• Lisa Oakley

Jurassic Audit?

HR audit and HR strategy research have developed independently from each other. Considering the research relating to HR audit and HR strategy together presents some exciting potential for HR practitioners and managers wanting to undertake a structured and systematic gap analysis prior to establishing HR strategy. Aligning these two areas of research enables the HR function to have a greater contribution to overall business strategy, as the HR audit moves beyond a pure regulatory and compliance focus. Findings indicate that HR audit does not currently play a significant role in the HR strategy formation process and is not a particularly popular tool amongst HR practitioners. At the same time, literature highlights that HR practitioners need to be more strategic by contributing valuable insights into the HR strategy development process.

This blog proposes that existing approaches to HR strategy development miss an important introductory step, the HR audit, which can be utilised to better inform the HR strategy. The framework developed here introduces a clear picture of the relationship between HR audit and HR strategy in the context of a number of related factors including business strategy, HR planning, HR metrics, and the role of HR. This framework aims to support HR management practice and overall business performance. This opens up opportunities for future research to empirically test the proposed framework by assessing stakeholder perceptions of HR’s strategic contribution, and organisational performance outcomes as possible measures of its impact.

Strategy is life and death for twenty first century organisational success.  In today’s competitive global environment organisations that fail to develop and execute strategy will inevitably cease to exist. Human capital is the lifeblood of an organisation, a unique differentiator, difficult for competitors to replicate.

HR audits are one of the primary tools external HR practitioners or consultants utilise when looking to assess an organisation’s HR function independently. The audit process and findings enable them to feed back to the organisation where there are opportunities for improvement. These opportunities then form the starting point for a range of HR initiatives or interventions that can be implemented to enhance the workplace and drive greater organisational performance. However, internal HR practitioners and organisations will rarely audit their own organisation, unless this is a compliance requirement. In practice, HR audits seem to have an irrelevant risk and compliance stigma associated with them, and are today a somewhat dated concept.

Factors that contribute to a poor reputation for the HR audit are the origins of the HR audit theory, and that the view of HR audit differs dramatically amongst authors. HR audit literature falls into two categories, a traditional view of the HR audit, and more recently, a transformational or multidimensional view of HR audit. Following the behavioural science movement in the 1960s and the introduction of personnel management, one of the greatest advances in the field of HR in the 1970’s was the human resource accounting theory developed by Flamholtz. This theory originated from an asset risk management and compliance perspective. At this time, one of the tools that rose in popularity acclaimed for supporting the HR function was an HR audit. Research in the area of HR audits has continued since the 1970’s, and while some authors cling to the use of audit as a risk and compliance measure, others take a more progressive approach to the understanding, relevance, and application of HR audits.

By comparison, one of the most recent and popular advances in HRM is the notion of Strategic HRM (SHRM), and the requirement for HR practitioners to become more strategic. One of the main ways to achieve this is for HR practitioners to contribute to the business at a strategic level, through the creation and execution of an HR strategy.  As this field of research is still evolving, there is little agreement among scholars regarding clear definitions and an understanding of the difference between HR strategy and SHRM, so much so that the terms are often used interchangeably. Regardless of this, as the understanding of HRM matures, the greater its importance in an organisation and the more strategic it needs to become. Therefore, more organisations are introducing an HR strateg.

Broadly speaking, SHRM is about the integration of HR strategy and business strategy. SHRM is “the overall framework that determines the shape and delivery of individual strategies, systematically linking people with organisations by integrating HRM strategies into corporate strategies” (CIPD, 2015, p. 1). HR strategy on the other hand, is “a system of human resource practices aimed at the best employee performance possible to meet the firm’s ultimate goals” (Society for Human Resource Management, 2008, p. 3). The differences between these definitions is very subtle.

In contrast to HR strategy development, business strategy development takes place using a range of established tools and methods. One tool used to inform business strategy is a basic SWOT (strengths, weaknesses, opportunities, threats) analysis. This analysis prompts questions such as where the critical areas of implementation are, how the business can enable this, what rival companies are doing, which changes in technology or regulatory developments are affecting work practices, how the organisation might adjust its methods, practices or structures, and what skills, behaviours and attitudes are required for the organisation to be successful (Society for Human Resource Management, 2006). Examples of other business strategy development tools include the learning and experience curve (Porter, 1979), Ansoff’s strategy matrix (Ansoff, 1980), life cycle (Anderson & Zeithaml, 1984), Chandlers fit approach (Lengnick-Hall & Lengnick-Hall, 1988), economic rents (Amit & Schoemaker, 1990), Goldratt’s theory of constraints (Goldratt, 1990), Six Sigma (Neuman & Cavanagh, 2000), Triple bottom line and sustainability (Norman & MacDonald, 2004) and Porter’s five force analysis (Porter, 2008). All of these tools are variations of organisational audit techniques that are intended to support a gap analysis, which then assists in determining which strategies to apply (Spender, 2014). Every few years, a new business strategy development tool emerges in the literature, and business strategists have an endless number of models available to them to support strategy creation and development. HR practitioners could benefit from a similar tool, specific to the profession, which could be utilised to support HR strategy development, and improve the strategic credibility of HR.

Both of these concepts, HR audit and HR strategy, appear central to the study of HRM.  However, the literature relating to each factor has developed independently from the other.  There is a gap in our understanding of how these two factors might relate. In practice, HR audits appear less popular given the perception of their relevance, whereas HR strategy seems to have a more popular image and practitioner following.  A link between the two may show how the application of an HR audit better informs HR strategy, and / or that having an HR strategy, may improve the quality of an HR audit.

The HR audit is a way for organisations to assess value, including the strategic architecture of an organisation, its competencies, and the HR function’s contribution to overall effectiveness. Modern multidimensional interpretations of the HR audit suggest that the value of HR services is determined by a range of stakeholders rather than HR itself. The audit then signals to stakeholders that HR is serious about organisational advancement and intends to engage in the change process based on feedback and metrics that gauge its progress.

An HR audit can shed light on the extent to which an organisation recognises the strategic contribution of HR and the need for integrated HR systems that have a long-term impact on organisational outcomes. The foundation of workforce success begins with the HR function, and an organisation in which HR professionals are focused on only administrative risk and compliance can never fully attain strategic value out of its workforce.

This blog proposes that it is not possible to manage the HR strategy development process without a full understanding of HR within an organisation as well as contextually relevant external factors, and that the ideal tool for this is an HR audit. While HR audit and HR strategy have previous been considered independently in the literature, and HR audits are not used presently to inform HR strategy, HR practitioners and organisations could benefit greatly by reconsidering their view of the HR audit and utilising an audit as a tool prior to the strategy development process.

Conversely, this blog also proposes that a clear HR strategy would better support the HR audit process by ensuring that areas of the greatest importance to the organisation were audited, tracked and measured on a regular basis.

This framework proposes that prior to the HR strategy and HR planning process, HR should have completed a multidimensional HR audit. At the same time as conducting the audit, HR should determine which metrics are important as benchmarks for the organisation using an HR measurement approach similar to the balanced scorecard, and include these metrics in the audit itself. This would ensure that HR is appropriately armed with an understanding of the performance of the HR function, the calibre of the people in the organisation, and all internal and external factors likely to be important to stakeholders in the strategy development process. The audit is therefore intended to identify any gaps that need to be addressed via an HR strategy.

Should we campaign to bring back the HR audit?! Or is it extinct … along with the dinosaurs? What do you think …

#hraudit #hrstrategy #shrm #strategichr

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