8

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Efficiency in Organization and Talent Investments

Acquiring and Deploying Resources to Optimize the Talent Portfolio

Efficiency describes the relationship between the portfolio of policies and practices and the level of investments used to produce them. Efficiency is a familiar perspective on talent and organization activities. In fact, efficiency is often the predominant decision framework for talent and organization investment decisions. HR data and benchmarking systems are dominated by efficiency measures, such as cost per hire, time to fill vacancies, the ratio of headcount in the HR function to the organization overall, and the ratio of HR functional costs to total costs.

Pivot-points in efficiency are where specific improvements in resource investments will most enhance the portfolio of policies and practices. Figure 8-1 shows where efficiency fits in the HC BRidge framework. The decisions to make in the efficiency anchor point revolve around questions like “Where should we target resource investment improvements so they have the biggest effect on the policy and practice portfolio?”

It may surprise many HR and non-HR leaders that we have saved the efficiency discussion until the end of the talentship discussion. Making programs and practices more efficient is traditionally the most common path to business relevance for HR. In fact, most of the top HR leaders we work with admit that no matter what else they do, every annual HR strategy must prominently describe how HR will cut some significant percentage from its prior-year budget or headcount. Shouldn’t a book on a strategic decision science for HR begin with the tangible opportunities to contribute to the bottom line through greater efficiency?

FIGURE 8-1

HC BRidge framework: Efficiency

Of course, our choice to leave efficiency for last is not accidental. It is precisely because today’s approach to talent and organization decisions is so efficiency heavy that it is important to place efficiency in the context of effectiveness and impact. As we’ll see in this chapter, and in chapter 9 on measurement, overemphasizing efficiency out of context can lead to dangerously misguided decisions. In contrast, when organizations have the context of impact and effectiveness, their decisions about efficiency become a stronger part of an integrated strategic approach. The efficiency anchor point is a vital consideration in talentship because it describes the investments to make in organization and talent. Those investments cannot and should not be ignored, and as we shall see, they are often subtle and not recorded in standard accounting or budgets. Too often, however, efficiency is treated in isolation, which undermines its potential.

Talentship suggests that it’s important to know how much is being spent on policies and practices, but the more appropriate questions focus on the broader opportunity costs of investments and their returns. Table 8-1 shows how the definition of the efficiency anchor point implies vital pivot-points, decisions and new talent and organization discussions.

TABLE 8-1

Anchor point: Efficiency

Definition	Pivot-points	Decisions to make	New talent and organization strategy discussions
•   Describes the relationship between the portfolio of policies and practices and the level of investments	•   Where specific improvements in resource investments will most enhance the portfolio of policies and practices	•   Where should you target resource investment improvements so they have the biggest effect on the policy and practice portfolio?	•   What unique resources does your strategy provide that you could leverage in talent management? •   Where could investing more resources than the industry norm generate unique value in your portfolio of policies and practices?

Typical conversations about talent and organization investments focus on them as expenditures, such as the level of HR expense, its allocation, how it compares to benchmarks, and whether it meets budgets. Decision makers undeniably need to understand the resources required to implement HR programs and practices. It’s important not to waste money and time. Efficiency measures can be used to determine whether the costs of policies and practices are reasonable.

Efficiency is a tempting source of information about HR and talent investments. It provides a formidable vehicle to demonstrate that talent decisions have real economic consequences. Many HR organizations have shown eye-popping cost savings as a result of outsourcing HR activities; implementing self-service or Web-based systems; and reducing turnover, the time to fill vacancies, headcount, and health and pension benefits.

Perhaps efficiency is a bit too tantalizing. For example, the writers of The New American Workplace noted a common theme: that organizational leaders see “people as costs.”¹ An exclusive focus on the costs of talent is cited as one reason why organizations often fail to invest in work systems that have proved to be associated with business and financial performance. Such investments require resources, and the resource expenditures are often very obvious within the accounting system while the returns to those investments typically are not.

An overemphasis on efficiency is another illustration of the relative historical immaturity of the talent decision science, compared to finance and marketing. For example, organizational leaders would question whether their marketing department was compromising quality if its key goal was getting the industry’s cheapest advertising. In fact, they have well-developed frameworks for analyzing the effects of marketing investments to ensure that cost savings are not achieved too aggressively. Yet it is not unusual for those same leaders to measure talent and organization investments only in terms of costs and to admonish their HR organizations to achieve benchmark levels of efficiency, often with only cursory attention to how those objectives are met.

