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Why evidence-based HR is critical to success and how to get started

I am huge fan of HR Data & Analytics and I have had the privilege of working with it for many years now. However, it is important to remember one thing; HR Analytics is only a mean to and end; one tool and one mean to better HR.

I talked about exactly that at Human Consult Network with Annemarie Malchow-Knudsen. We discussed among others the need for more evidence in HR and how you in small- and medium sized companies can get started.

Place your bet where you have the highest chances of winning

The purpose of evidence-based HR is not to find “the Right Answer” – we are dealing with people after all. The purpose is to use all available evidence (research, internal data, analysis, experience, interviews etc.) to find the solution with the highest probability of adding the most value to your organization and start out from there. If that doesn’t sound strong enough, believe me, it will be a huge improvement from where we are.

Why will the solutions be better? Psychological research shows that even the most reflected people fall into pitfalls such as biases (see some of the most common ones here, here and here)and prejudices when judging what the best thing to do is. We simply often choose less probable outcomes over more probable ones without even knowing it. Ordinary people like you and I do it all the time.

One way to get around it is to apply an evidence-based approach to establishing the most optimal people interventions. And this is where data comes into the picture. By being better at testing your HR-hypotheses with the use of data and valid analytical tools, you will eliminate the number of times where you decide to go for an HR intervention, which sounds appealing does not have the effect you hope for.

Start with the business challenge and then identify the data

I have seen too many good people get stuck in data cleaning, data management and tough IT-implementations without getting any business results to know that there must be a better way. So, if you don’t want to end up in that situation start with the business challenge and focus where you can add value quickly. My experience is that many start the other way around as the only option and that can mean that business results take too long to materialize.

HR Data Value Chain

Start from the top of the figure (for more info about the content of the pyramid see here) shown above by asking for the business issue, which you will help solving. If the primary business focus is on cost-optimization, your people activities should also focus on cost-optimization. You should focus on getting most value for money invested whether you are involved in leadership development, induction programs, talent management, staffing or something else.

Then ask which knowledge you will need to get that insight: do you need more knowledge of learning efficiency, more knowledge of staffing costs versus performance outcomes of different staffing strategies, insight to identify the best-fit candidates when recruiting etc.

Then identify the information you will need to create that knowledge. You can get inspiration externally from scientific research and best practices, and you can strengthen the argument by analyzing your own organization.

Only then, will you know which data you will need to establish to underpin your intervention with convincing evidence. You can now gather exactly the data required to make an ROI-assessment to underpin your argument – and help you chose the approach with the highest probability of success.

Taking this agile approach will enable you to build your data foundation along with creating value-adding insights to inform business decisions. You cannot avoid investing in data and technology, but providing a flow of value adding insights will ease the funding.

 

14/09/2017 at 11:43 3 comments

New research: Companies with diverse leadership yield higher profits

Diversity

Let’s start with the good news: The conclusion. The companies in Denmark with the most diverse leadership earn on average 12.6 percentage points more than the companies with the least diverse leadership. Not only that, the study also concludes that companies with the most diverse leadership average an operating margin that is 5.7 percentage points higher than their competitors’. On the other hand, the ten companies with the lowest degree of diversity in leadership earn an average of 5 percentage points less than their competitors. The conclusion is clear; diverse leadership yields significantly bigger profits.

 Screen Shot 01-18-16 at 12.28 PMScreen Shot 01-18-16 at 12.28 PM 001

How did we arrive at this conclusion? In the survey, we collected information about 6.012 leaders across 321 large and medium-sized Danish companies in Denmark. We then ranked them by how diverse their leadership is according to four diversity parameters: 1) gender, 2) seniority (meaning length of service within a company), 3) ethnicity and 4) age. We then collected operating profit (EBITDA) data on all the companies.

We got the data from three data sources:

  1. LinkedIn, which was used for collecting diversity data on managers within Danish companies. Almost 1.8 million Danish profiles are registered on LinkedIn, and large and medium-sized enterprises accounted for an exceedingly large share of those profiles. For each company, up to 30 profiles were obtained across management tiers categorized as ‘manager’, ‘director’, ‘VP’, ‘CXO’ and ‘Board’. Companies with fewer than nine profiles were excluded in order to guarantee a statistically valid basis.
  2. Bisnode, which collects a large volumes of business information from official sources such as the Danish register of companies, the Danish Business Authority and Danmarks Statistik.
  3. Annual reports. Finally, we collected financial data and other information from the companies’ own annual reports. 

