Like any business function, People Analytics is under constant scrutiny to support claims that it adds sufficient corporate value to justify its continued existence.
One sure way to achieve this is to ensure that People Analytics priorities are aligned with corporate strategy.
Many People Analytics functions, however, are forced to align their priorities with their parent HR function. This is unfortunate because in many (most?) cases, HR is itself not aligned with corporate strategy. This has the direct effect of reducing the impact of People Analytics on the business.
This article offers a process for aligning People Analytics priorities with corporate strategy rather than simply aligning with HR’s weltanschauung and is based on the well-known Prahalad & Hamel core capabilities model.
The article contains the following sections:
- What are core capabilities?
- Key principles for managing core capabilities
- How do core capabilities relate to People Analytics?
- Bringing it together: A strategy for prioritizing People Analytics investments
What Are Core Capabilities?
Prahalad & Hamel in their now-famous 1990 paper argue that a business’s sustainable competitive advantage depends on its ability to develop core capabilities more rapidly than its competitors. For this reason, the core capabilities model is used by most – if not all – large organizations as a key component of corporate strategy development.
(Note: Some writers use the terms strategic and non-strategic capabilitiesinterchangeably with core and non-core capabilities: such usage is compatible with this article).
So the first question to be asked then is what exactly are core capabilities?
Defining Core Capabilities
Before defining core capability, we need a working definition of the term capability. When it comes to prioritising People Analytics initiatives, we define an organization’s capabilities as its collective knowledge, resources, processes, technologies and structures.
Having defined capability, we now define core capability. Prahalad & Hamel define core capabilities as “the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technologies”.
This is not a very usable (operationalizable) definition and to define core capabilities, we will therefore use Jay B. Barney’s VRIO framework which states that in order to qualify as a core capability, a capability must meet the following criteria:
1. Value: In order to be core, a capability must generate customer value
For example, a company that relies on innovation for gaining customer market share would classify employees that do innovative work as core capabilities. In contrast, employees whose work is routine and not innovative would be classified as non-core capabilities.
2. Rarity: In order to be core, a capability must be rare
In a company that mines rare minerals such as lanthanum, gallium or manganese, the rights for mining these minerals are core capabilities. Similarly, the knowledge and skills of experienced operating system developers who understand the Windows® operating system, integrations and architecture would be considered core capabilities at Microsoft because such knowledge and skills are in short supply.
3. Imitability: In order to be core, a capability must be difficult to imitate
If a capability can be rapidly or inexpensively duplicated, then it’s probably not core. Staying with our Microsoft example, Windows® developer knowledge and skills are difficult to imitate because it takes a long time to understand the entire Windows® architecture and all its integrations, thereby reinforcing their role as core capabilities at Microsoft.
4. Organization: A capability is core only if the organization has the ability to fully leverage it
Thus an organization must have the systems, processes and structures in place to leverage maximise value from a capability in order for it to be counted as core. In our Microsoft example, Windows® development capabilities are only considered core if the company has the means to recruit, develop, engage and maximize the productivity of employees with these capabilities.
Core Capability Examples
To make all of this more real, here are some potential core capabilities for some well-known companies:
The ability to attract and monetize a large user base through free online products and digital advertising platforms (plus – perhaps a little unkindly according to WSJ – “minimizing government accountability with a smile”)
- Maximizing revenue per user by increasing connections and sharing between users
- Rapidly iterate and implement new features
- Employee autonomy
- Fending off competitors to its large client base
- Customer-centric purchasing experience
- Distribution and logistics
- Leveraging a variety of technologies
- Network orchestration (as opposed to the capital intensive service provider model used by traditional transport companies)
- Dual business model delivering value to both of its markets (passengers and drivers)
- Scalable technology, easy-to-use, learnable interface (reduces the probability of switching providers)
- Algorithmic pricing based on demand-supply
Non-Core Capability Examples
In contrast to core capabilities, non-core capabilities are knowledge, processes, technologies and structures which if imitated by your competitors would not excessively harm your market position. Thus Microsoft’s loss of many internal financial systems developers would harm Microsoft’s competitive position far less than losing a number of its Windows® developers.
In general, the further removed any capability is from the delivery of a company’s products and services, the more likely it is to be non-core.
In many businesses, non-core capabilities might include, for example, back-office systems, facilities management and transaction processing systems.
Key Principles for Managing Core and Non-Core Capabilities
The first two key principles for managing core and non-core capabilities are particularly relevant to People Analytics and HR practices:
Key Principle 1
If a competitor gains access to your core capabilities, you’ve lost your competitive position no matter how well your intellectual property is protected.
