By Fatskills Exam Guides Team — the exam nerds behind 28,500+ quizzes and 2.1M practice questions across 500+ global exams.
The SPHR® Exam Content From The Leadership And Strategy Functional Area Covered In This Guide Consists Of The Following Responsibilities And Knowledge Areas.
Responsibilities:
01 Develop and execute HR plans that are aligned to the organization’s strategic plan (for example: HR strategic plans, budgets, business plans, service delivery plans, HRIS, technology) 02 Evaluate the applicability of federal laws and regulations to organizational strategy (for example: policies, programs, practices, business expansion/reduction) 03 Analyze and assess organizational practices that impact operations and people management to decide on the best available risk management strategy (for example: avoidance, mitigation, acceptance) 04 Interpret and use business metrics to assess and drive achievement of strategic goals and objectives (for example: key performance indicators, financial statements, budgets) 05 Design and evaluate HR data indicators to inform strategic actions within the organization (for example: turnover rates, cost per hire, retention rates) 06 Evaluate credibility and relevance of external information to make decisions and recommendations (for example: salary data, management trends, published surveys and studies, legal/regulatory analysis) 07 Contribute to the development of the organizational strategy and planning (for example: vision, mission, values, ethical conduct) 08 Develop and manage workplace practices that are aligned with the organization’s statements of vision, values, and ethics to shape and reinforce organizational culture 09 Design and manage effective change strategies to align organizational performance with the organization’s strategic goals 10 Establish and manage effective relationships with key stakeholders to influence organizational behavior and outcomes In Addition To The Preceding Responsibilities, An Individual Taking The Sphr® Exam Should Have Working Knowledge Of The Following Areas, Usually Derived Through Practical Experience: 01 Vision, mission, and values of an organization and applicable legal and regulatory requirements 02 Strategic planning process 03 Management functions, including planning, organizing, directing, and controlling 04 Corporate governance procedures and compliance 05 Business elements of an organization (for example: products, competition, customers, technology, demographics, culture, processes, safety and security) 06 Third-party or vendor selection, contract negotiation, and management, including development of requests for proposals (RFPs) 07 Project management (for example: goals, timetables, deliverables, and procedures) 08 Technology to support HR activities 09 Budgeting, accounting, and financial concepts (for example: evaluating financial statements, budgets, accounting terms, and cost management) 10 Techniques and methods for organizational design (for example: outsourcing, shared services, organizational structures) 11 Methods of gathering data for strategic planning purposes (for example: Strengths, Weaknesses, Opportunities, and Threats [SWOT], and Political, Economic, Social, and Technological [PEST]) 12 Qualitative and quantitative methods and tools used for analysis, interpretation, and decision-making purposes 13 Change management processes and techniques 14 Techniques for forecasting, planning, and predicting the impact of HR activities and programs across functional areas 15 Risk management 16 How to deal with situations that are uncertain, unclear, or chaotic
This guide examines content for the Senior Professional in Human Resources exam. In Functional Area 01, Leadership and Strategy, the senior HR professional learns the importance of leading the HR function by developing HR strategy, contributing to organizational strategy, influencing people management practices, and monitoring risk. This guide covers material that represents 40 percent of the SPHR® exam. Because of its weight, it is the most important guide to review for the exam. While there is some overlap with information with the guide to management, the focus is quite different as senior HR professionals are responsible on a strategic level for decisions and for assessing the impact to the organization at a higher level. Required Knowledge It is important that we continually grow in our knowledge as we progress to become senior HR professionals. Knowledge comes from either personal experience or the study of the experiences and lessons taught to us by others. Human resources professionals preparing for the SPHR® exam must possess certain knowledge acquired from experience or study. The knowledge portion reviews business concepts practiced at the higher levels of an organization usually beyond the transactional. Mission, Vision, and Values Human resources professionals must know the mission, vision, and values of the company. In many of their tasks discussed later here, they function as the champion, interpreter, or arbitrator of these concepts to the employees. The mission of the company is usually expressed as a short statement sentence describing the purpose of the company’s existence. It should be overarching and usually is an infinitive statement to do something. It answers the question, “Why?” The vision of a company looks at the future and paints a vivid picture of what the organization will look like as it grows, develops, or changes over time. The vision considers where the organization is currently and describes where it wants to go. A vision must be able to be consistently repeated by employees to be effective. In other words, they are all able to describe the same picture. Vision statements should be simple to be effective and, in some instances, consist of only a phrase or a couple of words.
The Table below shows some mission and vision statements from familiar organizations. TABLE: Sample mission and vision statements
Values are the foundation of how a company is going to perform its mission and achieve its vision. From the HR perspective, a goal is to ensure that employee behaviors are aligned with the values of the organization. When behaviors are not aligned, the resulting issues and negative outcomes can impact performance management, employee relations, and human resources development. Values must be communicated and modeled consistently throughout the organization to be effective. It is always the values that are practiced, not the ones that are written, that define how the organization conducts itself. Corporate Governance and Compliance Knowledge of rules and regulations also relates to corporate governance procedures and compliance. Senior HR professionals are responsible for knowing current reporting requirements with respect to laws such as the Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002, or SOX, was enacted following several public corporate and accounting scandals that occurred in the early 2000s. It set standards of corporate governance, oversight, auditing independence, and enhanced financial disclosure. To review the law, you can visit www.sec.gov/about/laws/soa2002.pdf. Corporate governance procedures vary based on the type of company (private, public, not-for-profit) and the number of employees. In addition to federal statutes, the organization may be subject to state provisions depending on which states the company does business in. Also, international corporations have added compliance requirements throughout the globe, especially throughout Europe and Asia. These are elements of corporate governance to review: - Board composition and election of officers - Corporate responsibility statements and ethics - Conflict of interest policies and procedures - Internal and external auditing practices - Financial disclosure statements - Whistleblower protection Human resources should have working knowledge of the activities surrounding these elements and the input that is provided. For example, it is not necessary to know how to do a full audit of the agency. However, senior HR professionals will provide documents such as payroll records and personnel files to verify or validate parts of the audited reports. HR professionals must know how their functional activities are tied to others within the organization. Beyond this specific law, senior HR professionals must evaluate the applicability of federal, state, and local laws to the organization. Often as organizations grow, new requirement thresholds are met that trigger compliance. For example, when a private company exceeds 100 employees, it is mandated to file the EEO1 report to the Equal Employment Opportunity Commission that evaluates the diversity of the company. Because senior HR professionals are the chief architects of HR-related policies and programs, they must ensure that these policies comply with the laws and regulations, including any regulatory findings. Strategic Planning Process The elements of the strategic planning process illustrated in Figure below include design, implementation, and evaluation. At each phase, senior HR professionals provide key input to ensure that the process moves forward and accomplishes the goals and objectives established.
