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The Cost of Not Including HR
in Business Strategic Decision-Making

A blue background with two dialogue bubbles and "HR" included in both.
Hacking HR Team

Posted on November 30, 2023

The role of Human Resources (HR) has traditionally been viewed through a narrow lens, primarily focused on administrative tasks and personnel management. Unfortunately, “personnel management” (the name of HR 1.0 back in the 1920s) is how we started, and it was all about transactions: hire, fire, and pay.

However, as the business landscape has dramatically evolved over the years -and particularly in the past two decades- there is a growing recognition of the strategic value HR brings to the table. HR is no longer just a support function but a business leader capable of creating immense value for people and organizations. The old adages of “HR is a cost center” or “HR is the necessary evil” are not valid (anymore). HR is a revenue-generating function and a crucial partner in shaping business strategies and driving organizational success.

The cost of not including HR in strategic decision-making can be between significant and nothing short of painful, affecting everything from financial performance to employee engagement and organizational culture.

The shift towards integrating HR into strategic planning reflects a deeper understanding of how people-centric strategies can enhance business outcomes. Indeed, the understanding of the value of HR as a value creator depends on both how HR operates and how senior leaders acknowledge that value. However, in a world where talent management, organizational culture, and employee engagement are pivotal to competitive advantage, excluding HR from critical business decisions is a missed opportunity. If you are a business leader willing to leave money and value on the table, then just exclude HR. On the other hand, if you understand that business success and people success are two sides of the same coin, welcome to the club of those who think HR creates extraordinary value.

Companies that acknowledge the “HR as an administrator” to “HR as a creator of business value” fundamental change are reaping the benefits, as their HR teams help navigate complex challenges such as workforce planning, talent acquisition, and leadership development, aligning these elements seamlessly with the broader business objectives.

Sadly, many organizations continue to overlook the strategic potential of their HR departments, treating them as mere administrative entities rather than as key strategic partners who create and help create value. This oversight can lead to many issues: misaligned goals, overlooked employee potential, and even compliance risks.

The Evolving Role of HR

Over the past few decades, HR has undergone a significant transformation, evolving from a primarily administrative and operational function to a strategic partner to a business leader.

HR 1.0 was personnel management. HR 2.0 was the strategic business partner. And HR 3.0 is the business leader.

This shift from HR as personnel management to HR as a business leader has been driven by a growing recognition of the importance of people and culture in achieving business success. Historically, HR was often confined to tasks such as payroll processing, employee records management, hiring and firing, and compliance with labor laws. However, in today's complex and dynamic business environment, HR professionals are increasingly involved in strategic planning, playing a vital role in shaping organizational policies, driving change, and fostering a culture of continuous improvement and innovation.

This evolution is evident in how HR is now actively engaged in key business decisions in organizations where leaders believe in the power of HR and HR leaders deliver value. HR professionals are no longer just implementers of policy; they are integral in formulating these policies. This involves a deeper understanding of the business, market trends, and the competitive landscape.

HR 3.0 brings valuable insights into workforce planning, talent management, and leadership development, ensuring that the human capital strategy is aligned with the overall business strategy. Companies that recognize and leverage this strategic potential of HR often find themselves better equipped to adapt to market changes, attract and retain top talent, and foster a workplace culture that supports their business objectives.

Moreover, HR's role in strategic planning extends beyond internal operations. They are instrumental in understanding and addressing the broader social and economic factors that impact the workforce, such as demographic shifts, technological advancements, and evolving employee expectations. By keeping a finger on the pulse of these external influences, HR can help businesses anticipate and prepare for future challenges, ensuring that the organization remains resilient and agile in an ever-changing business landscape. Imagine the unfathomable value of including that kind of HR in the strategic decision-making processes for the future of the organization.

It is clear that including HR in corporate strategic decision-making is beneficial and essential for modern businesses. This evolution marks a significant shift in how companies view and utilize their HR departments, positioning them as key drivers of strategic initiatives and organizational success.

Costs of Excluding HR

Unfortunately, not every company or business leader is still as “evolved” as HR is in understanding the value we bring to the table, and they continue to exclude HR. So, let’s talk about the implications of excluding HR.

