Why and how to move HR to an outside-in approach

I often ask participants in my executive teaching or coaching to answer the question, ‘What is the biggest challenge in your job today?’ HR professionals often answer with topics such as:

• Build a skills-based organisation

• Upgrade leadership

• Manage our culture

• Help employees have a better experience

• Operate in a hybrid world

• Implement AI tools

I then challenge the assumption behind these answers. They are all important topics, but they focus inside the organisation on employees, business leaders, and strategy. Many of the models and approaches to HR start from the inside with hopes that outside stakeholders will benefit. Greater value is created by starting outside with the needs of external stakeholders (customers, investors, community) and then figuring out the implications inside the organisation for meeting those needs. Garavan et al. (2019) has done an outstanding job summarising the theory and research on the HR ecosystem which is the intellectual backbone of outside-in thinking. Yeung and Ulrich (2019) have discussed the market-oriented ecosystem for how organisations operate today. In this forward, let me suggest a more applied view of the evolution of the HR field leading to the outside-in concept, then define what it means for advancing HR work.

Evolution of HR

The field and study of people and organisation has and will continue to evolve. Let me suggest four phases of that evolution and an emerging and increasing focus on outside-in (see Figure 1).

Figure 1. Evolution of HR to outside-in through human capability.

Phase 1: personnel

HR work often began with a focus on industrial relations with an emphasis on terms and conditions of work and operational excellence.

Phase 2: human resources

A number of HR practices emerged as ways to manage employees. Some were related to people (hire, promote, train, pay), performance (appraisal, rewards), information (communication), and work (policies, processes).

Phase 3: human capital

The HR practices became focused on improving individual competence and aligning people’s competencies to business strategy. ‘Strategic’ HR has been in vogue for some time.

All three of these phases build on each other and are focused on HR work inside the organisation, with policies, practices, and people delivering on an organisation’s strategy. Strategy would be a mirror in which HR could see itself facilitating and delivering strategy.

Phase 4: human capability

The emerging view of HR is less a mirror and more a window. Through the window, HR looks outside to external stakeholders to add value to them. This is the outside-in view of HR. In addition, human capability moves beyond a primary focus on people (called talent or individual competence) to also focus on organisation (called organisation capability) and leadership delivered by high performing HR function (Figure 2). I call these four categories human capability: human refers to talent and individual competence; organisation refers to working together in teams with a focus on building organisation capabilities (agility, culture, strategic clarity, etc.); leadership and leaders bridge talent and organisation; and HR function and services provide infrastructure. These four domains are defined below and in Figure 2 and represent a high-level classification of organisation elements.

Figure 2. Human capability framework.

• Talent (human capital): individuals, employees, labour, workforce, competence

• Organization: teams, processes, culture, workplace, capability

• Leadership: individual leaders and overall leadership capability

• HR function: policies, practices, purpose, and people who comprise the HR function.

How outside-in advances HR work

An outside-in logic emphasises how HR work delivers value to external (not just internal) stakeholders. The outside-in logic connects what happens inside an organisation to what happens outside. Over the years, we have connected the inside and the outside, sometimes starting inside with HR practices ‘so that’ external stakeholders get value, for example:

• Build a skills-based organisation so that our customers get products they value.

• Upgrade leadership so that we get a premium price to earnings ratio (intangibles) with investors.

• Manage our culture so that our external brand identity with customers and communities is consistent with internal organisation practices.

• Help employees have a better experience so that customer experience improves.

• Implement AI tools so that investors have more confidence in our future.

At other times, we have started with the external expectations of customers, investors, and communities and asked the ‘because of’ question which leads to innovate HR practices. In either case, the future of work connects what happens inside the organisation to what happens outside (see Figure 3).

Figure 3. Future of work inside-out and outside-in.

Using this outside-in logic, the human capability choices for an organisation can be linked to all stakeholders. Human capability (talent + leadership + organisation + HR) can help business and HR leaders deliver value to all stakeholders. The human capability framework in Figure 1 can be applied both inside and outside the organisation. Figure 4 offers an assessment for this human capability framework with both an inside-out and an outside-in focus. The scores in each of these 16 cells can provide an overall assessment of an organisation’s outside-in performance.

