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Strategy Bites Back: Strategic HR May Win Out in Culture War

September 06, 2022 Talent Management
Theresa Welbourne
By Theresa Welbourne LinkedIn

Over the years, data has supported the notion that culture eats strategy for breakfast. But then subsequent studies suggest that strategy is more important — it eats culture. This year is an interesting mix.

Based on surveys of business leaders and data on firm performance, strategy is again coming out on the winning end again, but with a twist. It is strategic human resource management that is winning the day.

The data suggest that focusing on strategic HR as a priority may have the biggest impact on improving firm performance in 2022. Diversity, equity and inclusion is also showing high potential to positively impact firm performance as well as individual employee energy, a measure of employee productivity and wellness.

Getting Past Misleading Management Models

Organizations — whether small or large, global or local, old or new — are not simple. They are not made up of just one type of asset, such as financial assets or human assets. The way we study organizations often lends itself to a simple measurement process, however.

Leaders tend to focus on one asset at a time. One person leads finance, another focuses on human resources and yet one more individual manages customer relationships. This silo approach tends to help people focus, but when it comes to understanding a business, it can be dysfunctional or at the least misinform leaders.

Rather than focus on just one business driver, the Business Drivers Pulse, which I developed to assess the long-term survival of companies based on interviews with senior executives, aims to analyze all the core assets of a company in one study. Business drivers include a range of organizational assets, from ability to manage profits and cash flow, to brand and pricing strategy, strategic planning process, employees, culture, leaders, internal technology and more. Our first studies looked at companies going through an initial public offerings (IPOs) as well as organizations that were going through high change.

This year we added diversity, equity and inclusion (DEI) as an additional asset category, and asked leaders to tell us how important all these different assets were to their company’s performance. This approach allowed us to study how leaders think about DEI compared to things like cash, technology, leaders, and their overall people approach.

Related Article: Strategy Eats Technology for Breakfast

People Strategy Is What Wins in 2022

The overall results show that respondents think a focus on people ranks highest in terms of positively affecting their firm’s performance. The top three items are focused on people, employees and customers (Fig. 1).

chart showing the impact of business drivers on performance
Fig. 1: Impact of Business Drivers on Performance (n=150)PHOTO: Theresa M. Welbourne, 2022

Diversity focus was added this year as a new asset class, and in additional data analysis we found that it indeed is separate from other categories focused on employees (e.g., people, culture, etc.). It also ranks higher than several other asset classes that likely are receiving more attention and budget.

It’s clear that 2021 was a year when many organizations focused more on diversity goals than perhaps in the past; thus, we will continue to include this asset class to understand how it changes over time.

Rewards is at the bottom of the list, with comments suggesting it is the lack of rewards or rewards not perceived to be related to performance that caused problems in the last year.

Differences by Firm Size and Organizational Level

We examined firms with less than 100 employees and those with 50,000 or more people on ability to manage cash flow. Not surprising, there are more low scores in the smaller firms while only neutral and positive in the larger organizations. Firms with less than 100 employees had an average score on this question of .95, while those with 50,000 or more employees had an average score of 2.89. A review of open-ended comment data supports the financial insecurity of smaller firms during the pandemic.

When looking at the data by job level, there were significant differences between three job categories: CEO, other C-suite jobs (chief financial, technology, information, human resources officers) and senior managers (Fig. 2).

bar chart showing the priority of business drivers based on three job levels
Fig. 2: Business Driver Indices by Job LevelPHOTO: Theresa M. Welbourne, 2022

When it comes to culture, economics and employee energy, the CEO scores showed the most statistical difference. The very low CEO score for economics would suggest that at this level they are directly seeing the impact of the external environment on their companies, while perhaps the other job levels are more focused on what they are hands-on daily controlling and internal assets.

Time to Update the Strategy vs. Culture Debate

Over the years, we have seen the important predictors of firm performance vary, initially focused on culture more than strategy and then strategy over culture.

In 2006, Mark Fields, at the time CEO of Ford, said “culture eats strategy for breakfast," attributing the phrase to management strategist Peter Drucker. In our last report on this topic, we noted that “perhaps culture has been munching and eating a bit too long, and it’s time for strategy and core business levers like managing cash and profitability.”

This year presents an interesting evolution of the strategy vs. culture debate. Strategic HR and items that could be considered part of strategic HR, such as promotion and rewards, ended up as being the categories that show the higher potential for driving future firm performance and employee energy. Energy, in our over 25 years of research, has been proven to predict not only individual performance outcomes but firm-level outcomes, including firm survival in studies of multiple organizations.

Thus, the blending of firm performance and employee energy provides a solid road map for thinking about future priorities.

Related Article: Why HR Needs to Be a Change Agent

Some Actions to Improve

The methodology that I use when teaching is called the DDAR model (Data, Dialogue, Action, Results). My suggestion is to use this report and data to engage your team in dialogue.

To what extent does your team think these findings parallel what has happened in your organization? If you don’t know, then extend the dialogue to other leaders, managers, or employees. Based on what you learn in the dialogue, develop actions that can be taken to improve on any problem areas. Then continue the dialogue and measure your results.

In 2022, we are seeing many signs that uncertainly will continue to plague our organizations. A data-driven strategy can aid any organization in prioritizing, measuring and reprioritizing when needed.

About the Author

Dr. Theresa M. Welbourne is professor in Entrepreneurship at the University of Alabama, and executive director of the Alabama Entrepreneurship Institute.

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