HR Focus on Growth and Profits Not Just Costs Through Workforce Analytics

Ongoing global economic challenges and uncertainties have meant that HR has had to focus on process and cost efficiencies as a business critical priority for some years now.  This has meant that ongoing trade-offs between quality and cost have been necessary. Finance and budgeting challenges will always drive such an approach but this is where data based business cases (based on business assumptions and data trends) has never been more important to HR. Without it the focus is on solely reducing cost whereas the focus should also be upon business growth and profitability through people. When cost containment efforts start, the results can be fairly significant but as time passes and the efforts continue the value of the savings start to diminish. Today, cost containment efforts relating to HR are likely to be a small proportion of the overall corporate budget, so the savings are likely to be minimal, whereas any focus on business growth and income has substantially less limitations or restrictions.

On top of this, I believe that the cost focus has resulted in HR downsizing itself to the point where the most useless HR metric ever devised (HR employee to Organisational Employee ratio) has become the "holy grail" when in fact it is totally counterproductive and has resourced HR to the point of being no more than an operational reactive support function!  Some form of bandwidth is required if any function is to be innovative and transformational as the future of work is dictating moving forward.

HR seems to be getting the importance of the analytics debate and is rightly focusing on becoming more “data savvy” and using their own data and the business data of the organisation to make connections and predictions about what has and more importantly could happen in their organisation. This is not an easy journey and once your data has been “cleaned” and verified, the initial analysis has been undertaken and the conversations that they instigate have been had etc. this can take weeks, maybe months to make sense of what is happening. From there (the easy bit!) comes the embedding of the learning, the process and the methodology into the organisation so that a “rhythm of data” can occur. This assumes of course that the culture of the organisation is accepting of a less intuitive and more data based decision-making style - something that can't always be assumed will be accepted with "open arms".

This of course takes time to get it right and the desire for “Quick Wins” is important to show an early demonstration of value and tangible return from the investment being made both in terms of data analysis and of course the people practices themselves that are being diagnosed in terms of “value add”. “Quick Wins” also then raises the question of what’s next? This accepts that there is still a long way to go with the analytics journey but we are always critical of HR not being proactive and showing initiative so for me it’s the right question to at least be thinking about.

For me every support function should ultimately aspire to become a profit centre in their own right. Historically most people in HR seem to have accepted that their function isn’t capable of generating a profit and is therefore doomed to be more operationally focused. I disagree; such a pessimistic view will become a self-fulfilling prophecy for too many organisations. I accept that a lot of the HR functions in existence today are not currently capable of demonstrating a measurable impact on productivity or profitability by design but times are changing with analytics now supporting HR to be able to demonstrate the economic value of it programs and practices.

Looking to the future of HR then, the drive to demonstrate business impact of everything that HR does is crucial whether it revolves around:

  • Showing a direct correlation between the improved business outcomes (sales, process efficiency) from an employee program.
  • The linkage between a particular process or method (such as recruitment for example) and its’ impact upon productivity, revenue or profit.
  • Pre and post measurement of employee performance/outputs prior to an employee program implementation.
  • Demonstrating the business impact that a program can have on a ‘control’ group over another group within a business function.
  • Predicting the success that could occur if a particular business case or approach is adopted (e.g.: focusing on outlier's high levels of performance as the new normal rather than accepting competence as the standard).

The impact of an analytics approach to HR is that instead of focusing on the justification of their existence the focus can now be on reflecting back to the organisation (using their business language not HR’s) the tangible impact and value that our HR programs can provide to an organisation. With that mind-set that means that we can now think about being a profit centre not a cost centre because we are ‘on the front foot’ and talking about growth, profitability, productivity not about HR process efficiency and HR to employee ratio (as I said earlier the most meaningless metric ever invented).

Executives are relentless when it comes to business performance and the accountability that they expect from all of their direct reports. The shift to a profit centre mentality starts with the HR function focusing on:

  • Those aspects that the CEO and their top team get measured upon and focusing on providing data based insights and more importantly growth related data based upon HR interventions and programs.
  • Closely collaborating with the finance and marketing functions so that their business data and numerical expertise can be utilised to build tangible business insights that ‘raise the bar’ for HR’s performance levels (income targets not process completion or project completion targets for example!).
  • Think business outcomes at all times not HR related outcomes that focus firstly on growth/income and secondly on cost savings where feasible.

Analytics is shifting the expectations of HR and their internal clients but we need to be thinking of ‘what’s next’ and for me the ultimate outcome of an analytics approach to HR is not that we are more numerate but that we become a profit centre in our own right not just a cost centre.

Analytics are not the end game; they are the enabler to an HR function that can demonstrate business Credibility, a Commercial mind-set, a developing Capability to improve underpinned by a function that has the Courage and Confidence to make the changes in approach that are necessary though a more collaborative Connected approach to work (I call these the 6 C's).

That is the opportunity that exists for our profession - we can and must do it!

7 Lessons Learned From The HR Business Partner Model


(Written with Wayne Brockbank of the Ross School of Business at the University of Michigan.)

We have observed, studied, and shaped the business partner model through rigorous empirical research and extensive work within specific organizations. We have done 7 rounds of the HR Competency study which study the competencies of HR professionals and the capabilities of HR departments. The most recent (2016) data collection was a collaboration with 22 HR associations around the world and 32,000 respondents (see forthcoming book Victory Through Organization).  We have personally been involved in over 100 HR Transformations where we assess and advise how to be a better business partner. Based on these data, this essay reflects on what we have learned about the relevance of the business partner model.

Looking back: Seven lessons learned about business partner model

First, the business partner model is not unique to HR

All staff functions are trying to find ways to deliver more value to either top line growth and to bottom line profitability. Information systems, finance, legal, marketing, R&D, and HR are all under scrutiny and pressure to create greater value for their companies. This is especially true of transaction and administrative work that can be standardized, automated, re-engineered or outsourced. 