We have developed a model – Diversity Profit Chain (a modified version of the Service Profit Chain) – which is a robust explanatory model, which demonstrates how internal processes affect employees, customers
and the company bottom line. We have adapted the model so that the focus is on how
diversity in leadership influences these specific factors. The model is shown below. This is important because as you know, correlation is not the same as causality. We have linked other published studies to the model as a way to validate the conclusion of our investigation. Diversity Profit Chain can be used as the basis for any business case for diversity.

Screen Shot 01-18-16 at 12.29 PM

Source: proacteur, 2015

Basically, the measurable and value-creating impact is achieved in two ways:

1) diverse leadership results in a more diverse organisation, which in turn creates a number of positive outcomes for the organisation, customers and shareholders.

2) the management as a group works more innovatively, is more dynamic in its decision-making, more productive and stable if its composition is diverse. In short, leadership decisions and the effect of leadership are better.

As stated earlier, diversity impacts the entire organisation, but not only positively. In general, companies should expect more conflicts in diverse organisations and teams. Diversity is in no respect a one-way track to better financial performance, but the results are undeniable: diverse leadership influences the organisation’s financial performance in a positive direction.

We have always believed that diversity is good for business. Now we have measured and documented that the value added in terms of money actually even bigger than expected.

Download the full report: “A diverse leadership yields higher earnings” here:

18/01/2016 at 15:06 2 comments

Prediction #2: HR will outsource a lot more

My second prediction – in this series of five predictions for where HR is moving (se #1 here) – I predict that HR will outsource a lot more in the future. A lot more.

HR Outsourcing

There are three primary drivers for this:

  1. Technology will make new solutions possible by vendors. Technology will be a major driver for productivity, service quality and efficiency within HR for many years to come. Thus, it will in many cases be more cost effective and better from a service quality point of view to let vendors who specialize in this area to do the job for two reasons; firstly because it is more cost effective
  2. The need for more specialized knowledge and services. It will require significantly more specialists to deliver HR in the future. Many companies will not find it possible to attract those profiles or find it cost effective if they can. So they will instead hire from the growing support of specialist consultants to help them with those specific projects. This is for most companies the best way to deliver service excellence in the most cost effective way.
  3. The continued focus on driving costs lower. If you are in HR you will have noticed the relentless focus of top management on your costs. You may secretly hope that this is just an adjustment period and that the good times (like 2006) will return. They won’t. In many ways, that’s a good thing. HR will therefore continuously need to focus on how to drive cost down. Outsourcing will be an obvious way.

Whenever it comes to outsourcing, the trend starts in US, then UK, later Asia then then finally Europe. This is true for IT, Facilities Management, Business Processes and other areas where US is 5-8 years ahed of Europe (where I am located). My experience is that this prediction therefore is not a surprise in US where outsourcing has been on the agenda for many years and where vendors and suppliers are aggressively pushing for this to happen (surprise). Here in Europe this prediction is still greeted with some skepticism.

What will this mean for HR going forward? I see three impacts:

Firstly, HR will need to fully understand what is core and what can be outsourced. The easy answer is to outsource all the transactional and operational stuff such as recruitment for simple replacements, payroll, surveys, basic reporting, IT to support most processes, most training and the kind. However, in reality it is more complex than this. Much of the tactical stuff such as some performance management processes, talent processes, leadership training and more are also candidates for outsourcing whereas some of the tactical stuff may be considered to be out-of-scope. It will vary from company to company. But HR must ask itself, what is my core business and what can I outsource?

Secondly, because what will be left (which is still a lot) will be what I call ‘an intelligent client’, the composition of who works in HR will be different. They will be required to have a more strategic and business focused mindset to a much larger degree than today. Much more.  More people from business schools and fewer with “I am in HR because I like to work with people” profile. Hopefully there will be plenty of room for both profiles, but relatively more will be of the former profile.

Thirdly, the in-house HR will need to articulate much clearer why the top management team shouldn’t outsource the whole HR department. I don’t think they ever should, but there will be vendors who at some point will offer that to the CEO. HR must then respond with a clear business case of why this shouldn’t be done.

04/07/2013 at 12:44 2 comments

The number one reason why HR is still an art

Is HR a science or an art? You might think that with the advent of Workforce Analytics, Performance Management, tests in recruitment, ROI measurement and much more that HR is becoming more of a science than an art.

I am afraid not!

One of the problems is that HR fundamentally is based on studies done within psychology; social-, cognitive- , personal- , clinical-, and Industrial psychology. Most of theories about Performance Management, Talent Management, Leadership and Employee Development, Recruitment and more originates from psychology. Nothing wrong with that. Being a psychologist myself, I think the profession has a lot to offer HR and the art of managing people in general. But despite its best efforts, psychology is still far from being anything resembling science. It is fundamentally an art.

