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.

Talent assessment – don’t make the X-factor mistake

Talent assessment is the cornerstone in any talent management program. The idea is – to power phrase Jim Collins – “to get the right people on the bus and put them in the right seats”. Well, before you can do that, you need to figure out who the right people is. Right? That is essentially what talent assessment is.

Trouble is, how do you do that in the most valid, fun, developing and relevant way? A parallel could be looking at how it is done in other areas. The popular TV show X-factor may give some learning points about talent assessment.

The X-factor model:

The format of X-factor is quite the same as many other show such as American Idol, Pop Idol, So You Think You Can Dance etc. etc. etc. The concept is pretty much the same.

• There is a group of hopeful talents (and many not so talented individual)
• They try to get nominated to a prestigious and potentially rewarding talent program
• A panel of experts assess their performance
• They are chosen from their performance on stage and their potential to win the competition
• There is a huge focus on the once who are chosen
• There will be a big investment in the ones who are selected
• The talents who go though the program are richly rewarded

 For those of who have watched any of the X-factor programs will probably find it entertaining. Often the entertainment criteria is more important than anything else. For instance, it is fun to watch Simon Cowell insult the potential talents performance.

 The decision if the potential talents are in or out is very public and often made more exciting by letting the public vote and withholding the ballot result for as long as possible.

 Talent assessment in organisations is very different
In organisations, talent assessment has been an important element of talent programs for many years. Indeed these centers were the very cornerstone of talent assessment in the 60s and 70s. They were justified by big research projects from AT&T, IBM and others which showed that they mattered. In the 90s talent assessment centers came under a lot of pressure due to research questioning their validity and their high cost.

Talent assessment must be improved and new efforts have been made which puts a greater emphasis on new formats of conducting these assessment days. But many fall the risk of falling into the X-factor trap.

The main differences between the context of X-factor and talent assessment centers are important:

• Care must be taken to ensure that it is done in such a way that the potential talents who are not selected want to remain with the company.
• It is more difficult to assess how an employee will perform in a business context managing people that how music performers may perform on another stage. More innovative assessment techniques are necessary and more talent intelligence is needed.
• Ethic considerations are far greater for a company – what and how you assess requires careful considerations.
• The entertainment value adds almost no value in talent assessment in organisations whereas it is hugely important to a TV station
• Talent assessment centres in organisations have two purposes of equal importance; selection and development. The development part for all potential talents is hugely valuable for organisations where this is unimportant in X-factor.

Talent management matters in all times – also during the difficult ones. Although it is important it is still not done well. Talent assessment is important and difficult to do right – don’t make the X-factor mistakes!

5 things to avoid when measuring HR

Measuring HR is important because it is the only way to make HR more effective and efficient. The only way! It does a lot of other things too – such as creating an objective tool to making better investment decisions and it makes HR more credible as a strategic partner for the rest of the business.

The evaluation method must be objective and tangible and preferable use tools such as HR analytics.

KPI’s are important but ultimately I believe that all strategic HR initiatives should be measured using an ROI tool. If you want to work strategic, you need a tool which can tell you if you are creating value. ROI does that. It is not without complications (read about ROI dangers) but I think it is the most appropriate one to use.

There are five common pitfalls when measuring HR using ROI:

1. Too complicated. Be careful about making this too complex. Avoid lots of paperwork and too many meetings. ROI is a simple tool. It requires careful thinking about its assumption and what goes into the equation, but it is not complicated.
2. No before measurement. Evaluation requires before and after measurements. If you only measure after the activity has taken place you don’t get the full picture and you cannot assess the value creation (here are 3 reasons why not to measure retrospectively).
3. Using a standard system. Every organisation is unique – don’t use one-fit-all template. While it is tempting to copy one from another department or company it simply will not work.
4. Making measuring HR an end in itself. To measure is not the end – it is a mean. Measuring HR is a mean to create better HR. Sometimes ROI measurements can develop a life on its own and itself become the purpose of the project (read here for why measuring HR is not an end).
5. Measure too much. I believe you should only measure a few initiatives. Those which mattes and which have an impact on strategy and overall efficiency. ROI measurements are laborious but potentially very value added. Only measure the few parameters which matters. Apply the 80/20-rule

Measuring HR is an important element of working with HR. Measuring HR is not complicated but also not easy. It requires strategic thinking, good data and a willingness to use the results.

