Competing in the New Landscape
by Gordon Hewitt

Attend any meeting of HR professionals and you will find a high level of unanimity about their most important challenge and aspiration. It is for the HR function to become a more effective strategic partner. The debate, however, about what exactly that means in practice—both in terms of an agenda for action and a scorecard for value creation—exposes a much greater variety of views.

In many ways, this reflects a genuine diversity of opinion about the changing meaning of the two words which constitute the aspiration, i.e.,

  • What is the real nature of the “strategic” challenge facing so many corporations in the emerging global competitive landscape?
  • What is the meaning of a “partnership” in terms of mutual roles and reciprocal responsibilities?

It is critical to understand legacy factors. On the one hand, what businesses describe as their strategy often constitutes a highly generic vision statement coupled with a detailed operating plan. This may be unsurprising given the legacy of strategy as an exercise in positioning within a defined industry with known competitive rules. For many corporations, the strategic agenda has been about improving operational efficiency, e.g., increasing quality, enhancing customer service, becoming cost effective, attaining six sigma standards, etc.

On the other hand, the modern HR function has emerged from a strong focus on procedures and processes to support the operating plan. Policies for hiring, appraisal, development, compensation, change management, diversity, and so on have become the weapons in the HR ammunition bag. Efficiency of HR processes and ensuring best practice became the scorecard for success.

The need for operating efficiency as a precondition for robust and credible business performance, and the need for HR to operate effective, aligned processes is not in dispute. In the emerging global competitive landscape, however, these are necessary but insufficient grounds for competitive success.

The result of these legacy factors is that HR has traditionally defined being a strategic partner by posing the question, “Given the strategy of the business, how can HR develop a set of supporting processes and capabilities?” The premise behind the question, however, may no longer be robust for three reasons:

  • It assumes that HR is connecting to a genuine strategy rather than a medium term operating plan.
  • It assumes that HR’s added value derives from best practice processes.
  • It assumes that the partnership role of HR lies predominantly in the executional dimension of strategy.

The strategy challenge facing corporations, however, is fundamentally shifting from an exercise in positioning to a process of discovery. It highlights the limits of the current “It’s all about execution” bandwagon. It requires HR to develop a different response based on co-creating strategy, preemptively creating new competitive capabilities, and de-risking the migration path to the future.

 

Strategy in the New Competitive Landscape

Traditional strategy debates have usually started with the question, “Given our industry, how do we outperform the competition?” Or in sporting terms, the key focus for strategy has been how to play better rather than rethink the nature of the game and the rules. The key assumption has been that the secret to superior value creation lies in extracting inefficiency from an existing value chain.

Executives today, however, are facing new competitive realities. Their landscape is shifting in highly unfamiliar ways as traditional industry maps give way to more ambiguous fluid spaces whose characteristics are perpetually morphing. Healthcare, entertainment, consumer electronics, information technology, telecommunications, financial services and energy are all examples of competitive arenas whose boundaries and structure no longer conform to established patterns.

Many factors are at work as competitive landscapes evolve like complex, adaptive systems. Convergence of product categories (e.g., cell phone as camera), technologies and knowledge arenas are causing disturbance to traditional units of analysis within the value chain. More complex value networks are emerging in which competitors, suppliers, consumers and collaborators play multiple, overlapping roles.

The Internet, despite the high corporate casualty rate during the dot-com mania, continues to chip away at one of the last bastions of market imperfection, namely information and knowledge asymmetry. Internet-enabled consumers with previously unattainable levels of insight are altering the traditional dialog in the marketplace. Medical patients no longer tremble in fear of asking their physician for a second opinion when they already carry thousands of global opinions into their appointment.

The economies of such countries as India and China, normally labeled as emerging, are offering very different opportunities from their original attractiveness as low-cost outsourcing locations. They are becoming the source of radical business model innovation in industries from healthcare to recorded music. Consumers at the bottom of the pyramid may have a more decisive role in shaping the future of many industries than their more financially advantaged cousins in first-world economies.

