Human resource strategy occurs in a context that exists at different levels. HR departments and human capital decisions exist within organizations, which exist within competitive and social environments. Chapter 5 shows how human resource strategy must address questions such as how the HR department’s activities produce the necessary results at the levels of individuals, groups, and organizational units, how those results affect the organization’s execution of processes, and how that execution, in turn, produces sustainable strategic success in the competitive and social environment.

This chapter describes the key considerations, issues, and components of human resource strategy that characterize the environmental, organizational, and functional levels of context. Human capital permeates and affects every aspect of organizations, so leaders must understand the contextual levels of HR strategy to achieve a better formulation and evaluation of their HR strategy. Understanding the context of HR strategy is also important because it helps to define the appropriate contribution of the leaders and managers who serve different organizational roles in the HR strategy process. For example, the executive heading the HR department plays a significant leadership role in HR strategy, and usually defines and is accountable for executing the HR strategy processes. Other functional executives on the leadership team, such as the chief financial officer or chief operating officer, play a collaboration role in human capital strategy, but do not drive the HR strategy process.