Zapaterismo

Accounting for Human Capital

I've been reading a great deal about financial accounting and reporting recently, in no small part because of a class that I've been taking on the subject.

Those who have read the book Beyond HR know that Boudreau and Ramstad compare accounting to human resources by emphasising accounting's transition from a profession oriented toward processing transactions, to a decision science called finance.  They suggest that HR is bound to face a similar transition.  Thus, a comparison between the accounting and HR shouldn't seem at all original.

However, I'm coming to believe that Beyond HR misses some of the most critical and telling points of comparison between the disciplines. Not only that, but the book encourages readers to pursue strategic HCM and analytics before our organizations are really ready.

First of all, professional accounting and financial reporting practices are universally organized around a number of principles (think GAAP and FASB). One in particular states that, to be useful, all financial information should share the following qualitative characteristics:

• Relevant - useful in making decisions
  • Predictive value  
  • Feedback value   
  • Timely 
• Reliable
  • Verifiable - can be verified independently  
  • Representative of reality
  • Neutral (unbiased) 
• Comparable (across companies)  
• Consistent (over time)  

(See here and here for more)  

It strikes me that the accounting profession has traditionally and continues to place such great emphasis on the quality of information as a prerequisite to reporting, while HR appears over-eager to jump headlong into analytics without the data they rely on meeting any of the above criteria.

Certainly, we have a long way to go before we can actually account for human capital in a way that allows us to add such assets to a balance sheet in a manner that lends itself to comparability and consistency.  

However, and this is a huge HOWEVER, HR needs to start looking more carefully at the relevancy and reliability of its talent data now.  Very few companies implement talent management technologies and programs with this in mind - a fatal flaw in my humble opinion.

Along those lines, another accounting principle addressing "cost benefit" holds that the benefits to users of financial information should outweigh the costs of providing it.

If the business, and not HR, are considered primary users of human capital information (they should be), then I'd say this is one more area where HR has yet to match the practices of its nerdy cousin profession.  And if getting HR right must precede an HR decision science, then I'd say we've got a long way to go.

Tolstoy on Organizations

I'm slowly but surely working my way through War and Peace and read through a passage recently that struck me as unusually pertinent to the conversations that take place in this blog.  I won't offer any commentary, but simply want to put it out there and see what people make of it. 

The concentrated activity which had begun at the Emperor's headquarters in the morning and had started the whole movement that followed was like the first movement of the main wheel of a large tower clock. One wheel slowly moved, another was set in motion, and a third, and wheels began to revolve faster and faster, levers and cogwheels to work, chimes to play, figures to pop out, and the hands to advance with regular motion as a result of all that activity.

Just as in the mechanism of a clock, so in the mechanism of the military machine, an impulse once given leads to the final result; and just as indifferently quiescent till the moment when motion is transmitted to them are the parts of the mechanism which the impulse has not yet reached. Wheels creak on their axles as the cogs engage one another and the revolving pulleys whirr with the rapidity of their movement, but a neighboring wheel is as quiet and motionless as though it were prepared to remain so for a hundred years; but the moment comes when the lever catches it and obeying the impulse that wheel begins to creak and joins in the common motion the result and aim of which are beyond its ken.

Just as in a clock, the result of the complicated motion of innumerable wheels and pulleys is merely a slow and regular movement of the hands which show the time, so the result of all the complicated human activities of 160,000 Russians and French- all their passions, desires, remorse, humiliations, sufferings, outbursts of pride, fear, and enthusiasm- was only the loss of the battle of Austerlitz, the so-called battle of the three Emperors- that is to say, a slow movement of the hand on the dial of human history.

Shift Happens

A friend of mine who teaches journalism at Harvard posted this video on Facebook the other day (a great testimony to the truths found in the video itself).  I found it so compelling I wanted to share it with the rest of you.

My favorite line...

"If MySpace were a country... it would be the eight largest in the world."

If what's happening on the internet is any indication of the world to come, there is no doubt that our companies are falling way behind.

Rulers, Randomness, and Talent management

Over the last month or so I have spent a substantial amount of time putting together a thought leadership presentation and writing a white paper dealing with talent management analytics. 

The presentation, which outlines a crawl, walk, run approach to getting to "strategic" talent management analytics, was delivered a couple of weeks ago to a highly engaged and interested crowd of functional HR and HRIS professionals.

To my surprise and amusement, one of the points that really resonated with people was the idea of validity and reliability in measuring talent (and how boss-only ratings using a Likert scale consistently do not yield reliable data).