  • Financial Costs: The financial implications of not involving HR in strategic decision-making are substantial. HR professionals have expertise in areas like compensation and benefits, talent acquisition, and employee retention, which are crucial for financial planning and budgeting. When HR is sidelined, companies may face higher employee turnover rates, leading to increased costs of recruiting and training new hires. Inefficient talent management can also result in the under-utilization of skills or over-staffing, affecting productivity and profitability. Moreover, HR plays a critical role in ensuring legal compliance in employment practices. Neglecting this aspect can lead to costly legal disputes, fines, and damage to the company's reputation. In essence, the absence of HR's strategic input can lead to short-sighted decisions that adversely impact the organization’s financial health.

  • Cultural Costs: The culture of an organization is a reflection of its values, beliefs, and behaviors, and HR is pivotal in cultivating and maintaining this culture. Excluding HR from strategic decision-making can lead to a disconnect between the company's strategic objectives and its cultural identity. This misalignment often results in a demotivated workforce, decreased employee engagement, and poor performance. HR's insights are essential in ensuring that strategic initiatives are compatible with the organization's culture or in steering the culture in a direction that supports these initiatives. Strategic decisions without considering their impact on the company culture can erode trust, reduce morale, and ultimately lead to a toxic work environment. This not only affects employee satisfaction and retention, but can also tarnish the organization's external employer brand.

  • Strategic Costs: HR's exclusion from strategic planning can have far-reaching implications for the organization's overall strategy. HR professionals bring a unique perspective that balances the human element with business objectives. Without their input, strategies may not comprehensively understand the workforce's capabilities, aspirations, and limitations. This oversight can hinder the effective implementation of strategic initiatives, as human factors are often the key to successful change management and organizational development. For instance, a strategy that requires a significant change in skill sets or a shift in organizational structure needs HR's expertise in workforce planning, training, and development. Failure to integrate HR's perspective can result in unrealistic or unachievable strategies, causing delays, inefficiencies, and even failure to achieve business goals.

  • Innovation and Adaptability Costs: HR plays a crucial role in fostering innovation and adaptability within an organization. By not involving HR in strategic decisions, a company risks stifling creativity and adaptability in its workforce. HR strategies, such as diversity and inclusion initiatives, talent development programs, and employee engagement strategies, are vital for promoting an innovative culture. Without HR's input, companies may fail to create an environment that encourages new ideas and embraces change, leading to stagnation. Additionally, HR's insights into organizational learning and development are essential for keeping the workforce skills relevant and adaptive to market changes. The absence of such HR-led initiatives can leave the organization lagging in competitiveness and innovation.

  • Employee Relations and Communication Costs: Effective employee relations and communication are at the heart of HR’s expertise. Excluding HR from strategic planning can result in a communication breakdown between management and employees. HR professionals are skilled in crafting and conveying messages that resonate with employees, ensuring transparency and clarity. They also play a crucial role in managing employee feedback, grievances, and change management processes. Strategic initiatives may face employee resistance without their involvement, leading to a lack of buy-in and potential conflicts. Furthermore, poor communication and employee relations can damage trust within the organization, impacting employee loyalty, job satisfaction, and productivity. This can have a ripple effect on customer satisfaction and business reputation, as disgruntled or disengaged employees are less likely to deliver high-quality service or products.

  • Leadership Development and Succession Planning Costs: HR’s strategic role in leadership development and succession planning is critical for ensuring long-term organizational stability and growth. When HR is not involved in strategic decision-making, there can be a significant gap in preparing future leaders and planning for seamless transitions in key positions. HR departments are instrumental in identifying and nurturing high-potential employees, aligning leadership development programs with business goals, and ensuring a pipeline of qualified leaders. The absence of such strategic HR input can lead to a leadership vacuum, where the organization struggles to find suitable leaders during critical transitions. This can result in operational disruptions, loss of strategic direction, and decreased employee confidence in the organization’s future.

  • Talent Acquisition and Retention Costs: A key aspect of HR's strategic role is in talent acquisition and retention. When HR is not involved in strategic planning, companies may struggle with attracting and retaining the right talent. HR professionals are adept at identifying the skill sets required for future business needs and aligning recruitment strategies accordingly. Without their input, organizations risk mis-aligning their talent acquisition efforts with their strategic objectives, leading to a workforce that is ill-equipped to meet future challenges. Additionally, HR plays a vital role in employee retention through engagement initiatives, career development opportunities, and recognition programs. Neglecting these elements can lead to high turnover rates, which are not only costly in terms of recruitment and training, but also disrupt operational continuity and erode institutional knowledge.