FIGURE: Phases of the strategic planning process The key to a successful implementation is communication throughout the organization. Stakeholders must understand their role and contribution to the plan to have “buy-in.” This is particularly important in overcoming internal resistance that exists in companies with long-term employees, long-standing practices, and traditions where change is imminent. Remember, all strategy begins with the organization’s most core elements: its mission, vision, and values. Without a clear mission or vision it is impossible to develop a cohesive, effective strategy. Part of the function of human resources is to ensure that every employee’s behavior is consistent with the stated values of the organization and that their actions continually drive the organization toward the vision established by the executive leadership. Most dysfunction in an organization happens as a result of failing to align people to values, not understanding the mission, or having a murky vision that cannot be vividly seen by everyone. Strengths, Weaknesses, Opportunities, and Threats (SWOT) These four areas look at the positive and negative influences, both internal and external to an organization, that impact operations, strategic objectives, and the overall success of the company. Senior HR professionals must know how to assess these four areas accurately and honestly to make competent recommendations to the organizational leadership. Strengths and weaknesses refer to the internal capabilities of a company and how well (or not) it can meet its goals. For example, are there any unique skills that a company has that can set it apart in the market, or does it have challenges that are preventing it from reaching its maximum potential? By identifying strengths, the company hopes to exploit what it does well and find more situations that allow it to grow. Conversely, a company must identify weaknesses and find ways to minimize their effect on the company’s mission. Externally, the company should look for opportunities in the market, such as a new product line or innovation that improves a business process to increase market share or revenue to the company. These external events are often limited in time, so senior HR professionals should be aware of how to seize these moments when presented. In a similar manner, threats pose risk to the company through external influence by competitors, new products, changes in customer behaviors, or other influences that will decrease a company’s ability to stay relevant and competitive. A great example would be Blockbuster video stores—once extremely profitable, they ultimately were put out of business with the advancement of streaming technology that allowed direct-to-consumer purchases. Political, Economic, Social, and Technological (PEST) As discussed with opportunities and threats in SWOT, political, economic, social, and technological factors can influence a business. Senior HR professionals must be aware of these environmental conditions to advise decision-makers in the organization. For example, political changes such as the regulatory environment or new laws with changes in political administrations can have a large impact on decisions concerning human capital. As the economy improves or declines, it often will have an impact on operational decisions and cash flow to the business. Customer attitudes, social pressure, and corporate responsibility are social impacts that might affect policy decisions or corporate strategy. In the example of Blockbuster, the technological advancement of the Internet and streaming video was the proximate cause of the company’s downfall. These areas are interrelated and therefore overlap. So, senior HR professionals should analyze how they intersect and where the company can take actions to minimize the severity with which they will impact the company’s bottom line. It is difficult to predict future events, but to the best of their abilities, senior HR professionals must know how current events and items in the news could eventually reach the organization and be in a position to make timely recommendations to take advantage of the situation. Management Functions Senior HR professionals should understand four major management functions as part of business functions. Planning Planning involves all aspects of preparation, problem-solving, strategic assessments, and environmental scanning. This function looks forward to likely project outcomes and the necessary courses of action capable of meeting future needs. Tasks performed in the Planning function include forecasting, setting goals and objectives, and conducting assessments. Organizing As part of the Organizing function, a corporation will use available resources to design systems, procedures, and policies; structure their organization; and determine lines of authority and responsibility for conducting operations.