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.

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.

The costliest mistake you can make in Talent Management

Talent Management is difficult to get right. Let’s be sure about that. In fact, most talent programs have a negative ROI if properly measured. However, there is one mistake you should avoid at all costs as it will lead to high turnover of talents (and a negative return on investment). That mistake is not having a plan for what happens with the talents after the program ends. And that plan should be made and communicated up front.

The unique thing about Talent Management – and Human Capital in general – is that if an employee decides to leave the company, he (or she) will then take the entire investment with him. In other words the cost of a talent leaving is not only loss of productivity, cost of rehire etc. but also the money spent on developing that person.

A key objective of a talent program must therefore be to ensure that talents stay after the talent program as this is the only way to get a return on the program. When the talent programs is ongoing talent turnover decline. But what many fail to understand is, that talent turnover often goes up when the program finishes. And sometimes quite a lot.

Why is that?

Evidence suggests that frustration with advancement opportunities is among the most important factors . Generally, the single biggest reason for why talents leave  organisations is lack of advancement and development according to a 2006 Global Workforce Study by Tower Watson.

During the program, talents will – rightly or wrongly – expect that something will happen afterwards; a promotion, a big assignment, an outpost or something new. If they are ‘leadership talents’ they will expect to move up the organisation. If they are ‘specialist talents’ they will expect being offered better and more prestigious projects to work on after the program.

Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place. Don’t make the biggest mistake of not addressing this up front.

Why Talent Management no longer matters

Since McKinsey in 1998 published their article on “The War For Talents” it has been widely accepted that Talent Management should be a key priority for any HR department. Actually, make that for any top management team in the world. Indeed when surveyed “Talent Management” or “Attracting the right talent” always come up as one of the top three priorities for US and European CEO’s.

So, is that how it should be? Well, I think it is. But let’s look at the convincing case there actually is for why talent management is not that important. It goes something like this:

Between 1980-2000 the use of big Talent Management programs declined rapidly. This was mostly evident in companies well-known for their extensive programs such as AT&T, IBM, Citi Group etc. Why? There are many reasons for that. A few are:

1. Loyalty fell and therefore the turnover of key employees rose. When they leave they take the investment with them.
2. Companies went through so many restructurings that talents were not so much in demand.
3. Global competition made talent forecast very uncertain and long development programs either yielded too few or too many talents.
4. The high unemployment rate in the 80′s meant that it was easy to buy cheap young talent – there were so many available talents around and it was therefore cheaper to buy than to make.

The first three points are still relevant now – perhaps more than ever. So consider the fourth. Look at the chart below. Unemployment rate in US is now at 9%-10% but the youth unemployment rates are sky high- almost at 20%! And many of these are well-educated. The same is true in Europe – in Spain the rate is above 40%!

Perhaps companies do not need to invest in expensive Talent Management programs. There is plenty of well-educated young people around who can be hired for less.

5 ways to improve the ROI on Talent Management

Lets face it – most companies don’t measure ROI on their Talent Management programs. Perhaps this is because they don’t know how to, that they know the result will be scary (very negative) or just because they don’t believe in measuring HR. For whatever reason, they are starting from way behind the starting line.

ROI is a simple tool – and also a tool to be used carefully as it has many pitfalls. However, at is core it has two components; benefits and costs. To improve ROI you need to focus on both. These five suggestions will improve your ROI by looking at how to improve the benefits (4 & 5) and how to lower the costs (1, 2 & 3).

1. Improve your development program. You can create value by finding ways to lower the cost of your development program associated with the talent program without affecting the benefit of the program. This can successfully be done using e-learning, coaching and action learning which all have significant lower costs than big  classroom-based learning programs. While no program should be based solely on any of the above mentioned, the cost of most programs can be lowered without compromising the benefits using these types of components.
2. Shorten your program. Going back in the 60′s it was not unusual to find talent programs which had a duration of three years or even more. This has proved to be wasteful for two reasons; firstly, the uncertainty of forecast of talent needs are too high over such a period. You end up with more talent or competencies you don’t need – and that is a serious waste of money. The second reason is that the added benefits of the final year has proved to be lower than its costs. It is simply not worth it. Best to keep programs at a length of 1½ years instead.
3. Create more effective assessment centers (AC’s). AC’s are used to select and develop talent. AC has been under a lot of pressure for two reasons; the validity is often very low and they cost a lot. While both issues are real it is possible to make AC’s valid and cost effective. The difference in ROI between a standard AC and a best practice AC is significant. Make the effort to make a good one.
4. Add external candidates to your program. Fact is that you will not have enough talent in-house to meet your need for growth and innovation. Instead of spending good money on people who will not be able to develop at the required speed or achieving the right level of competencies you should acquire them from outside. This is cheaper and earns a better return.
5. Have a plan for what happens after the program. The single biggest reason for why talents leave after having been through a talent program is that they are frustrated of not getting moved up in the organization or being offered better projects to work on after the program. This must be addressed up front. Studies suggest that the talent turnover can be halved post the program if proper post-program plans are in place.