  • Compliance and Regulatory Risks: In today’s complex regulatory environment, non-compliance with labor laws and regulations can lead to severe legal and financial consequences. HR professionals are experts in understanding and navigating these regulatory landscapes. Their exclusion from strategic decision-making can result in strategies that are not compliant with employment laws, potentially leading to legal disputes, fines, and reputational damage. For instance, a strategic decision to expand operations into new geographic locations requires a deep understanding of local employment laws, a task typically managed by HR. Failure to consider these legal and regulatory aspects in strategic planning can expose the organization to significant risks.

This is what happens when an organization includes HR.

  • Enhanced Strategy Alignment: Including HR in decision-making ensures that business strategies are aligned with the company's goals and workforce capabilities and culture. HR's expertise in understanding employee motivations, strengths, and development needs allows for creating strategies that are more achievable and resonant with the workforce. This alignment leads to a more engaged and productive team, as employees feel their needs and career aspirations are being considered, leading to better implementation of organizational strategies.

  • Better Risk Management: For some reason, people think that is a “bad thing” when HR helps the organization manage business risks. Well, risk management is, in fact, a strategic imperative and HR is well-positioned to support these efforts. HR's involvement in strategic planning contributes significantly to risk management, particularly regarding human capital. HR professionals are skilled at identifying potential risks related to workforce management, such as skill shortages, succession planning gaps, or employee burnout. By anticipating these risks, HR can develop strategies to mitigate them, ensuring that the organization's human capital remains robust and capable of supporting business objectives even during change or uncertainty.

  • Diversity and Innovation: HR plays a critical role in promoting diversity and inclusion and creating a culture of belonging at work. A diverse workforce brings a wide range of perspectives, leading to more innovative solutions and better problem-solving. Involving HR in strategic decisions ensures that diversity and inclusion are not just HR initiatives, but are integrated into the broader business strategy, leading to a more creative, inclusive, and competitive organization.

  • Improved Employee Engagement and Satisfaction: When HR is involved in strategic planning, employee engagement and satisfaction often improve. This is because HR strategies typically include initiatives focused on employee well-being, recognition, and career development. Engaged employees are more likely to be committed to the organization's goals, exhibit higher productivity, and provide better customer service. This results in a positive cycle, where engaged employees contribute to the success of the business, which in turn further boosts their engagement and satisfaction. The next stage for HR is focused on Human Experience (HX) at work. HR3.0 is HX.

  • Effective Change Management: HR's expertise in managing organizational change is invaluable, especially during strategic shifts. Including HR in strategic planning ensures that change management principles are incorporated from the onset, facilitating smoother transitions. HR can help communicate changes effectively, address employee concerns, and assist in the cultural adaptation required. This proactive approach to change management increases the likelihood of successful implementation of new strategies and minimizes employee resistance.

  • Strategic Talent Development: Including HR in decision-making allows for more strategic and forward-thinking talent development. HR professionals can align talent development programs with future business needs, ensuring that the workforce is prepared for upcoming challenges and opportunities. This includes identifying future skills requirements, developing training and development programs, and planning for succession in key roles. Strategic talent development prepares the organization for the future and helps retain high-potential employees by providing them with growth and development opportunities.

How HR Can Earn a "Seat at the Table"

People have often asked me: “How can HR get a ‘seat at the table’?

Well, it is a twofold response. First, we need business leaders who believe in the power of HR as a value creator. These “believers” will champion the cause for HR to be included in strategic decision-making. However, it would be irresponsible for me to say that we should sit and wait until such a believer or champion gives us the opportunity. So, I choose the second option. That is, HR leaders and professionals create such an extraordinary amount of value that their role and impact are impossible to ignore in any “table” across the organization. Instead of waiting for someone to invite us to the table, we make ourselves absolutely necessary because of the value we create with our insights, ideas, data, and strategies.

How can we do that? This is how.