Table below lists the most important methods and tools that assist this process. TABLE: Organizing tools
Directing This function involves the active leadership needed to ensure that goals are met and employees’ behaviors and performance align with the organization’s mission, vision, and values. Continual assessments and review of performance metrics help gauge and direct the actions of managers to carry out daily tasks. Controlling This function serves as the check on progress for how the outcomes predicted in Planning match the actual performance and determining where gaps are and how they can be corrected or mitigated. As with Organizing, there are several tools and methods that can be used for this function, listed below. TABLE: Methods used in Controlling
Techniques for Forecasting, Planning, and Predicting the Impact of HR Activities and Programs across Functional Areas Senior HR professionals do not come equipped with a crystal ball to foretell the future. However, predictive analysis based on available information is a required skill. Modern business planning uses historical data to build models that can estimate how certain activities will be affected by HR decisions. The HR strategy and plans must be synchronized with the organization as a whole. For example, human capital projections can look at how many employees will be needed over a time period based on growth of the company or the increases to salaries or benefits costs. Such projections might also be an indicator for the consumption of office supplies or demands for technology, such as information system user accounts. The most common technique in modeling is to look at past historical data for trends that can be beneficial if the company is relatively stable or with a predictable growth. For a rapidly changing company or one that is leading an industry where no trends exist, this technique has a shortfall. In those cases, HR can develop a rapid, iterative process to assess accuracy of predictions and make adjustments more readily. In this situation, the HR team might plan separately in a parallel planning process to be unencumbered by other departments but still responsive to changes. The other option is to plan in series; here, HR waits on each department to submit its plans and then conducts an analysis and estimate based on what other departments provide. Workforce planning and human resources development are two functional areas of HR that require attention for predicting the impact across other functions of the company. The end state of a comprehensive planning process is an effective service delivery plan showing how the company intends to provide HR services across all functional departments or divisions and to each employee regardless of location. This may be direct support or a combination of shared services, contracted from third-party vendors, and internal resources. Handling Uncertainty and Unclear or Chaotic Situations At the strategic level of an organization, situations are often fluid enough that senior HR professionals need the skill of adaptability in ever-changing situations. It is impossible to be 100 percent certain of any decision or outcome, and often situations can go from stable to chaotic rapidly. Senior HR professionals must be proactive in gathering available information and using their knowledge of the organization to make educated guesses and recommendations that allow the company to keep moving forward. The situation may not provide the clarity these professionals desire, but they must be comfortable in their knowledge of best practices and HR fundamentals to be confident in decisions even without the availability of certain information or in unclear circumstances. Business Elements of an Organization Senior HR professionals are expected to know more than the basics of HR delivery. They must have business savvy. They should strive to understand the components of the business in which they operate and how they are all linked together. More importantly, they must understand how HR impacts each function and element at the strategic level and be able to support executives with timely and accurate information to make decisions. Table below lists some of the business elements and key knowledge points about their function. TABLE: Business elements of an organization
Technology to Support HR Activities A variety of technology and tools are available to support senior HR professionals and accomplish the tasks to be performed. In general, human resources information systems (HRISs) are the electronic hub to store, access, and analyze HR data on employees in the organization. There are many vendors and programs that can be used to accomplish this, and the choice largely depends on the size and type of organization. These systems range from storing basic personal data all the way to massive databases with thousands of fields. Obviously, the more complex a system, the more training involved for its users, and the need to ensure data accuracy. Many systems have a self-service function that allows the individual employee to update certain elements to increase timeliness and accuracy of the data being stored. It presumes that an employee entering information such as home address is more likely to be accurate with their own information than someone performing data entry based on written information on a paper form that must be transposed and uploaded to a digital record. In addition to storage of information, senior HR professionals must be familiar with systems for e-learning and learning management systems (LMS) that are available to train and develop employees in the organization. These systems have access controls and content management requirements that are controlled by senior HR professionals responsible for organizational development. Additionally, a company might use an applicant tracking system (ATS) as part of its recruiting structure to allow candidates for employment to complete applications online and then filter, sort, and evaluate the applicants in the digital space. There is often a communication module as part of the ATS that allows the HR team to communicate with an applicant to schedule interviews or request additional information to determine the best-qualified applicants and to make a hiring decision. These systems collectively improve processes and HR functions in the daily delivery of services discussed previously. But they also have a significant impact on the reduction of risk associated with data loss and breaches by having standardized practices, backup, and storage of critical HR-related information for the company. Change Management Theory, Methods, and Application Change is a natural part of the growth of organizations. Failure to recognize change could prevent a company from adapting to new business conditions. Consider the last company to make horse-drawn carriages for wide use; they might very well have been the best maker of such transportation. However, with the creation of the automobile, their function today has changed to be for recreation or novelty in a niche market. Senior leaders must constantly review technology, public demand, and the availability of alternatives to meet the needs of the consumer. It is easy to accept that things change; however, in practice, the reality is that managing change effectively is difficult. Senior HR professionals must understand how to manage change as a process and function of the company.
There are numerous change management theories. Among them are Kotter’s theory, Lewin’s change management model, and the nudge theory, to name a few. For some examples and explanations, refer to https://www.process.st/change-management-models/. A senior HR professional should have more than a rudimentary understanding of these theories, because they are responsible often to be the change managers or work with employees and managers that are experiencing change. In general, the organization recognizes a need for change and a desired end state once the change is implemented. Next, the organization must prepare for the change and communicate the significance and importance of the change to the employees to gain support and momentum to adopt the change. Then the company implements the change and must include a process to evaluate how the change is being received and integrated into current operations. Finally, the company reaches a new stasis having fully accepted and assimilating the change. This process continues as the needs for change keep presenting themselves. Types of Organizational Structures Structure is important for a company, and senior HR professionals must understand how a company is organized to perform critical tasks essential to operations. Often senior HR professionals must know the various departments or teams and how they are interconnected to establish policies over personnel transfers, evaluations, promotions, and other routine HR actions. Each organization is different, so there may be slight variations in how the organizational structure develops as a company expands. Senior HR professionals examine how a company’s structure will impact its human capital, management, and operational control. This provides them the ability to advise corporate executives as to the best approach when making structural decisions. Two common approaches to organizational structure are the matrix and hierarchy methods. In a hierarchy, the structure resembles a pyramid; the chief decision-maker such as a chief executive officer, president, or chairperson is the ultimate head of the organization responsible for all actions and the accomplishment of the mission, vision, and values of the company. Below the organizational head might be division heads, then lower management, and finally teams of employees. In this kind of structure, there is a general stovepipe of information, and the flow tends to go up and down with little contact across.
The other common structure is a matrix. This example is often shown as a series of groups or equal parts all sharing responsibilities for the execution of the company mission. In these environments, information can flow across as well as up and down. While it may seem that this would be a preferred method given the more open communication, it has its own unique challenges. For example, there can be too much information sharing or conflicting guidance based on different priorities or interpretations of the needs. People who work in a matrix environment must be more disciplined when resolving problems because of their access and ability to impact a far greater portion of the company with each decision.
