Evaluating Investments in HR

For many HR practitioners being able to provide a logical business case and proper evaluation that links HR investment to key financial outcomes would represent a huge step forward for their credibility. Yet, it is a fact that we typically spend large sums of money implementing leadership development programmes, talent management, employer branding etc, and almost nothing on assessing their strategic impact. In part, this is because we believe that it is impossible to measure intangibles - what's meaningful isn't measurable and what's measurable isn't usually meaningful. So we justify our actions on the basis of acts of faith or attempt to persuade senior managers with arguments along the best practice, 'everyone is doing it', so 'we don't want to be left behind' lines (often following attendance at some networking event). Unreflective copying and jumping on the bandwagon, alongside legal requirements (themselves often based on 'best practice'), are the main drivers and justification for spending vast sums of money on 'soft' initiatives. This is why institutional theorists argue most organizations and their HR architectures end up looking the same, and, as the more perceptive strategists point out, where is the competitive advantage (or even best practice) in that?

So it is with some relief (not total) that I've picked up two recent American books. One, the Differentitated Workforce' by Becker, Huselid and Beatty, I will leave for a later post because it is more mainstream and I'm currently testing some of their ideas with a group of great HR managers from Getinge as we speak. The other is Wayne Cascio and John Boudreau's 'Investing in People: Financial Impact of Human Resource Initiatives'. This book is probably the best I've read in the field, in part because it deals with measures in a sophisticated way, in part because it not so much a book about measures but about understanding the logics that link strategic decisions to human capital initiatives and their outcomes. John Boudreau is a 'name' on the HR circuit following his book in 2007 on 'Beyond HR', while Wayne Cascio I know from my time working at the University of Colorado where he teaches and researches. Wayne wrote one of the first books on measuring HR and this works represents the culmination of a long career in introducing rationalism into the HR profession.

For me, the highlights of their book are three-fold. The first is the LAMP framework, which states that you can only use HR metrics as a force for strategic change if you have the right logic (that link your measures to competitive advantage, pivotal points through causal modelling, etc), the right measures (timely, reliable and available data) the right analytics (good questions and analysis of data) and the right processes (good knowledge management in the organization and a culture that supports learning, not just assessment, from measurement).

The second is the use of yield curves to examine the types of jobs (and people) where firms should invest their money for the greatest return. Boudreau tackled this in his earlier book and the book by Becker et al also make great play of this very important point that it is the range of performance variation in jobs (the difference between best performance and poor performance) that helps determine this yield. The most quoted example is Disney: where do you put your money for greatest return ie satisfied customers, Mickey Mouse or the street sweepers who are key customer relations people? The answer is for a small extra investment in selecting and developing street sweepers you get an enormous yield in satisfied customers because their performance varies so much; investing more in the characters playing Mickey Mouse etc is unlikely to yield such returns because the performance variation in these characters has been effectively drilled out so that one Mickey Mouse is no different to another. You can apply this analogy in healthcare, education and many other jobs - well worth thinking about.

The third key element is the focus on causal modelling and logic. This is fast becoming de rigeur among sophisticated HR functions and forms part of a project we are conducting for the Scottish Governement and ESRC. The core argument is that organizations need to develop the right logic linking their HR practices to business unit or strategic peformance. Sounds logical but it is not what most organizations do, judging by the use made of engagement models and engagement data in the firms I observe. So if you are involved in assessing employee engagement, just reading the chapter on the logics of engagement (derived from sound evidence-based academic research) will be worth your time and money alone.

Two words of warning. This is not an easy read for the more mathematically challenged, but don't be put off because the arguments are the most important element in the book (and you can always employ a statistician). Second, it begins to sound a little like best practice by railing against best practice, just like the Becker et al book I'll discuss next. I'm always worried by the idea there is only one way or the highway approaches to HR, which this is close to becoming. There are some important assumptions and simplifications in this book that just don't stand close scrutiny. For all that, this is one of the HR books of the year for me, and I will use it extensively in teaching and consulting.

Why Leaders Change Things, Often with No Impact

The leadership seminar we did for the ESRC and Scottish Government yesterday provided me with an excellent explanation for why leaders’ desire to change things often results in no significant progress (but plenty of change fatigue and rewards for leaders). I’m grateful to Keith Grint for pointing me in the direction of this interesting piece of research over a cup of tea prior to the seminar.