Figure 8-2 shows several prominent guiding questions that connect decisions about efficiency to the other elements of the HC BRidge frame-work. Using these questions, along with the logic shown in table 8-1, provides a more complete picture approach to efficiency.

SAS: Competing Through Inefficiency?

In contrast to the typical approach, consider the case of SAS, a company widely admired for its progressive HR practices and for its consistent and impressive financial performance.² The company also has on-site health care. Established in 1984, the SAS health care center (HCC) has grown and evolved along with the company as a whole. The HCC now has fifty-nine employees and completed 48,908 patient visits in 2005. Of course, in 2005 this business model ran against other American companies, most of which were restricting health care expenditures or outsourcing them to save money. For most organizations, avoiding on-site health care benefits produces significant savings, both in direct costs as well as administrative costs. These are tempting savings for business leaders and tempting opportunities for HR leaders to deliver tangible bottom-line value through cuts and the resulting cost savings.

FIGURE 8-2

HC BRidge framework: Investments

Of course, this was all true for SAS! The decision to establish and maintain an on-site HCC undoubtedly committed SAS to significant future investments. Costs will certainly go up. By many efficiency benchmarks, SAS looks worse than others by doing this. Yet Jeff Chambers, vice president of HR at SAS, points out that the decision is perfectly rational when you consider SAS’s business model and the role of long-term talent relationships in supporting it.

SAS relies on annual product renewals from its clients, who use its software for deep analysis of their organizational databases. SAS also relies on employees for innovations and services that are tailored to those clients’ particular industry requirements and their unique competitive positions in their industries.³ This means that client relationships with SAS advisers need to be based on a deep shared understanding about industry-specific competition and on long-term trust. This may be more important for SAS than for its competitors, whose business models are based more on software purchases than renewable licenses and whose value proposition is not so deeply dependent on close and deeply informed relationships with clients.

Talent alignment with this strategy extends well beyond those who work directly with software purchasers. SAS software designers and programmers must also be thoroughly familiar with specific industry and client needs, and they must be able to create software designs that can efficiently scale across multiple clients, industries, and competitive situations. Understanding which design elements really need to be unique versus which can borrow from existing elements from other industries may be the difference between a software design that achieves economies of scale and one that doesn’t. This means that designers, programmers, and customer-facing talent at SAS must work seamlessly and with a deep common understanding of clients. Clients come to depend on SAS because they have a special relationship with SAS employees, and SAS delivers on its promise of singular practicality and innovation through years of common learning and experimentation.

How does SAS create the capability, opportunity, and motivation to achieve this kind of deep, common, client-focused synergy? In part, the company does it by creating an employment model that attracts and motivates people who join and stay for the long run. This requires SAS to present a distinctive value proposition in the market for programmers, designers, and client advisers. A long-term employment deal is an unusual predisposition in professions where the norm is to move from project to project, often changing employers many times in a few years to find the most interesting work or a higher paycheck (consider the heyday of California’s Silicon Valley). SAS, located in North Carolina, provides an array of employment practices (on-site day care and health care, etc.), that attract employees who form a bond with the company and with their colleagues.

Now to the question of efficiency. Compared to its industry counterparts, SAS undoubtedly has higher costs for talent programs and practices. Cutting its unique employee benefits would substantially lower its employment costs and bring the company closer to benchmark levels. Yet seen within its business model, SAS’s apparently inefficient decisions make sense. For example, investing in on-site health care means that, compared to competitors, SAS will be more attractive to those who hope to work for SAS until retirement and who want a company they can count on to take care of them and their families. It sends a signal that SAS is different and that those who desire a longer-term relationship with their employer belong there. In turn, SAS creates a workforce on which it can reliably build a business model based on deep insights about clients and on long-term relationships with and between vital SAS talent pools.

The richness of SAS’s employee benefits, including on-site health care, contributes to its low annual voluntary turnover rate of less than 5 percent, compared to the software industry average of 18–20 percent. Easy access to health care on the company’s Cary, North Carolina, campus translates into employee time savings that in 2005 alone was conservatively estimated at $2.6 million. Because of high employee utilization of the HCC (90 percent at last measure), the value of services delivered has exceeded overhead costs every year for more than a decade—$1.9 million in 2005 alone. While not studied extensively to date, SAS believes its real health care savings have yet to be realized based on early risk identification, appropriate intervention, and a disease prevention model in a very stable employee population. SAS expects to see a lower incidence of chronic preventable diseases and lower morbidity based on its robust programs and coverage for preventive health care and cancer screening.

