HR 365: Maximizing the Strategic
Value of HR by Breaking Free of
A Business Fairy Tale
Once upon a time there was a financial services company that had a CFO that only looked at
financial results and metrics once a year. From December 15th until January 31st he would
look at what happened over the course of the year, close the books then make estimates and
set budgets for the coming year. He would then leave the building and not return for over
During his ten months off, he went to his golf club and was having lunch with a friend who
was a Chief Operating Officer for a manufacturing firm and he was asked how the CFO had
so much time free. Upon hearing about the process the CFO used, the manufacturing COO
decided he would try the same thing.
The next day the COO went to his office, looked at the past years totals of the types of
products that had been built, the raw materials that had been used and compared them to
the sales estimates for the coming year. He computed what would be needed to fulfill the
estimated orders and ordered the raw materials and scheduled the manufacturing calendars
to match the orders that were expected for the next year.
Then the COO shut down his computer, turned off his Blackberry and walked out his door to
enjoy a long season of golf and fishing.
Three months after that very day, both the COO’s manufacturing company and the CFO’s
financial services firm were out of business.
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 2
This is a fairy tale, and obviously can’t be taken seriously. But this is the way hundreds of
companies treat their HR processes.
Ask most any CEO what is the most important asset in their company and the answer you will
get 90% of the time is “our people”. But if this is the case, wouldn’t managing that most
valuable asset be the most important agenda item for management? In fact, shouldn’t
maximizing the efficiency and performance of employees be on the top of the daily to do list
of every member of the company?
The summation of the members of any organization can be viewed as a human machine or
human system, just like an assembly line or financial model is a physical machine or finan-
cial system. All of them have inputs and outputs and a level of efficiency in what is the
amount of raw materials needed to create the final product. For example, in the case of a
physical machine there are a number of parameters including:
What product is being made?
Are the raw materials available?
How efficient is the process designed?
How efficient is the machine?
The parameters are similar for the human system with some correlations and one major ad-
dition. While assembly lines need raw materials, a final product goal and an efficient proc-
ess, there is no challenge to have a machine work consistently at a high level. In contrast,
an employee, whether that is a scientist or a sales clerk, needs to be engaged in their work
to be truly effective.
And unlike physical and financial systems, employees can become disengaged and perform at
less than peak efficiency unless there is a constant level effort to keep employees tuned up
and running well.
The Broken HR Process
As ludicrous as it seems for our fairy tale CFO and COO to walk away from their processes for
ten months out of the year, that’s exactly what some companies do with their employees.
Set their goals at the beginning of the year and then ignore them and hope things go well
until performance evaluation at the end of the year. During which time engagement falters,
priorities change, external business pressures shift and issues arise that stonewall progress.
And how do organizations address this broken process?
…By making the same mistake all over again the next year.
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 3
The Goals of HR Processes (Performance, Rewards & Development)
In keeping with our 365 day theme, we are going to look into three HR processes that can
have a direct impact on driving high performance and the completion of goals with existing
employees over a calendar year. The three processes are performance, rewards and devel-
opment activities. As the definition of the titles of these areas can vary, the definitions that
we’ll be working under are:
Performance: The process that starts with setting what is expected of the employee
with regards to assigning goals, competencies and development activities and provid-
ing regular feedback, and ends with an evaluation.
Rewards: Compensation in the form of increases, bonuses, stock awards, benefits or
other non-cash awards that drive individual focus and corporate success.
Development: Any targeted activity focused on increasing skills and effectiveness
including seminars, books, workshops, online classes, mentoring or other training.
The balance of this discussion will focus on these HR processes that drive performance and
engagement for employees in their current positions.
Doing it, but not doing it well…
Every established organization runs these processes in some way or another. Some processes
are more formal and some less. But the question is, are these processes being run effi-
ciently and are they having the correct outcome?
Stage 1: Organization performs HR processes for tactical reasons
HR Process Tactical
Performance To drive bonuses and merit increases
Compensation Increases are expected by employees population
Development To adhere to a corporate training policy
Stage 2: Company has some strategic goals behind HR processes
HR Process Tactical + Some Strategic
Performance Find top performers
Compensation Reward and retain the best employees
Development Improve skill sets of employees
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 4
Stage 3: Activities driving high level strategies
HR Process Strategic
Performance Drive better individual, team and corporate performance
and improve employee engagement
Compensation Use rewards to drive employee focus and overall perform-
Development Improve skill sets of employees in areas needed to achieve
top goals and improve employee engagement and satisfac-
Those companies that are performing HR for tactical reasons (Stage 1) are closer to our
fable characters than they would probably like to admit. The tactical focus yields proc-
esses that are locked in their timeframe and ignored the rest of the year. Annual HR proc-
esses tend to be ones that employees and managers don’t look forward to, would rather
avoid and don’t tend to perform well.
Stage 2 is the beginning of wrapping HR processes in a strategy, but they are isolated not
integrated to drive company success. These strategies are part of layered benefits that
the processes can create, but they aren’t integrated to leverage each other and drive a
total benefit for organization as a whole.
