Lynda Gratton and Catherine Truss Executive · PDF fileLynda Gratton and Catherine Truss Executive Overview ... Based on our ten-year study within seven ... Kraft Foods (a food com

The three-dimensional peoplestrategy: Putting human

resources policies into action

Lynda Gratton and Catherine Truss

Executive OverviewEveryone knows that good people management enhances corporate performance. Not

so obvious is that successful people strategies are three-dimensional, each dimensionrequiring an equal amount of attention. Based on our ten-year study within sevendifferent organizations, we propose a three-dimensional model that executives can use todetermine the current state of their people strategies along the three dimensions, using ashort questionnaire to aid in the diagnosis. Armed with this information, executives willthen be able to address any apparent shortcomings along the three dimensions. A keyfactor to emerge is that the emphasis needs to be as much on making it happen in theday-to-day life of the organization as on developing good people strategies in thefirst place.

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When we talk about people strategy, we mean astrategy, with its underpinning policies and pro-cesses, that an organization develops and imple-ments for managing its people to optimal effect.Why is it that, despite their best efforts, organiza-tions so often fail to develop and implement suc-cessful people strategies? We have just completeda ten-year study in seven large organizations: BT(a UK telecom company); Chelsea and WestminsterNHS Trust (a public hospital); Citibank (a globalbank); Glaxo (a global pharmaceutical company);HP (a computer company); Kraft Foods (a food com-pany), and Lloyds-TSB (a UK national bank). Theresults from the sample of 4,500 employees we sur-veyed are not encouraging:

• 15% believed senior management was well-informed about what employees think and do

• 34% did not have a great deal of trust in man-agement

• 20% agreed that their HR department had a clearstrategy guiding its activities

• 35% thought the appraisal system enabled anaccurate assessment of people’s strengths andweaknesses

• 34% felt their HR department was competent atits job

• 48% thought people’s work goals were clearlydefined

• 36% agreed that people received the trainingthey needed to do their jobs well

These discouragingly low percentages are the av-erage responses for the total employee sampleacross three times studies (1994, 1997, and 2000).We did find that the people strategies of somecompanies were significantly stronger at sometimes than others. We shall later describe theseresults and how they were achieved. However, theaverage results do make depressing reading, andwe have no reason to believe that better resultswould be obtained from other firms. If anything,these findings are likely to be more positive thanmost, since these organizations were keen partici-pants in our study. Part of the problem is that mostexecutives are unwilling to ask the difficult ques-tions posed in our surveys, and so they never findout how successful their people strategy really is.

Our study of the development and implementa-tion of people strategies has spanned seven differ-ent organizations and lasted the course of an en-tire decade.1 During that time, we have witnessedline executives and their HR colleagues grapplingwith many of the complex situations that face allcorporations at some time in their existence—

� Academy of Management Executive, 2003, Vol. 17, No. 3

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mergers, takeovers, corporate crises, large-scaleredundancy programs, and significant product andservice market changes. We have seen how firmshave gone about leveraging corporate success, de-spite the odds, through creative and innovativepeople-management strategies. We have alsoborne witness to the many mistakes, frustrations,and traumas inevitably experienced by these ex-ecutives and their organizations over the sameperiod. It is from this unique study that we drawour examples, cases, and lessons.

In this article we introduce a three-dimensionalmodel of people strategy. It is based on a verticalalignment dimension between people strategy andbusiness goals; a horizontal alignment dimensionbetween individual HR policy areas; and, finally,an action or implementation dimension to repre-sent the degree to which the people strategy is putinto effect through the day-to-day experiences ofemployees and the behavior of line managers. Us-ing detailed case studies, we illustrate the possi-ble variety in people strategies, highlight the waysin which companies achieved strength along eachdimension, and demonstrate the dramatic differ-ences between the roles, competencies, and aspi-rations of the different HR functions. A key mes-sage is that the bridging from business goals toemployee performance requires not only policiesbut also a determination to act, as seen throughactual practices.

The bridging from business goals toemployee performance requires not onlypolicies but also a determination to act,as seen through actual practices.

The Three Dimensions of a People Strategy

Should every company adopt a similar peoplestrategy and simply aim to establish best practicein each of the HR policy areas? Over the last de-cade, there have been attempts to describe peoplestrategy as an internally coherent set of HR poli-cies and practices. This endeavor has proven to beboth difficult and elusive. As one might expect,there appears to be no one single “ideal type” ofpeople strategy with a set of HR policies and prac-tices that can be adopted off the shelf by organi-zations seeking to manage their people more stra-tegically.2

Vertical Alignment

The reality is that an appropriate people strat-egy must vary according to organizational circum-

stances.3 The key circumstances are businessgoals and strategies. Our argument is that, in or-der to play a strategic role in the organization, theHR policies and practices that make up an organi-zation’s people strategy should reflect, reinforce,and support the organization’s business aims andobjectives.4 A strong linkage is needed betweenthe overall vision of the organization that is held inthe minds of the senior executives and the aims,objectives, and underlying philosophy of the or-ganization’s approach to managing people. Thislinkage will ensure that HR interventions can be-come a creator, and not an inhibitor, of sustainedcompetitive advantage.5 This link between peoplestrategy and business-unit strategy we term verti-cal alignment.

We have chosen to refer to alignment and not fit;the distinction is fine, but significant. Fit implies arelationship between two discrete entities; align-ment suggests a much more fluid dynamic thatallows for variation and flexibility. We are notadvocating a mechanistic “matching” exercise be-tween business strategic objectives and peoplestrategies; often, such matching is simply not fea-sible and, in any case, will act as a constraint.6Instead, the process is evolving, based on an un-derstanding of what the business’s goals are, theirpeople implications, and the translation of theseinto an overarching people strategy that can beused as a basis for detailed HR policies.