I recently read a great article, which compared different fields of study, and it found that psychology tends only to publish ‘positive’ studies i.e. those that supports the tested hypothesis. Why is that a problem? The problem is, that most of the studies cannot be replicated and those which can aren’t. So if somebody publish a research piece which claims to show that “you can improve job satisfaction by coaching your employees instead of telling them what to do” this claim will go completely untested. It doesn’t mean that it isn’t true, it just means that nobody will test it and correct all the stuff which really isn’t true.

You may argue that all fields of science does this. Only to some extend and certainly not as much as psychology (see the table below). I encourage an evidence based approach to HR. A lot. But if the evidence we can find is bad what then?  Consider this:  In a study from 2006 published in American Psychologist, showed that almost three-quarters of researchers who had published a paper in a high-impact psychology journal had not shared their data.

ScreenShot1

HR is full of claims of what works and some (though not many) draw on academic studies from psychology and related fields. Much of it is contradictory, much has no foundation in real research (produced by consultants or vendors) and the rest goes untested by others. We need to change this.

HR Data, Workforce Analytics and ROI measures will do what it can to make HR more science based. I actually think that is a good thing. We are still taking about people and therefore you cannot make HR a complete science. But for my worth, I think it is a good thing, that it is moving a bit more in the direction of a science. BUT this will not happen until psychology as a field will mature. One way is to test and challenge the results and look into the data upon which research is made.

So let me end on a positive note: HR has the potential to be the thing that impact companies and society the most over the next 40 years. As Peter Drucker once remarked then our growth over the past 50 years has been our ability to increase productivity through machines. The challenge for the next 50 years is to do the same with people. I believe HR can do this. To help us, we need better data, research and science.

24/06/2013 at 16:10 6 comments

A HR tribute to Kierkegaard

Today is the 200th birthday of Søren Aabye Kierkegaard – the Danish thinker and philosopher. Kierkegaard is probably best known as the first existentialist philosopher and as a religious writer but he was also a critical writer within psychology, moral and ethics. He wrote of many Freudian concepts long before Freud was even born.

Kierkegaard is of course being celebrated throughout the world today. And rightly so. But I also believe that we within the HR profession should pay a tribute to his work and thinking. Why do I think that?

The easy way to explain this would be to post some fancy quotes which illustrate his thinking and how he can inspire us such as:

  1. “Our life always expresses the result of our dominant thoughts”
  2. “Patience is necessary, and one cannot reap immediately where one has sown”
  3. “One can advise comfortably from a safe port”
  4. “Personality is only ripe when a man has made the truth his own”
  5. “Life must be understood backwards; but… it must be lived forward”
  6. “There is nothing with which every man is so afraid as getting to know how enormously much he is capable of doing and becoming.”
  7. “Once you label me you negate me.”
  8. “The most painful state of being is remembering the future, particularly the one you’ll never have.”

The problem with quotes is that they are always taken from a context and I don’t think quotes are that meaningful to understand a person or even what he/she was talking about.

So to explain why HR should pay tribute to Kierkegaard I want to point to his fundamental philosophical thinking and what he was trying to accomplish. Kierkegaard was devoted to the idea of how each of us lives as a “single individual”, giving priority to concrete human reality over abstract thinking, and he highlighted the importance of personal choice and commitment. His concept of “Truth as Subjectivity” and his idea of the limitation of science’s ability to reveal the inner workings of the human spirit is probably fundament cornerstones on which philosophical HR is built on (if there is such as thing as philosophical HR?). I don’t think that modern HR would be the same had Kierkegaard not been alive.

So with that in mind:  happy birth Søren Aabye Kierkegaard.

05/05/2013 at 20:26 1 comment

The Top 5 Posts of 2012 from the ‘All About Human Capital’-Blog

It’s been a fantastic and fun year writing blog posts on this blog and in honor of the New Year, I’d like to share the most popular posts to my readers over the past year.

Here are the top 10 posts in terms of views and re-tweets from this blog for 2012, enjoy:

5: The challenge for HR analytics is not data – it is the mindset

The software is good, the people are bright – it is the strategic mindset around data which is the challenge.

4: Why HR KPIs still matter but why they still fail to deliver

KPI’s are criticized but they still matter – you must however follow theses rules of thumb when using them.