In this figure, you can see the differences in structure compared to the hierarchical organization shown previously. FIGURE: Hierarchical organizational structure FIGURE: Matrix organizational structure Third-Party or Vendor Selection, Contract Negotiation, and Management Some shared HR support services that have been discussed here are sometimes better handled by an outside entity that specializes in the skills needed to perform the functions. This helps the organization streamline processes and focus on their core competencies. Senior HR professionals must be familiar with the steps and skills needed to determine which outside group or third party will be selected and must be able to negotiate the terms of a contract that will be beneficial to all parties involved. Once a contract has been established, senior HR professionals may be responsible for administering the contract and providing oversight on the vendor to ensure that the agreed-upon services are being performed according to the terms of the agreement. A request for proposal (RFP) is a formal process whereby the organization that needs a service creates a statement outlining the work to be done, the terms and limitations of the requirements, and any other stipulations needed to perform the service in a satisfactory manner. The RFP is then announced publicly for outside vendors to submit bids or proposals that outline how they would complete the work. These proposals often have additional information, including previous work or other documentation that demonstrates their ability to do the job according to the specifications and the overall cost of the proposal. The company that receives the bids can then objectively evaluate and compare the proposals based on a set of determined criteria and choose the entity that best meets the needs of the company. The acceptance of a bid generally constitutes a contract that both parties agree to. The contracting company then must manage and monitor the contracted services to ensure that they are being performed according to the terms. In cases where the services are not performed to the standards, this may constitute a breach of contract and would result in some penalties, usually outlined in the original RFP or as part of the agreement. Large corporations and government entities usually have a lengthy and formalized RFP process to protect the integrity of the overall work being produced and thus minimize the impact of any third parties whose inability to deliver as promised would threaten the continued productivity of the organization.
Outsourcing and Service Centers Sometimes a corporate strategy will be to focus on only the core competencies of the organization. To do this, they will seek to remove all the areas in the business model that are not directly related to those competencies. In many cases, those functions can be done by other companies or service centers that specialize in niche capabilities and reduce overall costs. These cost savings can then go back into the core functions to develop or refine the products or services the company seeks to deliver to the public. Cost-Benefit Analysis Corporations when determining courses of action will often do a cost-benefit analysis that considers several factors related to the amount of capital expenditure required for a given result. It is important to note that some costs are not strictly monetary. Vendor Selection and Alternatives The process to select outside sources begins with identifying and evaluating alternatives to executing the work inside the organization. If the company has done a cost-benefit analysis and concludes that outsourcing an HR service or capability is best, the HR department will help develop the statement of work and/or the requirements needed for contracting outside vendors. They may help determine the suitability and completeness of proposals submitted and whether they meet technical qualifications. They may also be responsible agents for the company to monitor the performance of the vendors and assess whether the vendor is meeting its obligations under a contract or agreement.
Note: Since many of the services that may be outsourced in human resources can directly affect the welfare of employees, senior HR professionals must be diligent in determining which functions can be transferred outside the company and which should remain in-house. Otherwise, something that may be a cost savings to the company could negatively impact morale if the quality or responsiveness is lower when outsourced. Transitioning or Implementing New Systems HR may sometimes take the role of project leader to oversee the transition and implementation of new systems, service centers, and outsourcing. Senior HR professionals will use project management techniques to plan, acquire, implement, and maintain these new systems within the company.
The figure below shows steps for the implementation of a new service center by an organization. FIGURE: Implementation of a new service center Consolidating shared support services across business lines or companies requires evaluation of the business case that is driven by cost savings and profitability. An organization determines what services will be shared, what processes must change with the support changes, what requirements are in terms of manpower and resources, and how the changes will be monitored through the implementation. Tools for Measuring, Evaluating, and Analysis Senior HR professionals must be proficient in the knowledge of how to design, measure, and evaluate strategic outcomes. There are a variety of tools available for project management, quantitative and qualitative analysis, and risk management. Proper analysis of the available data will help management formulate and refine strategic plans within the planning process. Project Management Concepts and Applications Project management is its own field of study and has its own certification and credentials similar to HR. Senior HR professionals will manage a multitude of projects that are related to HR and other business management functions. In general, project management begins with its foundation, defining the scope of the project and how it will be managed. From this point, a project is initiated by establishing the parameters including time, cost, risk management, and human capital. The project is planned, executed, and monitored throughout the project life cycle and is finally closed at its completion. The Project Management Professional (PMP) certification is reserved for those certified individuals in project management.
Project management provides a structured approach to solving complex problems and managing large events in a systematic method using controls and procedures that are generally accepted as best practices. While it is not necessary for senior HR professionals to also be certified PMPs, an understanding of the functions will be helpful in their daily work. Budgeting, Accounting, and Financial Concepts Senior HR professionals are not accountants, but understanding the most basic financial concepts is essential to being successful. The greatest shortcoming in our profession is our ability to understand budgets and the financial stability of the organization. Pay increases, training costs, company-paid benefits, and many other HR elements have a direct impact on the budget, so it is imperative that senior HR professionals communicate constantly with the finance department and maintain a fluid understanding of their issues and concerns.
One fundamental concept to understand is the general ledger, which maintains the record of all financial transactions of the organization. Accounting guidelines will group each entry into categories to organize the information and properly account for all expenditures, identify sources of revenue, and prepare required financial documentation and reports. In a similar manner, profit and loss (P&L) is a category of financial statements that show the profitability of the organization by comparing income to spending. The financial statement that shows the overall net worth of the organization by comparing assets to liabilities is the balance sheet.
With budgeting, the financial team attempts to program out, usually over a year, the projected revenues and expenditures. In HR, it is important to capture all the costs including payroll, recruiting, marketing, and training to determine how much money and resources need to be allocated to achieve the HR functions. In most cases, the available funds will have a limit, and HR must work within this constraint, so they must program crucial spending first and advocate strongly when resources may be cut. Simultaneously, they must understand that they are only one area of the company and not always the priority when money is tight. However, this should not prevent them from making the case to prioritize some of the available resources to human capital. Companies that do well have a balance between human capital needs and other elements of the business. Qualitative and Quantitative Methods and Tools Qualitative and quantitative methods and tools are needed for analysis, interpretation, and decision-making purposes.
A simplified way of understanding these concepts is that qualitative methods answer the question, “How well?” and quantitative methods answer the question, “How much or how many?”
Two important questions for HR to understand are the following: - Are we doing the right (proper) things? - Are we doing things right (correctly)?
