Author and academic John Boudreau shares his thoughts on advancing HR
John Boudreau, co-author of Beyond HR, has written a new book, Retooling HR: Using Proven Business Tools to Make Better Decisions About Talent. Boudreau, professor of management and organization at the Marshall School of Business and research director at the Centre for Effective Organizations at the University of Southern California, spoke with Canadian HR Reporter (CHRR) about why HR needs to be retooled and how HR leaders can help business leaders become more sophisticated in their HR decision-making.
CHRR: Why does HR need to be “retooled”?
Boudreau: One of the critical elements of advancing the HR profession is engaging leaders, who are not in the profession, with what we do. The premise of the book is that — if we use the tools those leaders already feel comfortable with and we apply them to the decisions and the dilemmas of human resources or talent, we’ll have a better chance of engaging them on their own turf where they’re already comfortable, rather than trying to get them to learn our tools in addition to all the other tools they already use.
CHRR: What is the biggest HR challenge for business today?
Boudreau: One of the biggest challenges the profession faces is how do we actually hold leaders outside the profession appropriately accountable and make them very sophisticated when they think about human resources.
It’s a very different dilemma than just getting our practices better or getting leaders to agree we add value or even agreeing to listen to us when we come to the table with an important perspective.
This is much more fundamental. This is basically about leaders outside of the profession being good at what this profession is about, in the same way we expect leaders to be good at finance, even if they’re not financial experts, or we expect them to be good at marketing, even if they’re not marketing experts.
CHRR: How can HR professionals help business leaders develop that level of sophistication?
Boudreau: We talk a lot about HR needing to learn the business. What it usually means is we need to understand what the business is trying to do and then we need to figure out, using our models, what it is we need to do with talent or with organization design in order to support what the business is doing or provide a perspective on where the business could be going. That’s kind of saying we need to understand the content of the business strategy.
If I can understand not just the business strategy content but the underlying logic and models that leaders use, I can often reframe HR issues in terms of that logic. For example, if you think about your workforce as a set of customer segments, you can use all that logic and the tools you already use to think about branding and customer segmentation and customer response to think about your employees.
If you tend to think about your organization in terms of a portfolio of investments or assets and their returns, you can also think about different employee groups as part of a portfolio of talent.
The HR profession then needs to hold leaders accountable for the sophistication of how they approach human resources decisions. In the same way finance will hold a leader accountable in terms of how they approach a cash flow issue and marketing will hold a leader accountable in terms of are they approaching a marketing issue or a branding issue in a sophisticated way, we as a profession need to think of ourselves as coaching and teaching leaders how to think better about the decisions they make about people.
CHRR: Why have business leaders approached the HR function differently than IT, finance or marketing?
Boudreau: If you look at the history of finance or marketing or operations, you actually can go back and find eras where each of those were more oriented around compliance or more oriented around services. In every case, there came a point in time where the resource became quite pivotal to the organization’s success. Whether it was the evolution of television, which made marketing much, much more pivotal than it had been before or the evolution of an understanding about risk and theories of risk in the 1920s and 1930s that made finance much more pivotal as an organization model.
There comes a point where the resource becomes very pivotal. That’s clearly true now with human resources, with all of the writing about intellectual capital and how important intangibles are.
The second thing is we advance theories and models to a place where you really can be systematic about how you think about the resource. Although for most business leaders this is not apparent, there’s actually a lot that we know about human behaviour at work, in the same way we know a lot about how consumer behaviour works or how finance markets work.
Then, finally, there is the issue of data and accessibility. In marketing and finance, part of what drove their evolution to a “decision science” was the idea that we had the ability to look systematically at data. That has also come of age in the past decade for HR where, really now, we can measure and track almost anything about employees.
CHRR: How can HR use business models to more effectively support business goals?
Boudreau: We talk all the time about employee turnover. Employee turnover is probably one of the most frequently measured things about the workforce. Many HR leaders and most business leaders are unaware the reason we call it employee turnover is because it so much resembled inventory turnover — it’s a systematic depletion and replenishment of the human inventory.
There are decades of models and frameworks to optimize inventory. When you look at inventory optimization, you realize it isn’t just about minimizing inventory turnover, it’s actually about optimizing it. You can actually calculate places where you should have shortages of inventory because that’s the best way to run your business.
You can calculate other places where you should always have surpluses of inventory because the risk of running out is so high. When you reframe employee turnover that way, you realize it isn’t a matter of minimizing turnover just to minimize cost or even getting turnover to benchmark levels. The better question is, “What is the optimum level of employee turnover considering the cost of acquiring employees, the cost of being short of an employee when you need them?”
It may turn out that, in certain areas, it’s the business leader’s job to manage with shortages of employees. We can actually begin to calculate and understand how big or small those shortages should be in order to be optimal. In other areas, it’s the business leader’s job to actually have a surplus of employees, which people would say, “Isn’t that wasteful?” But in inventory, we do that all the time in order to mitigate the risk of being short, should we have a spike in demand or need.
In the world of portfolio analysis, when we invest in financial assets, all of us invest in a way where we hold different asset classes. The idea there is not that we think all of those asset classes are all going to pay off. In fact, we’re sure that in any given market some will do well and some will not do well. But we hold a variety of them because we know from financial calculations that if you do that, you can achieve a portfolio that produces low risk and reasonably high returns.
In the same way with talent, we can think about different abilities or competencies as asset classes and we can say not so much which competencies we need to build for the future but more which combination of competencies will optimize the risk and return we expect in an uncertain future.