Horizontal Alignment

Vertical integration is a crucial dimension of apeople strategy. But it is not sufficient. The seconddimension is horizontal alignment.7 The first di-mension, vertical alignment, is concerned with thelink between the corporate and business strategyas a whole and the firm’s people-managementstrategy. The second dimension operates at thelevel of individual HR policy areas. The aim here isthe achievement of a coherent and consistent ap-proach to managing people that permeates theentire activities of the HR function and other or-ganizational functional areas, and we are talkinghere at the policy level, not the practice level. Thisdistinction is important, because we treat puttingpeople strategies into action as a separate dimen-sion. Achieving a high degree of horizontal align-ment implies that an organization has embracedthe value of developing and articulating clear HRpolicies that consistently relate to one another. Ata more fundamental level, the firm is able to com-municate consistent and reinforcing messages toemployees.

2003 75Gratton and Truss

Although at first sight vertical and horizontalalignment may appear to go hand in hand, ourresearch has shown that this is not necessarily thecase.8 Firms that achieve high levels of verticalalignment may not exhibit strong horizontal align-ment, and vice versa. This is because the twodimensions operate at different levels. Verticalalignment is concerned with whether or not theoverarching people strategy pursued or implicit inan organization’s actions supports the organiza-tion’s strategic direction. Horizontal alignment, onthe other hand, is concerned with the degree ofinternal coherence and consistency in the firm’sstated HR policies.

These first two dimensions are depicted in Fig-ure 1. The upper-left quadrant represents an or-ganization whose HR policies are, though inconsis-tent with each other, still aligned with the firm’sbusiness goals and strategies. In the lower-leftquadrant, HR policies are neither coherent/consis-tent nor aligned with business goals/strategies.For the firm in the lower-right quadrant, HR poli-cies are internally coherent/consistent but notaligned with the firm’s business goals. The idealsituation— consistent and coherent HR policiesaligned with business goals and strategies—isdepicted in the upper-right quadrant. Now let ussee what happens to these as yet theoretical orpaper concepts when they are put, or not put, intoaction.

The Action Dimension

The third dimension is action or implementation.Much writing about HRM at the strategic level hastended to assume that the vertical and horizontaldimensions are sufficient. The mere existence ofHR policies and a people strategy is believed to besufficient to ensure action. The question of whatactually happens once the strategy statement hasbeen written or the policy document signed offhas received scant attention.9 Yet, as our researchhas shown, translating HR policies into actionwould appear to be absolutely fundamental to thequestion of whether an organization is deliveringin the area of people management. For this reason,we separate out action as the third dimension ofpeople strategy.10

This action dimension has two separate butclosely interrelated aspects. The first concerns theexperiences by employees of HR policies. For ex-ample, the policy on appraisal may state that em-ployees have four performance feedback sessionswith their manager every year and that they areappraised on five different competencies. If this is,indeed, the experience of employees, then policyhas been turned into action. If, on the other hand,employees are rarely party to performance feed-back and if, when they are, the manager concen-trates on only one criterion, then the organizationhas failed to put policy into action. The secondaspect of action is subtler and focuses on the be-

FIGURE 1The Two-Dimensional Model of People Strategy

76 AugustAcademy of Management Executive

haviors and values of the managers as they areimplementing policy. In their attitudes, conversa-tions, and body language, managers send out veryclear messages about their attitude toward andsupport of policy.11

The Three-Dimensional Model of People Strategy

Figure 2 adds the action/inaction dimension to Fig-ure 1. Our research has shown that there is muchvariety among companies in this three-dimen-sional model of people strategy. We found that atany point in time a company has its unique dimen-sional signature in terms of where it stands on thethree dimensions:

Vertical Alignment: the alignment between thebusiness goals and the people strategy.

Horizontal Alignment: the internal alignment be-tween the set of HR policies making up the peoplestrategy.

Action: the degree to which HR policies are en-acted or put into practice, as judged by employeeexperience and management behavior and values.

Our research also shows that organizationsmove about within the three-dimensional space.As our examples demonstrate, external events canoccur and internal decisions can be taken thatcreate new scenarios and shift the people strategyinto a new dimension.

At the front of the three-dimensional cube shown

in Figure 2 are the four variations of the two-dimension model in which HR policies—in all theirforms—are achieved. However, at the back of thecube are four corresponding variations of peoplestrategy characterized by a total lack of action. Wehave termed these “mere tactics speak,” “mere pro-cess speak,” “mere strategy speak,” and “mererhetoric.” We have found that executives benefitsignificantly from gaining a thorough understand-ing of these eight people-strategy variants and thecontinuums along which they vary. Often, execu-tives are aware that their current people strategyhas weaknesses as well as strengths, but they areunable to pinpoint the underlying reasons. Know-ing their relative position in the cube enables themto identify precisely the source of the problem andtake appropriate action.

We first turn to the non-action variations of peo-ple strategy. HR policies may (or may not) be inter-nally consistent and may (or may not) be alignedwith business strategies, but nobody does any-thing about it.

1. Mere Tactics Speak

Weak vertical alignmentWeak horizontal alignmentWeak action

At its worst, this variation occurs when the or-ganization has no discernible people strategy and,

FIGURE 2The Three-Dimensional Model of People Strategy


therefore, there is no relationship (or only a verytenuous one) between people strategy and busi-ness unit objectives. Moreover, there is little dis-cernible relationship between the various HR pol-icies themselves, and in some cases, policies inone area may act to undermine those in another.This situation would hold, for instance, in an or-ganization which evaluates employees on their de-ployment of a particular skill set in their work butthen fails to provide them with the opportunity toacquire these skills. In such a situation, productiveaction is almost impossible. This type of peoplestrategy is most often found in small organizationswith no dedicated HR function or where HR is in anembryonic state, viewed as someone’s part-timeresponsibility.