Second, the intent of the business partner model is focus more on deliverables (what the business requires to win) than doables (what HR activities occur).  

We have seen four phases of deliverables, moving from administrative efficiency to functional excellence to strategic HR to HR outside in (see book HR Outside In). Instead of measuring process (e.g. how many leaders received 40 hours of training), business partners move to measure results (e.g. the impact of the training on business performance), then move to how training build external value with customers and investors. For example, when HR builds better leadership capital, investors have more favorable images of the firm which shows up in market value (see Leadership Capital).  

Third, being a business partner may be achieved in many HR job categories.  

As business partners, corporate HR professionals define corporate wide initiatives, represent the company to external stakeholders, meet the unique demands of senior (and visible) leaders, leverage cross unit synergy, and govern the HR function. Embedded HR professionals work as HR generalists within organization units (business, function, or geographic). They collaborate with line leaders to help shape the business strategy, conduct organizational diagnoses to determine which capabilities are most critical, design and deliver HR practices to accomplish strategy. HR specialists work in centers of expertise where they provide insights on HR issues such as staffing, leadership development, rewards, communication, organization development, benefits, and so forth and they advise business leaders and HR professionals on how to turn insights into impact. HR professionals who work in service centers add value by building or managing technology-based e-HR systems, processing benefit claims and payrolls and answering employee queries. These individuals may work inside or outside the company. 

Fourth, HR professionals as business partners have unique information, insights, and recommendations to deliver competitive advantage. 

In formal and informal business discussions, each staff group brings unique insights to drive business results: finance talks about economic performance with information about revenues, costs, and financial returns; marketing discusses customers with recommendations on targeting key customers, customer response (e.g., net promoter score), and customer connection; operations makes recommendations and systems, quality, and supply chain. When HR partners in these strategy discussions, we propose that they provide insight, information, and recommendations on:

  • Talent. HR professionals are centrally involved in providing the right people with the right skills in the right job at the right time. Talent insights capture future competence as well as commitment and contribution. Upgrading the employee experience has been a long term important part of being a business partner (see Why of Work)
  • Leadership: HR professionals help prepare not just key individual leaders, but the collective leadership throughout the organization. They ensure that leaders have the knowledge, skills, and abilities to meet future demands and align with customer expectations (see Leadership Brand).
  • Organization capabilities. HR professionals partner with line managers to identify and create organization capabilities such as speed/agility, innovation, , risk, collaboration, information leverage, culture/shared mindset, accountability, and efficiency. These capabilities become the identity and personality of the organization.  

As business partners, HR professionals provide analytics, insights, and recommendations on talent, leadership, and capability to deliver business results and to serve all stakeholders. 

Fifth, as talent, leadership, and capability issues increase in business relevance, HR professionals may help respond by being both architects and anthropologists. 

As architects, HR professionals design, blueprint, and facilitate investments in talent, leadership, and capability. As architects, HR brings what is called structured information where the information is in a spread sheet which allows for traditional quantitative statistical analyses to find trends. As anthropologists , HR professionals increasingly look beyond the borders of the organization to identify what external stakeholders (customers, investors, communities, regulators) and what business trends (social, technological, economic, political, environmental, and demographic) will shape future business success.  In this case, HR often sources unstructured data where they use qualitative insights to anticipate trends.  

Sixth, as with almost any change, we have seen an inevitable 20-60-20 pattern for HR professionals to fully adopt the business partner opportunities. 

Twenty percent of HR professionals get it, do it, and act as business partners. Twenty percent will unlikely ever get there for a host of reasons (e.g., personal inability, lack of desire or organizational lack of support) and 60% are learning and moving in the right direction.  While we see the HR profession moving in the right direction, some may never make it. Sometimes, critics of HR like to focus on the lingering 20% laggards and claim that HR professionals have not improved. This is as inaccurate as focusing on the 20% innovators and claiming HR has fully arrived. The business partner model is empirically supported and more of the 60% are making positive progress. A decade ago there was a clamor to “get to the table” and to become part of the business. Today, most effective HR professionals are already at the table and they need to be clear about how their insights on talent, leadership, and capability will deliver business results.

Seventh, being a business partner requires HR professionals to have new knowledge and skills. 

There are many efforts to determine the competencies for effective HR professionals. Through the University of Michigan, the RBL Group, and partners throughout the world, we have spent 30 years studying (theory, research and practice) how competencies for effective HR professionals drive personal effectiveness, stakeholder results, and business performance (which will be reported in books, articles, and posts).  

In Summary

HR professionals must evolve into being the best thinkers in the company about the human and organization side of the business. The nature of business is dramatically changing. Changes are occurring in virtually every element of the social, political, and economic environments that impact business. Under such conditions, the human side of the business emerges as a key source of competitive advantage. Therefore, HR specialists in the logic, research, and processes of human and organization optimization become central to business success.

Many HR professionals are doing exceptional HR work. From ING in Hong Kong, to ICICI and TATA in India, to ADIA in the United Arab Emirates, to MTN in South Africa, to DHL and BAE Systems in the UK, to Arcos Dorados and América Movil in Latin America, and to Walgreens, Intel, and GE in the United States and in thousands of other companies around the world, HR professionals are making enormous progress towards delivering value as business partners. In the next article post, we will look at the future of the HR business partner model.


(Written with Wayne Brockbank of the Ross School of Business at the University of Michigan.)

The business partner model has been instrumental for creating value for many staff functions, including HR. In another article, we summarized some of the lessons learned; in this article, we offer future perspectives on where the ideas may evolve.

