People, Systems|

“We have met the enemy and they are us” – Commodore Oliver Perry, 1813

I am truly impressed at the explosion of interest in HR analytics in recent years. It seems like almost every week there is another conference somewhere in the world where people come together to share war stories and compare best practices. The excitement about what people are working on and what might be accomplished is palpable, and I don’t want to be a buzz kill. However …

As I look across the landscape of what people are doing and talking about, I get a little nervous. My Ph.D. is in economics and I spent the first decade of my career working as a traditional labor economist. The models and frameworks I learned in graduate school and applied in my first job are very powerful and carry the potential to reveal very interesting things about how labor markets impact people’s jobs and careers.

Yet despite those interesting insights, economics is almost universally derided for trying to do too much with too little – and for good reason. The problem is that economists use woefully small amounts of data on workers and jobs to tell big stories about why things happen the way they do in the labor market. For example, Gary Becker won the Nobel prize for his theory and analysis of human capital. Yet that model considers only years of schooling and years of work experience because that’s all that was universally available at the time when he was doing his research decades ago. Though the field of labor economics has progressed in a number of ways, still today the basic human capital model of formal education and years of experience is a foundation of the way labor economists look at the world.

The problem is that there is so much more to be measured and learned about jobs and workers. We need to get beyond interesting insights to the competitive intelligence that will improve business performance, and economics can’t get us there. Yet before you get on your high horse about how overly simplistic economics is, I am here to warn you that HR and the business are poised on the precipice of falling into a similar analytic space that is way too narrow. Why? Because they rely way too much on the people and HR process data they have on hand instead of doing the hard work of collecting anew what they need. And they are listening too much to social scientists who don’t take a broad enough view of organizational systems before recommending specific talent and HR analyses.

The joke starts: a turnover report somersaults into a bar …

Why do we produce turnover reports? The most honest answer is “because the data is there.”

Don’t get me wrong.  Turnover reports sometimes are helpful for spotting potential issues with a group of employees. Yet in reality the vast majority of what we need to know about the people who work for us has nothing to do with turnover.

We all know that what gets measured gets managed, and that is absolutely true for both business processes and people. On the business side, there is really good data that tells us if we are hitting our objectives for operations, distribution, pricing, sales volume, product mix, and more. Without these data our business leaders would be flying blind.

On the people side the story should be equally straightforward yet it’s not. No one today doubts the importance of data-based decisions about HR. Those expectations come first and foremost from our business leaders, not from within HR. The canonical example is Kaplan and Norton’s balanced scorecard. The balanced scorecard has in many ways revolutionized data-based management in organizations.

When it comes to populating the three quadrants of the balanced scorecard that focus on business measurements, there is no shortage of options available to choose from. The problems arise when it’s time to fill out the people quadrant. In the search to put somethinginto the people quadrant, HR always confronts the problem of not enough actionable data. So what gets thrown in there is the best of what’s available, which isn’t much: turnover and safety are two of the most common measures, yet they hardly are at the top of the list of data we ideally should track for maximum insights into what matters for strategic talent-focused decision making.

Rather than focusing on the easy to find data sitting in front of you, the ROI on your analytic efforts will be much greater if you take the time to find the data you really need to answer the burning questions that are holding back your business’ strategy execution.

Psychologists, sociologists and business leaders like to think they are smarter than economists when it comes to understanding what really drives organizational behavior and business performance. Generally speaking that’s true. But to ensure that’s the case, don’t act like simple-minded economists who always focus on the data in front of them. Do the hard work of finding the best data to address the big issues facing the business.

What do economists, psychologists and business people have in common? Way too much simple modeling.

Before you get on your high horse about how much better you are than the typical economist, I have some bad news to deliver. Right now in organizations in every corner of the world a second cardinal analytics sin is being committed every day: data mining and simple modeling. And it’s not just your garden variety analysts who are committing the sin. Many highly trained psychologists and smart business leaders are falling into the same trap. In fact, in most cases they are leading the charge and there is no one keeping them in check.

The rationale they follow goes something like this. “We know the basics about human behavior and organizational performance, so therefore we know what to focus on and make better business decisions. Employee engagement is critical for motivation and performance, so how can we make sure our people are more engaged? Performance management is always a work in progress, so how can we make it better? Getting people the coaching and feedback they need to advance in their careers and feel valued is something we usually fall short on, so how can we improve people’s development?” And so on. All of those observations are legitimate, and they come from insights that social scientists working in both academe and in organizations have been railing on for years. So having alignment between the business leaders and analysts to focus on them is a good thing, right? Unfortunately the answer is “not necessarily.”

The problem is that virtually everyone is missing the bigger picture. Yes, it is always the case that employee engagement, performance management, learning and development, and more, can be improved. But just because they can be improved does not mean they should be prioritized as a top issue. Focusing on them is a fallacy of simple modeling: taking a “small truth” about motivation and behavior and stopping there without asking the bigger picture question of what else could be going on that needs to be addressed.

The foundation of the problem is that there is insufficient prioritizing of which HR and talent issues are most important to be addressed. Should we improve employee engagement? Of course. Are there benefits to upgrading the competencies of our people? No disagreement there. Can we improve performance management? If yes, that would be great. And so on, and on, and on, and on. There are literally tens if not hundreds of improvements to HR and talent processes that are waiting to be addressed right now. So how are the business and HR supposed to prioritize? Simple modeling of narrow questions like these can’t do the necessary prioritization. For that we need a systems approach.

The standard, non-systems approach that is widespread today starts with the existing HR and talent processes and asks how they can be improved. The systems approach takes a very different tack. It starts with the key business issues that need to be addressed and finds out what is needed to improve strategy execution and overall organizational effectiveness.

The unfortunate reality is that the vast majority of HR analytics experts, including people with Ph.D.s in psychology, and business leaders are totally content to take the standard approach, and do not engage in deeper systems diagnostics. They see the benefit of focusing narrowly on issues of employee engagement, performance management, development, communication, leadership behaviors, and more because they do not challenge themselves to demonstrate that any potential changes are what is most needed by the business to improve performance. Instead they settle for things that could improve business performance without requiring proof that they will improve business performance. Passing that fundamental litmus tests requires a much more expansive, systems view of what levers are most important for improving strategy execution and organizational effectiveness.

This post is based on my book Strategic Analytics: Advancing Strategy Execution and Organizational Effectiveness.

Leave a Reply

Your email address will not be published.