Chelsea and Westminster Hospital in 1994

In the 1993–94 study of the Chelsea and West-minster Hospital, the situation was “mere tacticsspeak.” The incoming HR director was faced with ascenario where she had a workforce of over 2,000staff but no statement or shared understanding ofthe people strategy. Only 27 per cent of employeesthought the HR department had a clear overallstrategy guiding its activities. There were few for-malized HR policies, and no systematic attemptshad been made to link them to each other or to thehospital’s goals. For example, only 26 per centagreed that people’s work goals were clearly de-fined, and only 36 per cent agreed that peoplereceived the training they needed to do their jobswell. As a result, the hospital was failing to recruitand retain the individuals it needed at all levels,morale and attitudes towards the HR departmentwere negative and, crucially, patient care needswere not being met in some areas. Only 23 per centof staff surveyed agreed that the hospital inspiredthe very best in job performance from them. How-ever, as we shall see, by the time of the 2000 study,this new HR director had significantly strength-ened both the second dimension, the horizontalalignment of people policies, and, more signifi-cantly, had put them into action.

2. Mere Process Speak

Weak vertical alignmentStrong horizontal alignmentWeak action

We saw this variation in firms where the HRfunction has a strong, integrated set of HR policygoals that are disconnected from the overall objec-tives of the business. Additionally, these well-described policies are inadequately put into effect.

This situation can occur when there is a strongdisconnect between the senior HR team and thebusiness managers or where the senior HR teamhas weak strategic or business skills but high lev-els of process expertise. As a consequence, HRpolicies are developed in a sophisticated mannerin isolation from the business imperatives. Thisexpertise then fails to be translated into action,most often because of lack of line support for HRinitiatives which are seen to be unrelated to busi-ness goals.

Citibank in 1997

In the 1997 study, Citibank was pursuing a strategyof organic growth through building strong relation-ships with key clients, a move away from its strat-egy in the early 1990s of a focus on products. TheHR function in 1997 was undergoing a period oftransformation: from administrative support to cre-ating stronger horizontal alignment across its pol-icy areas. A key plank in this change was theTalent Inventory, a new process with 10 key per-formance indicators to aid in employee selection,leadership, development, and succession plan-ning. On the face of it, the Talent Inventory re-presented a significant step toward achievinghorizontal alignment within HR.

However, we discovered that while the policyand instruments were well developed, the TalentInventory was not being systematically used byline managers. Only 29 per cent of employeesthought the appraisal system enabled the com-pany to gain an accurate understanding of peo-ple’s strengths and weaknesses. By the time of the2000 study, the Talent Inventory had failed to gaintraction in the company. It may have been the righttool, but those managers who had to make it workdidn’t think so. A sound and potentially beneficialprocess stayed at the level of “talk.”

3. Mere Strategy Speak

Strong vertical alignmentWeak horizontal alignmentWeak action

We observed this combination when the peoplestrategy is clearly articulated but is not translatedinto a coherent set of HR policies nor implementedby line managers. The senior HR team may be veryclose to the business and have high-level strategicskills, but for whatever reason they are not able totranslate these business objectives into HR poli-cies. For them, people strategy remains “merestrategy speak.”


Glaxo, 1997–2000

We saw a number of companies migrate to thisspace in the early phases of a merger. Glaxo Phar-maceuticals was a case in point. During the 1997study, the company experienced a major internalrestructuring through the merger with Wellcome.The focus of the HR team was on partnering withthe senior management team to manage themerger and on integrating one or two of the HRpractices with the business goals. But this efforttook time and, for a period of years, although thepolicies were aligned with the new business goals,the practices were far behind. As one member ofthe HR team put it, “We’ve come to a situationwhere none of our standard ways of doing thingswork any more, because they have rusted due tolack of use or because they don’t reflect the neworganization.” The strategic intent was there, butwithout HR policies focused action was impossible. Itwould take focus and resilience for the company torealign itself over the coming years to become drivenby people strategies and HR policies.

4. Mere Rhetoric

Strong vertical alignmentStrong horizontal alignmentWeak action

Here, there is a strongly articulated people strat-egy that is linked into the business strategy andalso demonstrates strong internal HR policy link-ages, but the whole is not put into action in theday-to-day behavior of managers nor reflected inthe experiences of employees. The HR team maybe highly skilled in policy development but eithermay have weak implementation capability or mayhave senior line management who fail to supporttheir activities. The people strategy looks good onpaper but is nothing more than a paper reality.

BT in 1994

We observed this “mere rhetoric” clearly in thepeople-management strategies at BT Payphones in1994. The strategies were geared toward achievingsignificant cultural change in order to enhancecustomer focus and individual performance in anorganization previously characterized by a “jobsfor life” mindset. Faced with severe competitionand the threat of product substitution through themass expansion of mobile telephone, the HR func-tion aggressively pursued a number of interrelatedinitiatives. First, a change program reinforced thenew set of values which was backed up by a Cor-porate Scorecard for measuring performance. Next,

a series of extensive training and developmentprograms was developed, including a LeadershipProgram, Total Quality Management, and “Involv-ing Everyone.” Finally, the Payphones People five-year plan was designed which included a staffattitude survey and a sophisticated performancemanagement system. Each of these separate poli-cies had been designed to achieve vertical align-ment by linking into the business goals and hori-zontal alignment by linking to each other.