As we look forward, there are many excellent thinkers who continue to examine how HR professionals can deliver value to the business. With their input, the business partner model continues to evolve. Many of the critics of the model look at today’s problems through yesterday’s solutions and wonder why they don’t get solved. This is like trying to run today’s software on yesterday’s computers. Of course, it won’t work. The HR business partner model in the 1990’s has changed in recent years to adapt to today’s business challenges. We are comfortable projecting five trends that will continue to evolve the HR field and how it delivers value to business.

First, HR will deliver value to multiple stakeholders. 

Over the last thirty years, we have both anecdotally and empirically seen steady progress in the HR field as it has moved toward greater strategic understanding and relevance. We anticipate that this progress will continue. HR professionals will continue to deliver value inside an organization by helping employees find meaning and well-being from work (sometimes called employee experience or re-humanizing HR) and organization results by being a central component of strategy formulation and implementation. HR insights make the right strategy happen.

But, moving beyond an internal focus, our recent research shows that when HR departments and professionals focus on external as well as internal stakeholders, business performance improves. We call this focusing HR from the outside/in, not looking at strategy as a mirror which reflects HR practices, but as a window to the outside world. Customer focused HR shifts from focusing on being the employer of choice, to becoming the employer of choice of employees our customers would choose.  Likewise, customers can participate in the design, deliver, and participation in training, 360’s can become 720’s, standards can be set with customer involvement. Culture can be defined less as internal patterns of work (values, beliefs, behaviors, and norms) and more as an identity of the firm in the mind of key customers made real to employees.

Companies that are able to create credible leadership capital are more likely to enjoy price earning ratios above that of their competitors. 

Investor focused HR accesses the requirements of capital markets. The recent burgeoning research in finance and economics on “intangible assets” is emphasizing the increasing importance of human capital assets and HR practices that create and sustain those assets. Empirical evidence has clearly shown the investment community is learning to account for practices such as succession planning, leadership development, setting and meeting performance targets, corporate culture, and executive compensation as considerations in buy or sell decisions. Companies that are able to create credible leadership capital are more likely to enjoy price earning ratios above that of their competitors. As business partners, effective HR professionals play a central role in defining, creating, and sustain leadership capital that is valued by investors. 

Second, HR valued outcomes will move beyond talent to organization and leadership. 

In our recent research, we found that the quality of an HR organization or department had 4 times the impact on business performance as the quality of the HR professionals. Generalizing from this research, talent matters and it is important to fight the war for talent. But organization matters much more and to win the war requires more capable organizations. Shifting the focus from individual competencies to organization capabilities broadens HR outcomes. In addition to delivering talent, HR work will deliver capabilities like speed/agility, information/analytics, collaboration, the right culture, innovation, and so forth. When HR delivers individual talent, organization capabilities, and leadership, internal and external stakeholders get more value from HR. This requires HR business partners with broader business skills.

Third, HR will become more technologically efficient. 

The routine work of HR must still be done, and done well. Digitization of HR has arrived and newly emerging technologies will continue to be applied to improve the efficiency of HR administrative work such as payroll, benefits administration, entry level staffing and employee record keeping. But HR technology will move from efficiency, to innovation, to information, to connection (see my article on doing an HR technology audit). 

Fourth, to be business partners, HR professionals will have to master the right competencies.

In the most recent round of our competency research with over 32,000 global respondents, we found nine competencies. Figure 1 (below) portrays the nine competencies we identified for HR professionals. Each of these HR competencies are important for the performance of HR professionals.[1] To get invited to business discussions, HR professionals need to be credible activists who influence through relationships of trust. To serve customers and investors, HR professionals need to be strategic positioners who understand business context and can think and act from the outside-in. To deliver business value, HR professionals need to be paradox navigators who effectively manage the inherent tensions in the business.

[1] The authors have available statistics on these 9 competence domains by gender, geography, respondents, time in HR, and other demographics.  

Figure 1: 2016 HR Competency Model: Round 7

Fifth, HR will be a source of both structured and unstructured information to improve business impact.

HR analytics is ultimately about providing information to improve the business. We have shown four levels of information: scorecards to insights to intervention to impact. As HR moves to analytics-driving business impact, they will need to source all kinds of information. Structured information occurs in spreadsheets with traditional statistics representing about 20% of information that can be used for business impact. Unstructured information that comes from observations, intuition, and other insights comes from HR professionals being anthropologists more than statisticians and represents about 80% of impactful information. As HR shifts information and analytics to deliver business impact (phase 4), HR professionals need to access both structured and unstructured information.

The Way Forward For HR Business Partner 

In the future, HR business partners will continue to morph. The bar has been raised on HR and some HR professionals will make the grade and others will not. There are emerging business issues where HR can and will contribute value. The future for HR is filled with both challenges and opportunities. As we look to the future, HR professionals as business partners will continue to deliver value and help businesses manage the enormously difficult and exciting challenges ahead.

Here’s What HR Must Do to Have the Business Impact CEO's Want

A survey released early this year of global CEOs and board chairmen was conducted by the prestigious Conference Board, and it concluded once again that human capital is the top challenge they face. While some in talent management and HR might feel honored to be at the top of the CEO’s watch list, they should instead view this listing as a failure, because they have been at the top of the challenges list two years in a row.

This means to me that we in HR haven’t done enough to eliminate the uncertainty and the lack of confidence that comes with being labeled “a challenge.” The other top five issues including customer service, operational excellence, and innovation all require well-managed talent in order to be successful.

In my experience, if human capital is to move from the “challenge” list to the “problem-solved” list, we need to move away from our soft, longstanding reliance on building relationships and instead begin the transition to a high-impact business function. A high business-impact HR is where we focus on directly impacting corporate strategic goals like revenue, innovation, and customer service.

