In our last post, Successful HR Focuses on Business First, we discussed how finance and HR can work together to create a more business-focused approach to HR. In their book, Transformative HR: How Great Companies Use Evidence-Based Change for Sustainable Advantage (Jossey-Bass, September 26, 2011), Ravin Jesuthasan and John Boudreau emphasize the need for evidence-based HR practices and decision making.
Jesuthasan notes that the idea for this approach grew from observing the medical community. "Our thinking behind evidence-based change was inspired partly by the evidence-based medicine movement, which encourages doctors to determine which treatment, based on the evidence, is most effective," he says. "By using evidence-based change, HR is better equipped to make decisions that are based on well-grounded evidence, rather than gut feel."
To that end, the authors introduce five guiding principles to help effect this shift—logic-driven analytics, segmentation, risk leverage, integration and synergy, and optimization.
Logic-driven analytics requires the identification of the organization's most pressing issues along with the use of robust analysis to describe those issues and likely outcomes if the organization addresses those issues. However, numbers and analysis will not be enough without strong underlying logic to drive the analysis. Using logic-driven analytics, HR can focus on business problems and hypotheses first and then address the people-related implications.
Segmentation involves categorizing employees and potential employees based on how they differ. The rationale is that these differences allow the organization to target programs to meet the needs of specific segments and to maximize the return on programs targeted to the segments that are most important to the company. To be effective, this segmentation should use categories that are based on what the organization needs from its employees and what the organization can offer to attract and motivate those employees.
Risk leverage focuses on analyzing, planning for, managing and exploiting risk for the organization's economic benefit. Rather than viewing risk as a negative, this approach recognizes that risk cannot and, indeed, should not be avoided. In fact, leveraging risk intelligently can generate significant economic benefits for the organization. To be effective, risk leverage must be supported by well developed systems for analyzing and optimizing risk in order to allow HR to address its risks systematically. HR must also be prepared to collaborate with finance and other functions with well developed risk management tools to achieve these ends.
Integration and synergy are necessary to recognize how HR systems and process mesh together within HR and how they interact with other systems and processes throughout the organization. The overall goal is to make sure these elements are not working at cross purposes and, instead, are coming together as a complete portfolio that is greater than the sum of its parts and is creating value for the organization.
Optimization allows organizations to target their investments at the appropriate level and toward the most appropriate programs when faced with a range of investment opportunities. The overall goal is to maximize the return on the entire portfolio of investments—even if it means reducing or redirecting investments in long-standing programs that have been successful in the past.
In our next post about Jesuthasan's and Boudreau's book, we will look at specific situations where this new approach to HR can yield results.