Good Stats Make Us Uncomfortable (IO Psychology)
In striving for profitability, companies often rely on key indicators of organizational performance. Common indicators like sales growth, customer loyalty, and earnings per share often guide strategy decisions and resource allocation. But sometimes key indicators may not be that “key” after all. They may have little or no true connection to profitability.
Organizations might not be aware of this and continue to rely on these same measures because they feel as though they matter. Their intuition overrides everything else and as a result they don’t do the due diligence to determine what actually leads to profit. They become overconfident, grab onto any numbers that are easily available, and rely on things they have always looked at in the past. They choose what they like and what feels comfortable. But they don’t actually analyze. So how can we know if something truly predicts value? We cannot leverage something we don’t know.
This article focuses on identifying indicators that serve as true statistical predictors of value. The author emphasizes that for an indicator to be truly connected to value it must be both predictive and persistent. Indicators that are predictive demonstrate a statistical link to value; a link strong enough that we feel confident saying there is a connection that has meaning and is not due to chance. Indicators that are persistent stand the test of time; they reliably show that that an outcome is controlled by applying skill or knowledge, and is not random.
The author advocates several steps in selecting the best indicators of organizational performance. These steps include defining a clear business objective, developing theories to determine what measures might link to the objective, and statistically testing the relationship between the measures and the objective.
As I read these steps they made complete sense to me, but my data-happy left brain went nuts, thinking about others questions that should be considered. Like: “What else do we already measure?…Could it matter?” and “What else can we measure?…What else should we measure?” and “What other viewpoints are we not taking into account?” and “What curveballs could come our way?”
Sometimes a meaningful statistic can push us out of our comfort zone. Actually, sometimes a meaningful statistic should push us out of our comfort zone. It might not make automatic, inherent sense to us, especially at first. If all statistics made complete, gut-happy sense to us we wouldn’t need them. We could always rely on our intuition because it would always be correct. But statistics are useful because they not only tell us how meaningful things might be related; they can surprise us with the sheer fact of what things might be related.
If a predictor of success isn’t pointing in the direction of success, it’s not a predictor. It’s simply a number. And a useless one at that.
Inviting the Inquiry of Science into Strategic Planning (IO Psychology)
Topic: Business Strategy, Creativity, Strategic HR
Publication: Harvard Business Review (SEPT 2012)
Article: Bringing Science to the Art of Strategy
Authors: A. G. Lafley, R. L. Martin, J. W. Rivkin, and N. Siggelkow
Reviewed By: Megan Leasher
Strategic planners sit down once a year. They pride themselves on their scientific rigor in how they analyze and shoot down every idea they generate. They then proceed with a less-than-stellar, not-so-innovative idea, and they wonder why the organization doesn’t swoon with delight? Lafley and colleagues (2012) assert that a key component of science is missing in these proceedings: the inquiry. They argue that the scientific method must first begin with the brainstorming of novel hypotheses, then proceed into the design and testing of these hypotheses. The authors detail a series of steps that incorporate the inquiry of science into strategic planning to achieve a more creative, successful, and efficient direction.
The first step is the key differentiator of the entire process. This step entails identifying at least two mutual exclusive options to resolving the issue at hand. All options must be framed as pure possibilities, devout of criticism, skepticism, and analysis. This is where the invention and inquiry of science comes into play. This is where we all get to be creative designers and dream into the realm of pure possibilities. The authors describe possibility as any “happy story that describes how a firm might succeed” (p. 59).
Then the list of possibilities is broadened and time is taken to identify what conditions must hold true in order for each possibility to succeed. Conditions may include things like customer support, market sustainability, or feasibility of supply. All conditions must be framed positively, so that everyone feels confident in success if all conditions were to hold true. Judgment, skepticism, and analysis are not yet allowed, so that all possibilities continue to be framed as positive. After this, barriers that would prevent each condition to hold true are identified and ranked. We now allow judgment and skepticism through the door, but analysis must still wait outside.
