Posts tagged ‘Human Capital Management’

Cognitive dissonance and HR Analytics is a bad cocktail

HR Analytics (or workforce analytics) promise to give HR executives better data to make better decisions. The potential of analytics is however easy to evangelize and difficult to achieve. I find two psychically challenges with workforce analytics especially interesting; the problem with too much information and the problem with making wrong decisions even with the right data.

The first problem is eloquently described by Jeremy Shapiro, who in his recent post writes about “cognitive load“. Here he points out that too much information will make us make decisions which are either emotional driven or irrational. He use research from neuroscience to back this up. I agree with his point completely when he writes that “know what decision you are asking someone to make. What information is needed to make that decision? Keep that data, and strip out the rest”. In other words; although analytics can provide you will ton of data don’t use it all, but keep it down to the essentials. (Check out this TED-video to see how this can be done with medical data).

The second problem is however a bit more problematic. I would propose that data in itself – even in the right measure and presented the right way – will not necessarily lead to better decisions. Why? This is explained by the social psychological concept called “cognitive dissonance”.

Cognitive dissonance is essentially the discomfort we feel when we have two conflicting cognitions (beliefs, emotional reaction, values and ideas). Take for example the doctor who is smoking. He knows that smoking is bad for his health.  He may even know the exact science behind all the health problems smoking can cause but he continues to smoke anyway. If the doctor does nothing, he will continuously feel bad about his smoking habit – he will be plagued by guilt. However, because we humans don’t like this feeling  we will add a cognition to relieve us of this pain. In this example, the doctor can do several things: He may ‘accidently’ find research which questions how unhealthy smoking really is. He may conclude that smoking relieves him of his stress at work and therefore is worth the potential problems he may suffer later. He may conclude that because his father smoked all his life and didn’t suffer of any medical problems that he is genetically immune to smoking-related health problems. Whatever he choose to do, the doctor will create a belief that can make him live with his smoking habit.

In short, cognitive dissonance will create a bias for a certain decision despite other factors such as facts and evidence may favor the alternative. So even if HR executives are faced with facts supplied by analytics, it does not mean that he/she will use that data to make better decisions. Not if that data will create cognitive dissonance.

Let’s look at a simple example: The head of Talent Management has been presented with evidence which suggests that the current talent program has no tangible impact on productivity and talent turnover. Analytics is also able to show that the ROI on the program has been negative the last three years. However, the head of TM has not only designed and approved the project but she has also told the board of its successes and won praise for them. This presents her with a problem as the data suggests that she has not done her job well. The analytics data should now be used to change the program or to scrap it altogether, but it may not happen. The head of TM will have to find a way to live with this cognitive dissonance and not make that best decision.

So what to do? Social psychology theories suggests ways to overcome this bias. You can find a good overview on Wikipedia. Essentially, I believe a solution is to have a CAO (Chief Analytics Officer) who is powerful enough to challenge HR on the results. If analytics is a sub-department of HR or a non-powerful support function, the decision maker can get away with some of the typical cognitive dissonance strategies (avoidance, distortion, reassurance, confirmation, re-valuation).

Analytics is not a end it itself – it is a mean to create better HR decisions. Cognitive load and cognitive dissonance may stand in the way unless it is proactively dealt with.

23/05/2012 at 14:22 24 comments

Top 5 Talent Management KPI’s

I was reading an excellent White Paper by among others Jeff Higgins from Human Capital Management Institute which is called “Top Five Metrics for Workforce Analytics“. The White Paper lists five metrics of which one of them is an index they call ‘Talent Management Index’ – something which alerts me when I read it.

While the report does not go into too much detail, it does outline their suggestions for top 5 metrics for Talent Management.

That got me thinking about my suggestion for top five metrics for Talent Management. I would argue that you really shouldn’t have more than five at the most. KPI’s can overwhelm you and they must be used with care (see here for the pitfalls of using HR KPI’s). My suggestions are;

  1. Talent Retention (this is more positive than its negative cousin ‘Talent Turnover’). This is measured by taking the number of identified talents leaving the company during the year divided by the number of identified talents at the beginning of the year. For me, retention rates are not always very interesting. Many times you do want to get rid of low performers and you should be able to that without messing up your Talent Management KPI’s. But it must be imperative to keep talents – otherwise they shouldn’t be identified as such.
  2. Talent Performance. This is measured by taking the performance score for your identified talents from your Performance Management System. An effective talent program should be able to develop talents in such a way that their performance score improves.
  3. Time to Hire for Critical Roles. This one a bit tricky, because this KPI actually can work against you. The best candidate for a critical role may not be the one which is just available (there may be a 3 month notice period). However, a successful Talent Management program should be able to fill critical roles quicker from within. This should be measured.
  4. Skills gab filling process. This is measured by taking your talents and measure their talent gab at the beginning and at the end of the year. The talent gap will be individual from company to company but be based upon your individual assessment made at the beginning of the year. It may also come from your Succession Planning tool. In any event you must have some way of measuring how well the skills gab is changing.
  5. Talent Engagement Levels. This is measured by taking the engagement survey and identifying the level for your talents.

