SIOP 2008 Invited Address: Managing Tomorrowâ€¦Today: How to Change the Game

What do Amazon, USA Today, the West Coast Offense, and Wal-Mart have in common? The answer is that they are examples of what Harvard professor Clay Christensen described as disruptive technologies. These are new ideas that change an industry. Amazon changed book selling, USA Today introduced a national newspaper, Bill Walsh’s West Coast Offense changed the way professional football is played, and of course, Sam Walton changed retailing.

Today, there is a disruptive technology on the horizon for human capital management. Very little has changed the “personnel game” since 1950. Although computer technology has made the job easier and more efficient, it has not delivered its strategic value. In the 1960s we changed the name from personnel to human resources but we didn’t change much else. We still operate each HR function in its little silo, distinct from and largely disconnected from its HR siblings.

When it comes to connecting to the business, we lament that we don’t get invited to play with the C-level team, yet very few of us are prepared to play effectively. The vast majority are content to carry the water bottles and pick up the dirty towels. Once in a while we are pulled in to run interference but we seldom carry the ball.

Human capital management in the 21st century requires a new offense; HCM: 21™ is both a strategic model and concurrently also an operating system. The model identifies the organizational issues and entities and then operationalizes how they interact and should be managed. Exhibit 1 is an outline of the model.

I-O psychologists have a major role to play in this disruptive market. Whenever change takes place, fear and resistance rise. New roles, skills, and relationships have to be introduced and learned. Consultation, facilitation, and counseling will all be in demand as the disruption spreads.

Before Planning

HR typically starts with workforce planning. It matches business plan staffing requirements with the labor pool and from that designs a staffing strategy of sorts. Quite often there is no change from past practices although the marketplace has and is continually changing radically. Before we can plan we need to know what is coming. HCM: 21™ starts with a strategic scan of external forces and internal factors that may affect the three fundamentals of the organization: structural, relational, and human capital. This tells us where we can expect to feel effects on our organization. Only after this can we begin to make plans, otherwise we are operating in a vacuum.

Workforce and Succession Planning

Once the scan is completed we can begin to lay the foundations or a modified workforce planning process. The scan told us who and what we have to compete with and where our internal factors need recalibration. Exhibit 2 is a sample, in brief, of the layout of the planner.
We follow this with an advanced succession planning system. The new system is built around three principles:

Assigning an executive the primary responsibility for managing the system.
Identifying high-potential (hi-po) personnel as far down the organization as possible.
Reviewing and updating the hi-po list.

When you have at least 75% of your hi-po candidate’s development programs fully operational you should see a rise in revenue growth per FTE. The reason for this is that your hi-pos are the key people in the organization that drive overall performance.

Process Optimization

Periodic source analysis can greatly increase both efficiency and effectiveness. It can be applied to hiring, compensation, and development. The most common application is in staffing. In any process there are inputs, throughputs, and outputs. In staffing the inputs are job applicants that come through a variety of sources: advertising, job boards, agencies, employee referrals, for example. The throughputs are the selection methods: individual and group interviews, testing, assessment, and you can add onboarding to the list. The outputs are new hires that can be evaluated in terms of performance, potential, salary history, and tenure.

The purpose is to find out which combination of sources and methods yields the best hires for mission critical jobs. Knowing this can help you cut your cost of sourcing and improve your hit rate of exceptional hires. Exhibit 3 is a sample of a source analysis.

Integrated Delivery

The greatest leverage opportunity can be found in how HR services are delivered. In almost all, read over 95%, HR departments deliver in a fragmented manner. That is each function from planning and staffing through compensation and benefits to development and relations operates in its own silo.

Although there is a general HR plan, each function develops and delivers on its own time schedule without regard for what its sibling functions are doing. If you doubt my claim, ask yourself how often staffing, compensation and development synchronize their offerings. Development usually knows little of the quality of new hires or the introduction of new pay plans. Likewise, compensation looks only at pay and benefits neglecting to include development and employee relations investments in a total rewards system.

The secret to integrated delivery is leadership on the part of the CHRO. Functional heads may not want to give up their autonomy. They may see it as a loss of discretion and power with little personal value in return. This is where counseling on the part of I-O psychologists can be a critical service.

Predictive Metrics

Thirty years ago I introduced quantitative methods to the personnel function. After a very slow adoptive rate we now see many HR departments doing some type of measurement. The problem is that most of them have not moved past the cost and quantity level. Typical metrics are cost of hire and development, numbers hired and trained, ratios of HR to employees, and HR budget benchmarks. All of these can be useful as after the fact data for the HR staff. However, they do not excite management because they focus on cost and not on value added.

Modern analytic tools and behavioral science methods support higher levels of analysis. We can dig into turnover rates and discover what is causing them to rise or fall. We can track and return on investment of many HR services from incentive pay plans, new benefit programs, and training offerings, as well as staffing strategies. These address the issues that drive the current business operation. As such, they attract management’s attention.

The latest and most exciting measurements are leading indicators and intangible metrics. These predict what is most likely to happen in the future. With these data points, the C-level can strategize and invest with a minimum of risk. Given the wild markets we face today and into the future, risk management is at the core of human capital investment. High degrees of success yesterday do not necessarily guarantee similar returns tomorrow.

Leading Indicators

There are a number of issues that can be turned into leading indicators. They include engagement, leadership, culture, commitment, benchstrength and knowledge management. In addition, lagging indicators can be reverse engineered and turned into leading indictors. Note that all of these are intangibles. The days of counting units of performance are past. Now we have to look over the horizon using data that has predictive capability. Exhibit 4 shows a few of the leading indicators.

Changing the Game

Continually working on process improvements and additional investments in disconnected software at best can help us keep up with the pack. The only way to break out and take the lead is to come up with an entirely new way of managing human capital. In the West Coast Offense of the San Francisco 49ers during the 1980s they did not change the number of points for a touchdown or get to have more than four plays to make a first down or find a new way to run, block, or throw. What they did is work from a new offensive strategy that the defenses of their opponents were not prepared to cope with. As a result the 49ers were one of the most explosive scoring machines in the history of professional football.

Adopting HCM: 21™ can help change the game with a new offensive strategy that explodes past competitors. The model and strategy is now being put in place in companies around the world. It is available to anyone who wants to win the game for talent.