The next step is where experiments are designed to test the barriers to each condition. We must ask: What are the right questions that will lead us to answers that we can have faith in? As the authors mention, tests can be as simple as talking to a supplier, or as complicated as surveying thousands of customers.
We then conduct the tests and allow the scientific analysis to begin. It’s time to put on our goggles, get data happy, and crunch the numbers. The authors assert that the first test should always be of the condition that the group feels will least likely hold true. If the test fails and the barrier is confirmed true, no further testing is needed and the possibility is rejected. If the condition passes the test, move on to the next condition unlikely to hold true, and so on. Tests for a possibility should only be conducted sequentially, never in parallel, to conserve effort and resources.
Lastly, the final possibility is selected. After reviewing the results of all tests of the barriers, the group simply picks the solution with the fewest serious barriers left standing. It is a relavitvely simple, anticlimactic step; all of the hard work has already been completed and we are left with practically a simple tally count. It is important to call out that testing barriers to conditions provides evidence, not proof. Evidence still requires human judgment that is fully aware that risk is always present.
I feel this framework has such potential and would love to see its value play out first hand. But controlling the judgment and skepticism early on is a monumental challenge; this process requires a shift in mindset and determined, focused group leaders who can direct participants to frame all choices as possibilities for success. Plus, a geek like me wants to jump right into the test design and analysis. But to be “scientific,” we must inquire. Science isn’t just analysis; it’s play, and brainstorming, and invention beyond your brain’s current capacity.
human resource management, organizational industrial psychology, organizational management
Improve service climate to retain customers and increase profitability
Topic: Organizational Performance, Strategic HR
Publication: Human Resource Management (MAY/JUNE 2011)
Article: The service climate-firm performance chain: The role of customer retention
Authors: Towler, A., Lezotte, D. V., & Burke, M. J.
Reviewed by: Alexandra Rechlin
When an organization wants to improve customer retention and therefore its profitability, it will often turn to marketing. But could HR provide another option? In this study, Towler, Lezotte, and Burke (2011) tested a model of the way in which service climate (conceptualized and measured by concern for employees and concern for customers) affects profitability.
The authors hypothesized that showing concern for employees would lead to employees showing concern for customers, which in turn would lead to customer satisfaction. Satisfied customers are more likely to return, so customer satisfaction was predicted to lead to customer retention, which in turn was predicted to lead to store profitability. This model was tested using a huge sample of over 12,000 employees in 1,500 tire retail/vehicle service stores. The authors found full support for the model.
The results of this study indicate that if you want your employees to show concern for customers, you must first show concern for your employees. Their subsequent showing of concern for customers leads to more satisfied customers, who in turn become repeat customers, and that means profitability. Marketing therefore is not the only group that the organization should turn to for advice on customer retention – they should look to HR as well!
Is Bureaucracy Bad for Creativity? That Depends on You
Topic: Creativity, Strategic HR, Teams
Publication: Academy of Management Journal
Article: How does bureaucracy impact individual creativity? A cross-level investigation of team contextual influences on goal orientation-creativity relationships
Authors: Giles Hirst, Daan Van Knippenberg, Chin-Hui Chen, & Claudia A. Sacramento
Reviewed By: Katie Bachman
Bureaucracy and creativity. They might seem like mortal enemies—we often think of red tape and paper work as the killer of creative thinking—but it doesn’t have to be! Really, it depends on your employees. When we talk about goal orientation (why people do what they do), we usually take about three types of people. First, you have your learning-oriented workers. These are the ones who do what they do for sheer enjoyment of the work. They are intrinsically motivated. Second, you have your performance-prove-oriented employees. These workers want to show you how good they are. Third and finally, you have your performance-avoid workers. These are your risk-adverse employees—the rule followers. They all respond to bureaucracy differently, particularly when it comes to creativity.