I have written many times, that I think Talent Management is the most important strategic process for HR to get right. This is simply because the potential pay-off is phenomenal compared to many other HR processes.  Therefore it is too important not to measure and evaluate properly. Let’s get that right.

I will be very interested in hearing about alternatives to these Talent Management KPI’s. Which ones do you used and how do they work for you?

30/04/2012 at 20:21 15 comments

Why you should also track effort in your performance management system

John Wooden was arguably one of the best coaches in sports history. He won the NCAA championship ten times in 12 years – seven of which were in a row. Not only that, he was also a fantastic player and he is the only person ever to be named basketball All-American both as a player and as a coach. So John knows all about finding and using talent (see this fantastic TED video).

For John performance was clearly important but famously his players have said that they don’t remember John Wooden ever stressing the importance of winning a game. He wasn’t obsessed or even focused on the points on the board. For him it was about sticking to the fundamentals and making an effort to reach your potential. If you do this the points will come and you will win.

I think companies can learn something from this thinking. In most areas of people assessment and evaluation companies are focused – even obsessed – with measuring results (the points on the board) instead of effort.

  • Talents are assessed using the famous (notorious?) 9-grid evaluation tool where performance and potential is measured and talents are defined as those scoring high on both. In many cases, performance is equal to results.
  • Bonuses are pay increases are often awarded to those who achieve the most i.e. getting the most points.
  • Annual reviews are many times nothing more than comparing achievements with stated goals.

There is nothing wrong with focusing on results but I suggest that this should not be the only dimension. Effort should count too. I suggest that the dimensions in the famous 9-grid assessment tool should take into account that ‘performance’ is not just about achieving results but also about applying yourself to the limit of your talent and potential.

I was reminded of this reading this post, which asks the question; “should we reward effort”. My answer is yes, we should also reward effort but not base our evolution purely on effort. You can get results by doing the things wrong or half-heartedly  and sometimes you can do everything you can and must and not get the results. The definition of winning is about making your best effort to continuously improve and apply what works – as Coach Wood said. We should reward this in companies too.

17/04/2012 at 20:20 2 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

Does HR kill innovation?

Forbes has just published an article called “Why does HR too often kill innovation?“. The thrust of the article is that whenever a line-manager has a great idea and wants to try it out, HR kills it through silly processes and requests seemingly because  HR “tend to treat experiments with considerable distaste” because they “want to protect their own turf”.  In short, HR kills innovation.

I disagree. I do not see any evidence that HR dislike experiments and only wants to protect their own turf per se. I simply don’t see that. My experience is that HR support this idea of doing things differently (they may just not know how to do it). That is not to say that (many) company policies work against innovation and that HR may be the source of some of these policies, but that is a different matter altogether.

However – and there is a big however – I also don’t see HR promote, support and encourage innovation. Not in HR and not in the rest of the business. And here I agree with the author of the article; HR must adopt a new mindset towards innovation. And this new mindset springs from an understanding of the business and thinking strategic .

Dave Ulrich identifies six competencies in his 2012 Global HR Competence Framework. The fifth is “HR innovators and integrators“. This is very much focused on being able to innovate the HR services and deliveries to support the business. It does not extend to the point from the Forbes article about policies standing in the way of innovation but perhaps they should.

When you search literature and blogs for ‘HR’ and ‘Innovation’ it is  not a lot comes up. A notable exception is Jon Ingram’s Strategic HCM blog where he has several blogs on innovation in HR. And perhaps in his blog title is the clue; for HR to support innovation it must be strategically focused – it must have a focus on Human Capital.

I think what the Forbes article is really saying is that company culture (and too many policies) is killing innovation – not HR. And on that point I totally agree.

26/01/2012 at 13:57 Leave a comment

The ultimate definition of Human Capital

If you Google “definition of Human Capital” you will be surprised and overwhelmed. It is a vast and contradictory  amount of definitions you will get. And frankly not very helpful as they don’t explain exactly what it is. For example, if you look at Wikipedia under ‘Human Capital Management’ you will find that it redirects to ‘Human Resource Management’. To them it is the same thing.

To me, the definition of human capital is: “all strategic issues of people, performance and culture in an organization”. This is still vague and broad so let me elaborate. This is probably best illustrated in the figure below. HR can be viewed from three levels; strategic, tactical and operational. While it is important to get all three right, it is the strategic element which encompass Human Capital.