Add to the above the ever-changing world of de-regulation and re-regulation—plus the emerging economics of the digital revolution, which are still causing significant disturbance to the long-held economic and business models of industries such as recorded music—and it is easy to see why the central challenge for strategy is the capacity to shape industry evolution and the need to rethink the nature of the game and the rules.

Consider how aircraft engine manufacturers such as GE and Rolls Royce are experimenting with new models which require the integration of engines, service and inventory logistics systems, plus informatics and finance, in order to provide solutions to airlines which go well beyond the old game of engine performance and efficiency. Drug companies are attempting to apply new genomic sciences and advanced diagnostic systems to their traditional blockbuster drug business models as the potential economic value of preventive systems opens up different opportunities to conventional curative medicine. The Sony Corporation has declared its intent to move from being a consumer electronics firm to a digital entertainment company, while Intel and Microsoft are trying to locate new sources of profitable growth outside the dominance of their franchise in personal computers.

Such strategic ambitions involve a challenging journey of discovery. They highlight the need for deep thinking about strategic direction, and alter the nature of the execution agenda to one of rapidly acquiring new organizational competencies based on new knowledge, new business models, new mindsets for new games—not simply enforcing discipline in the achievement of known efficiency targets.

Additionally, they raise new questions about how to resolve internal governance tensions between relatively autonomous business units in the modern corporation. Many opportunities to create a new game strategy span multiple businesses and require a level of horizontal, collaborative management which goes well beyond an agenda for transferring best practices. This is about creating “next practices”. For example, Sony’s new CEO, British-born and now USA-based Howard Stringer, is examining how a corporation with both products and competencies across a wide range of consumer electronics, PCs, and recorded music could not develop an I-Pod before the Apple Corporation launched what has become the dominant brand in portable digital music.

 

Challenges for HR

The issue for HR is whether it can make a proactive, not reactive, contribution to the journey of discovery as a true partner in shaping strategic direction and resolving strategic dilemmas. If HR practices, however well-intentioned, are themselves rooted in old game logic, they may reinforce old game assumptions about organizational and leadership development. The key challenge is whether the HR agenda is primarily focused on enabling the enterprise to play existing games better, or to proactively create new mindsets for new games. Even issues such as building organizational speed and agility require a robust context. Enabling the business to play the wrong game better is an outcome HR should avoid.

So here are a few questions for HR professionals to consider in order to become a different kind of strategic partner and create value in a different way.

  • How can we develop a cadre of executives with insight into new opportunities which occur at the perimeter of our industry, knowledge and experience? What changes would we make to traditional executive development systems to make this happen?
  • How can we partner with the business to remove sources of organizational inertia which make it difficult to escape the past and invent the future? Can we lead a healthy, on-going process to encourage executives to examine and challenge deep-rooted assumption structures and orthodoxies?
  • What is our role in building an organization-wide capability in innovation, particularly in creating new business models, not simply new products? What processes do we have to leverage innovation across all boundaries of the enterprise?
  • How do we create a capacity for new knowledge discovery, not simply transfer existing knowledge? How do we ensure that the business maintains a healthy absorption rate of new knowledge, especially if it threatens old knowledge?
  • How can we enable the enterprise to take inter-business or inter-functional collaboration to a new level in order to access new game convergence opportunities? Where is our I-Pod? Do we need to develop legitimate horizontal HR metrics which span multiple businesses and track horizontal value created?
  • What is our agenda for being a “next practice” global corporation? How do we alter our sense of globality from geography to capability? Are we creating genuinely global executives rather than multi-domestic ones?

These questions are just a start. In the same way that business executives are being forced to confront their own assumptions and orthodoxies in the new competitive landscape, HR professionals should experience a similar discipline.

After all, empathy is one of the most critical features of healthy partnerships.

Gordon Hewitt is Distinguished Professor of International Business & Corporate Strategy at the Stephen M Ross School of Business, University of Michigan, and a member of Duke CE's Global Learning Resource Network. Gordon has an international reputation for his work in developing strategic and organizational capability for dynamic, complex markets. Widely regarded as one of the world's top executive educators, he has worked extensively with CEOs and Directors of Fortune 500 corporations worldwide, especially on innovative ways to link corporations' executive development agenda to their strategic agenda.