We can divide bureaucracy into two dimensions—centralization and formalization. Centralization deals with the amount of decision making ability team members have. The more centralized decision making is, the less team members have opportunity to add their input. Formalization deals with the paperwork. It’s the policies and procedures employees have to adhere to in their job. Like centralization, the more formal the procedure, the less wiggle-room there is for workers.
Increase generic human capital to increase unit-specific human capital
Topic: Organizational Performance, Talent Management, Strategic HR
Publication: Academy of Management Journal (APR 2011)
Article: Acquiring and developing human capital in service contexts: The interconnectedness of human capital resources
Authors: Ployhart, R. E., Van Iddekinge, C. H., & MacKenzie, W. I.
Reviewed by: Alexandra Rechlin
It is widely acknowledged that human capital is important, but does it matter whether the capital is generic (transferable to other organizations) or unit-specific (valuable to that particular work unit and not to others)? In this article, Ployhart, Van Iddekinge, and MacKenzie (2011) assessed both generic and unit-specific human capital in a large fast-food organization. They created and tested a model for how the two kinds of human capital relate to each other and to performance and effectiveness outcomes.
The level of generic human capital was based on the cognitive ability and personality of hired applicants, while unit-specific human capital was based on employees’ additional training. The authors found that changes in generic and unit-specific human capital were positively related over time; that is, as generic human capital increased, so did unit-specific human capital. In addition, changes in unit-specific human capital were positively related to changes in unit service performance behavior (efficiency, service, quality), and changes in unit service performance behavior were positively related to changes in unit service effectiveness (unit financial success).
In other words, hire employees who are smart and whose personalities fit with their jobs. This will establish strong bench strength and will set the organization up for success as employees are trained to build the skills necessary to excel in specific roles.
Do you care about human capital? You should!
Topic: Organizational Performance, Talent Management, Strategic HR
Publication: Journal of Applied Psychology (MAY 2011)
Article: Does human capital matter? A meta-analysis of the relationship between human capital and firm performance
Authors: Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J.
Reviewed by: Alexandra Rechlin
It is often assumed that human capital is related to organizational performance, but the research literature provides mixed support for that assumption. In this article, the authors conducted a meta-analysis of 66 studies to clarify the seemingly contradictory research on the relationship between human capital and firm performance.
The authors found that human capital was positively related to firm performance, but that the relationship was moderated by the type of measure used and the type of human capital. The relationship was stronger when performance was measured with operational performance measures (e.g., customer service satisfaction or innovation), as opposed to global performance measures (e.g., returns on assets or returns on sales). The relationship between human capital and performance was also stronger when the human capital was firm-specific as opposed to being general human capital.
Building successful and sustainable HR interventions
Topic: Change Management, Strategic HR
Publication: Journal of Business and Psychology (JUN 2011)
Article: HR interventions that go viral
Authors: Yost, P. R., McLellan, J. R., Ecker, D. L., Chang, G. C., Hereford, J. M., Roenicke, C. C., Town, J. B., & Winberg, Y. L.
Reviewed by: Alexandra Rechlin
Why do some HR interventions fail while others succeed? In this article, Yost et al. (2011) attempt to answer that question by using three different methods: a literature review, a case study, and interviews with senior I/O and HR professionals. The authors provided a case study of a successful HR intervention. They noted five important characteristics of the intervention:
- It was strategic. Resources and tools were written in alignment with business strategy.
- It was systemic. The intervention complemented and enhanced other company initiatives.
- It was simple. Resources and tools were simple, easy to read and understand, and written in the language of business leaders (not that of HR).
- It was sustainable. The intervention was created with the explicit intent to sustain it for a long time.
- It was sneeze-able. It was designed to be interesting and passed on to others.
The authors also reviewed the literature and interviewed 16 senior I/O and HR professionals about both successful and unsuccessful HR interventions.