To answer these questions, HR professionals have a variety of tools and measures they can use. These tools establish metrics with benchmarks to measure performance and effectiveness in core competencies throughout the organization. They use methods such as a cost-benefit analysis to determine whether a course of action will provide sufficient return on investment (ROI) to overcome any possible negative consequences to that same decision. Finally, senior HR professionals can examine and understand financial statements to measure recruiting costs, payroll expenses, benefits, and other costs that impact the profitability of the company and make recommendations or adjustments to improve the financial position of the organization.
Quantitative methods include mathematical sets such as statistical averages, regression analysis, or standard deviations. These formulas are tools for HR professionals to determine average salaries in a pay group, the relationship of variables such as education level to starting salary in statistical modeling, and the range and distribution of salaries in a pay group. Risk Management Techniques A core knowledge point is the understanding of the choices an organization has about risk in general. These risk management techniques define how an organization will proceed to address the risk once identified. The general choices are avoidance, mitigation, transference, and acceptance. Each choice seeks to address the risk in a manner that is acceptable by the company and is consistent with the organizational values. In avoiding risk, the company elects not to pursue a goal or perform a task because the risk is too great and cannot otherwise be resolved. While this is an option, it comes with the loss of an opportunity to benefit from a positive outcome. Generally, however, the choice to avoid may come after a risk-reward or cost-benefit analysis and a determination is made that the risks far outweigh the potential positive outcome, which is not assured. Mitigation is the choice most often agreed upon by an organization. The company seeks ways to reduce the identified risks through implementation of controls and measures and leaves a residual risk. It is impossible to remove all risk in this case, but with mitigation, the risk is now below the value of the positive result expected and can be supported in a business decision. Transferring risk is not mitigation because the total risk is still present. However, the area exposed might be different and therefore have less impact to the overall organization. Insurance is an example of risk transference where a company hedges against loss by providing a premium to a provider that calculates the likelihood of loss. Workers’ compensation insurance and employer group health coverage are examples of transferring risk to employees and the organization. The final option is acceptance, which means that the executives responsible for decisions in the organization have underwritten the risk as a function of the work to be performed and are fully aware of the consequences of a negative outcome. Ultimately, any residual risk falls in this category regardless of the other three choices. It is imperative that senior HR professionals understand that they must identify risks to the organization related to HR actions but that it is a function of the executive to choose to accept that risk. The greatest danger is that they are often underwriting risk that they do not fully understand or are not aware of. Exam Tips: Know how the mission, vision, and values of a company interrelate. Companies exist for a purpose, usually to deliver a product or service to a consumer. When the company is organized, the executive team charts the course of the company defining these three elements. Often, they come in the form of a statement or summary, but what is essential to understand is that the actions of the company define these concepts, not what it says on paper. You should review your company’s mission, vision, and values as well as those of other organizations and look at how each organization defines its own purpose. Review the strategic planning process. The strategic planning process is a formalized way of defining a problem, developing courses of action, evaluating those choices, and selecting and implementing the best course for the organization. It is a continuous cycle looking at the big picture of the company, not the granular details, usually with overarching themes and goals. Some companies get caught trading off the important for the urgent and fail to look at long-term issues until they are too big or there is insufficient time to address them. Reviewing this process will help you effectively understand large-scale decisions made by the company beyond day-to-day operations. Review core business concepts and functions. One of the greatest criticisms of senior HR professionals is that they lack common business competencies and view HR in isolated terms. It is important to review each of the functions of business and how they impact HR and, more importantly, how HR impacts them. Pay particular attention to those functions in business such as accounting that have mirror processes or are closely related to HR functions. The more general business knowledge you possess, the more fluent you will be in terminology and concepts. Responsibilities The SPHR® exam asks questions related to the responsibilities of a senior HR professional. These are the tasks that senior professionals in human resources do every day. In Functional Area 01: Leadership and Strategy, these tasks relate to the higher-order strategic and transformational functions. These tasks are specific only to senior HR professionals, so only individuals taking the SPHR® exam will have questions on those responsibilities. Development of a Strategic Plan Strategy refers to how an organization or individual thinks about the business model and what outcomes are desired. Business management is the practical application and end result of the strategy. Organizations develop and execute a strategy and then evaluate the results to determine whether the desired outcome has been attained. Senior HR professionals must have a clear understanding and knowledge of basic business concepts and processes beyond the HR functions. The more a senior HR professional can know about how certain functions work in a company, including operations, the more responsive they can be with timely and accurate HR support. This section will look at the elements associated with strategy followed by those associated with business management. Gathering Information from Internal Sources As a senior HR professional, you are part of a network within the organization that optimally should be working to achieve the same goals at the strategic level. Each department within the organization should be integrated and collaborate to ensure that tasks performed by the individual support the team, department, division, and organizational goals. When the executive or C-suite is developing these goals, it is important to get input from all elements of the company. The departments provide quarterly reports and forecasts, business projections, budgets, new product information or programs, and other internally generated data and metrics that are indicators that drive human resources decisions. Each division has different functions and will bring different viewpoints to the meeting, which can help the organization grow. Real World Situation: Adding New Locations A company has several stores throughout a geographic region and is expanding, adding new locations in new markets. The HR team is tasked with analyzing the markets to assess the availability of skilled labor in the area. Additionally, other areas such as finance, IT, and operations are contributing to the planning process with reports such as cash flow, infrastructure and networking requirements, and processes and procedures flow. These functions are all brought together in one cohesive plan to help determine which of the possible new locations has the best return on investment for the company.
Each area contributes and brings key pieces of the puzzle, without which there could be unforeseen risks or gaps that could negatively affect the overall business. The outcome of an orchestrated plan supports the vision of the CEO and can be directly tied to the specific strategic objective of growing the company in the next 5–7 years.
