Evidence-based approach ‘next phase’ of talent management

HR should rely on 5 principles to help employers achieve success
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 01/10/2012

Years ago, there was a population of doctors who didn’t always draw on evidence but instead relied on intuition and experience as opposed to scientific analysis. There are parallels when it comes to managing people, as HR decisions are often made the same way, based on instinct, doing what’s always been done or copying the competition, according to Ravin Jesuthasan, managing director and global practice leader for Towers Watson’s talent management practice in Chicago.

“There seems to be a lack of evidence or decision science within HR, especially in the field of talent management,” he said, speaking at Mediacorp Canada’s 2011 Top Employer Summit in Toronto. “We see this consistently with business leaders.”

The next phase of talent management is all about taking an evidence-based approach. And as HR has matured and gained stature, its leaders have started making human capital decisions based on metrics and analytics, according to John Boudreau, professor of management and organization at the Marshall School of Business at the University of Southern California (USC) in Los Angeles, who also spoke at the summit.

“However, next-generation HR means going further, to truly embed analytical discipline and sophisticated systems thinking to create the kind of understanding that drives better strategies and better workplace outcomes,” he said.

“Evidence-based change will take HR leaders to that level.”

HR can help organizations achieve greater success and create a more fulfilling work environment by relying on five principles of evidence-based change: logic-driven analytics, segmentation, risk leverage, integration and synergy, and optimization, according to Boudreau and Jesuthasan, co-authors of Transformative HR: How Great Companies Use Evidence-Based Change for Sustainable Advantage.

Logic-driven analytics: HR has gone from having almost no data 15 years ago to having information overload, along with an inability to make sense of the data to drive decisions. There’s a belief in HR that if you give smart leaders all of these numbers, such as a high turnover rate or low engagement scores, somehow they’ll know what to make of them, said Boudreau.

But business leaders outside of HR are not trained in that area so the numbers can be misinterpreted.

“Often, there’s so much analytics, it’s very difficult for organizations to understand the issue,” he said.

It’s about connecting the data to issues that are fundamental to organizations. So it’s not necessary to measure everything but instead focus on pivotal points, where it makes the biggest difference. And it’s about presenting not just a bunch of numbers but a point of view, said Boudreau.

“What’s striking to us is the idea of how much logic and sometimes even a good story are necessary.”

Segmentation: Segmentation is about understanding that each employee group is different, discovering the strategic categories of employees based both on what an organization needs from employees (demand) and what it can offer them (supply). It’s about figuring out “which roles are the most pivotal to executing strategy,” said Jesuthasan.

The principle is similar to customer segmentation, said Boudreau. For example, derivatives marketplace CME Group in Chicago was looking to recruit workers to expand globally. But it realized it would have to segment its jobs into those directly responsible for driving the new growth strategy and those critical to supporting the strategy and running the company.

As a result, HR’s approaches and investments across the segments, such as reward structures, would not necessarily be the same.

Once CME identified the jobs with the greatest accountability for strategic growth, it directly aligned rewards with individual and team performance and contributions, so a greater portion of pay was at risk based on results. For the other segment, a greater portion of pay was linked to company results and longer-term career growth.

“It’s a very interesting story about putting the logic of segmentation together with a rewards system,” said Boudreau.

Risk leverage: Risk leverage is about treating risk not necessarily as a bad thing but a possible deviation from an expected outcome. So risk can be analyzed, planned for, exploited or leveraged for an organization’s benefit, said Jesuthasan.

For HR, it’s about knowing when to take risks. That means asking two key questions: Where is risk-taking going to help versus hurt? And how do I plan for multiple future states? Taking the right risks is often as vital as avoiding the wrong ones, he said.

For example, at PNC Bank, risk management was a way of doing business and embedded in its culture. But to better understand risk and how it was managed, the bank decided to understand the nature of certain jobs instead of getting rid of bonus plans.

The HR leaders put in place the tools and analytics to help decision-makers figure out the risk associated with hundreds of different incentive plans. They then provided a logical framework to mitigate risk through good design and governance.

“They moved beyond incentives to think about all aspects of the talent cycle,” said Jesuthasan. “You need to think about risk when you think about performance.”

Integration and synergy: The principle of integration and synergy is about understanding how different HR solutions and practices mesh with one another and other organizational processes.

It’s about aligning programs and not having them work at cross-purposes with each other, such as ensuring a team-based culture and performance management system are working with the pay system, said Jesuthasan.

As an example, Shanda Interactive Entertainment, one of China’s largest operators of online games, had great retention of customers but not employees. So it decided to use the architecture of gaming and apply it to HR. Now, salary increases, promotions, relocations — everything is driven by points, said Jesuthasan.

Online gaming is also very much about community so Shanda employees earn more points if they help others with a project, as opposed to competing. They can also lose points for failing at a project. The new approach has led to considerably lower turnover rates and Shanda is now an employer of choice, said Jesuthasan.

Optimization: Optimization is about understanding the differences between employee groups to “realize the optimal value exchange between the organization and a particular group” and identifying which investments are paying off and which are underperforming, said Boudreau.

“It’s about investing where it has the biggest impact and… having the courage to invest less where the impact is less and having the courage to shift investments when those conditions apply.”

As an example, the synergy between RBC’s focus on diversity as a strategic goal and as a workforce goal lead to optimization. So doing charitable work in the community provides opportunities to foster the advancement of newcomers, promote the inclusion of people of diverse backgrounds and encourage and support pride in the advancement of newly immigrated groups, according to Boudreau and Jesuthasan.

The focus on diversity also allows RBC to optimize future labour markets by enhancing skill levels and community commitment among people who could be future employees.

There’s an endless range of possibilities in diversity and it’s about having the maximum impact, said Per Scott, vice-president of HR at RBC, also speaking at the summit.

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