It was actually a piece of the presentation that I had been reluctant to include, as my experience with HR professionals is that they often become overwhelmed by the topic of analytics - period - even without mention of all of the considerations that go into generating sound analytics.

Yet, analytics are meaningless without reliable data to back them up, and this was clearly not lost on the attendees.

Since the session, I have started reading Nassim Taleb's Fooled by Randomness. It's a fabulous book - one that will make you feel so foolish about your ignorance of probability that you will rethink all of your heretofore assumptions about life and decision-making.

Toward the end of the text, Taleb makes the same point that I proffer above, but much more eloquently than I ever could.  He says:

"Unless you have confidence in the ruler's reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler. The less you trust the ruler's reliability (in probability called the prior), the more information you are getting about the ruler and the less about the table."

Making a market in talent

McKinsey Quarterly put out a great article about two years ago called "Making a Market in Talent."  Before the Oracles, SAPs, and Taleos of the world were heavily marketing the link between recruiting and succession, McKinsey was somewhat esoterically talking about the need to create internal talent markets to "pull" rather than "push" talent around the organization.

Reading Slywotzky's timeless book, Value Migration, I have been reminded of the McKinsey article. 

Slywotzky spends a chapter of the book talking about Merck in the 1980s and the way in which they focused development resources and accelerated time to market through internal competition. Increased government regulation was skyrocketing R&D costs while also shortening product lifecycles, and so Merck's abililty to be first to market with blockbuster drugs gave them a huge competitive advantage.

In Slywotzky's words...

"Vagelos created cross-functional teams around the most promising and important products... As an incentive, teams had to "compete" for resources (both people and dollars) throughout the organization, forcing project managers to "sell" and functional managers to "buy" into the hottest projects...

This free market allocated resources in a way that normal budgeting couldn't.  Focus was automatic.  People wanted to be part of a blockbuster team." (page 142)

So what if your organization broke down any and all barriers to internal movement and empowered employees and managers to seek each other out through well executed internal talent marketplaces?

What might happen to the hard-nosed, streamrolling manager who scoffs at employee development plans and consistently de-motivates his (or her) people? And if he is held accountable for performance, how might the talent drain from his department accelerate the process of ushering him out of the company?

And on the other end of the continuum, what might become of the entrepreneurial, inspiring, and people focused leader and her (or his) promising new start-up unit, once employees started to catch wind of the fact that she was looking for more talented people?

If people and talent are what drive our organizations and economies this day in age, I can't help but think that true internal talent markets would have a massive impact on performance, while also giving disillusioned and disengaged employees mobility options that don't involve leaving the organization.

Are you a stock or a bond?

I came across this interesting blog post from Jonathan Chevreau at the Financial Post.  Apparently it comes from a book by Dr. Moshe Milevsky, a finance professor at York University’s Schulich School of Business. Sounds like it would be worth a read.

Jonathan says -

For young people just starting out, their Human Capital is huge (think hockey star Sydney Crosby) and life is a matter of gradually converting that human capital into financial capital. In that respect, the ScotiaBank marketing theme "you're richer than you think" is actually quite accurate.

Older people have spent half a lifetime or more using up their human capital and (hopefully) converting it into a nest egg they can live on once they no longer are able to, or wish to, work.

While Jonathan talks about individuals being stocks or bonds and the implications for personal investing, I wonder if there aren't a few lessons here for organizations.

Does your organization know which individuals are stocks (high risk, high return) vs. bonds (low risk, lower return).  Do you manage these assets/types of financial capital differently?  What might your talent management program look like if you did?

Good reading

I have been having so much fun catching up on the news and other blogs (oh yeah, and whole lot of working...) that I haven't done much posting of my own lately.

In that vein, I wanted to extend a hat tip to systematicHR for a series of great posts recently.

HBR on SOA - Good commentary on the potential and limitations of SOA as a productivity driver
The Peter Principle and HR - Well versed thoughts on the Peter Principle.  And in my point of view, more justification for being clear about employee's potential, to maximize their contribution to the organization and avoid setting them up for failure.
What Integration Means - Some wonderful ideas here on types of integration (Data vs. Process vs. People) that fall right in line with some of my recent thoughts on process integration that I'll be posting soon.

Gen Y Burnouts

An interesting little article from CNN here on workplace burnout among Gen Yers.

It states...

"This year's graduating seniors may face higher risk for job burnout than their parents' generation, say business and career experts."

