Tips and Tools to Know Your Context and Stakeholders

To be an effective HR professional, you have to know what your business is about (i.e., how your firm makes money). As Professor Armen Alchian reminds us:

“Don’t lose perspective of what business is all about. Absolutely nothing you do on the inside means anything unless it results in positive cash flow from the outside. Value is defined by the outside (e.g., the customers, investors, society). If all internal actions and activities don’t result in an increase in top line revenue, the internal actions are worthless.”

As HR professionals, we need a deep understanding and knowledge of the outside world if we want our internal actions to have a real business impact. Effective HR professionals must look outside to identify opportunities for business growth by knowing their firm’s business context and stakeholders. This includes a deep knowledge and understanding of the firm’s external business context (what we at the RBL Group refer to as STEPED) and key stakeholders, which includes both internal stakeholders (e.g., employees, line managers, the organization) and external stakeholders (e.g., customers, investors, communities, governments/regulators). As Dave Ulrich often notes, “We need to look outside in to connect our internal HR activities with our business context and key stakeholders always in mind.”

Understanding External Business Context
(The STEPED Tool)

If your company is looking to grow in countries such as Mongolia, Nigeria, Russia, the Middle East, Ghana, Iraq, or China, what do you as an HR professional need to pay attention to and what issues do you need to bring to the table for discussion?

The RBL Group summarized contextual factors a firm faces with a simple mnemonic: Social, Technical, Economic, Political, Environmental, and Demographic. These are trends that need to be considered in the creation of any profitable growth strategy. HR professionals should have knowledge of their external business context and trends in their industry to help enable the firm’s growth strategy.

The table below is a useful tool we use in the RBL Institute to help HR professionals identify country or industry trends that affect the business context, and ultimately, the firm’s profitable growth strategy.

Table 1: Identifying Country or Industry Trends using the STEPED Tool

Category STEPED	Questions To Ask
Social	What are health patterns (physical, emotional)? What are family patterns (married, not married, divorced, number of children)? What are religious trends (heritage, activity)? What is urban/rural mix and movement? What are consumer expectations and trends? What is life style (workday, weekends, hobbies)? What is transportation? What are the social problems (e.g., drugs, crime)? Who are the heroes or famous people from this area (past and present)?
Technical	What are their communication mechanisms (media, television) and how independent are they? What is the level of technological maturity within the geography (internet use, computer access)? What is their use of social media and other technology (e.g., cloud computing)?
Economic	What is the Gross Domestic Product? Relative to others, how is it doing? What economic cycle are they in (recession, growth)? What is unemployment? What are leading industries? Companies? What is economic gap of haves vs. have-nots (size of middle-class)?
Political	What is their political history? How much political stability is there? How much regulation vs. private enterprise exists? (What is the role of government in industry?) How open (vs. repressive) is their government? What is their political heritage (democracy, socialism, parliament, king, or family rule)? What are the political "hot topics" that exist? What is the relationship of the military and government? How much corruption is there in decision making?
Environmental	What are the environmental issues that people are worried about? How are they working to build social responsibility?
Demographic	What is the average age? What is the birthrate? What is the education level? (public vs. private) What is the income level? (income disparity)

When HR professionals understand these contextual factors, they can anticipate opportunities for revenue growth. For example, regulatory or demographic changes may give rise to business opportunities. HR professionals should be aware of these external factors to anticipate new business opportunities.

Understanding Key Stakeholders

Too often, when asked, “who are your customers?” we as HR professionals answer, “our employees.” This is partially correct. HR is NOT all about the internal employees of the organization. As the figure below illustrates, there are many key stakeholders for HR professionals to consider when developing a profitable growth strategy (such as investors, customers, and communities).

Above the line in Figure 1 is outside the firm (customers, investors/owners, partners/dealers), but most of our assumptions about leadership are focused inside the firm on employees and line managers. HR needs to shift the focus to the outside stakeholders. Profitable growth comes from customers and investors. Outside in leadership helps growth, especially with investors (see The Leadership Capital Index by Dave Ulrich).

HR practitioners sometimes focus too much on internal stakeholders (employees and line managers) and lose sight of how HR delivers value to the firm’s external stakeholders (customers, investors, communities, etc.). HR professionals need to understand key external stakeholders to help drive profitable growth in their organization and should be more like anthologists who get out and observe the world and then apply those insights back into the firm. When HR attends to external stakeholders (customers, investors, communities), they enable profitable growth.

Here is a simple tool we use in the RBL Institute to see if HR is attending to outside stakeholders:

RBL’s HR Professional Outside In Diagnostic

• Do I see my organization through the eyes of the customers, investors, suppliers, regulators, and other external stakeholders?
• Am I aware of general business conditions that affect my industry and organization?
• Do I spend time with external stakeholders?
• Do I align my HR work with expectations of external stakeholders?