However, by the time of the 1997 study, the im-plementation problems were apparent. The sheernumber and complexity of initiatives and policieshad overwhelmed line managers and, as a conse-quence, the impact of each individual initiativehad been lost. People were more confused thanmotivated. Perhaps more crucially, the cost-containment strategy pursued by the corporatecenter meant that annual redundancy targets wereset, targeting between 17–20 per cent of manage-rial-level jobs. This redundancy program was sup-ported by yet another program, termed Release.Clearly, the ethos of running a large redundancyprogram was at odds with the other, value-driveninitiatives. We found that, as a consequence, theinability to put the values program into action hadirreparably damaged the psychological contractbetween individual employees and the organiza-tion. As a consequence, cynicism about the gapbetween rhetoric and reality grew. By 1997, only 10per cent of the employees we surveyed agreed thatmanagement cared about the needs and morale ofemployees. The gap between the strong rhetoric ofthe values program and the reality of weak action-taking had created suspicion and mistrust in theminds of employees.

Later in the article we explore the means bywhich these inert or “shadow” people strategiescan move into the action dimension. We now turnto the four variations of the action dimension.

5. Tactics Driven

Weak vertical alignmentWeak horizontal alignmentStrong action

This combination characterizes the traditional“administrative” HR function that focuses on theimplementation of individual HR policies with lim-ited relationship to the overall aims and objectivesof the business or to each other. We found thisvariation associated with HR teams who were notregarded as a core business function but rather as“clerks of works” administering the support func-tion, often for a set of business goals which is nolonger appropriate.


Lloyds Bank in 1994

In the 1994 study, Lloyds Bank was the UK’s mostprofitable clearing bank, pursuing an aggressiveand very successful strategy of growth throughacquisition. Massive changes in business goalsduring that era saw the automation of bankingjobs combined with a renewed emphasis on sell-ing. Like other HR functions in the banking sectorat that time, many of the HR team had come fromline management banking roles. As a conse-quence, the function historically had diligentlyfollowed the protocols and policies of the bank,focusing on day-to-day administration of per-sonnel activities.

However, they were woefully ill-prepared tomeet the significant structural changes that wereoccurring in their sector at that time. Employees,worn down by “change fatigue” and concernedabout their jobs, failed to perceive any underpin-ning rationale to the changes. The traditional pol-icies and practices of lifetime employment andstability which had so successfully supported thebank’s relationship with its staff began to fallapart, and the incumbent HR team had neither theskill nor the experience to create policies and prac-tices more fitting to the competitive environment ofthe bank. As one frustrated senior manager com-mented at that time, “Trust levels are devastated;we have betrayed them.” By the time of the 1997study, much had changed. The HR team had beensignificantly professionalized and by 2000 wasworking as a key part of the strategic team of thebusiness.

6. Process Driven

Weak vertical alignmentStrong horizontal alignmentStrong action

This combination occurs in organizations wherethe HR team has weak business or strategic skillsbut excellent HR process skills, coupled with thecapability to translate these skills into practice.We found this to be a natural evolution from theTactics Driven combination.

Chelsea and Westminster Hospital 1997–2000

At the Chelsea and Westminster Hospital, as the1990s progressed, the new HR director, workingalongside the chief executive, began to effect somemajor changes. Her No. 1 priority was to establishthe credibility of the department by improving thedelivery of platform services, moving the hospitalfrom mere tactics speak to tactics driven. The next

phase was to examine in detail the HR policies andpractices within the hospital and to ensure thatthey were mutually reinforcing. Key to this effortwas developing an integrated people-strategystatement built around an “Employee Pledge.”This Pledge was developed in consultation withthe hospital employees and consisted of a set of“promises” that the hospital undertook to honor inthe treatment of its staff. It included such mattersas providing an Employee Assistance Program,providing staff with accessible information on allaspects of the hospital and its strategy, and help-ing to support staff in balancing home–work commit-ments. However, throughout this time, vertical align-ment remained weak, hampered in part by thecomplexity of the hospital’s business goals and theconflicting interests of the many stakeholders itserved. Without a unifying goal, it was difficult forthe team to establish strong vertical integration, andthroughout the study they remained Process Driven.

7. Strategy Driven

Strong vertical alignmentWeak horizontal alignmentStrong action

Here, we observed that the enactment of thebusiness goals is primarily a line managementresponsibility. As a consequence, there is a strongvertical driver, often enacted through the perfor-mance-management processes. However, some ofthe subtleties of reinforcing HR practices are lostthrough weak horizontal alignment.

HP in 1994

In the 1994 study, HP in the UK operated with anextremely low-key HR department. At the corporatelevel, the strategy for managing people wasstrongly articulated in the visionary statement, theHP Way, whose ownership lay very much withinthe line management of the organization. In thisway, the overarching people-strategy objectiveswere closely embedded within the strategic direc-tion pursued by the corporation. In the UK, theactual HR department was perceived to be rela-tively peripheral in the management of people,focusing more on implementation issues thanstrategy. However, this failure to draw on HR pro-fessional expertise had implications. First, the fo-cus on the HP Way occasionally meant that someelements of the people strategy peripheral to itfailed to be developed. Second, the HR team didnot always pick up on best practice in other com-panies. Finally, the HR team sometimes failed to


configure the corporate initiatives to align with thespecific nature of the changing UK context.

8. Strategy and Process Driven

Strong vertical alignmentStrong horizontal alignmentStrong action

In many senses, this represents the “ideal type”of people strategy: coherent HR policies aligned tobusiness goals and strategies, the whole imple-mented effectively. Our study showed this ideal tobe both difficult to achieve and hard to sustain.

Kraft Foods, 1994–2000

In Kraft Foods, we observed that over the period ofstudy, the company achieved alignment andmoved into action. In the early years of the decade,Kraft Foods went through a period of aggressivegrowth through acquisition. The HR team sup-ported this initiative by developing an extremelyefficient process for assimilating and integratingthe HR systems of the acquired companies. As aconsequence, the acquisition phase was dealt withrapidly, and new companies quickly became inte-grated into the parent firm. The firm’s second stra-tegic thrust of continuous improvement was sup-ported by a coherent and highly embedded set ofHR policies. These included recruiting and select-ing people according to a clear set of criteria, pro-viding targeted training and development, and of-fering line managers incentives to implement HRpolicy. At the same time, there was a strong per-formance-management process.