(By the way, if you want access to what we talked about, here’s the publication we produced for the seminar with the help of Chris Blunkell, the ESRC and Scottish Government. It will be posted shortly).

Back to the story - a group of Israeli researchers shed new light on these issues, drawing from the art of goalkeeping in soccer [Bar-Eli, Michael, Azar, Ofer H., Ritov, Ilana, Keidar-Levin, Yael and Schein, Galit (2006): "Action bias among elite soccer goalkeepers: The case of penalty kicks," in: Journal of Economic Psychology].

Here’s how one blogger, Elli Malki, from the financial services industry described the research because the analogy has been used before (and she summarises the article well saving me from doing it).

‘ The researchers examined a very unique situation in soccer games—penalty kicks. From a behavioral point of view, penalty kicks have several unique characteristics:
ln most cases, the penalty kick ends with a goal being scored, thus having a significant effect on the result of the game.
An experienced goalkeeper has faced many penalty kicks and thus is expected to know how to react to them.
From the moment of the kick, it takes 0.2-0.3 seconds until the ball reaches the goal. Thus, the goalkeeper cannot know in advance what will be the direction of the kick and must choose the direction of his jump based on his past experience.
As a result of these characteristics, a penalty kick is a type of a "natural experiment" in which it is possible to examine the choices made by the goalkeepers under uncertainty. Since soccer players' compensation is dependent on the performance of their team, the result of the goalkeeper's choice will not only affect the result of the particular game, but also the long-term prospects for himself and for his team.
The researchers examined 286 documented penalty kicks from games of top soccer teams. For each one of the penalty kicks, a group of three qualified referees was asked to determine: (1) the direction of the kick; (2) the direction of goalkeeper's jump.

The results are presented in Table 1 and Table 2 in the original paper.


To summarise, Table one showed that the directions of the kicks were almost uniformly distributed. About 1/3 of the kicks were aimed to each one of the directions (left, right or center of the goal). On the other hand, the decisions of the goalkeepers were biased toward jumping to either the left or the right side of the goal. Only in just over 6% of the penalty kicks did the goalkeeper choose to stay in the center of the goal.

Were the decisions of the goalkeepers rational? To answer this question, the researchers examined the success rate of the goalkeepers to stop the penalty kicks. Altogether, goalkeepers succeeded in stopping 42 penalty kicks—14.7% of all the kicks that were examined. The overall success rate of stopping penalty kicks is very low and most kicks result in a goal being scored. The results showed that there is no connection between the success rate in stopping the kick and the direction of the kick. The success rate is very similar regardless of the direction of the kick.
On the other hand, an analysis of the 42 successes showed that the success rate of staying in the center (e.g., doing nothing) was more than double than the success rate of jumping to either direction.

Thus it seems that the decision made by the goalkeepers in 94% of the cases—to jump either to the right or the left—was not rational, since it decreased their chances of stopping the penalty kick.

Why does it happen? The researchers provide the following explanation:

An identical negative outcome (a goal being scored) is perceived to be worse when it follows inaction rather than action. The intuition is that if the goalkeeper jumps and a goal is scored, he might feel "I did my best to stop the ball, by jumping, as almost everyone does; I was simply unlucky that the ball headed to another direction (or could not be stopped for another reason)." On the other hand, if the goalkeeper stays in the center and a goal is scored, it looks as if he did not do anything to stop the ball (remaining at his original location, the center)—while the norm is to do something—to jump. Because the negative feeling of the goalkeeper following a goal being scored (which happens in most penalty kicks) is amplified when staying in the center, the goalkeeper prefers to jump to one of the sides, even though this is not optimal.

And this explantion was confirmed by subsequent interviews with top professional goalkeepers

The researchers call this behavioural phenomenon an "action bias." (Elli Malki, http://www.indexuniverse.com/sections/research/4801-what-can-investors-learn-from-goalkeepers.html?start=1&Itemid=7)

Elli’s concern was the relationship between and action-bias and investment decisions. However, the authors of the article also point out implications for management, the most obvious one being why leaders change things (even when doing nothing would be the right course of action). When an action-bias is couple with significant rewards for changing things, as is often the case under modern day performance management, appraisal and pay systems, this action-bias is likely to be magnified substantially – ‘ leaders change things, they do not maintain’ goes the clarion call and is given further credence by the often made distinction between management (who do maintain) and leaders. Yet, often this action bias, motivated and sustained by the rewards system, leads to little else other than the creation of further problems, which, yes, you’ve guessed it, requires a further action bias. The result is, as Keith Grint pointed out, 25 years of constant structural change in the NHS has resulted in no change. We’re pretty much where we were at the beginning.

