Do People Drive Business? You Bet Your Assets
Jan 24, 2019
Is it just me?
I can't tell you the number of times I've sat in a presentation delivered by a senior executive who invariably uses a phrase that really gets under my skin. As the speaker begins to extol the importance of innovation and talent, I can feel it coming. As he continues on to talk about the importance of having engaged and dedicated employees I look around the room and see faces beginning to light up—in particular those of my colleagues in Human Resources. Finally, as the speaker reaches the crescendo of praise for the workforce, I have actually found myself gripping the edge of my conference room chair as those inevitable words are uttered:
"People are this company's most valuable asset."
Don't get me wrong. I agree with them. In fact, I have dedicated my career to pursuing the notion that people add value to their companies. I also believe that a large part of my responsibility as an HR professional—and as a business leader in general—is to demonstrate just how important they really are. My problem with the phrase lies in the fact that we HR professionals collectively have not done an especially good job at demonstrating that value in a meaningful way.
Let's be honest: Can we—let alone our CEO or CFO—confidently demonstrate the true financial value that exceptionally talented and motivated people provide to our company as opposed to employees of average talent or motivation?
Most of us can't, and in fact, many of us don't know how to begin.
Fortunately, Evidence-Based Human Resources, a movement that has been little more than a whisper in intellectual circles and among geeky HR analytics types (I include myself in this category) for the past few years, has begun to mature and become engrained in how high-performing companies are managing themselves. Moreover, evidence-based approaches are extending beyond simply the use of HR metrics and human capital analytics to inform how these companies are approaching their overall human capital strategies in general.
So what is Evidence-Based Human Resources? EBHR simply is the use of human capital analytics and scientific standards of causation to build a case for how people management practices drive operational and financial performance of the business.
While it sounds sophisticated—and admittedly, there are some very smart practitioners who are applying EBHR in very sophisticated ways—the concepts are fairly simple. There are two things that you should know to really understand what EBHR is all about:
First, measure what matters. Many organizations approach HR metrics the same way the classic befuddled drunk looks for his lost keys under a street light (even though he's pretty sure he lost them a few blocks away)—simply because the light is better. We measure what's easy. In an effort to demonstrate that our functions add value to the company, we spend a lot of time measuring things like time to fill positions, turnover rates or evaluation scores from participants in training programs. While these measures are a nice start, they don't capture whether or not the new hires are actually performing well, if turnover rates in certain positions are more closely related to profitability of the company than turnover in other positions, or if training programs are actually changing the long-term success of business units whose managers participated in them.
The second concept is a little more complicated, but nothing we weren't all taught in high school chemistry class…then promptly forgot because we all went into HR. If you reach deep into your dusty memory of science you will remember that there is a clear and simple three-part test for demonstrating that one thing actually causes a second thing to happen. And, isn't that what we are trying to do in our efforts to demonstrate the value of talent and managing talent well? As a refresher, those three parts are:
1. Correlation: simply put, when one thing happens, the other does too. (This also works in reverse—when one thing doesn't happen, neither does the other.)
2. Temporal Relationship: this is just a scientific term meaning that the first thing happened before the other thing happened.
3. Control for Other Variables: this means that you've made an effort to control for other explanations for why you came up with the outcome you got.
Finally, it's important to understand that, while the application of evidence-based approaches may involve data and analytics, number crunching isn't what's at the core of EBHR itself. Evidence-Based HR is about knowing your business and what measures are used by stakeholders to determine its operational and financial success. It's also about learning (or relearning) a disciplined way of demonstrating facts and applying critical thinking to make the case for HR. HR has always had an important message to communicate regarding the value of people. EBHR simply allows HR practitioners to tell that story in a manner that is just as compelling to the people sitting in a boardroom as those being told by our peers in marketing or finance.
I firmly believe that people are valuable and that their efforts and contributions drive business performance. I also think that if you are reading this, chances are you believe that too. With evidence-based approaches to building talent strategies and testing our assumptions about what works and what doesn't work, I believe that we collectively can come closer to demonstrating that value.
In other words…it isn't just me.