Efficiency considerations routinely motivate employers to forgo or reduce costly employment practices. If SAS relied on efficiency measures, no matter how tangible, the company would likely suffer negative strategic consequences far exceeding the efficiency improvements. Organizations that choose to limit or forgo such practices are necessarily wrong, but if organizations rely solely on efficiency considerations, they risk missing opportunities to create effectiveness and impact. Efficiency can bring attention to areas where talent programs and practices are very costly and present potential opportunities to improve efficiency by cutting their costs or reducing their scope. When such decisions are made by considering all three elements of the HC BRidge framework, organizations can improve efficiency without compromising more fundamental, if less visible, value.

The rest of this chapter will examine efficiency, revealing that the actual costs of talent and organization investments may actually be much higher than typically realized. Then we will show why efficiency is so important and why it presents such a compelling component of the talent-ship decision science and the HC BRidge framework. Along the way, we will provide cautionary notes to keep efficiency in perspective.

The Iceberg Below the Surface: Opportunity Costs and Talent Investments

Budgeted costs of talent programs and practices are obvious to every organizational leader and the focus of a great deal of attention. While calculating such costs is often difficult, it is not our purpose to provide a guide to those calculations.⁴ Suffice it to say that it is important to accurately account for the cash and other expenses directly associated with talent programs and practices.

Although much attention is directed to reducing the costs that show up in accounting statements or the HR budget, monetary resources are only the tip of the iceberg in efficiency. The full array of resources needed to implement talent and organization programs and practices is actually much broader. Defining this unseen array of investments requires drawing on a decision concept from economics: opportunity costs.

Opportunity costs reflect what must be given up as a result of a decision. They consider the value of what is given up for the best alternative use of that resource. Just as with other resources, for talent and organization programs and practices, opportunity costs provide a perspective on investments that goes well beyond the monetary expenses recorded by the accounting systems or budgets.

The following sections use the opportunity cost concept to describe some talent investments that are often overlooked.

Time of HR Employees and Contractors

The time of employees and contractors in the HR department is an important cost of programs and practices. It is not unusual for organizational leaders to lament the fact that they don’t even know how many individuals are employed in their HR organizations, let alone the number of contractors and consultants. They may often complain that no one can explain precisely what all those HR people actually do.

We don’t advocate a fixation on such numbers without a solid logic for how they will be used, but a complete decision framework certainly must recognize that talent and organization programs and practices require diverting the talent resources of the HR organization from other tasks. From an opportunity-cost perspective, the appropriate way to consider the cost is to determine the lost value of those other activities. When employee time is accounted for, it is usually determined by multiplying the salary or reward costs for employees by the time they spend on the program. This is often a reasonable approximation of the opportunity cost, but when the needed HR employees must be diverted from particularly essential activities, the hidden cost may be much higher.

For example, opportunity costs are often at the heart of the argument for shifting to employees some administrative tasks traditionally done by HR professionals, such as completing enrollment forms for company training or benefits. The idea is that if HR professionals are engaged in filling out the forms, the time they spend is taken away from more vital tasks, such as strategic planning, executive coaching, or effecting culture change. Because those HR professionals are already employed, the actual salary budget won’t change whether they are filling out forms or engaged in strategy, coaching, or culture. They will still receive their pay and benefits. Opportunity costs reveal the true sacrifice of the decision to invest HR professionals’ time in activities better done by employees themselves.

Time of Those Outside the HR Department

A frequently overlooked category of opportunity costs is related to the time of those outside the HR department. Perhaps the most obvious example is the time of organizational leaders who serve as presenters or instructors on training programs. Other prominent examples include the time of executives in conducting performance appraisals, selection interviews, exit interviews, and so forth. Such contributions are often essential for ensuring high-quality programs that effectively create strategically relevant capability, opportunity, and motivation. These investments are frequently overlooked as legitimate costs of talent programs and practices.