By the mid-1990s, the company experiencedchanged economic conditions, increased competi-tion in their core brands, and a lack of potentialtakeover targets. In response to these develop-ments, the business strategy changed to one ofgrowth through innovation. This re-direction re-quired a major cultural change, which was led bythe HR team. A new vision and values statementwas introduced and cascaded through the organi-zation. Over a period of two years, the perfor-mance-management system was refined to alignwith the new values of creativity and risk taking.Programs were put in place to develop new lead-ership skills to support these values. Finally, rec-ognizing that workforce diversity was becomingincreasingly important to innovation, the HR teaminstituted location and time flexibility and work–life balance programs.12

Kraft’s capacity to create a Strategy and ProcessDriven people strategy was reflected in extremelyhigh levels of corporate performance in compari-

son with their peer group of companies in the foodsector throughout the period of the study. We laterreturn to examine the foundations of their successin more detail.

Our research has revealed many variations ofpeople strategy which we have described alongthree dimensions. Knowing where your company isalong each of these three dimensions enables youto understand the challenges you face. It also high-lights those dimensions on which you should befocusing your attention.

The Appendix contains a short questionnairelisting the kinds of questions that executives canuse to determine where the organization currentlystands on each of the three dimensions. A scoringplan and guidance notes are also included. In thefollowing section, we explore how certain compa-nies strengthened their people strategy along eachof the three dimensions.

Achieving Strong Vertical Alignment

Get Quick Wins

Faced with the need to strengthen vertical align-ment, the most successful HR executives decided ona few key areas where they could quickly demon-strate a contribution and where the positive benefitsof change would be readily visible to significant linemanagers. In establishing what interventions wouldbe capable of delivering a short-term “quick win,”they had a sophisticated understanding of whichpeople processes would have a quick impact on thedelivery of the business goal.13 Lloyds TSB in 1997had created a professional HR team keen to estab-lish a couple of quick wins by responding to thestrategic proposition of building an innovative prod-uct offering. Within a couple of months, they hadrecruited executives from FMCG (fast-moving con-sumer goods) companies to realign what was themarketing function of a traditional bank around theskills demonstrated within an FMCG context. Theywere also able to kick-start the “innovation” busi-ness goal fairly quickly by rapidly designing andimplementing short-term training programs whichcommunicated the new business goals, key con-cepts, and their new behaviors to a large number ofemployees.

Gain Reputational Effectiveness

The temptation for many of the HR functions in ourstudy was that, when faced with organizationalturbulence, they focused their resources on theirown needs. As a consequence, they failed to gainreal traction in these difficult times. We heard HR


executives say, “We would do so much more if onlywe had more resources” or “We can’t be strategic;we don’t have time.“ However, the way that themost successful HR departments in our study se-cured the resources they needed was by meetingthe business-goal expectations of their line-management colleagues (vertical alignment). Bydoing so they were creating “reputational effec-tiveness.”14 As a counter example, in another or-ganization the HR function failed over a longperiod of time to achieve any reputational effec-tiveness. When we asked one line manager whathe thought the HR department did, his commentwas, “I think they do some administration andsometimes get things wrong.” Needless to say, thisparticular HR department saw a steady dilution ofits resource base over the 10-year period.

Build a Business-Focused HR team

In those organizations where vertical alignmentwas weak, inevitably the HR team was configuredin a manner that precluded them from workingclosely with the line. In some cases, the whole HRteam was physically distant from the businessunits and, as a consequence, rarely interacted withthem. Where vertical alignment was strong, thisstrength was echoed in the team’s configuration. InKraft Foods, the HR staff were assigned to the busi-ness units to work alongside line managers asthey made and implemented strategic decisions.

The same was true at the Chelsea and Westmin-ster Hospital. While the decision to co-locate theHR and line executives had symbolic value, it wasalso often accompanied by cross-functional careerdevelopment. As a director at the Chelsea andWestminster remarked, “We have benefited enor-mously as a directorate by having people sec-onded from the HR department to come and workwith us and work with us only.” Only by sittingalongside line executives can HR practitionerstake part in day-to-day decision-making about therunning of business units. As a consequence, HRmanagers are able to alter their mindset and viewpeople strategies from a line perspective. An addi-tional benefit of working alongside line managersis that HR policy implementation can also be en-hanced.

Look Up and Out

The tendency in those organizations where we ob-served weak vertical alignment was for the HRexecutives and managers to focus inward on them-selves: the HR department, their processes andpolicies. There was often a myopic, almost “for-

tress“ view of the world. This was in stark contrastwith those HR groups who were willing to extendtheir horizons, to look up—at what was happeningat the top of the organization—and out—to seewhat was happening in their industry, their profes-sion, their neighborhood, and the world.15 We arethinking particularly here of the HR executives atKraft Foods, who took the most active part in ourLeading Edge workshops held over the course ofthe ten years. They attended more diligently thanrepresentatives from any of the other organiza-tions, often with a large, international team. Theycontributed enthusiastically to the discussions andco-production of knowledge that was at the heartof our endeavor. They were willing to invest con-siderable time in engaging in an open and frankdialog with their peers from other organizationsand with the research team, and to learning with-out a particular end-game in mind.