Bruce Ahlstrand made a similar point in a book many years ago revisiting productivity bargaining at the Esso Fawley Plant, made famous by Alan Flanders book in the 1960s (for the old industrial relations scholars). Twenty-five years of productivity bargaining from 1960 onwards implemented by frequent changes in HR leadership resulted in Esso Fawley remaining bottom of the productivity league table, exactly where it began in the early 19060s. He attributed this to a performance appraisal system that rewarded change, a failure to monitor the results of the changes but people being promoted on the basis of introducing change. New appointees were stuck with the same problem (because the unions learned new tricks to re-invent them) so naturally they came up with the same solution, albeit in a different guise. So, there's definitely something in the old saying, "the more things change, the more they remain the same'.

Bad Science

A good colleague of mine, Robert MacIntosh, has just created a blog for PhD students in management. He's developing it as a resource site for them and has included a number of books that might help those people learn about what consitutes good research. I'm going to suggest he recommends Bad Science by Ben Goldacre, a wonderfully funny and well written book with serious messages on what comprises knowledge in the field of healthcare, nutrition and much of the nonsense that gets acres of press coverage by all branches of the media.

Goldacre, a medical doctor, writer and columnist in the Guardian, has brought together ideas from his website to do a demolition job on popular treatments such as Homeopathy, Brain Gym, much of Nutritional 'Science', Pills that solve social problems such as Omega - 3, etc., and people who promote them, including Gillian McKeith and Professor Sir Robert Winston. He does so from the perspective of a trained experimental scientist, used to applying the rigours of controls, placebos, probablity sampling, etc to the evaluation of research. For the most part, these are not the kinds of rigours that some PhD students in management are used to, nor are they necessarily sympathetic to the positivist assumptions underlying this form of knowledge production - at least in the UK. However, it's probably best that they learn about them, if only to defend their methodologies and methods against those examiners with a scientific disposition - and I've come across a no more amusing nor sharply intelligent way of doing so than by dipping into this book.

Reading it has helped me understand where my class of surgeons, physicians and dentists are coming from when they looked at us with some astonishment when introducing them to the 'rigours' of action research in clinical leadership. It's a world away from their world, though as the author frequently mentions, what is often the most interesting aspects of the findings are the complex social issues that often have the greatest impact on treatments.

The book has also taking me down another path to explore the metaphor of 'leadership as placebo'. This is not a new idea: it was first 'discovered' nearly a century ago during the Hawthorne studies when productivity progressively increased during the so-called experimental stages even when benefits given to the girls in the Relay Assembly Test Room were removed (at least that's the myth). Mayo, the father of Organizational Behaviour at Harvard, explained these findings in terms of the bad science of the Hawthorne effect, sympathetic leadership and the development of 'appropriate norms' rather than the treatment (increased lighting, rest breaks, etc) - itself an explanation that was based on bad science. Nevertheless, placebos in the form of sugary coated pills (read leadership) can produce some extraordinary effects because people want to believe in their efficacy, as Goldacre points out in a stunning set of findings by Braithwaite and Cooper in 1981 on research into headaches. 835 women were given either aspirin or placebo pills, packed in either bland boxes or flashy, brand name packaging. They found that aspirin did have a positive effect on treating headaches, but more than that they found the packaging enhanced both the effects of the aspirin and placebo pills.