  • Demonstrating Business Acumen: For HR professionals to be viewed as strategic partners, they must demonstrate strong business acumen. This involves understanding the broader business environment, how the company operates, and what drives profitability. HR professionals should be able to connect HR strategies to business outcomes and articulate how human capital impacts the organization’s bottom line.

  • Building Credibility Through Data and Analytics: Utilizing data and analytics can significantly enhance HR’s credibility. By leveraging data to provide insights into workforce trends, employee performance, and talent management, HR can make evidence-based recommendations and contribute to data-driven decision-making. This approach positions HR as a valuable resource for strategic planning, particularly in areas like workforce planning, talent acquisition, and performance management.

  • Developing Leadership and Influencing Skills: HR professionals must possess strong leadership and influencing skills to be effective in a strategic role. This includes the ability to lead through change, manage conflicts, and influence other leaders and decision-makers. By developing these skills, HR can effectively advocate for strategies that benefit both employees and the organization.

  • Aligning HR Goals with Business Objectives: HR should ensure its goals and initiatives are directly aligned with the organization’s strategic objectives. This alignment demonstrates that HR understands and supports the broader business strategy and is committed to contributing to its success.

  • Proactive Involvement in Strategic Initiatives: HR professionals should seek opportunities to get involved in strategic projects and initiatives beyond traditional HR functions. This can involve participating in cross-functional teams, contributing to business development discussions, and offering insights on organizational development and culture.

  • Fostering Strong Internal Relationships: Building strong relationships with other departments and key stakeholders is crucial. This helps HR professionals gain a deeper understanding of various business units and their challenges, enabling them to tailor HR strategies that support these units effectively.

  • Continuous Learning and Development: HR professionals should commit to continuous learning and development, staying abreast of the latest trends and best practices in both HR and general business management. This commitment to learning helps HR professionals bring innovative ideas and solutions to the table, further solidifying their role as strategic partners.

Moving Forward: An Action Plan for HR Leaders

Finally, here you have some ideas to embrace your power as a business leader and a value creator and move HR to its rightful place as a strategic decision-maker for the organization.

  • Embrace a Strategic Mindset: HR leaders should adopt a strategic mindset, focusing on how their decisions and actions align with and support the organization's overall objectives. This requires thinking beyond the traditional scope of HR and considering the broader impact of people management on business success.

  • Enhance Business Knowledge: Continuously expand knowledge of the business industry, market trends, and the specific challenges and opportunities facing the organization. This knowledge allows HR leaders to make more informed decisions and provide valuable insights to other business leaders.

  • Understand and Invest in HR Technology and Analytics: Leverage the latest HR technology and analytics tools to gather data-driven insights. This can improve decision-making in areas such as talent acquisition, employee engagement, and workforce planning, and demonstrate the value of HR’s contributions to the organization.

  • Cultivate Strong Relationships with Key Stakeholders: Develop and maintain strong relationships with other leaders and stakeholders across the organization. Understanding their challenges and goals will enable HR leaders to provide better support and align HR strategies with business needs.

  • Focus on Talent Management and development: Prioritize talent management and development to ensure that the organization has the skills and capabilities needed to achieve its strategic goals. This includes implementing effective recruitment, training, and retention strategies.

  • Advocate for Employee Well-Being and Engagement: Champion initiatives that promote employee well-being, engagement, and satisfaction. A motivated and healthy workforce is critical for achieving high productivity and retaining top talent.

  • Be a Change Agent: Be prepared to lead and manage change effectively. This involves understanding the dynamics of change management, communicating changes clearly to employees, and helping the organization navigate through transitions smoothly.

  • Foster a Culture of Continuous Learning and Innovation: Encourage a culture where continuous learning and innovation are valued. This not only aids in employee development but also ensures that the organization remains adaptable and competitive in a rapidly changing business environment.

  • Measure and Communicate HR’s Impact: Regularly measure the impact of HR initiatives and communicate these results to other leaders and stakeholders. Demonstrating the tangible outcomes of HR’s efforts will reinforce its role as a key contributor to the organization's success.

  • Stay Agile and Forward-Thinking: In a fast-changing and sometimes chaotic business landscape, HR leaders must remain agile and forward-thinking. Anticipate future trends and challenges in both the business world and the HR domain and adapt strategies accordingly to keep the organization ahead of the curve.

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