Achieving Strong Horizontal Alignment

Get the Balance Right

Getting the balance right is crucial to horizontalintegration. In the 1994 study of Chelsea and West-minster Hospital, the ad hoc arrangements inher-ited by the incoming HR director meant that fewclearly articulated HR policies were in place. Con-sequently, critical success factors such as the re-cruitment and retention of key staff fell down intothe “black holes” within the overall people strat-egy. Only when she specifically focused on hori-zontal alignment did the source of these problemsbecame apparent so they could be addressed.

Getting the balance right can also work in theopposite way. As we saw earlier, at BT Payphonesthe plethora of initiatives, programs, and activitiesthey had developed under the banner of peoplestrategy foundered because of their sheer com-plexity. This was compounded by the starkly con-flicting messages being sent out by the enormousredundancy program, on the one hand, and thevalue change program on the other. The edifice ofthe people strategy crumbled because it was con-structed on weak foundations. Attempting toomany initiatives simultaneously also meant that itwas impossible to track their relationships andimplementation.

Foster Creative Dialog

The conversations that enable the continual, mutualadjustments that are crucial to horizontal alignmentare an important feature of the most successful com-panies we studied. It was through these conversa-tions that the HR teams and the business executives


were able to design, plan, and make decisions. Wefound that these companies fostered a context forproductive talk by creating time and space for con-versations and by legitimizing big, broad ques-tions.16

In some companies, we saw both space and timefragmentation within the HR function. The experts ineach of the functional processes remained isolated;for example, the pay experts rarely talked with thecareer or the performance-management experts.17 Inthose companies with strong horizontal alignment,the HR team worked closely together, even if theywere geographically dispersed. When they did meet,it was not simply to reiterate known facts but ratherto explore big, broad questions. The same was true ofthe relationships and conversations between the lineand HR functions. A fine balance must be createdbetween HR functioning as a cohesive team and yetoperating as a business partner. In Kraft Foods, thebalance was achieved by assigning HR staff to thebusiness units. This enabled them to work alongsideline managers as they made and implemented stra-tegic decisions. At the same time, the HR team waskept together through regular meetings, sharing ofbest-practice initiatives, and e-communication. HRteam members were appraised and rewarded fortheir achievements in support of the business and fortheir contributions to the HR team.

Think Systemically

One of the challenges of horizontal integration is thesheer complexity of representing the various HR in-terventions, their potential relationships, and in-tended and unintended consequences. As a result,the people-strategy document, if it exists at all, doesso as a simple, linear description of interventions.Not so at Kraft Foods, where the HR team workedwith the line managers to create a more completepicture of what the organization would look like if ithad the business goal of Innovation as a key busi-ness driver. Together, they created a systems map ofthe practices and processes and, more importantly,the relationships between the two. They were alsoable to model the intended and unintended conse-quences of the behaviors and values which thesepractices and processes would reinforce. This visualpicture of the horizontal alignment of the policiesand practices provided crucial insights for the man-agement teams. For example, they began to under-stand that if they wanted teams to be innovative,then it would not simply be sufficient to reinforceinnovative behavior with reward. They would haveto do more to encourage innovation through the wayin which they created and structured teams, in theway they encouraged personal autonomy and risk

taking, and in the coaching and support they gave tomanagers.18

Achieving Strength in Taking Action

Build a Complete Picture of the Organization’sHuman Resources

In those companies that excelled in putting coher-ent HR policies into action, we observed the HRteams working to collect and review data withexecutives at three levels of description:• a review of all HR documentation and commu-

nication of the organization’s strategic objec-tives to measure the degree of alignment be-tween the stated HR objectives (of the peoplestrategy) and the business goals and needs

• measuring the enactment of the people prac-tices

• measuring and appraising the behavior andvalues of managers

The methods involved collecting data from em-ployee surveys, focus groups, and interviews, anddata from appraisal and exit interviews. In ourstudy, HP was particularly adept at data collectionand review. Their complete picture of reality wasbuilt through consulting multiple stakeholders. Forexample, they made active use of peer assessmentwhen teams from another business came to assessand comment upon the design and execution of HRpolicies and practices. This enabled the team torapidly build a picture of where action was takingplace—and where it was failing.

Take Bold Actions

We found that firms with action-oriented peoplestrategies were willing to take bold, and some-times unpopular, actions to demonstrate to the or-ganization the behaviors they wanted to support.One example was Citibank in the 1994 study. Upuntil that time, the goals of the business had beenfirmly focused on maximizing the financial engineof the company. This focus on value creation andprofitability had led to the rise of “lone star” exec-utives who generated the most wealth and, conse-quently, won the biggest bonuses and the mostrapid promotions. As the business goals changedin the direction of “serving a billion customers,”the relationships between country teams and busi-ness lines became more important. The “lonestars” could not cross-sell in the way that the newbusiness required. The HR team created a policy ofcross-appraisal and 360-degree feedback, de-signed to measure the capability and motivation ofmanagers to build relationships within their ownteams and colleagues, across functions, and with


other business lines. However, this goal of integra-tion remained at the level of “rhetoric” for sometime. Managers continued to behave as “lonestars,” running roughshod across their team mem-bers and colleagues. Not until it became knownthat one of these “lone stars,” who had indeedexceeded his financial target, had received onlyhalf of his anticipated bonus did people begin totake the creation of horizontal relationships moreseriously. This “bold action” resulted in the “lonestar” executive choosing to leave Citibank. But atthe same time, it sent out a clear message that thebusiness goal of building relationships would notsimply remain at the level of rhetoric.

Keep the Best

In the most successful firms we observed, therewas a clear focus on the importance of continuity ofpeople and process to ensure that action was sus-tained over time. At Kraft Foods, for example, thebasic structure of the key performance-managementpractices remained intact throughout the time of ourstudy. Within this time, the focus of the processchanged (with a greater emphasis on the behaviorsand values which reinforce innovation), but the struc-ture of the process remained rock solid.

