How to create a people strategy for commercial success

Graeme Paxton is the founder of Caraffi, The IN Group's talent advisory and employer branding experts who help organisations devise effective people strategies. For many years, Graeme has believed that HR can and should do more. So Caraffi provides people leaders with a clear, big-picture view of the talent landscape, helps them create brilliantly simple solutions to their core challenges and works with them to make the talent function a driver of business success. Find out more here.

 

Starting points

 

First of all, it's important to note that great people strategies are very, very rare.

 

In twenty years of consulting with people leaders, I reckon that only around 10% of the people strategies I see could be classed as a "strategic strategy." The remaining 90% are tactical people strategies. I believe this is the primary reason chief people officers or HR directors are not considered in CEO succession planning.

 

Chief people officers, heads of human resources, and HR directors all seem to struggle with the same thing - how to articulate a people strategy so it's recognised as a business driver, and not as a subservient support service.

 

The best people strategies are the ones that demonstrate how the people function drives the company's growth and can be measured and tracked as such. You cannot be seen as strategic if you can't write a clear strategy.

 

What keeps a CEO awake at night?

 

There are three things that keep a CEO awake at night. One, customers: have we got enough of them, are they spending enough money with us now and is that set to continue or grow in the future? Two, cash: do we have enough money to fund the growth, expansion, or acquisitions we want? Three, talent: have we got the right people, in the right jobs, who are doing the right things?

 

How is a CEO reassured these are getting done?

 

Easy. A clearcut strategy, target metrics/KPIs. and accurate data to track performance.

Customers are owned by the chief marketing officer (CMO) and cash is owned by the chief financial officer (CFO). Both have clearly defined strategies and clearly align KPIs with the performance of the business. A glance at any analyst report of a FTSE 250 or Fortune 500 company will show you a chairperson or CEO statement peppered with metrics, graphs and insights relating to customers (customer acquisition, customer retention/growth. lifetime value of a customer etc.) and cash (EBIT, profit conversion, margin etc.). There is no surprise that these two positions have become the most likely succession to CEO. They have defined a path and draw a direct line between their performance and the success of the business; they matter.

 

Now let's look at how talent is run and owned, which is the third thing that keeps CEOs up at night. The chief people officer, or HR director, is hardly ever considered as a potential successor for the CEO. Why's that? Is the business world against them? No, I don't think so, nor is their role less important. According to PWC's Pulse Survey last year, more than three-quarters of CEOs say that hiring and retaining talent is unquestionably their greatest pathway to growth - outweighing digital transformation investment and cutting costs. Therefore, the role of people leaders is critical to CEOs and the board.

 

Where HR directors and chief people officers go wrong?

 

The reason that the people function doesn't get considered is because it rarely articulates its importance to the success of an organisation by writing a cohesive and measurable strategy. Knowing that alone is one of the key differentiators between what we see as forward- thinking CPOs and service-led HRDs. I use that terminology for the following reason.

 

Human resources has renamed and rebranded itself goodness knows how many times over the last twenty years. HR director was the norm. then they were given the title of chief HR officer. Chief HR officers redefined themselves as chief people officers, and I'm sure we'll see yet more rebranding in time.

 

What does this mean? Unfortunately, it means that a people function struggles to position itself as strategic or commercially minded. The impact of that perception is a loss of influence on the board. Brutal as that might sound, it's what I have seen from real world experience consulting on all things people for the best part of two decades.

 

The fact that HRDs and CPOs are not considered in succession planning is a direct consequence of what seems like a collective, sector-wide inability to draft clear, memorable, relevant, and commercially aligned people strategies. As an aside, to avoid using three titles every time I talk about people leaders, from now on, I'll just use CPO, but am referring to anyone who heads a people function.

 

The four drivers that will give you a successful people strategy.

 

One. Where is the business going?

 

Before writing any people strategy, CPOs need to truly understand where their business is going. You can't write a people strategy or create a winning culture until you understand the mission. Ask yourself simple questions like "How does this company make money?" or "What revenue streams, products, geographies are in focus?" or "How will the business need to evolve to maximise its potential/realise its ambitions?" To be considered as a strategic influence on any organisation you need to be a businessperson that knows a great deal about people. NOT an HR expert that knows a little about business.