Key Principle 1: Guard core capabilities with your life, never lose control of them, never outsource them, never let them out of your sight.
Key Principle 2
The more time and money you invest in non-core capabilities, the less you will have to invest in your core capabilities.
Key Principle 2: Minimize investment in non-core capabilities in order to maximize investment in core capabilities.
How Do Core Capabilities Relate to People Analytics?
To illustrate using our Microsoft example: Microsoft’s competitive position would probably suffer far more if its people process for recruiting its Windows® developers was disrupted than if its process for recruiting back-office developers was disrupted. This leads to another key principle:
Key Principle 3
- People processes, resources and technologies relating to core capabilities should also be considered core.
- People processes, resources and technologies relating to non-core capabilities should also be considered non-core.
What about the common situation where both core and non-core capabilities share the same people processes, resources or technologies? For example, it is feasible that Microsoft may use the same process for recruiting both Windows® developers and back-office developers; or at the very least, the early stages of the recruitment process (for example, screening) may be the same for both roles until downstream where the process separates into role-specific tasks.
In such cases, sharing the same people process for both core and non-core capabilities violates Key Principles 1 & 2 because it means that:
- The non-core components of the processes cannot be outsourced without also outsourcing the core components (which violates Key Principle 1: Never outsource anything core)
- Minimizing investment in the non-core components of the process also means minimizing investment in the core components which violates Key Principle 2 (Minimize investment in anything non-core).
To address these violations, we introduce Key Principle 4:
Key Principle 4:
Any people processes, resources and technologies shared between core and non-core capabilities must be separated into core and non-core versions of the process.
Bringing It Together: A Strategy for Prioritizing People Analytics Investments
These four key principles can be combined to create a process for prioritizing People Analytics initiatives as follows (see Figure 1):
Figure 1: A strategy for prioritizing People Analytics investments
1. Identify Your Company’s Core and Non-Core Capabilities
If you don’t already know your organization’s core and non-core capabilities, obtain them from your company’s corporate strategy documentation.
If they do not appear there, elicit them by interviewing appropriate executives. This is also a smart career move because not only will it raise your visibility in the executive suite but it may also help to improve your company’s competitive position by ensuring that these capabilities are included in the next round of corporate strategy thanks to your highlighting their absence.
2. Classify Your People Processes, Resources and Technologies as Core or Non-Core
Using your list of your corporate core and non-core capabilities, determine which of your people resources, processes and technologies are required to support the core capabilities. Call these your core people processes. Any people processes not required to support your company’s core capabilities are your non-core people processes.
Separate shared core & non-core people processes
Where people processes, resources or technologies are shared between core and non-core capabilities, make plans to separate these into core and non-core versions (to conform with Key Principle 4)
3. Lift-and-Shift Your Non-Core People Processes
An efficient way to follow Key Principle 2 (minimise investment in non-core capabilities) is to outsource them, or at the very least devolve them to Shared Services or Global Business Services functions.
Should non-core people processes be reengineered before outsourcing?
A common question is whether non-core people processes should be made efficient before outsourcing them. The answer is usually no because our goal at this stage is not about improving non-core process efficiency: our goal is to minimise investment in non-core processes in order to maximise investment into core processes.
To test this principle, ask yourself: Which will add more value: Improving our core processes or improving our non-core processes?
Of course if your non-core people processes are particularly inefficient, then by all means come back to them after you’ve improved your core people processes as described in the next step.
4. Improve Your Core People Processes
The resources and investment released by lifting-and-shifting your non-core people processes can now be deployed in the service of improving your core people processes.
Bear in mind that every improvement to your core people processes will increase your company’s competitive advantage because they support your core capabilities.
While it might be tempting to ‘rip-and-replace’ your core people processes (i.e. rebuild them from scratch) rather than improve them incrementally, a rip-and-replace approach is risky because if something goes wrong with the people process as a result, you have damaged a core capability. A more conservative incremental improvement approach for core capabilities is therefore recommended.
Bear in mind that the objectives for improving your core people processes are to:
- Reduce waste
- Enhance quality
- Improve employee experience
Typical process improvement methodologies to consider, therefore, include:
E.g. RPA (such as UiPath, Blue Prism or Kryon), AI
B. Business Process Improvement
E.g. Lean, Agile, Six Sigma, TQM, Kaizan (5S), SIPOC and BPM
This article argues that the People Analytics priorities may differ from corporate priorities which will significantly reduce the impact of People Analytics as a function.
To address this, the article has provided a process for aligning People Analytics with corporate strategy by prioritising people processes, resources and technologies based on a core capabilities model.
This should result in a significant increase in the impact of People Analytics on the business.