In the most successful firms we observed,there was a clear focus on theimportance of continuity of people andprocess to ensure that action wassustained over time.

In the same way, continuity of people appearedto be a crucial factor. Throughout this ten-yearstudy, we were able to track the membership of theHR teams. We saw clearly that changes in teammembership could have an impact on both align-ment and willingness to take action. On occasions,this change was positive. For example, at Chelseaand Westminster, the arrival of a strategic-think-ing HR director to a team that had previously beenadministrative and tactical had a very positiveimpact on action orientation. Often, though, theimpact of breaks in continuity, either through peo-ple changing or the new people coming in with acompletely different perspective, had negative im-plications. At Kraft Foods, over the study period,there were only two HR directors. The first movedinto a broader European role within Kraft Foodsand was succeeded by his deputy, who had manyyears’ experience in Kraft’s HR function. This conti-nuity ensured that the basic threads of the policies

remained intact, while the shifting business goalscould be reflected through subtle changes.

Focus on Doing

In those firms most successful at achieving astrong degree of action-taking, we observed aclear ability to translate policies and strategiesinto definite action plans. While many of the com-panies in our study were adept at managing busi-ness processes, few were equally adept at manag-ing people processes. Our study revealed this lackof planning. We observed HR teams developing aplethora of unrelated people-process projects withlimited integration. We observed projects begunand then not completed, unsophisticated trackingprocesses, and ambiguity around budgets andtimescales. Of the companies we examined, KraftFoods and HP had developed and implemented themost sophisticated project-management practices.

At HP, the people strategy was part of the wholebusiness-strategy process, and from this came anumber of priorities in the people-strategy area.These priorities were then treated to the sameproject-management practices as any majorproject. Project plans were created, outcomesagreed upon, and timelines discussed. Perhaps themost impressive aspect of their people strategywas the “HR War Room.” This was a single room inwhich all the people-imperative projects wereshown visually in detail with three illuminatingcolors. The color green signified a project whichwas on track; orange showed it was beginning toget off track; and red highlighted those projectswhich were in danger of not reaching their goals.Within a minute of entering the room, any man-ager was aware of the action-taking associatedwith the people strategy at HP.

Building and Delivering Excellent PeopleStrategies

Delivering business strategy through people waskey to the long-term performance of all seven com-panies we studied over the last decade. At theheart of this delivery is the competence and will tobuild vertical alignment, to craft horizontal align-ment, and to move from rhetoric to the reality ofaction. This is never easy, particularly if organiza-tional shocks such as downsizing and mergersrock the company’s very foundation. And yet, weobserved that it is possible to withstand theseshocks and to create and embed people strategiesthat remain meaningful both to managers and toemployees. The challenge for the HR departmentis to relentlessly learn how to achieve excellencein all three dimensions of people strategy.


APPENDIX

The Three Dimensions of People Strategy

This short questionnaire is designed to help you to plot your people strategy in relation to the three dimensions.For each question, please provide your own assessment of your organization on the scale:1 � strongly disagree2 � disagree3 � neutral4 � agree5 � strongly agreeScore:

Section 1: Vertial Alignment

1. The senior HR director/manager is a full and equal member of the main board/strategic decision-making group. OR HR issues areactively represented on the main board/decision-making group. . . .

2. The senior HR director/manager (or equivalent) actively helps to develop the strategic objectives of the business. . . .3. There is a clear statement of people strategy and how it supports the corporate strategy, either as a separate statement or contained

within the general corporate strategy statement. . . .4. Senior line managers are actively involved in developing strategic people objectives. . . .5. Strategic people objectives are regularly reviewed to ensure their continuing relevance to strategic business objectives. . . .

Total for Section 1:Section 2: Horizontal Alignment

1. The people-strategy statement clearly demonstrates how policies in each individual HRM area support the overall people strategy . . .2. HR policies in each individual HRM area are always developed with reference to other HRM policies within the organization. . . .3. The HRM team works closely together in developing HRM policies. . . .4. HRM policies are regularly reviewed to ensure their continuing relevance to the overall people strategy. . . .5. When new HRM policies are developed, every effort is made to ensure that they are mutually supportive. . . .

Total for Section 2:Section 3: Action

1. If an outsider were to ask your senior line managers/directors how the people strategy supported the overall strategic objectivesof the business, they would know the answer. . . .

2. Think of the major current business strategic objective for your organization. Do your people strategy and policies actively workto support it? . . .

3. Line managers in your organization are assessed or appraised against targets relating to the implementation of people strategyand policies. . . .

4. Line managers are provided with the training they need to implement people strategy and policies. . . .5. Line mangers know what their individual role is in implementing people strategy and policies. . . .6. The effective implementation of people strategy and policies influences either the career progression or rewards of line managers. . . .7. If an outsider were to ask your employees whether the organization was recruiting people with the most appropriate skills and

abilities to help the organization meet its objectives, they would agree. . . .8. If an outsider were to ask your employees whether they had the training and development they needed, they would agree. . . .9. If an outsider were to ask your employees whether their appraisals provided an accurate assessment of their strengths and

weaknesses, they would agree. . . .10. If an outsider were to ask your employees whether their reward package was fair compared with that of others in the organization,

they would agree. . . .11. If an outsider were to ask your employees whether the organization delivers on its promises in the area of people management,

they would say ‘yes.’ . . .12. If an outsider were to ask your employees whether the way they are managed encourages them to help the organization deliver

its strategic objectives, they would say ‘yes.’ . . .

Total for Section 3:AnalysisYour responsesSection 1This section tests the strength of vertical alignment. If you achieved a score of 19 or over, then you have a strong level of alignment.