And yes, I acknowledge that the soft, relationship-building approach of talent leaders might have been OK in the past. However, it’s now simply not possible for any strategic function to continually improve and innovate without shifting to a businesslike, hard data-based management approach. Executives have in the past been satisfied with what HR has historically provided, but that was mostly because executives were simply not aware that there was a second, more businesslike approach to talent management.

Unfortunately I don’t see HR making that transition as long as we get away with these low expectations from CEOs. So my suggestion is that we challenge our CEOs to demand much more from HR.

HR is a high impact function

You shouldn’t need a survey to realize the importance of talent to a business. Even Jack Welch has stated that HR should be “the most important department of a company.”

We have a high impact for a variety of reasons. The first is cost, because employee and HR costs are often the largest single corporate variable cost item (as much as 60% of all corporate variable costs). Second, the talent function has a further major impact because all ideas and innovations come from well-managed employees. And obviously you can’t have great customer service and smooth operations and production without an excellent workforce.

The 8 action steps for becoming high impact

Once you decide to make the change to this higher business-impact approach, the next step is to identify the specific strategic areas within HR that must become more businesslike. Those areas are highlighted below:

1. Accept accountability for improving people-management results — Talent leaders frequently complain that they shouldn’t be held accountable for people-management results because so many people decisions are made by managers. I find that argument to be spurious because most other business functions like finance, planning, and IT also share responsibilities and decisions with numerous managers. The critical thing to remember is that talent management designs and manages all talent processes, so they are in my view “the default owner.”

We also know that individual operating managers routinely refuse to take accountability for talent decisions, so that leaves talent leaders to accept the “captain of the ship” role. Executives should demand that talent leaders accept accountability for such critical areas as hiring and retaining top talent, for increasing productivity and innovation, for developing and moving talent internally, and for providing rewards in such a manner that they stimulate employee productivity. It’s time to stop shifting the blame and to accept accountability for excellence in talent management, even when we don’t have total control over it.

2. Demand a shift to data-based decision-making — Strategic decision-makers need to demand that talent management shift from its traditional “gut” decision-making to the widely accepted business practice of making all important people-management decisions based on data. That includes using data to identify the most effective hiring criteria, to identify the factors that cause employee turnover, and using data to identify the barriers that decrease productivity and innovation.

An example of database decision-making might focus on performance management. In this area, it is quite common for talent leaders to assume that progressive discipline, coupled with additional training and counseling, will turn a subpar “D level” performing employee into an above-average performer. If you shifted to a metric-driven approach, you would require your performance management person to begin tracking metrics like how long it takes to improve, how much money it costs to improve, and what percentage of these “D players” ever become “A” players.

One final metric area that you should expect your talent leaders to begin developing is predictive metrics. Rather than relying exclusively on historical metrics which tell you what happened last year, these predictive metrics will instead alert you to talent problems and opportunities that will likely occur in the immediate future so that you have sufficient time to act. And add to your predictive metrics your recommended prescriptive actions, so that managers will know what to do to solve their problems. 

3. Measure and increase workforce productivity — Even though measuring and reporting on the productivity of the workforce seems like a basic task, few talent management teams actually calculate or report it. In fact, when you ask talent management professionals who is responsible for measuring and increasing workforce productivity, typically no one will say it’s their role. The most widely accepted measure of talent management effectiveness is known as “workforce productivity,” which is revealed by the average revenue per employee. The two key components required for this calculation, revenue and the number of employees, are usually easily obtained from public data or alternatively, the metric is already calculated on websites like MarketWatch and Hoover’s.

Another more powerful but harder to calculate indication of workforce productivity is revenue per labor dollar spent. This is calculated by dividing your total labor costs into the company’s revenue. 

4. Make managers accountable for great people management — Less than 40% of talent leaders make excellent people management part of the promotion criteria and bonus formula for managers. But since “whatever you measure and reward gets done,” strategic decision-makers must insist that the people management metrics and rewards are large enough to get managers to change their behavior.

Incidentally, only hire managers who are clearly A players. This is because B-level managers have a tendency to protect their job security by hiring C-level employees who won’t challenge their methods or threaten their job security.

5. Build a competitive advantage — Almost every product, business unit, or process views itself as operating in a competitive environment. Unfortunately, talent management all too often considers itself exempt from taking an external perspective, under which it would conduct a competitive analysis and adopt talent-management approaches that would provide the firm with an external competitive advantage.

Under the new approach, talent management would be required to monitor the talent results and the approaches of major talent competitors, in order to ensure that “what we do” in talent is better in every important area than “what they do.” Check with your talent leaders and don’t be surprised to find that they do not conduct side-by-side comparisons between your company and its talent competitors. In a similar light, talent management often fails to capture enough competitive intelligence information on the talent practices of competitor firms.

6. Expect reporting on continuous improvement — Every business function monitors its programs and consequently reports the percentage that they improve each quarter and year. Unfortunately, talent management has frequently failed to measure and report its percentage of annual improvement. At the very least, talent leaders should expect continuous improvement in the quality of hire, workforce productivity, the turnover rate of top performers, the rate of innovation, and the learning and operational speed of the organization. 

7. Measure quality and error rates in people management programs — Talent professionals generally focus on volume and cost, but they routinely under measure and underreport metrics that reveal quality. You should insist that talent leaders implement at least a limited version of Six Sigma quality in the areas of hiring, retention, training, and performance management. Also demand that they conduct a “failure analysis” every time there is a major talent management program or process failure. Some data suggest that hiring has as much as a 46% failure rate, so an error rate that is potentially that high needs to be measured and reported. 

8. Calculate your ROI — Almost every department and program is expected to produce a positive ROI. However, talent leaders routinely make no attempt to calculate or report the talent function’s overall ROI. And in the rare cases when talent leaders do attempt to calculate ROI, they only focus on the cost side, completely ignoring the other side of the equation that covers the business impacts of your investment in talent. When operated correctly, HR should have a higher ROI than finance, operations, and even production.