Just like some nutritional and pharmacological treatments, the evidence on leader impact on performance isn't strong, yet the belief in leaders is high, especially when they come well packaged and branded. Goldacre argues his medical case in the context of the highly dubious claims that fish-oil pills improve childrens intelligence, which are accorded no support by good science. Yet belief in these pills is widespread and the main reason for this state of affairs lies not just with the hucksters and snake oil salesman but with the media in the form of the news values of journalists and how stories are pushed. What is also evident is the invention by pill salesmen and some unethical pharmaceutical companies of new diseases because they cannot find new treatments for the diseases we already have. A parallel exists in the business field, because power lies in the ability of leaders, according to the leader-centric explanations of business performance, not because the facts support this explanation but because of the media's need for celebrity and their search for heros (and more recently villains). And because some leaders become almost deified by the business and popular media, they are encouraged to search for new problems (or diseases) to solve, often in contexts for which they have no previous nor relevant experiences. Such is the case with the system of pantouflage in France, whereby public sector leaders can easily transfer to positions in the private sector because of who they are, not what they know. It also occurs in the reverse direction in Anglo-Saxon countries such as the USA and UK. Leadership as craft it seems is not important, where leaders learn to lead with followers; instead it is the art of leaders and their charisma that dominates popular imagination and the expectations of many followers.

It is just such an unhealthy view that has led to the problems we currently face in many of our companies. Am I onto something here with this metaphor, and can our PhD students learn more from reading serious 'airport books' like this one on medical research than some of the material we pass off as knowledge about management?

Avoiding the Mistakes of the Past: Downsizing and Corporate Reputations

I've been asked to address an audience of executives on Tuesday in Glasgow on dealing with the recession and people management, so I've turned to the lessons of history and, increasingly on these occasions to CV Harquail's blog, Authentic Organizations, for some lessons from the present and excellent insights into all thing organizational. On her blog there is an excellent threaded discussion on the layoff/alternative to layoffs debate and references to an old (1999) but recently updated study of Downsizing the company without downsizing morale,which has recently appeared in the Sloan Management Review by Aneil Mishra, Karen Mishra and Gretchen Spreitzer. I won't repeat their findings because you can get easy access to them by clicking on the above discussion ( (hello to the CEED group in Glasgow in anticipation you'll read this blog and apologies to those fortunate enough not to be present to hear my second-hand account of this line of argument).

I'll also be drawing on another recent study that appeared in the recent edition of the august Academy of Management Journal (not the kind of thing that many practitioners would read; nor, it seems, do many academics, but this article has caused some interest since it was reviewed in last week's Economist). In the article, by Geoffrey Love and Mathew Kraatz on '...how and why downsizing affected corporate reputations' (AMJ, 2009, Vol 52, No. 2, 314-335 for those interested), the authors draw on three sources of literature to explain why an audience attributes positive and negative reputations and why these attributions may change over time.

The first is the corporate character explanation that explains why people value organizational personality traits such as trustworthiness and reliability (my colleague Gary Davies has written extensively about this). These traits essentially explain how and why firms can create differentiation and novel EVPs. The second explanation begins from a different place in that it explains why firms tend to become similar (for the initiated, institutional isomorphism). Audiences tend to value actions that show conformity to cultural norms - of society, industries, professions etc. The third is more basic, at least in its simplest version, and is rooted in exchange theory - people assign reputations based on the answer to the question: what does it do for me in relation to my material and emotional needs (and, as we argue, valued expectations of psychological contracts)?

One of the novel aspects of their study is that is was carried out on financial analysts' assignment of reputations and those of peer firm executives to a sample of Fortune 500 companies that had downsized over the period 1985-94. The conclusions were complex but to summarise:

• Downsizing resulted in a signifcant negative effect on reputational change, even among financial analysts,


• But only early on in the study time frame, because planned downsizing fitted well with the analysts' and executives' perceptions of legitimate actions, especially if it led to valued results for them.


• Thus, the conclusions the authors draw, is that it seems that violating commitments to employees and the community is more permissable when there is a 'clear and present danger', but that reputational assignment changes over time

A similar argument is made by previous study in the Sloan article in that the layoff/alternative to layoff decisions may be less important to employees than being active participators in the decisions - see the outcomes of the process as fair (procedural justice) and feel empowered to address the additional problems created by the solutions. However, these positive outcomes are contingent on them trusting management to draw on higher values and long term interests rather than use recession as an exercise in opportunistic cost-cutting or to get rid of people they see as poor performers (often those who speak truth to power but who may be seen as destructive actives in the language of the Sloan diagram?).