The information that a human resources professional has access to within an organization can be used to interpret data and make recommendations and decisions that affect the company. HR uses information gathered from reports produced by the finance department, marketing, sales, operations, information technology, legal, and others. HR experts must know how the different business units fit into the overall organization. By understanding these internal customers’ needs and objectives, HR can provide timely and relevant support that enables the company to achieve its mission. Often a company will perform a formal strategic assessment across the departments to look at its financial position, facilities and equipment, operations, information technology, and other internal factors that currently determine where a company is positioned. It can use internal audits, accountability reports, and production numbers as metrics to measure performance and effectiveness. Gathering Information from External Sources While a strategic assessment will help a senior HR professional know the internal starting point of a company, many factors are beyond the control of an organization and will over time greatly impact its success. These external factors come from a variety of sources, and as a senior HR professional, you are expected to know how to interpolate the data and make inferences about how it will inform practices and policies within the company.
A great example is to look at regulatory changes from the government. In 2016 the U.S. Department of Labor announced a final rule change to the administrative test for exemption to the overtime rule of the Fair Labor Standards Act. The previous rule had a salary threshold of $23,660, regardless of the type of work or position that would otherwise qualify an individual for exempt status under the rule. This regulatory change proposed to move the threshold to more than $47,000 and further benchmark the amount to 40 percent of the median wage of the United States, which would automatically place thousands of additional workers in a nonexempt status, thus making them eligible for overtime pay. This one regulatory change could have affected hundreds of companies across the country and would have ramifications on workforce planning, compensation and benefits, and policies and procedures, and it could alter strategic plans. If a company wanted to hire or expand operations as part of its strategic goals and objectives, this cost of labor change as a result of the regulation could impact that goal. While senior HR professionals do not have a crystal ball and cannot always know what external factors will change, they must be aware of and responsive to the potential for change. Staying informed and current on HR regulations, networking with other senior HR professionals, and following changes in industry practices will help ensure that such environmental changes don’t disrupt the organization.
Here are environmental scan areas to consider: - General business environment - Industry practices (sometimes referred to as best practices) - Technology changes - Economic outlook - Labor market - Legal and regulatory environment
Credibility and Relevance of External Information There is a plethora of information available to senior HR professionals and companies about the current operational environment in business. Some of this information is important and relevant, and some is not. It requires senior HR professionals to analyze the credibility and source of the information to make reliable recommendations to management.
These are some specific types of information: - Salary data - Management trends - Surveys - Industry studies - Legal cases
There are companies that specifically focus on collecting and analyzing industry data to publish trends and information to companies for a fee; the amount depends on whether the information is generic for the industry or is customized for the company. Salary data can be a good source of information to set hiring and pay scale ranges, while items such as management trends may have limited anecdotes based on surveys limited to an industry segment or region. Legal cases should be scrutinized because precedents may be related to certain states or regions depending on the ruling and jurisdiction of the court. It is advisable that any legal information be reviewed by the company’s general counsel or legal support beyond the interpretation of senior HR professionals.
Note: Some companies will send solicitations to individuals in an organization with an HR title offering a “free report” on HR-related topics. This information is generally a teaser or limited in scope or relevance. However, accessing these reports requires contact information to be provided. This almost always invites a direct sales call from a marketing agent who has very little experience with the HR function. They are attempting to sell you their product or services, which may or may not be useful to your organization. Aligning the HR and Organizational Strategic Plans The human resources department develops its own strategic plan. Like any other organizational segment, the HR team develops internal goals and objectives, implements action plans, and uses metrics to determine success. These plans should nest within and support the overall strategic plan of the organization, as depicted below. If, for example, a strategic goal of the company is to develop its employees, HR might establish as its goal the development of an employee training program that furthers the overall goal of the organization. FIGURE Nesting goals Code of Ethics Many companies specify breaches of the values that the organization espouses when writing their code of conduct or ethics policy. They cover things such as fraud, waste, abuse, and conflicts of interest. Usually, there is an affirmative requirement that employees report any suspected violations to internal audit, human resources, or the legal division of a company. In the case of government-regulated industries, there may also be compliance entities within the government that impose reporting requirements. Establishing Strategic Relationships Human resources is concerned with maintaining positive, productive relationships throughout a company’s life cycle. From the employee to employer, stakeholder to executive, or customer to company, the HR functions help build and maintain these relationships. Among the more critical relationships are those that are forged at the strategic level. These relationships serve a high-level purpose to provide insight, access, and ability for senior HR professionals to influence and shape the company’s direction and maximize the human capital potential of the organization.
Influence Organizational Decision-Making Senior HR professionals must build and maintain strong relationships within the organization. Decision-makers rely on you to have discretion and maintain confidentiality with sensitive information. Access to key leaders is essential for exerting direct influence over the organizational decision-making process. Senior executives are more likely to share their thoughts with someone observed to be technically competent, honest, and trustworthy.
Integrity is essential for any senior HR professional. - Be approachable and open. - Maintain confidentiality. - Actively listen to concerns and issues. - Offer technically sound analysis. - Stay within your scope of responsibility and expertise. - Be professional.
Successful senior HR professionals have a high degree of skill with interpersonal communications. They understand organizational behavior and can evaluate personal motivations and emotions of others. They have strong emotional intelligence. This is not to say that all senior HR professionals are “nice” or “people friendly.” In fact, there are several parts of HR that are certainly not “nice” (like having to terminate an employee). What they are is empathetic to the situation. Senior HR professionals use referent or expert power to influence others. Managers and executives see them as subject-matter experts and rely on their judgment in situations involving the human capital of the organization.
Review the following observations to determine the strength of the relationship: Access Do you have access to the key individual(s) making decisions? If your information and analysis are going through a filter process and there are layers of bureaucracy or intermediaries between you and the key decision-maker, it is unlikely you exert a great deal of influence over their decisions. Support Do key leaders support your initiatives and decisions? Are recommendations made by you implemented? Or even better, are you given autonomy to implement certain decisions that have been delegated to you by executives? Good senior HR professionals will have great support from those making decisions. They will acknowledge your expertise and advise others to bring concerns and issues to you for advice and counsel. Your sphere of influence grows with more support by decision-makers. Candor Do you filter comments and advice to shape what you need to say because “the boss” isn’t receptive to hearing it? Senior HR professionals must speak their minds but tactfully. Dissent, in most cases, does not equate to disrespect. Sometimes HR must tell decision-makers the hard truth about the situation from the human capital perspective. If you feel you cannot be candid for fear of the reaction or response, your ability to influence the situation will be diminished. Otherwise, you will second-guess what information to provide and when; over time this will erode confidence in what you are saying. Communication Closely related to candor, communication refers to the means of and frequency of the flow of information. Are items expressed in formal communications with memorandums and carefully worded emails? Is there informal, more frequent dialogue with influencers throughout the organization? What process is established to ensure feedback and accountability when information is transmitted?