During most performance processes managers are asked to create “stretch goals” for em-
ployees. Stage 3, the example of the most strategy-driven HR processes, should contain
stretch goals for organizations as a whole. It’s this level that will drive both individual
performance and corporate performance.
Putting it Together
Putting together the two concepts that there is an Employee System and Strategic HR
Processes, how do the two work together, and how can the concepts be applied in the real
world? While there is some small overlap between the concepts, they can be thought simi-
lar to an 18-wheel truck and the processes that keep that truck in tune and running well.
Let’s look at the elements of each.
The Employee System needs all the following items that were defined earlier:
Goals that are aligned to corporate strategy
Competencies, values and behavioral guidelines
Manager interaction to provide feedback and remove road blocks
The correct skills to achieve goals
The motivation to achieve goals
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 5
Strategic HR processes are used to ensure that all of these items are available and up-to-
date for employees. The key being “up-to-date”, without regular updates information be-
comes outdated and motivation wanes. To complete this analogy if our Employee System
was an 18-wheeler with a year-long job to deliver materials all over the country from one
city to another and didn’t check it’s oil, test its brakes or call in to see if a schedule had
changed, how successful would the year be?
Strategic HR: 365 Days of HR
To be strategic HR processes have to break free from their focal periods and become part
of the week to week activities of managers and employees. Processes must become some-
thing that managers and employees choose to do because it makes their lives easier, not
because HR sets a deadline for a performance evaluation to be completed or a compensa-
tion award to be given. Also, different HR processes must be integrated and driving to-
ward a consistent HR strategy, so that the benefits that each individual process creates
can be leveraged by the others.
Here are some examples of how a 365 day HR process could work compared to how many
organizations use them today:
Process Annual HR HR 365
Performance Goals and competencies set at Goals and competencies set at the
the beginning of the cycle beginning of the cycle and are
Goals and competencies status aligned to support corporate initia-
are not updated throughout tives
the year Goals status updated by employees
Goals and competencies for- throughout the year
mally evaluated at the end of
the cycle Progress
Goals status reviewed by managers
regularly to provide assistance and
Goals and priorities updated, ad-
justed and documented on a regular
basis by managers
Goals and competencies formally
evaluated at the end of the cycle
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 6
Process Annual HR HR 365
Rewards Merit increases and bonuses Merit increases and bonuses
awarded after formal per- awarded after formal performance
formance evaluations evaluations
Compensation changes available
through a formal approval process
to maintain focus, engagement and
employee loyalty throughout the
year, examples being:
Retention bonuses or ad-
Development Development needs defined Initial development needs defined
at the beginning of the cycle at the beginning of the cycle
Development needs not up- Development needs aligned with
dated throughout the year competencies and goals
Development needs formally Development needs status updated
evaluated at the end of the regularly by employees
cycle Development needs and priorities
adjusted and documented as ex-
pectations are adjusted
Development goals formally evalu-
ated at the end of the cycle
By making these processes more interactive throughout the year organizations gain in mul-
tiple ways including:
Corporate agility to shift priorities and add, delete or adjust goals
Greater engagement of employees through visibility into how their efforts affect
Improved goal status tracking on an individual and corporate level
Better communication between employee and managers
Driving retention and short-term focus through the efficient use of rewards
Better budget control by a formalized off-cycle rewards process
Aligned development activities to project and competencies
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 7
Getting There from Here
A survey of nearly 700 companies performed by the Human Capital Institute found that
only 25% of organizations updated goals (Table 1), while 66% agreed that changes in corpo-
rate priorities are not adequately captured and reflected in individual goals (Table 2).
Table 1: Frequency with which the corporate culture encourages defini-
tion and adjustment of employee goals*
Table 2: Corporate priority changes that occur throughout the year are not adequately
captured and reflected in an employee’s measured goals*
*Human Capital Institute: Performance Management Processes and Practices, September
There are two key elements to moving to HR 365. The first is to move the responsibility
and tools to perform these talks out of HR and into the hands of employees and managers.
As long as these processes are viewed as “HR’s job”, they will not be able to be transi-
tioned to a regular activity used to manage goals, progress and priorities.
HR 365: Maximizing the Strategic Value of HR by Breaking Free of Annual Processes 8
This is challenging in itself, but if one rule is followed, it is possible. Make the new process
something that is focused on giving benefits to line managers and employees. If this process
can take work out of the day, it will be more attractive to the participants. Or, if the new
process enables managers and employees to do something they could never do before, such
as enable managers to see the progress of the team on vital projects without requiring status
spreadsheets, emails or word processing documents. Another example is to provide employ-
ees with a mechanism of knowing the project that will get them closer to a quarterly bonus.
The second key is to maintain the process and keep the momentum built. Without an ongo-
ing commitment to HR 365, the benefits will not materialize. All the elements must be inte-
grated and leveraged.
The easiest way to bring these elements together is through automation. Having an inte-
grated system provides employees and managers with the tools and reports necessary to set,
update and see all of the elements necessary to manage the talent necessary to maximize
corporate success. But automation is not the entire answer, and will not provide high levels
of value without a keen focus on change management and communication. Culture change
requires strong executive commitment, skill training for employees and managers on goals
setting, communication, proper follow-up and accountability.