Any scores below 19 indicate a weak level of alignment.Section 2This section tests the strength of horizontal alignment. If you achieved a score of 19 or over, then you have a strong level of

alignment. Any scores below 19 indicate a weak level of alignment.Section 3This section tests whether or not your people strategy is put into action within your organization. A score of 40 or more indicates

strong action. Any scores below 40 indicate weak action.Scores:

Section 1 Section 2 Section 3 Result

Vertical Horizontal ActionBelow 19 Below 19 Below 40 Mere Tactics SpeakBelow 19 Below 19 Above 40 Tactics DrivenBelow 19 Above 19 Below 40 Mere Process SpeakBelow 19 Above 19 Above 40 Process DrivenAbove 19 Below 19 Below 40 Mere Strategy SpeakAbove 19 Below 19 Above 40 Strategy DrivenAbove 19 Above 19 Below 40 Mere RhetoricAbove 19 Above 19 Above 40 Strategy and Process Driven


Acknowledgments

We would like to thank our colleagues on the Leading EdgeResearch Consortium project, in particular Professor VeronicaHope-Hailey, Dr. Philip Stiles, and Dr. Joanna Zaleska. Wewould also like to thank the corporate members of the consor-tium for their generous sponsorship of this research and theanonymous reviewers and the editors of this journal for theirhelpful comments on earlier drafts of this article.

Endnotes1 In each of the seven cases, we used a questionnaire, sur-

veying the same business unit on three occasions: 1994 (1764respondents); 1997 (1592 respondents); 2000 (1248 respondents).We also interviewed 20–35 employees in each firm and ranfocus groups with the HR function.

2 Becker, B., & Gerhart B. 1996. The impact of human resourcemanagement on organizational performance: Progress andprospects. Academy of Management Journal, 39(4): 779–801.

3 Baron, J. N., & Kreps, D. M. 1999. Strategic human resources.New York: Wiley.

4 See, for example, Ulrich, D. 1998. A new mandate for humanresources. Harvard Business Review, 76(1): 124–134. Where we areextending this argument, however, is in the notion that peoplestrategies have three separate, but interrelated, dimensions.

5 This perspective has been referred to as the “fit” approach,which has been contrasted with the ‘’best practices” approachdescribed above. These various theoretical frameworks on stra-tegic HRM have been reviewed in Delery, J. E., & Doty, D. H. 1996.Modes of theorizing in strategic human resource management:Tests of universalistic, contingency and configurational per-spectives. Academy of Management Journal, 39(4): 802–835.

6 See Wright, P., & Snell, S. 1998. Toward a unifying frameworkfor exploring fit and flexibility in strategic human resource man-agement. Academy of Management Review, 23(4): 756–772.

7 Baird & Meshoulam have provided a classic exposition ofthese two dimensions of alignment in strategic HRM. See Baird,L., & Meshoulam, I. 1988. Managing two fits of strategic humanresources management. Academy of Management Review,13(1): 116–128.

8 The findings from the 1994 and 1997 studies are described inGratton, L., et al. 1999. Strategic human resource management:Corporate rhetoric and human reality. Oxford, UK: Oxford Uni-versity Press.

9 For example, in Huselid’s influential work exploring link-ages between HRM and organizational performance, the focusis very much on stated HR policy. Data were collected from onesingle informant in each organization, most often an HR repre-sentative, and few items in his questionnaire tapped into thereality experienced by employees. See Huselid, M. A. 1995. Theimpact of human resource management practices on turnover,productivity and corporate financial performance. Academy ofManagement Journal, 38(3): 635–72.

10 This point is debated further in Gratton, et al., A decade oftransformation at the Leading Edge (to be published in 2003)and in Truss, C. 2001. Complexities and controversies in linkingHRM with organizational outcomes. Journal of ManagementStudies, 38(8): 1121–1150.

11 The literature of process fairness has explored this in greatdetail. For a useful overview, see Greenberg, J., & Cropanzano,R. (Eds.). 2001. Advances in organizational justice. Stanford, CA:Stanford University Press.

12 The case of Kraft Foods is discussed in more depth inGratton, L., et al., A decade of transformation, op. cit.

13 We have described these timelines of enactment in moredetail in Gratton, L., et al. 1999. Linking individual performanceto business strategy: The People Process Model. Human Re-source Management, 38(1): 17–31.

14 Tsui, A. 1984. A multiple constituency framework of mana-gerial reputational effectiveness. In Hunt, J., et al. Leadership.New York: Pergamon.

15 Amabile, T. M. 1998. How to kill creativity. Harvard Busi-ness Review, 76(5): 76–87, highlights the importance of allowingpeople to have a large ‘’network of wanderings,” or intellectualspace in which to explore possibilities and solve problems.

16 The role of conversation as a tool of mutual adaptation isdescribed in Gratton, L., & Ghoshal, S. 2002. Improving thequality of conversations. Organizational Dynamics, 31(3): 209–223.

17 Abrahamson, E. 2000. Change without pain, Harvard Busi-ness Review, July–August: 75–79, describes similar examples ofcompanies unwilling to share information across internalboundaries, with negative consequences for performance.

18 The visualization of horizontal alignment has been de-scribed by Lynda Gratton in Gratton, L. 2000. Living strategy:Putting people at the heart of corporate purpose. London: FTPrentice Hall.

Lynda Gratton is associate pro-fessor of organisational behav-iour at London Business School.Between 1990 and 2000 shedirected The Leading EdgeResearch Consortium. She cur-rently directs the school’s exec-utive program, “Human Re-source Strategy in TransformingOrganisations.” Contact: lgrat-ton@ london.edu.

Catherine Truss is deputy head of the School of Human Re-source Management at Kingston Business School, UK, whereshe is also director of the research unit, SHaPe-Strategic HumanResource Management and People Research Unit. She hasworked with Professor Gratton on the Leading Edge ResearchConsortium Project since 1992. Contact: [email protected].


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