Final thoughts

Once you begin making this transition to a data-driven high business impact HR, you shouldn’t be surprised when you find that members of your own HR team are not capable or even interested in shifting to this model. If you don’t have the courage to release them, you should at least put these resistors in administrative roles within HR. I also suggest working with supply chain and the CFO’s office to better understand how to increase and quantify the business impacts of HR.

Becoming a Learning Culture: Competing in an Age of Disruption

All industries are undergoing enormous change, mostly due to new technologies, globalization, and a very diverse workforce. For example, in the hospitality industry smartphones put scheduling and reservations HolidayInnat our fingertips, literally. Social media allows restaurants, hotels, airlines, and travel services to market 
directly to us based on our personal interests. Apps give us car services and meals on-demand – no waiting. These services are competition for established companies and are changing the industry and guest expectations. Uber, Lyft, Airbnb, and Grubhub are just the beginning. The industry will continue to evolve dramatically.

Any company, faced with these kinds of disruptive forces must keep learning. Employees must learn how to use new computers and new apps, how to operate new, high tech machinery, how to be responsive to customer demands, how to create innovative products and services, how to manage a multi-cultural, multi-generational workforce, how to work effectively in cross-functional teams, and how to plan for a future that is constantly in flux.

The only thing holding companies back from learning at the speed of change is their organizational culture which, for many, is a barrier to learning. Most companies have a training culture, not a learning culture. This emphasis on formal training is a barrier to learning and change. In a training culture, responsibility for employee learning resides with instructors and training managers. In that kind of culture, trainers (under the direction of a CLO) drive learning.

Whereas in a learning culture, responsibility for learning resides with each employee, each team, and each manager. In that kind of culture, employees, with the help of their managers, seek out the knowledge and skills they need, when and where that knowledge and those skills are needed.

In a training culture, most important learning happens in events, such as workshops, courses, elearning programs, and conferences. In a learning culture, learning happens all the time, at events but also on-the-job, facilitated by coaches and mentors, from action-learning, via smartphones and tablets, in social groupings, and from experiments. Learning is just-in-time, on-demand.

In a training culture, the training and development function is centralized. The CLO, or HR, or a training department controls the resources for learning. When new competencies need to be developed, employees and their managers rely on this centralized function. In a learning culture, everyone is responsible for learning. The entire organization is engaged in facilitating and supporting learning, in the workplace and outside the workplace.

In a training culture, departmental units compete with each other for information. Each unit wants to know more and control more than the other units. This competition can result in short-term gains for those units and even for the organization as a whole (e.g., drug development in pharmaceutical companies). In a learning culture, knowledge and skills are shared freely among units. Everyone is working to help everyone else learn from the successes and failures across the organization. This creates a more sustainable and adaptable organization.

In a training culture, the learning and development function is evaluated on the basis of delivery of programs and materials. Typically, what matters to management is the courses that were offered and how many people attended. In a learning culture, what matters is the knowledge and skills acquired and applied in the workplace and impact on achieving the organization’s strategic goals. It’s less about output and more about impact and the difference that learning makes for individuals, teams, and the entire organization.

Managers play a pivotal role in creating and sustaining a learning culture. They do not have to be instructors nor do they have to be expert in the knowledge and skills needed by their direct reports. However, they do have to hold the belief that people can learn and change, what Carol Dweck calls the “growth mindset”. Managers must care about their own learning, and they must value the development of the people they supervise. If they have these beliefs and values, then managers can contribute significantly to learning in their organizations.

In our book, The 5As Framework, Sean Murray and I describe seven steps managers can take to facilitate and support learning of their direct reports:

  • STEP ONE: Discuss what the learner needs to learn in order to help your business unit achieve its objectives and the organization’s strategic goals.
  • STEP TWO: Agree on a set of learning objectives for the short-term and long-term.
  • STEP THREE: Agree on the indicators that will be used to determine progress toward those objectives and achievement of goals.
  • STEP FOUR: Describe how the learner can get the most out of the learning intervention.
  • STEP FIVE: Arrange for the learner to get whatever resources he/she needs to apply the learning to your business unit.
  • STEP SIX: Plan regular meetings (they may be brief) to discuss progress toward objectives and goals and any changes that would help the learner’s progress.
  • STEP SEVEN: Make modifications in the learning intervention as needed.

Essentially, managers should work with learners to set goals, clarify expectations, provide opportunities for application, and hold them accountable for making a difference. Learning professionals can certainly help managers with this, but managers are in the best position to facilitate the kind of day-to-day learning that is needed in high performance organizations today.

Managers are essential to employee development in our fast changing world. But the culture of the organization as a whole needs to be supportive of learning. Applying traditional notions of education (K-12 or post-secondary) to the workplace will limit the growth and competitiveness of any company. Learning must be woven into the very fabric of the organization.

Systems diagnostics are essential to create high performance

I have spent the better part of two decades helping organizations solve big, complex challenges that hold back performance and create problems with strategy execution. The problems have varied from talent to teams to the operating model and workforce management. And the solutions have ranged from compensation, to communication, to work redesign, matrix decision making, leadership behaviors, and much more. But the one thing that has been a critical part of the diagnosis and finding solutions in all cases has been systems thinking. 

Systems thinking has roots that trace back over six decades ago to Kurt Lewin (1951), and include approaches promoted by prominent authors including Leavitt (1965), Galbraith (1977), Tichy (1983), and many more. At its most fundamental, this approach demands that we look at the entire organizational system when diagnosing the sources of performance problems to identify solutions that work.