Building Alliances and Networks A key responsibility for senior HR professionals is to establish relationships with individuals and groups external to the organization. The field of human resources is complex and constantly changing. While certified professionals are expected to know much, they are not expected to know everything. Only through building relationships and alliances with others can you help the organization achieve its strategic goals.
Community Partnerships Community partnerships are important for corporations, especially those that have a large impact to the economy, labor force, or environment. Even small companies can belong to a business coalition that seeks to improve a local community or neighborhood that supports and hosts those businesses.
These are types of community partnerships: - Civic: Government leaders, law enforcement, civic groups, community organizations, local community colleges - Business: Chamber of Commerce, business coalitions, job training centers, benefit providers (healthcare, retirement) - Nonprofit: Charity organizations, religious centers of influence
Corporate Responsibility Corporate responsibility is the self-control regulating mechanism by which modern businesses operate. There are many instances where although a corporation is permitted to (may) do something, its corporate responsibility dictates otherwise (should). There are several factors to consider, including the spirit of a law or regulation, the ethics of a situation, or the impact to a social compact or the environment. A company with a strong sense of corporate responsibility views itself as part of the community and understands that business decisions do not occur in a vacuum. It serves as an internal control that allows a business to function within acceptable social norms.
Developing and Managing Workplace Practices As discussed in the previous paragraphs about ethics and corporate responsibility, an organization must demonstrate through action, not words, its commitment to the mission, vision, and especially the values of the company. By aligning practices with these key organizational statements, a company will shape and reinforce organizational culture. Companies may institute open-door policies to allow employees to bring concerns to the attention of management, sometimes outside of direct reporting chains, if they feel strongly that actions of middle managers or direct line supervisors may be in conflict with a company’s values. A growing trend in today’s business culture is how companies respond to claims of sexual harassment or other discrimination. Most senior HR professionals approach these topics with a compliance attitude to minimize exposure or risk to the company, and so training and modeling reflects this approach. However, it may not actually address the underlying causes or prevent future occurrences. Instead, today companies are attempting to restructure how this important training is focused toward the root of a problem, which may be a passive culture or attitude among employees or management. In a passive climate, the response is immediate after an incident, but there is no prior work to identify potential problems with behaviors or attitudes. Training is compliance oriented about reporting, investigation, and adjudication of complaints. An active culture explores the motivations, behaviors, and experiences of employees in the workplace and builds practices and policies that are directly aligned to the values statements of the company. Senior HR professionals have the responsibility to integrate these programs into the company’s training plans and to reinforce them through the entire employee life cycle process. When areas of concern are identified, they must immediately offer options to managers to avoid incidents in the first place. This requires proactivity and is generally more difficult to achieve, but the results have a greater impact on the overall organizational climate and the long-term success of the company. Measuring and Evaluating Outcomes Having a great strategic plan isn’t enough. You must measure the outcomes and constantly be on guard for changes in the operational environment that impact your plan. To do this effectively, senior HR professionals must be able to design and use various metrics that indicate whether the organization’s human capital is being maximized and where improvements can be made. Developing and Utilizing Business Metrics Senior HR professionals use metrics to measure the achievement of strategic objectives and goals. Measures of performance tell you how the organization is performing according to the established standards. Measures of effectiveness determine whether the organization is evaluating the right things that can provide insight into how the organization performs. It is important to review the available data of the company in an unbiased manner to provide a realistic picture of the successes or failures of strategic plans.
KPI Key performance indicators are generally those data points that a company reviews on a regular periodic basis to establish trends and look for patterns. Number of units produced, overtime costs, and net sales are just some examples of operational KPIs that an organization might use to determine how well it is meeting its goals. In the area of human resources, KPIs could be turnover, training costs, accident rates, or absenteeism. Over time this information could present a clear picture to decision-makers about the overall health of the organizational climate and how effectively the company is engaging its human capital.
Financial Statements Financial statements such as profit and loss (P&L) statements provide the company with a snapshot of the financial stability of the company. The P&L looks at income and expenses of the business usually monthly or quarterly. It can also pinpoint trouble areas such as where costs exceed projections or estimates. EBITDA, or earnings before interest, tax, depreciation and amortization, is an effective way to evaluate a company’s operating performance. It removes the accounting and external financial factors (such as tax rates) from the assessment and looks. A balance sheet shows the accounting of the company, tracking all assets and liabilities to the company. When done correctly, these accounting entries are always equal and offsetting, which puts the company’s books “in balance.” For example, if the company purchased equipment for $5,000, the equipment would be an asset, but there would also be a liability in either a bill to be paid or in a loan amount due. A statement of cash flows identifies money coming into the organization and going out. It’s important because not all money moves at the exact time. If a company has accounts receivable (A/R) or accounts payable (A/P), it generally has a period of time before they receive payments from customers or make payments to vendors and these need to be kept straight. If a company frequently has to pay money out before it gets paid by the customer, that can create financial stress on the organization as it waits to get back money it has already spent.
