To be an effective HR professional, you have to know what your business is about (i.e., how your firm makes money). As Professor Armen Alchian reminds us:
“Don’t lose perspective of what business is all about. Absolutely nothing you do on the inside means anything unless it results in positive cash flow from the outside. Value is defined by the outside (e.g., the customers, investors, society). If all internal actions and activities don’t result in an increase in top line revenue, the internal actions are worthless.”
As HR professionals, we need a deep understanding and knowledge of the outside world if we want our internal actions to have a real business impact. Effective HR professionals must look outside to identify opportunities for business growth by knowing their firm’s business context and stakeholders. This includes a deep knowledge and understanding of the firm’s external business context (what we at the RBL Group refer to as STEPED) and key stakeholders, which includes both internal stakeholders (e.g., employees, line managers, the organization) and external stakeholders (e.g., customers, investors, communities, governments/regulators). As Dave Ulrich often notes, “We need to look outside in to connect our internal HR activities with our business context and key stakeholders always in mind.”
Understanding External Business Context
(The STEPED Tool)
If your company is looking to grow in countries such as Mongolia, Nigeria, Russia, the Middle East, Ghana, Iraq, or China, what do you as an HR professional need to pay attention to and what issues do you need to bring to the table for discussion?
The RBL Group summarized contextual factors a firm faces with a simple mnemonic: Social, Technical, Economic, Political, Environmental, and Demographic. These are trends that need to be considered in the creation of any profitable growth strategy. HR professionals should have knowledge of their external business context and trends in their industry to help enable the firm’s growth strategy.
The table below is a useful tool we use in the RBL Institute to help HR professionals identify country or industry trends that affect the business context, and ultimately, the firm’s profitable growth strategy.
Table 1: Identifying Country or Industry Trends using the STEPED Tool
When HR professionals understand these contextual factors, they can anticipate opportunities for revenue growth. For example, regulatory or demographic changes may give rise to business opportunities. HR professionals should be aware of these external factors to anticipate new business opportunities.
Understanding Key Stakeholders
Too often, when asked, “who are your customers?” we as HR professionals answer, “our employees.” This is partially correct. HR is NOT all about the internal employees of the organization. As the figure below illustrates, there are many key stakeholders for HR professionals to consider when developing a profitable growth strategy (such as investors, customers, and communities).
Figure 1: HR Outside In: HR Creates Value for Key Stakeholders
Above the line in Figure 1 is outside the firm (customers, investors/owners, partners/dealers), but most of our assumptions about leadership are focused inside the firm on employees and line managers. HR needs to shift the focus to the outside stakeholders. Profitable growth comes from customers and investors. Outside in leadership helps growth, especially with investors (see The Leadership Capital Index by Dave Ulrich).
HR practitioners sometimes focus too much on internal stakeholders (employees and line managers) and lose sight of how HR delivers value to the firm’s external stakeholders (customers, investors, communities, etc.). HR professionals need to understand key external stakeholders to help drive profitable growth in their organization and should be more like anthologists who get out and observe the world and then apply those insights back into the firm. When HR attends to external stakeholders (customers, investors, communities), they enable profitable growth.
Here is a simple tool we use in the RBL Institute to see if HR is attending to outside stakeholders:
RBL’s HR Professional Outside In Diagnostic
- Do I see my organization through the eyes of the customers, investors, suppliers, regulators, and other external stakeholders?
- Am I aware of general business conditions that affect my industry and organization?
- Do I spend time with external stakeholders?
- Do I align my HR work with expectations of external stakeholders?
- HR professionals must look outside to anticipate and identify opportunities for growth by knowing the firm’s context and key stakeholders.
- HR professionals should have knowledge of the external business context and trends in their industry to help enable the firm’s growth strategy.
- STEPED: The Social, Technical, Economic, Political, Environmental, and Demographic trends that need to be considered in the creation of any profitable growth strategy.
- HR’s Key Stakeholders: HR is NOT all about the internal employees of the organization. When HR attends to external stakeholders (customers, investors, communities), they enable profitable growth.
Outside-In HR Implications:
- Anticipate and identify outside trends affecting your business.
- Gain external insights and knowledge and import the information back into the organization.