Yet despite the long pedigree of systems thinking and a proven track record, it is rarely applied as a diagnostic tool in organizations today, and especially not by people who sit in talent and workforce diagnostic roles. In my work with leadership and analytics groups I see a time honored pattern of repeating the mistakes made by generations of budding social scientists when they are just learning the tools of the diagnostics trade. They play around in the data, looking for interesting patterns. They fall into the trap of going down one path of inquiry because it seems like a good idea, when doing the alternative of taking a step back, pausing and examining a bigger landscape would help them see a better way to go. They declare victory when they find interesting insights so long as there is something useful that can be accomplished from the insights. The end result is a lot of effort expended for relative low ROI.

In one blog like this I cannot provide a full treatment of systems thinking and how organizational diagnostics need to be conducted differently. Here I introduce the idea of systems diagnosis at the job, team and organizational levels. At the end there are links to related posts that go further into some aspects of systems diagnosis. There also is a link to a workshop Alexis Fink and I are leading that provides a deep dive and skill building on the topic as a way to improve organizational performance.

Systems diagnosis to improve job performance

There are two critical aspects of systems diagnosis at the job level that need to be applied any time you want to look for improvements in job performance: (a) addressing job design simultaneously with motivation/engagement and skills, and (b) including high performance work design principles.

The problem with non-systems thinking at the job level starts with half-baked attempts to improve performance by both business leaders and HR. Job performance is driven by three interdependent parts: job design, motivation and skills (competencies). Yet rather than consider all three at the same time – the basic tenet of systems thinking and diagnosis – 99% of the time those parts are bifurcated and addressed separately, and wholly incompletely, by the business and by HR.

Job design is typically addressed only by business leaders, separately from motivation and skills. Job design is controlled directly when business leaders redesign the org structure and work processes to improve performance. It’s also controlled indirectly by leaders through the annual budgeting process: when they decide what parts of the business will get new investments, and when they set compensation budgets based on simplistic assumptions about how much money needs to be spent to generate the desired performance levels. Their approach comes up short because they believe that by specifying the nature of jobs and how much to spend on them, that alone will produce desired performance. It usually does not.

A comparable problem arises from the way HR approaches improving performance using the levers of motivation and skills only. Since HR isn’t invited to focus on job design and is asked to focus solely on motivation / engagement and skills, it’s hard to blame them for ignoring job design since they are usually excluded from the most important job design decisions. Yet that means they daily go into battle without a key weapon in the job performance arsenal. Sometimes it’s possible to improve performance by focusing only on motivation/engagement, on skills, or both. But the solution often falls short of what should be achieved because job design issues aren’t addressed: the job’s roles and responsibilities, how it’s resourced, how it fits into other jobs on the team and within the organization more broadly, etc. I can’t count how many times I’ve been asked to help a company diagnose the sources of performance issues, only to find that key elements of job design hold back true breakthrough improvements. Ignoring job design is like going into battle with one arm tied behind your back. Not generally advisable.

A similar problem stems from ignoring high performance work design principles. Also called high involvement work design by Ed Lawler, high performance work design diagnostics start from the reality that there are choices to be made about decision rights, the amount of discretion/autonomy, and the skills needed to staff any role. At one end of the spectrum are traditionally designed jobs where the employee is treated as someone not to be trusted, with little discretion over how to do the work, very close supervision (a.k.a. micromanagement), and a job profile best suited to people who won’t rebel against being so closely controlled. Examples include many call center, data entry, merchandising, and assembly line jobs, among others. Those workplaces are staffed by managers who spend their time constantly looking over the shoulders of their employees to make sure they don’t step out of line. 

High performance jobs in contrast have a lot more freedom, transferring some key decision making from managers to employees, freeing up the managers to focus on coaching and developing their people, and on finding ways to improve operations. While it sounds like those are preferable choices under any circumstance, the history of organizational performance has proven that there are tradeoffs that align closely with the business model. A cashier at low margin fast food restaurants is a traditionally-designed job; at Starbucks it’s a high performance job with the fancy name of barista. In each case, the company’s business model points strongly toward whether jobs should be designed with more traditional versus high performance characteristics.

Systems diagnosis at the job level is required to assess where a job should fall on the traditional versus high performance ends of the spectrum, or somewhere in between, including how the job is paid and staffed. Yet time and again I come across jobs embedded in work systems and corporate strategies where there is misalignment between the different elements, greatly reducing performance and/or the ROI on the compensation spent on the job. Sometimes the problem lies in previous rounds of cost cutting and headcount reduction which create unrealistic performance expectations for the role. Sometimes the performance problems are self-inflicted by leaders who promise both cost savings and improved performance; this often happens when the starting point is full alignment, and the leader then tests the waters by holding back on the investments needed to maintain high performance, which leads to a slow motion bleeding of the resources needed to support the high performance design. Sometimes resources and budget have been hoarded by leaders who wanted to ensure their teams are well taken care of when they need to be redeployed to where they can better suit the enterprise. Whatever the underlying source of the misalignment, only a true systems diagnosis can determine how to get the investments targeted where they need to be both within any given job, and across the entire portfolio of jobs in the value creation chain. 

Systems diagnosis to improve team performance

Team performance is an even bigger objective for leaders than job performance yet the solutions similarly fall short for lack of systems diagnostics. The problems parallel the job level issues because business and HR take a bifurcated, not systems, approach to tackling team challenges. And huge opportunity and value are left sitting on the table because the diagnostics that are used typically ignore principles of high performing team design.

First the lack of alignment between the business and HR. Business diagnosis and problem solving of team issues usually focuses on objectives (goal setting), performance management (holding the team accountable for performance), and staffing (who is on the team). Business leaders tend to ignore the interpersonal dynamics, career issues and other aspects of team development that are essential for effective team performance; those are left for HR to deal with. 