Budgets Budgeting is an essential element of business, and for HR it is important to understand how to budget available resources to achieve certain objectives. The HR function is viewed as a cost center in a company, meaning that it does not generate revenue for the business. It doesn’t produce widgets or sell services, so functionally any money it spends is usually going out without creating anything coming in. However, an effective HR team can be very valuable if its spending generates a stronger, more developed, and better qualified human capital base. For example, if an HR team spends $5,000 to recruit highly skilled labor technicians but those technicians are able to produce product more efficiently and with higher quality because of their skills, while reducing turnover, then that recruiting amount may be worthwhile in the long term. To be able to determine how effective HR is in recruiting, training, or maintaining a company’s staff, it must budget the costs for all services needed and to capture any costs in detail. As you develop reoccurring costs, you will begin to see that there is a need to forecast what HR needs to spend to operate effectively, and this can be given to the finance department to budget. If a retail company is opening new stores, the HR team should budget how much money is needed to recruit new hires, advertise for positions, and spend on training, as well as any new HR hires to support a growing employee population. Designing and Evaluating HR Data Indicators HR is a data-driven function. Business leaders are requiring that senior HR professionals have an understanding of available data and can evaluate and interpret the significance of information in trends or patterns that will impact the company over time. Some common indicators that are useful include the following: - Turnover rates - Cost per hire - Retention rates
Turnover rates can show how often new employees are hired and how many employees leave the organization. Some turnover is natural and necessary. Retirements, promotions, or departures to move up when an individual has reached a ceiling in the organization are expected. However, poor management or training that results in employees leaving may be considered bad turnover that can be reduced by emphasizing better managers or more effective training. With higher turnover, more resources are needed to find replacements, and this impacts the bottom line of the organization. Cost per hire takes all the costs needed, including recruiting, advertising, training, and onboarding, to bring one individual in the organization fully qualified to perform their assigned duties. It is expensive to find the right person, with the right skills, to perform the right tasks in an organization.
Figure below shows the cost-per-hire formula. FIGURE : Cost per hire Figure below shows the average tenure time in months for all employees that departed in that month. If the average turnover is relatively constant, as the length of tenure changes, it is a direct correlation to the retention rate—how long people stay with the company. If a company must hire new employees every 12 months, it is unlikely to be recuperating the costs associated with hiring the individual before hiring a replacement. In today’s business environment, most people don’t stay in a job beyond 3–5 years, so companies must maximize the performance of those individuals and can measure longevity through retention rates. FIGURE: Turnover Design and Manage Effective Change Strategies To align organizational performance with the organization’s strategic goals, senior HR professionals must design and manage effective change strategies for the company. Change management theories discuss the motivations and methods of how individuals respond to changes in general, but specifically they apply to their work environment for the purposes of this review. As the business environment changes with external factors, the company will respond with implementing new ideas or programs to remain competitive. While this might attract new employees or help the company grow, the executive leadership must be sensitive to how these changes will be received and ultimately implemented by long-standing, loyal employees. Real World Situation: Changes to the Workweek A successful collision repair company was expanding in its home area because of its reputation for quality repairs and exceptional customer service. As it added more stores, it still couldn’t keep pace with the demand, without risking quality or burning the employees out with excessive hours. The company executives discussed new ideas to achieve the strategic goals. One idea was to extend the current business operating hours from 5 days per week and 8-hour days to 6 days per week with 12-hour days. The extended hours would provide better customer support and improve the turnaround time for repairs to vehicles with more time each week. However, individual employee work schedules would need to be adjusted for these new hours to avoid overtime considerations and comply with existing wage laws. These longer hours would also potentially significantly impact the work-life balance of the employees. While some issues could be addressed such as ensuring that employees worked only 3 of the 12-hour shifts each week to avoid overtime and hiring more employees for the increased workload, there were still several other technical challenges to overcome. To decide whether this was a viable course of action, management chose to survey the entire company so that employees could be involved and provide important input to the decision-making process. The survey was able to highlight concerns of employees that could be addressed and discussed with additional group meetings and by developing a frequently asked questions list for distribution. These interactions were well received by the employees and helped the executives adjust plans to account for potential problems. Overall, the method of introducing the ideas for changes, through implementation, facilitated the transition of selected high-volume stores to this new operating structure with minimal disruption to the company. By allowing the employees to be an integral part of the change process and allowing for transparency, there was a greater acceptance of changes. Exam Tips: Know how laws and regulations apply to practical situations. Laws and regulations change often, and you are responsible for knowing current laws. What you may see is a scenario in which a rule change is provided and be given choices on how this rule might affect your organization. Know types of metrics commonly used in business. - Key Performance Indicator (KPI) A KPI is a measure of performance that is quantitative (has a number result) that can be compared against the actual results obtained during a period of time. In business manufacturing, this might be the number of errors in a process or the number of units produced per day. - Financial Statements The financial statements, such as the profit-and-loss statement, balance sheet, and cash flow, are important indicators as to the financial stability and health of the company. They can often pinpoint areas that need attention because of inefficiency in operations or perhaps human capital. Know the importance of values in practice. The values of a company are those that are practiced, not the ones spoken or written on a document. Senior HR professionals must understand how ethical standards of a company relate closely to how practiced values match those expressed by an organization. Know how to design and evaluate HR data indicators. Senior HR professionals should know how to forecast new hires and determine turnover ratios as part of their responsibilities. Included in this function is the type of turnover (transfers, retirements, promotions, separations). Summary Be strategically focused on the mission of the company and in your approach to the delivery of HR support. Being an effective senior HR professional requires an understanding of basic concepts related to leadership and strategy. The SPHR® exam will test your knowledge and experience in business matters at the executive level. Mission, vision, and values are translated into strategic goals and objectives. These goals are the foundation for policy, programs, and processes throughout an organization, many directly tied to HR practices. As one of the organizational leaders, senior HR professionals must know and demonstrate the desired behaviors of the company reflective of the values it shares with employees. Senior HR professionals constantly evaluate the effectiveness of the organization through metrics and their own effectiveness as a leader. Tip: Review your company’s mission or vision statement and any related information on company values.
Look for links to HR policies and practices that are directly attributed to these statements or values and the overall strategic impact they have. However, when looking at questions during the exam, read the questions carefully.
Many times, answers to a generic question may not be exactly how your company chooses to operate, so be careful of the variations.
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