book.chapter Define business strategy

The evolution of the Human Resources (HR) role within firms has been significant over the past century, transitioning from a purely administrative function to a strategic asset. Initially, HR was focused on administering benefits and payroll. However, by the 1990s, HR began to be recognized for its strategic value in various areas, including personnel management, compensation, alignment with management's objectives, and fostering high-performance cultures. In the current digital business era, a new paradigm is emerging where wealth is created through intangible assets, highlighting HR's direct impact on business performance. This shift underscores the importance of HR in executing a firm's business strategy effectively, with a focus on how people create value within the firm and how this value creation can be measured and optimized through a well-structured HR architecture. An effective HR architecture comprises three main components: the HR function, the HR management system, and strategic employee behaviors. Modern HR managers are now more focused on delivering HR services that directly support the business's strategic goals, acquiring competencies required for strategic human resources management. The HR management system aims to maximize the quality of the organization's human capital by implementing policies and practices that link promotions to competencies, provide skills training, and attract and retain high performers. Strategic employee behaviors encompass all actions by employees that are productive in implementing the firm's strategy, including behaviors that stem from core competencies and those required at key points in the value chain, with a focus on motivating appropriate behaviors. To effectively measure HR's contribution to a firm's success, HR needs to demonstrate its role in controlling costs, creating value throughout the strategy implementation process, and adopting new metrics that are part of the value-creating process itself. This requires HR practitioners to restructure their role using new tools and focus on a few key measures that can be tracked. Understanding the business's strategy is crucial for developing an HR scorecard that aligns with the firm's goals. As the field progresses, measuring intangible assets more accurately will become increasingly important, offering a new perspective on the value of human capital and its impact on a company's performance. This approach not only links HR to firm performance but also fosters a new understanding of HR functions, practices, and professional development, highlighting the significant benefits of this measurement approach.