The first step is however to measure your return on your Talent Management program. This is not difficult, but requires a solid process based upon best practice. Once this has been done then you can find ways to improve your return. The above five categories will get you a long way.

Good luck.

Why most succession plans don’t add any value

At its very core, the problem is that most succession plans are never used. And if not used, it is hardly a controversial to say, that they don’t add value. Many large international companies spend much time and resources on developing a complete success planning program, which intends to identify a person who will take over if the executive is hit by a bus or suddenly leaves the company. I have never actually heard of the famous bus incident so I guess it is for when executives get fired or leave.

There is today very little evidence to support the view that it adds value to have succession plans for top management level, however some case studies and data suggest that this is more valuable for some middle-managers and many specialists. Maybe that’s where the focus should be.

So what to do for the succession plans to add value?

1. Succession planning works best in organisations where there is little change and a high degree of predictability. No wonder then that the term originates from the military. This is true for some organisations but for most the reality is that they experience so much change, re-organization and lay-offs that succession makes no sense.
2. The quality of the successors must be very good, which means that a constant gab-analysis and gab-closing exercise must take place. This development project is valid when a successor is needed but wasteful when it is not.
3. Management must be committed to use the identified successor (which frankly is not the case today, as highlighted in a recent McKinsey study of talent management).

One possible solution to lower cost and improve returns would be to make a Just In Time Succession Plan. When a job is open, find out who is the most suitable and let that person take the role. If any development is needed post hire then spend the money there.

Finally there is the option of asking a executive search company to always have a list of five candidates ready for all of the top management positions and review the list with the search company on a regular basis.

P.S. I would encourage you to read chapter 5 in “Talent on Demand” by Peter Cappelli for more on this subject.

Do talents or systems make the difference?

What makes the difference; talents or systems? If you take, say, a great soccer player like Lionel Messi and put him into an inferior team will he do well and make a difference to that team or is it the fact that he plays for Barcelona that what makes him great? This question – formulated slightly different – is the crux of a debate which has been going on for a while. Lets look at the two arguments;

Malcom Gladwell (who wrote ‘Blink‘, ‘The Tipping Point‘ and ‘Outliers‘) wrote that “The talent myth assumes that people make organisations smart. More often than not, it’s the other way round” in a seminal article in the New Yorker in 2002. This is supported in Boris Groysberg’s ‘Chasing Stars: The Myth of Talent and the Portability of Performance‘. In this book Boris describes analysis of the careers of over 1,000 ‘star analysts’ at 78 Wall Street  investment banks, and 20,000 non-star analysts at 400 investment banks. His startling finding: star analysts who change firms suffer an immediate and lasting decline in performance. The conclusion, in their view, is that the systems, culture, resources and teamwork of the company matters more than the talent. In other words performance may be more firm-specific than previously thought.

On the other side stands a lot of the traditional management literature, which argues that attracting and retaining the best people is the most important thing to get right. Talent matters a lot. This includes authors such as Jim Collins (notably ‘Build to Last‘ and ‘From Good to Great‘) who aruges that getting the right people on the bus and putting them in the right seats are more important than finding out where to go (talent matters more than strategy).

I believe that both arguments are right to some degree but not in their entirety. I am not sure that any of the perspectives are very productive in their purest sense. That talented people should be the answer to everything is clearly too simple. At the same time I don’t think it makes much sense to say that some people are not better skilled to do a job better than others and having a lot of those skilled people in the most important job functions makes a difference. Perhaps Malcolm Gladwell and Boris Groysberg have a point about not relying too much on star performers and not believing that they are soly the reason for the company’s success. However their argument should not be taken too far. Talents matters a great deal. Just ask Barcelona FC.