The Role of HR in Building Organizational Capability
By William J. Rothwell, Ph.D., SPHR, CPLP Fellow

Organizational capability means an organization's ability to manage people as a source of competitive advantage. Organizational capability is centered on the business process sector of the Balanced Scorecard. It ensures customer needs are met by leveraging organizationally unique competencies.

With that opening by way of preamble, what is the role of HR as an organizational capability builder? How does HR enact that role? Why is it important? This article answers these simple, yet profound, questions.

What Is the Role of HR as an Organizational Capability Builder?

Most strategic planning theorists argue that strategy precedes organizational structure, though structure determines who the strategists are and thus who determines the strategy. But as the world enters an era dominated by the so-called innovation economy in which competitive advantage is gained by attracting customers with unique products and services, it becomes more important than ever to have the right talented people in the right places to achieve greatest effect through innovative solutions. People with talent trump strategy because they create that strategy.

HR's role in this process cannot be understated because HR is central to facilitating the process of attracting, developing, engaging, appraising, rewarding, and retaining talent. Without HR, most organizations would not possess a group devoted to sourcing and developing the best people. Note that HR does not create organization capability because that is done by talented people. Still, HR does facilitate the process whereby the organization gains, develops and applies that talent.

How does HR Enact the Role of Organizational Capability Builder?

HR enacts the role of organizational capability builder by establishing internal processes that support talented people as they innovate to give the organization competitive advantage. That means special attention to:
  • Recruiting top talent
  • Selecting top talent
  • Onboarding top talent
  • Training and develop top talent
  • Appraising top talent
  • Managing and engaging top talent
  • Rewarding top talent
  • Retaining top talent
Each process listed above requires concerted, targeted efforts at talented, innovative people. Such people are not like everyone else. Indeed, research indicates that talented people often complain more often, and threaten to leave more frequently, but then end up 50 percent less likely than less talented people to leave the organization. Special attention must be made when carrying out all the processes listed above. HR must also focus attention on improving the quality of daily management in the organization, since 90 percent of individual development occurs on the job—and thus under the immediate and direct control of each manager. But, making matters more difficult, research indicates that the average manager interacts with his or her staff only 20 percent of their time—which means that every minute counts if managers are to be successful in coaching and grooming people with special talent. If they fail to do so, the organization is not doing adequate capability building.

Why Is HR's Role as Capability Builder Important?

It is difficult to imagine that any organization could pursue organizational capability without having a strong HR function, given HR's pivotal role in establishing and maintaining the internal processes necessary for that capability. Still, challenges do remain. For one thing, more than 75 percent of all HR staff is promoted from within, did not receive training on HR from their employer, and sometimes know less about HR than savvy operating managers. That problem must be solved by each HR leader, since a poor staff gets poor results. To state the case succinctly, to get full advantage of HR in building organizational capability, HR leaders must start with their own staff and build their capability. To do that, they must focus on the same processes to be used for the entire organization—that is, taking steps to attract, develop and retain talented HR staff members!

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