailed analysis of the
ate candidates against these criteria. Such indi- requirements for their respective marketplaces
viduals may include a team of peer executives for capital, products, and services. This analy-
A third avenue
representing both of the merging organizations, sis should include viewing the marketplace from
through which
HR may be a team of internal staffing consultants such as an “HR-friendly” perspective, that is, each
strategically exists at General Electric, or senior HR execu- component of the marketplace should be ad-
proactive is in tives. This last step is the most difficult to do dressed, asking the question: “What should be
linking the correctly because political criteria such as whom known about this component of the business
external market a senior line executive knows and “feels” most environment in order to determine what cul-
environment with
key internal comfortable with have such a strong tendency ture my organization should have?” The second
factors. to dominate placement logic. One Fortune 200 step is to identify the sources of competitive
top HR executive submitted his resignation advantage that a firm must have, the accompa-
three times during a major merger. Several nying tactical actions that a firm must execute,
senior line executives demanded that their and the relevant measures. The third step is to
favorite candidates be placed in specific posi- identify the cultural mindset that both firms
tions without meeting the predetermined per- must have in order to execute their respective
formance and capability criteria better than strategies within their respective market re-
other candidates. In order to maintain the in- quirements. Fourth, the merged partners may
tegrity of the placement process, the senior then compare their environmental assump-
HR executive played his ultimate hand; he tions, business strategies, and required cul-
resigned from the process and the company tures. By so doing they can assess which
rather than succumb to subtle and not-so- culture should dominate.
subtle political pressures and threats. Luck- A third avenue through which HR may be
ily, in each case, the line executives backed strategically proactive is in linking the exter-
down, and the placement process continued nal market environment with key internal fac-
with full integrity and credibility. tors. HR’s most fundamental and important
Equally important is deciding which cul- corporate role focuses on optimizing the hu-
ture should dominate. Three assumptions are man side of the business equation. The prob-
necessary to ensure that the process for de- lem is that most HR thinking addresses only
ciding which culture should dominate results 50% of the human side of business focusing
in optimal outcomes. First, the most impor- on the internal “customer”—to the exclusion
tant element of organizational culture is of external customers. Yet, HR’s ultimate goal
shared mindset. Second, shared mindset is a is to link the external human requirements
key element of corporate success and, there- with the internal human capabilities, thereby
fore, shared mindset should be defined by the optimizing the utility of both. Several impli-
requirements of the competitive marketplace. cations follow from this premise.
Third, it may be the case that the dominant First, the HR goal is not to make employees
firm in the merger or acquisition situation has happy or satisfied at work; rather, the HR goal
the culture that is most aligned with the de- should be to make those employees happy who
mands of the marketplace. It may also be the are happy making the marketplace happy. This
case, however, that the less dominant firm may makes sense; yet, people in the HR field often
have a culture that is best aligned with indus- fail to act in accord with this supposition. For
try success criteria. It may also be the case that example, HR professionals support company
neither firm has the optimal culture and that mission statements that boldly proclaim “People
the combined cultures must be defined and cre- are our most important asset.” Not only do HR
ated anew. The key issue is to ensure that the professionals themselves not entirely believe
components of the merged or acquired entities such statements, neither do employees or even
both have the cultures required for success, the executives who penned them in the first
whether the cultures are similar or different. place. (This is the stuff of which Dilbert is
With these assumptions in place, the pro- made.) The problem with such mission state-
If HR Were Really Strategically Proactive • 349
DR. WAYNE BROCKBANK’S expertise focuses on the linkages between human resource
practices and business strategy, creating customer-focused organizational cultures, build-
ing competitive advantage through people, and competency development in human
resource professionals. He has published widely on these topics in Human Resource
Management, Harvard Business Review, Human Resource Planning, and Personnel Ad-
ministrator, and has contributed numerous book chapters. He has consulted with pri-
vate corporations on every continent. His clients have included Texas Instruments,
General Motors, Cathay Pacific Airways, Enron, Ford, General Electric, Unilever, Abbott
Laboratories, Citicorp, Xerox, Hewlett-Packard, and Perez Companc.
If HR Were Really Strategically Proactive • 351
Appendix
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ENDNOTES
1. Many insights about the “state-of-the-art” stem on (1) improving the organization as a whole
from my association with four esteemed col- rather than individuals or teams and (2) defin-
leagues: Dave Ulrich (University of Michigan); ing and creating the desired corporate culture
Steve Kerr (General Electric); Warren Wilhelm rather than merely enhancing short-term knowl-
(Global Consulting Alliance); and Dick Beatty edge and skills.
(University of Michigan). I thank them readily 3. In an informal survey conducted during the se-
and gladly. nior line and HR executive programs at the Uni-
2. Nearly all of the companies listed in the Appen- versity of Michigan, approximately 550 executives
dix focus on establishing the strategically focused indicated that culture and shared mindset were
culture as a key element of their HR strategy. more important to address as dominant business
Culture is discussed under multiple rubrics in- challenges than were technical knowledge skills.
cluding shared mindset, shared values, organi- The ratio of their relative importance was 3:1.
zation capability, human organization, and 4. This section is written from the buyer’s perspec-
organizational competitiveness. The underlying tive. The mirror image of much of this logic is
similarity of these concepts is that they all focus relevant for the seller.