The definition of human capital includes two things; the strategic framework and the core strategic activities. This is illustrated in the figure further below.

The strategic framework is the set of principles and guidelines to which all strategic HR activities should adhere. They should be documented and implemented in such a manner that they are aligned with the company’s own mission, and operational so they can be used in the HR processes. The framework covers;

  1. HR strategy which must be totally aligned with the company’s strategy.
  2. Performance culture. All companies have a culture, but not all promote high performance and superior customer service. While HR is not the bearer or primary shaper of a company’s culture, it is up to HR to design and implement activities so they promote such a culture.
  3. Measure & evaluate. HR must measure and evaluate its initiatives constantly in an objective and tangible way. By using tools such as HR Analytics, HR can make better strategic and people-investment decisions, thus making HR more efficient

While all HR activities have an strategic and an operational side to them, there are some activities which are more strategic by nature. Activities which HR must get right to master Human Capital Management and they are core to the definition of Human Capital.

  1. Leadership Development. Leadership Development is a must-win battle any organization. Leaders shape the culture of the organisation and make the processes stick. Leadership Development must involve top management participation to underline its significance. Leaders, at all levels, must be able to guide and motivate based upon human understanding, respect and responsibility – competencies which must be constantly developed.
  2. Performance Management is one of the most effective strategic HR activities. Research show that it is directly linked with: 1) higher profits; 2) quicker execution of company strategy; and 3) reduced employee turnover through higher engagement in their work. Goal alignment also makes it possible to establish a true pay-for-performance culture by linking reward systems with both individual and team performance. Also, performance management serves both as a clear measure of individual performance and development, and also provides a clear pipeline to talent identification and succession planning.
  3. Talent Management. ‘The War for Talent’ is continuing with increased speed despite the current global slowdown. According to The Economist, Board members in global multinational companies single out the ability to attract and retain talent as the single most critical catalyst for growth today. Talent Management is a range of continuous processes and development programs that aim to identify, attract, retain, engage and intelligently deploy the best employees in order to become the future leaders on all levels – a leadership and specialist pipeline.
  4. Employee Engagement is widely recognized to be major driving force behind many business outcomes. Research clearly shows that engaged employees are more productive, more profitable, more customer-focused and more loyal. Improving engagement requires a constant focus on changing behaviors, processes and systems to anticipate and respond to the organisation’s needs. Improving engagement means measuring and analysing the level of engagement. It is not possible to improve what you cannot measure.
  5. Succession Planning has two main purposes: one is to mitigate risk by having emergency successors identified, to step in when needed; the other is to have a longer-term development view of how positions are filled. The advantages of doing this well are anchored in business continuity. An effective, proactive succession plan leaves the organisation prepared for the loss of key employees, and prepared for growth, filling new jobs and employee promotions.

This was a long post on the definition of Human Capital but I think it is important to get right. I would be happy to be challenged on the above.

16/12/2011 at 10:53 7 comments

The most important argument for Human Capital ROI

I sometimes get asked; why measure Human Capital ROI? This is simple; to be more efficient and more effective and ultimately to add more value.

Unlike any other asset, people have the potential to add value on an exponential scale. For HR to optimise its value creation, it must master two things: doing the right things (be effective – have a strategic focus) and doing them in the right way (be efficient). Peter Drucker in 1966 explained in his famous book, “The Effective Executive”, that, to add maximum value, a function must master both disciplines.

The figure below illustrates how HR must master both. ROI on Human Capital makes at first the HR activities more efficient by asking the question; how we can get more value out of what we do? The second step – being more effective – comes with the realization that you cannot get a lot of value unless you work strategically.

And it matters. The ROI – or value added if you like – increase exponentially with this effort as can be seen below.

The High cost, No impact HR function is an expensive department which does not add strategic value to the company. This department may be large and may be responsible for many initiatives and activities. This may in turn erroneously be mistaken for a well-run department, whereas it is in fact the opposite.

The Administrative HR function optimises its budget, is very cost-focused and always asks itself, “Can we get more for less?” It is very efficient but lacks strategic focus, and therefore has little impact on the business and on the long-term success of the company.

The Impactful HR function has the ability to support the business by aligning all its activities with the strategy of the company. The problem is that it is very expensive, as it is not focused on optimisation. This may, however, be a deliberate decision, and is often the case where the value and earnings of people are very high. In the service industry, this may be in a consultancy company.

The World Class HR function has the ability to align its activities in such a way that it supports the business and strategy of the company and is very efficient, getting as high a return on its investment as possible. The value creation is significant in this type of department. Human Capital ROI will get you there.

I have written before about the pitfalls of ROI measure (read this blog on how to use ROI on Human Capital). It is not without dangers.

14/12/2011 at 10:10 2 comments

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