There is deep body of knowledge about how to enable teams to function effectively which organizational development (OD) professionals typically employ to address team productivity issues. The insights include the importance of achieving milestones such as developing a shared understanding about the team’s objectives and how to accomplish them; achieving alignment and integration among the team members in how the work is performed; developing trust in team members’ ability and willingness to follow through on commitments; applying cross-training where appropriate to minimize disruptions from absenteeism and turnover; and more. Yet it is more the exception than the rule for companies to make extensive use of OD expertise in the HR function; that is the first barrier to improving team performance. 

Second, the typical OD approach lacks a way to distinguish whether the team is appropriately oriented towards the business operating model. It is one thing to identify ways in which a team would perform better if given greater resources and support; it is an entirely different thing to determine the ROI of potential team improvements by evaluating them in the context of the business model, and a strategy-based view of resource allocation. Only a systems diagnostic that combines both the business and HR/OD approaches at the same time can identify the best way to target and provide that support. 

A key part of the approach should include high performance team design diagnostics. Just as jobs can be designed with more versus less decision making / discretion, autonomy, micromanagement and skills, the same applies to teams. In fact, the decision is often over whether a team approach should be used at all, versus the work being performed by a collection of individuals whose jobs are managed separately from each other. The classic example is the introduction of self-managing work teams in assembly line manufacturing, which was a central element of high performance work design in manufacturing plants; that design converted individually-managed jobs into interdependent team jobs. High performance team design principles can be applied in customer service teams, maintenance teams, and so on. A systems diagnostic, done the right way, takes all of this into account when looking for team performance solutions, including the design of the work itself. 

Systems diagnosis to improve enterprise performance

At the enterprise level there is another set of systems diagnostics that needs to be applied yet rarely is. An enterprise level systems diagnosis determines which teams should be prioritized for what types of investment, and the extent to which they should focus on incremental improvement to existing operations versus out-of-the-box innovation and big change to current business processes.

A major problem in most organizations is a lack of clarity and consistency around the sources of competitive advantage and how to align the organization to maximize it. It is one thing for the CEO and C-suite members to send messages about the strategy and how to accomplish it. Doing so means having a laser-like focus on the sources of competitive advantage: branding and distribution for consumer products companies; new product development and M&A for pharmaceuticals; innovation for tech consumer products companies; having a dominant platform or network for internet companies; customer service for high end retailers; and so on. Yet a laser-like focus on the sources of competitive advantage alone is not enough: when the work gets separated into different functions with leaders responsible for each part, competition for support and challenges of managing in a matrix structure creates tensions that have to be resolved at multiple organizational levels. A systems diagnostic is usually the only reliable way to determine the right tradeoffs among who gets to decide what, how to deal with conflict across organizational siloes, and which parts of the organization have higher priority for support and attention from both senior leaders and middle managers. 

The other fundamental tension in organizations is between maximizing the efficiency and effectiveness of current operations versus exploring how best to innovate and create profitable new products and services that are substantial deviations from the company’s main offerings. Diagnosing how to do both at the same time requires a system-wide view of business and talent processes. Too often leadership sets unrealistic expectations for accomplishing both at the same time because each requires a fundamentally different orientation in business processes, culture and rewards. Increasing the effectiveness of current operations is essential for increasing margins, customer retention, and cash flow. It requires an efficiency orientation and continuous improvement mindset, which emphasize fine tuning business and talent processes. Innovating products and services in ways that are fundamentally different from your core offerings means changing mindsets, establishing new business processes, and rewarding people for different kinds of behavior. It requires challenging and making changes to current business and talent processes – which works opposite from the efficiency orientation needed to optimize those current processes. Systems diagnostics are needed to assess the full tradeoffs between the two approaches, including down to the team and job levels, so that options for doing both simultaneously can be thoroughly evaluated and vetted for effective decision making. 

High Performance Work Design Trumps Employee Engagement

People usually equate high performance with employee engagement. Yet engagement is not the same as productivity and performance. How engaged people are depends on the work design, and the work design itself can promote productivity separately from employee engagement. Individual ability also is a critical contributor. Together they are the three main contributors to job performance: state of mind, ability, and job design. Engagement refers only to the first, yet the other two are arguably more important, especially for sustained performance over an extended time. 

In the short term, performance can be increased through greater effort. This is what people commonly call high performance: applying extra energy, time and persistence to accomplish stretch goals. Whether you’re running a 5-K race, juggling multiple deliverables or working late to meet a tight deadline, you have to make a conscience effort to do the best you can — or risk falling short of your goals. Discretionary effort like this is what a lot of people mean when they talk about employee engagement. 

However, high performance cannot be sustained solely through persevering and extreme perspiration. Sustained high performance happens through the right combination of motivation (engagement), skills (competencies), and job design (role and responsibilities). Each of these three components must be aligned to achieve sustained high performance. Two parts — motivation and competencies — are familiar to everyone and need little explanation. The third part — job design — is equally important but receives less attention. 

Job design is often summarized as “roles and responsibilities,” meaning the job requirements. But that leaves out central aspects of the job that drive high performance. Consider the difference between a McDonald’s cashier and a Starbucks barista. Both are roles that take customer orders and process them, yet there are substantial differences. The Starbucks barista is an example of high performance job design, while the McDonald’s cashier is not. The traditional job designs’ work is more rote, involves less decision-making and supports lower priced/lower margin products and services.

High performance work design often means giving people the leeway to make decisions as close to the frontlines as possible while breaking down hierarchical ways of organizing and managing work. Ed Lawler has also called it high involvement work design because it usually more closely involves frontline employees in information sharing and decision-making. 

The early history of high performance work design starts with W. Edwards Deming and the ideas he developed for improving quality in traditional manufacturing lines. Deming’s ideas were first adopted by Japanese automobile and other manufacturers and included the use of continuous improvement and self-managing work teams. They have since become a common application in manufacturing industries around the world. Yet they are not universally applied because of the challenges of designing and operating the entire system according to the principles. 

