In this last post discussing the concepts presented in Transformative HR: How Great Companies Use Evidence-Based Change for Sustainable Advantage (Jossey-Bass, September 26, 2011), by Ravin Jesuthasan and John Boudreau, we focus on segmentation, which remains a key challenge for many organizations. You can read the other posts in this series here, here, and here.

Of the five guiding principles, "segmentation is the one area where I have seen organization almost uniformly struggled with," says Jesuthasan. Even though business leaders are comfortable segmenting their customers based on criteria like the cost to serve and economic return from serving each customer segment, they are less confident when it comes to using segmentation to differentiate their employee populations and to identify their most critical employees. The good news is that "we have see segmentation take hold and evolve as organizations return to rewarding and recognizing high potential leaders as being different from their lesser performing peers," says Jesuthasan. "Companies are now becoming more comfortable when it comes to identifying high-performance and high potential employees."

The authors identify two types of segmentation—supply-side segmentation, which focuses on grouping employees based on what attracts and motivates those individuals and demand-side segmentation, which focuses on grouping employees according to what the organization needs from those employees. Both types of segmentation can lead to better, more focused HR investment decision making based on what the company wants to achieve and how it can invest in various employee segments in order to achieve the desired results.

Finance can play a key role in helping to make segmentation a more acceptable tool for both HR and line managers. In addition to bringing to the table the data and analytics necessary to support segmentation, "finance can help start the dialogue with line managers because finance brings a sort of clinical perspective to what can be an emotional issue for line managers—evaluating talent," says Jesuthasan. Jesuthasan and Boudreau present a framework to support segmentation in their book.

This type of segmentation supported by data is an important way to help line managers provide direct messages and more helpful feedback to specific individuals, while also providing evidence to support segmenting decisions. "The point is to help companies make a step change to realize significant results in terms of not just economic performance but ability of organization to attract and retain and engage talent in a very different way," says Jesuthasan. "Taking a incremental approach for the most part has not worked."