3: HR KPIs: The good, the bad and the ugly

KPI’s actually work most of the time. If you measure people and you link it to their pay they will in most cases try to meet these goals. Bad KPI’s therefore do more harm than good.

2: Top 5 Talent Management KPIs

A list of the five most important and strategic Talent Management KPI’s

1: Cognitive dissonance and HR Analytics is a bad cocktail

The most popular post was about psychology and HR Data – how cognitive dissonance will create a bias for a certain decision despite facts and evidence may favor the alternative.

02/01/2013 at 09:07 3 comments

HR KPIs: The good, the bad and the ugly

This week I have had meetings with two HR executives about their HR KPIs (Key Performance Indicators).  They both complained about two things I hear a lot; 1) we have too many and 2) they are not very good. While recognising that they have too many they both found it hard to actually get rid of any. At the same time, while they felt that they were not pushing the business in the right direction, they didn’t know what the difference between a good and a bad HR KPI is.

The problem with KPIs is that they actually work most times. That is, if you start to measure people in certain ways and you link their pay to meeting those measures they will in most cases try to meet these goals (KPIs) at the cost of other things.  This is a problem because there is always a consequence with any KPI and if they are the wrong ones the consequences may be dire.

This can be simply illustrated here:

  • If you are in the recruitment department and your KPI is ‘Time To Fill’, you will be focused on filling a position with a person who may not be right for the job as long as it is done fast. The right person may have a three month notice period whereas another (not fitting the job as well) may only have one month notice period.
  • If your KPI is ‘Performance of the new employee after 6 months’ you will want to spend (a significant) extra time and money on finding the right person who can deliver performance fast, which means that the position may be vacant for many months thus disrupting the workplace in the meantime.
  • If your KPI is ‘Cost Per Hire’, you may use the cheapest channels, the fastest processes with the cheapest personality-tests because this will make you hit your target. The result may be that is the not the right person but it is the cheapest hire. Maybe you need to buy out the right person but this will ruin your KPI

 

The Good HR KPI
The good ones (i.e. the best ones) are the ones which are
  • Aligned with the strategy and business plan of the organisation. The targets of the HR KPI should be linked directly to the strategy of the organisation
  • Personally owned. The HR KPI should be owned in two ways; firstly it should be linked to one person who is accountable for its success. This means that it is not falling between roles and people can argue about fault etc. Secondly the HR KPI should be meaningful for that person.
  • Actionable. Every HR KPI should have a project or a set of actions which will lead to meeting the target. It should be within the circle of influence.
  • Well defined. Every KPI should be precisely defined. An exact definition, which data are involved, where the data is collected from and delivered by whom. It should be formulated in a way so an outsider will be able to look at it and find the result.
  • Relevant. It must be relevant in the specific context of this HR department in this particular company.
  • Timely. There must be a specific time when the target should be met.
  • End KPIs (compared to Mean KPIs). Consider a KPI which is about the number of people who had an annual review. This is a classic ‘mean’ goal. It is not an end in itself to hold annual reviews. It is the desired results of the annual review which are interesting. All HR KPI targets should be end-goals not mean-goals.
  • Predictive (i.e. leading indicators). Meeting the target of the KPI should lead to meeting business goals.
  • Few.  It is better to meet the target of five of five  KPI’s than to meet six of ten. When you have too many KPI’s you tend to select the ones you feel are the ones to meet and consciously or unconsciously  not even try to meet the others. This subjective section of KPI’s are bad for an organisation. Better select a few and meet them all.
  • Linked to bonus. It should make a difference to the person if he/she meets the HR KPI target or not.

The Bad HR KPI
Bad ones are the ones which appear good because they follow the characterises of good KPI but they are not strategic and relevant. So at the end of the year you and the rest of the organisation congratulate yourself on meeting your targets only to discover that you failed to deliver on your strategy.

You may have a really well defined KPI on recruitment, but if your issue is a high turnover of talented employees your KPI may be well defined, actionable, personally owned etc. but it is not relevant nor strategic.

The Ugly HR KPI
The truly ugly ones are the ones which are not strategic, relevant or cannot even be measured. An example could be:

  • Title: Most managers perform annual reviews
  • Description: % of managers who perform annual review
  • Target: Higher than last year

The trouble with this one is that it is a mean-KPI (see above), it is poorly defined and most likely not relevant. This is an ugly HR KPI.

It is not difficult to find HR KPI’s (see for example this library). It is a little more difficult to define them well and have processes in place to meet them . But this is certainly something most can do. But it requires work to make the to be one of The Good ones.

30/03/2012 at 12:46 12 comments

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