The approach replaces traditional command-and-control management, which has decision-making higher up the hierarchy, with decision-making closer to where production and the delivery of services take place. Do it right and you can improve product quality, decrease waste and increase customer satisfaction. Get it wrong and you end up throwing away money.

There is a tradeoff between compensation and job design. Pushing decision making down to frontline roles usually requires higher compensation for two reasons: leaders often need to pay more to attract more highly skilled people, and the higher pay can be used to reward high performance. The job design and compensation are aligned when you have traditional job design and median (or lower) pay, and when you have high performance job design and upper quartile pay. 

While the principle is easy to state, in practice things often get out of whack. Many leaders argue that their people should be more highly paid, especially if they don’t personally own the profit-and-loss. When labor costs are in someone else’s budget, there’s little incentive to make hard choices about distributing compensation strategically. This can lead to overpaying for some traditional jobs. Are the people who are overpaid productive? Usually, but that’s not the problem. The challenge is how to get the highest return from that money. Is it allocated based on true business need, or based on the power of the leader running the group?

A much bigger problem is virtually every organization’s maniacal emphasis on cost containment. Keeping an eye on expenses is a good thing. However, it’s easy to meet short-term financial goals by scrimping on labor costs without having an immediate negative impact on motivation, productivity or turnover – and that creates a danger. When the work system is designed well, people enjoy what they do, get good feedback, are well rewarded for their performance, etc. In that environment, if leaders cut back a little bit on labor costs — say by giving raises that don’t keep up with inflation — there won’t be an immediate negative impact. This looks like a win-win for the business: the short-term financial objectives are met while performance is maintained. All is good, right?

Wrong. The strong temptation to cut compensation to boost margins can lead to addict-type behavior where leaders become hooked on a dangerous habit. Before long compensation has fallen significantly from where it needs to be, leading to a big disconnect between pay and the job design. 

A lot of the differences in the application of high performance job design are driven by differences in business strategy. At McDonald’s the strategy is to provide low cost-food using low-cost labor, so traditional job designs are appropriate for the jobs in its restaurants. Starbucks’ strategy, conversely, is to provide high quality food and an experience customers will pay higher prices for. To achieve that strategy, Starbucks needs higher-cost baristas who are skilled and motivated to provide the high-quality experience. So the barista job uses a high performance work design. 

Choosing a traditional versus high performance job design is a question not just of business strategy but also the sources of competitive advantage. The jobs that are more central for competitive advantage usually are prime candidates for high performance design. The jobs that are not core contributors to competitive advantage also are not necessarily high performance design candidates. For example, Starbucks does not need high performance sanitation services in its stores, in contrast to the manufacturing clean rooms at companies like Samsung and Intel. 

Even if a job is not a core contributor to competitive advantage, it still can be a candidate for high performance design. There is a long literature on the potential benefits of high performance, high involvement job designs. Even if a job is not a source of competitive advantage, it still can benefit from applying high performance principles.

The reason for taking a more high performance approach is to give the person in the job the incentives, tools and freedom to make better decisions independently. The classic case is manufacturing line workers and self-managing teams. Workers in that system are given greater decision making authority to diagnose and solve production and quality problems immediately. The design often includes higher pay to compensate for the higher level of decision-making skills. It also usually includes greater supervisor spans of control. Fewer supervisors are needed because they don’t have to spend huge amounts of time closely monitoring their employees’ work. Instead, they can focus on skill building and coaching their employees to make better decisions. The lower number of supervisors helps to fund higher frontline pay.

The same principles can be applied in other industries. For knowledge workers, the debate over whether they should be given greater freedom to work when and where they want often boils down to an argument based on high performance principles. Under high performance work design, there is much greater emphasis on the output the employees produce, not where and how they produce it. Of course, giving people greater freedom to work outside of regular hours sitting in an office within sight of their supervisors does not require paying them more — and in fact is often viewed as a benefit. Yet many other aspects of the work design are similar. The lower supervision needed, meanwhile, can be translated into fewer supervisors, freeing up resources that can be invested in greater frontline employee pay. This enables the hiring of people with greater ability to think independently and work on their own.

It is important to note that many jobs are tightly controlled by technology, where it appears there is little leeway to use high performance work design because there is little room for independent decision-making. For example, many call-center jobs are heavily controlled by technology that monitors how long an employee is on the phone with each customer. This emphasis on efficiency leaves the employee little latitude other than to finish as many calls as possible, creating the appearance that there is no room to give them control over how to deal with each call. 

However, that is not reality. Employees have great control over the effort needed to make customers happy, an organizational objective more important than how many calls can be processed per hour. If a customer is being difficult they can decide to transfer them to another representative, or even to pretend that the call was cut off prematurely and hang up on the customer. The discretion employees wield in how they treat customers means the organization cannot rely on efficiency metrics alone. Giving employees greater control over the number of calls per hour, and trusting them to decide how best to balance efficiency and customer satisfaction is a type of high performance work design. Moreover, employees who are given greater discretion should apply it better when offered greater compensation. After all, they have more to lose so they should be more diligent.

High-performance work design is complex. To make it work, leaders have to design and align different organizational parts and processes. This includes pushing decision-making down to the lowest level possible; sharing critical information so frontline employees can make autonomous decisions; hiring and training employees to make those decisions; providing compensation that supports and rewards higher productivity; and managing more through coaching and influence rather than micromanaging. 

The multiple parts in a high-performance work system create lots of opportunities for things to go wrong. Employees may lack the information needed for optimal decision-making; rewards may not sufficiently differentiate high from low performers; compensation may not attract the best performers; or managers may revert to micromanaging at the first sign of poor performance. Leaders need to diagnose the system to determine where are the areas of improvement that will support sustained high performance. A piecemeal approach to designing the work will not put the right levers in place at the right time.