Figure 4. Human capability from the outside-In – Diagnostic questions.

More value for all stakeholders results when human capability initiatives start from the outside with external stakeholders. Once stakeholder needs and wants are understood and defined, business and HR leaders envision human capability from a different perspective so that internal goals, values, and actions deliver stakeholder value. With the outside-in value focus, business and HR leaders ensure that internal human capability practices add value to all stakeholders (see Figure 5).

Figure 5. Human capability value for all stakeholders.

Let me share some specific messages and exemplary actions for each of the four human capability domains that encourage outside-in thinking and actions.

Talent outside-in

Message:

Our people are our customers’ most important asset.

• HR professionals join sales calls with key customers to identify why they buy, then they use the customer criteria in designing HR work.

• Targeted customers, investors, or community leaders can co-create, present, and attend training programmes to ensure that the training content meets their needs.

Example Actions:

• Involve customers or investors in selecting, developing, and rewarding talent. For example, airlines often give key customers coupons to reward employees for outstanding service, or they may involve customers in hiring decisions.

• HR professionals join sales calls with key customers to identify why they buy, then they use the customer criteria in designing HR work.

• Targeted customers, investors, or community leaders can co-create, present, and attend training programs to ensure that the training content meets their needs.

Leadership outside-in

Message:

We have a leadership brand where our leaders’ competencies reflect our promises to customers.

Actions:

• Identify leader competencies (behaviours, skills, expectations) that align with the firm’s brand identify in the market. Just as a firm brand differentiates the firm, so should leadership competencies.

• Include customers, investors, or community leaders in leadership 720 (not just 360) assessments to track the quality of leadership.

• Monitor your price/earnings ratio compared to competitors to track investor confidence in your leaders.

Organization outside-in

Message:

Culture is the identity of the firm in the minds of our best customers made real to employees.

Actions:

• Compare your stated values inside your company to the brand promises outside the company to customers and communities. Make sure that internal values align with external promises.

• Ask customers or investors to define the behaviours they would like to see that are associated with your values.

• Ask investors what capabilities they would like your organisation to be ‘known for’ so that they increase their confidence in your future earnings. Include human capability in all investor conversations.

Human resources outside-in

Message:

Our HR function’s purpose is less about HR work and more about creating value for all stakeholders.

Actions:

• Clarify HR work (practices, policies, analytics, and people) to ensure that it is focused on delivering value to external as well as internal stakeholders.

• Ensure that your HR professionals know and understand stakeholder expectations.

• Invite customers, investors, and community leaders to co-create HR practices.

Implications

Implications for international HR development

The human capability issues in global organisations become even more complex with an increasing number of local versus global issues to navigate labour force availability, talent mobility, compensation practices, workforce policies, management styles, employee expectations, hiring practices (full time vs. part time), regulatory requirements, and local laws. All of these (and other) human capability initiatives need to balance the multiple stakeholders in Figure 5. In particular, communities may represent the cultural norms for any specific country, and customers may have different expectations because of the cultural norms. As discussed by Garavan, McCarthy, and Carbery (2019), the global setting creates more ecosystems where the human capability intiatives in any one country need to be both distinct and aligned with those of other countries.

Outside-in logic implies that in making human capability choices, the unique cultural setting for a country needs to be considered. For example, how firms manage the diversity, equity, and inclusion initiative may vary dramatically by country. While a shared value of treating employees fairly likely exists globally, the ways that this gets accomplished may vary by country.

Implications for research and practice

This outside-in approach reframes how to think about HR work. Rather than doing HR work to help employees be more effective or strategies to happen, outside-in examiens external stakeholder value.

For research, this means that the dependent variables of investing in HR practices would include customer results (net promoter score, customer share, revenue per customer), investor results (market value, price earnings ratio), and community results (reputation). While the line of sight to these external stakeholders may be difficult to specify, but linking HR work to stakeholder value, HR becomes more material.

For business and HR leaders, an outside-in approach to HR deliviers even more value. When an HR professional enters a business conversation, the starting point is not the latest HR programme, policy, or process, but the needs of external stakeholders. Then, the HR work can be linked to those needs.