While that may be true, I do sometimes wonder whether all of the hype is first and foremost a problem of social forgetfulness.  If we went back into the NY Times or WSJ archives and searched "Burnout Baby Boomer," would we find articles expressing similar sentiments?  You have to wonder (and if someone wants to try, please let us know what you find).

Similarly, could it be that the internet and constantly expanding world of time-saving devices and services in the market have just shifted the source of burnout?

I asked my favorite barista the other day if he had big plans for the weekend.  His response caught me off guard. He said, "yeah, as if it matters that it's the weekend, right?"  Then, he rescinded and said, "actually, with all of the online shopping and everything else these days, you can actually get your errands done in the evenings and use the weekends to relax and have fun.  It didn't use to be that way."

So whether Gen Yers really more overworked than our parents may be largely a matter of what constitutes work.  My weekdays are almost fully devoted to my job, and I often bring a few hours of work home over the weekend.  But I guarantee you I'll be sipping gin and tonics on my patio and spending time with my wife and dog for a good portion of Friday, Saturday, and Sunday.  Life could be worse.

SaaS, HR, and Loathing for IT

Susan Cramm, in a recent blog post, does a wonderful job of outlining the animosity toward IT departments that exists in so many other parts of our businesses. (The podcast is great, too - take a listen.)

HR is no exception here, and the antagonism that can play out between HR and IT goes a long way toward describing why SaaS has fared so well in the talent management space.

Rather than going to CIOs for help, HR is reaching into its own pocket books to finance cheap pay-as-you-go SaaS solutions, provided vendors can also support quick and cheap implementation.

The great irony here is that the way HR is treated by IT relative to some other functional departments (i.e. as the forgotten step-child) might be explained by HR's traditional failure to demonstrate its own impact on the business.  See Keith Hammonds' brilliant - and eerily reminiscent - 2005 "Why We Hate HR" Fast Company article for more. 

Risk and uncertainty in HR

One of the great mythical beliefs held by most economists is that people make decisions based on objective criteria and reason (called rational choice or rational action theory).  Just about all traditional economic theory rests on this assumption, yet we know from experience in life in general and, in particular, life in modern organizations, that this is hardly the case. Life is just too complex to be so objective.

Douglass North, a Nobel Prize winning economist at Washington University whose work I've been reading lately, goes so far as to suggest that true objectivity in decision-making is impossible, since at any point in time we simply don't know what we don't know. Even yesterday's tried and true solutions are in no way guaranteed to solve tomorrow's problems, since the human environment we live in is constantly evolving.

This ubiquitous uncertainty, in his view, is what really drives human behavior.  We try to mitigate uncertainty by creating explanations and theories based on socialized beliefs, accumulated knowledge, and personal experience. The resultant web of "rational" myths, in turn, drive our decisions and dictate how we craft the "institutions" that impede or facilitate economic exchange and growth.

So, he says, much of the explanation for economic disparity between countries lies in the fact that some were simply lucky enough to get it "right" more often.

It's an interesting proposition.  And if you think about corporate strategy, it's starts to come to life a bit more.  Why would any rational CEO place the future of his/her company in the hands of a best guess around what will spell success (i.e. a "strategy")? 

The explanation lies in the fact that uncertainty can't be circumscribed. So we've created this concept of "strategy" to take over where certainty ends. (Another reason we shouldn't be surprised that financial performance has more to do with execution than strategy.)

If you believe any of this, you'll also note that it flies in the face of the idea of evidence-based decision making. If access to data and analytics can't guarantee you'll make the right decisions, then why go to all of the trouble?

Well, because while you may never be able to predict the future perfectly (e.g., will this person really make a good regional sales manager?), you do want to position yourself to get it right more often, and that's where data is so helpful.

There may be no set of organizational decisions that rely so heavily on rational myths as those that concern talent, and perhaps also no set of organizational decisions that so heavily lack access to reliable data. The relationship, I think, is no coincidence, and the impact can be seen in the fact that so many of us have somehow come to accept success rates of, say, 50% when hiring and promoting employees.

That sucks.

As Douglass North suggests, we'll never be able to get it right 100% of the time, because the world is just too complex, our world views are too full of bias, and we simply don't know what we don't know.  But that doesn't mean we should give up on trying to be more predictive, by doing things like:

1. Creating a ready supply of valid and current talent data within our companies

2. Empowering line managers to use talent data to make better decisions, through education and by delivering useful talent management analytics back to the business

It's a huge task, but take a leap of faith and start pushing to make your organization more data-centric in its decision-making.