 

Two. What is your value proposition as a people function?

​

A CFO worries about the investor value proposition and owns it. A CMO owns the customer value proposition. Both are crystal clear about what that means, and how it is delivered so value is demonstrable.

​

CPOs don't tend to take that level of ownership. Sometimes an employer value proposition (EVP) is outsourced to marketing (wrong). Sometimes it's outsourced to recruiters (wrong again). Sometimes it's outsourced to learning and development (wrong, wrong, wrong). Your EVP is the essence of your culture and the distillation of who you are. Prioritise the creation of an authentic EVP which is unique, compelling and relevant; it's your north star and will provide the bedrock of any measurable and scalable people strategy.

 

How do you create a purpose-led EVP? Begin by asking these five questions:

 

1.  Why should people work in our organisation?

2.  Why do they love our organisation/what do they dislike?

3.  Do we have the talent density we require to achieve success?

4.  Do we communicate well with our people? 5. Have we built the right environment for high-performance?

 

Three. Measure your people function and align your metrics to business performance.

 

The majority of CPOs measure the outputs of their people function. They list the number of hires made in this type of role with this type of pay grade; they count the number of complaints lodged against the organisation: how many tribunals they had or managed to avoid; the number of performance reviews completed; and how much it costs to run their people function. Sometimes in people and culture teams metrics include how many communications have gone out; the range of incentives they've brought in; the engagement levels for events and personal development talks.

 

These are all well and good but fall into what Gallup would term, in their article Why HR Leaders Never Become the CEO. but Should, as "keep your job safe metrics". which is a way of defending your function by highlighting what's been done. These don't carry the kind of impact that CEOs listen to.

 

This isn't an opinion; it's based on analysis and reporting. Look at how annual reports are written, or what shareholder quarterly calls cover. In both of these, you'll see an abundance of tracked and evaluated metrics, such as customer growth, customer acquisition costs versus the lifetime value of a customer, the average value of a basket, or how many new accounts have been won through lead generation and new business. Why is that? Because they know the metrics to measure and how to show their strategic value to a business's goals.

 

For investors, the CFO will show how the business is performing. They measure how customer conversions impact revenue, what a business is spending to grow, where they've cut costs, and how these tie to EBITDA. The best CFOs do this with metrics based on the past and use forecasting to show how this might raise further investment and grow the business even more.

 

When it comes to reporting about a people function, what do you hear from a CEO? "Our people are our most important asset." Full stop. But are they measuring it? No. Can they prove it? Rarely in a way that carries clout. I don't have numbers, but I do know HR, and I can tell you that almost all people strategies highlight how they've been activated, and not how they've been aligned from the start to business objectives. What I see most of the time is activation tactics that are measured and then explained as "strategic." If all you do as a CPO is measure the service you offer, by tactical box ticking. then be prepared to be seen as a back-office support service and not a strategic driver that is essential to your organisation's commercial performance.

 

It was the same for marketing twenty-five or thirty years ago, before CMOs had technology to map, measure, and evaluate their impact on the business. Before marketing got its act together, sales were counted as revenue, and marketing a cost. Now, the vast majority of sales functions sit under marketing, report to the CMO, and deliver a marketing-led growth strategy. How did this happen? Marketing aligned with business objectives, identified personas to target, set performance KPIs. designed a tailored activation plan, continually measured performance and communicated successes and lessons using defined data points.

 

Four. Activate your people strategy across your employee experience metrics to show if you're doing a good job, or way off the mark.

 

You know where the business is going. What your EVP is and how you can measure the success of your strategy against the performance of your organisation. The thinking is done, but the hard work is just getting started. The fourth driver of any people strategy is about activation through colleague experience. This means creating a detailed plan for every colleague touchpoint, including TA, L&D, internal comms, business partnering. leadership, payroll, rewards, ops, and systems.

 

After all, strategy without execution is mere hallucination.