As with Fine Wines, Motivation Matures with Age
Topic: Motivation, Strategic HR
Publication: Journal of Organizational Behavior (JAN 2011)
Article: Age and work-related motives: Results of a meta-analysis
Authors: D.T. Kooij, A.H. De Lange, P.G. Jansen, R. Kanfer, J.S. Dikkers
Reviewer: Neil Morelli
You’ve most likely read the following headline, “The US workforce is aging.” Whether organizations like it or not this change is coming and with it comes the possibility of skilled labor shortages and “brain drain”. To prevent this, companies have often turned to offering financial or other economic incentives to persuade employees to stay on.Does this work? What job qualities motivate a maturing employee?
The current research on motives suggests that as we age, our priorities change in regards to our need to develop ourselves professionally (growth), be emotionally connected to others (social), and maintain our personal resources (security). Our focus on intrinsic versus extrinsic rewards can also fluctuate. Kooij and colleagues (2011) recently analyzed the cumulative findings from 86 studies that explored the relationship between age and the motivation umbrella of needs, values, and motives. In general, older employees were found to be less motivated by growth opportunities (e.g., training and learning; depended on job type), work-related security, and extrinsic motivators.
A closer look at the individual work-related motives showed that older employees are MORE motivated by jobs that allow for accomplishment, interesting work, autonomy, helping others, and job security (intrinsic security). They also revealed that older employees are LESS motivated by jobs that focus on development/challenge, advancement/promotion, working with people, recognition, and compensation/benefits.
Creativity at Work…Through Increased Workplace Structure?
Topic: Creativity, Strategic HR, Stress
Publication: Human Resource Management (NOV/DEC 2010)
Article: Does Structuring of Human Resource Management Process Enhance Employee Creativity? The Mediating Role of Psychological Availability
Authors: G. Binyamin, A. Carmeli
Reviewed By: Lauren A. Wood
The environment of the modern workplace is increasingly becoming more dynamic and unstable leading employees to perceive high levels of work-related stress. To battle this increased uncertainty in the external environment and provide a sense of stability to employees, organizations are looking internally at the way human resources processes are designed. Structuring of HRM processes consists of 7 essential dimensions: strategic alignment with organizational goals, managerial engagement, employee job functions structured and evaluated based on a job analysis, clarity of HRM policies and evaluation criteria, planning, flexibility, and internal consistency or synergy of all processes. Structuring HR around these 7 dimensions was shown to help alleviate employee stress perceptions by decreasing feelings of uncertainty.
Despite these positive outcomes, intuitively, it seems that by providing a structured work place, employee creativity (an indispensable factor for knowledge work) would decrease. However, as the authors of the current study show, this does not appear to be the case – because structuring HRM processes around the 7 dimensions decreased perceived employee stress and uncertainty, employees’ psychological availability (psychological recourses an employee can allocate to a given situation) was freed-up, allowing room for higher-order cogitative processes like creativity.
How talent analytics – and I/O psychologists – can help organizations succeed
Topic: Business Strategy, Strategic HR, Talent Management
Publication: Harvard Business Review (OCT 2010)
Article: Competing on talent analytics
Authors: T. H. Davenport, J. Harris, J. Shapiro
Reviewed By: Liz Brashier
How many times have you made a “people” decision based on gut instinct? Whether it’s deciding which department needs attention, selecting a customer population to target, or trying to determine our organization’s overall health, Davenport, Harris, and Shapiro (2010) encourage us to make these critical talent decisions based on analytics rather than “going with a gut instinct.” In an article rife with illustrations of organizations that effectively use analytics to save money, increase profits, and retain the best talent, the authors give us six types of analytics to use when addressing talent issues:
- Human-capital facts focus on one piece of information regarding individual performance (i.e., turnover) that can be used to indicate organizational health.
- Analytical HR uses HR data to gain insight into which departments or functions need attention; by using the data to focus only on the areas that actually need help, managers can save valuable time and resources.
- Human-capital investment analysis allows an organization insight into which actions have the largest impact on performance.
- Workplace forecasts use metrics to make predictions about potential shortages and/or excesses before they actually happen.