These are US studies, and I've made the point on CVs blog that the Employment Protection legislation introduced in the UK many years ago when I had to deal with layoffs for real, more or less instiutionalised the notion of firms seeking to avoid layoffs asa first port of call and widespread consultation over alternatives to redundancy with staff. Nowadays, there is certainly current evidence of firms embodying spirit not just the letter of this legislation in the UK, which is contained in a recent CIPD survey on talent management and in article in People Management. But is this the norm, or do firms still privilege analysts' attributions of reputations in the long run, regardless of the clear and present danger?

Critical Perspectives on Leadership: A Little Night Reading

I've just spent extremely stimulating three days facilitating a group of HR practitioners from the Swedish-based multinational, Getinge, in Lund. They came from Sweden, Poland, the UK, the USA, Germany and France to learn about the problems of leadership and the difficulties of establishing common values in a complex organization. In a week's time, I'm tasked with a related set of problems, this time examining the relevance of leadership theory to public sector policy makers in Scotland. With these projects in mind and having written a text which deals with the topic a few years ago, I recently picked up a fascinating little book by Brad Jackson and Ken Parry, entitled ' A Very Short, Fairly Interesting and Reasonably Cheap Book about Studying Leadership', published by Sage ( a companion to an earlier text of the same ilk by Chris Grey on organizational studies). Written as an introduction for students, the authors hope that academics like me who skirt around the subject will learn something from it. I certainly did, and I would thoroughly recommend it to any of my students, the HR group at Getinge and the public policy group I'm about to meet.

The book is a gem and to boot is well written and short, although it is much more than the kind of an annotated bibliography that you might find in similar sized textbooks on the subject. Along with Keith Grint's 2005 book on the limits and possibilities of leadership, the authors provide an up-to-date critical review of much of the extant leadership literature and way of integrating different strands of leadership thinking in a very helpful and practical way.

After an introduction on why leadership matters, a not uncontested debate given the evidence on the lack of positive impact of leaders on organizational performance, the authors make the now conventional distinction between research on leader-centred persectives and research on follower-centred perspectives. They outline and discuss the research findings on transformational leadership, charismatic leadership, gender and leadership, and the personality of effective leaders. These are followed by a critical evaluation of these approaches, especially narcissistic leadership and the dark side of charisma - both very topical. The balanced treatment of these leader-centred approaches are followed by an excellent summary and evaluation of the perhaps unnacceptably labelled 'follower centred' theories, made popular by Barbara Kellermans new book on why followers matter. These include theories on how leaders are socially constructed by followers, the romance of leadership which fulfils important needs for many people, psycholanalytical theories that emphasise how we learn to be leaders and followers from early childhood, and social identity theory, which proposes that leaders will be acceptable to the extent they fulfil prototypical expectations of leadership of a particular group. Taken together these theories have great power in explaining why senior public sector leaders are often seen as ineffective, weak, politically driven, etc, in large part because they aren't able to meet the expectations of employees for the kind of leadership that is portrayed in the business press as the private sector ideal.

The next chapter s especially relevant for firms engaged in devising leadership frameworks in international organizations since it deals with cross-cultural leadership. Especially relevant here is the brief but fair evaluation of the GLOBE studies, probably the most extensive research to-date into cross-cultural leadership research. This is followed by a chapter on critical leadership, including newer theories on co-leadership, distributed leadership and team leadership, which have become very popular in the new public sector environment, and among organizations seeking to flatten out hierarchy.

In producing a chapter on research into leadership with a higher purpose, the authors have provided some insights into the now popular calls for leadership 2.0 (see earlier posts), post-transformational/ post charismatic leadership, leadership as art and drama, and leadership as sense-making and the exercise of wisdom. The Half Moon Bay discussions led by Hamel and Birkinshaw reflect many of these ideas and are likely to provide much of the agenda for the reform of leadership/ new directions of leadership debates.

Finally, not content with discussing research only, the authors have an excellent chapter on leadership development, and the strengths and weaknesses of various methods of leader development and leader/ follower development. They also provide some links to resources to help practitioners do further work in this field.

All in all, this is likely to be one of the most profitable three-to-four hour periods that leadership development specialists could spend in understanding the limitations of leaders and the importance of linking leadership to followership. Hopefully it will encourage them to read some of the other authors mentioned in this blog and in the extensive bibliography they provide.