This is not to say that these individuals shouldn’t invest their time and energy in talent programs and practices. In fact, earlier chapters contained several examples showing that such investments can be vitally important for leaders outside the HR function. When strategic logic supports investing time and energy, these leaders would be foolish not to do it. When investments are requested or required without a clear logical rationale for their contribution to strategic success—or worse, to help the HR organization offload its cost to achieve its internal budget goals—then organizations risk wasting a precious resource and HR organizations risk creating an impression of ill-considered impositions on time and energy that would be better spent elsewhere.

Enlisting the assistance of organizational leaders outside HR is often the most efficient way to gain applicants’ and trainees’ attention and allow them to benefit from the leaders’ unique experiences and perspectives. Prominent examples of such investments include the practice of Microsoft’s Bill Gates, who often interviewed key hires himself and even made personal calls to hot recruiting prospects at their homes. Gates maximized the effect of such calls by timing them for when candidates were likely to be with their family (such as dinnertime). Imagine the effect of job candidates telling their spouse or parents, “That was Bill Gates on the phone, personally asking me to consider Microsoft’s job offer.” Another favorite example is the time that the CEO and top officers of GE spend each year on what they call Session C, assessing the performance and potential of their top cadre of managers.⁵ Such stories are often used to motivate top organizational leaders to devote more time to HR programs and practices.

However, asking leaders and other employees to devote time and energy to talent programs and practices just because other leading companies do is seldom a good idea. When such requests are not supported by a thorough grounding in effectiveness and impact, leaders rightfully wonder whether their valuable time is being spent wisely. Is it being invested where it has the greatest effect on the talent and organization areas that matter most? The HC BRidge framework and talentship provide an answer that traces investments from programs and practices to strategic success.

As with the costs of employees inside the HR organization, the opportunity cost is not simply the prorated salary and benefits of outside employees and leaders. It’s the lost value of the things they would be doing if they weren’t devoting their time to the talent and organization programs and practices. Here the difference between budgeted compensation costs and the true opportunity costs is often abundantly clear. If top organizational leaders can’t clearly see the effectiveness and impact of the programs they are asked to be involved in, they are often quite vocal about the value of the other work they could be doing!

It is not uncommon for us to hear from line leaders, “My HR business partner is truly strategic because he protects me from all those time-consuming programs that corporate HR keeps inventing and that keep me away from my real work.” By now it’s clear that we don’t advocate that definition of strategic talent contribution. We have shown that organizations often have significant opportunities to create unique competitive advantage through careful investments of leader time and energy on the talent and organization pivot-points that are most strategically relevant. Our experience is that leaders relish the opportunity to make such contributions—when they can see a clear line of sight between their contribution to HR programs and business value. Too often, the logic is so vague that business leaders often conclude that all such contributions are less important than their other tasks. This is a significant mistake.

Throughout this book we have argued against the common practice of a peanut-butter approach to talent decisions and investments. Such approaches often engender skepticism from business leaders and employees who are asked to invest in programs or activities because HR—or even the CEO—says that everyone must do it. A strategically differentiated approach to talent decisions provides the credibility of asking for such investments where they matter most and forgoing them where they do not make a strategic difference, and it provides the logic to communicate the distinction.

Time of the Participants

Another investment that doesn’t show up readily in accounting statements is program participants’ time. When employees are participating in training, performance reviews, rotational programs, and other programs, their time is a key investment. Because program participants are already on the payroll, the opportunity cost of their participation is often not explicitly included in investment calculations. When it is included, it is often by prorating their salary or total compensation.

Again, the true opportunity cost of employee involvement is the next-best use of their time or what they would be doing if they were not involved in the program. Just as with the contributions of organizational leaders, program participants are often painfully aware of what they could be doing if they weren’t devoting time to the program (BlackBerry devices and other personal digital assistants have only made that more obvious). Again, the peanut-butter approach exacerbates this problem. How many times do we hear employees say, “I don’t know why I have to attend that training program, but HR says everyone is required to go through it”?

Providing program participants a clear line of sight to the value of their contributions and the logical connection between the programs and the business and strategic success is essential to ensuring that participant investments are not wasted. Otherwise, program participants may soon conclude that participation in talent and organization programs and practices is simply not worth the effort.

Influence or Political Credits

An often overlooked investment is influence, or “political credits.” When the logic connecting talent and organization programs and practices to sustainable strategic success is less tangible, gaining support for such programs often requires drawing on the credits, credibility, or influence that individual HR leaders have with their constituents. This is true for talent decisions much more than decisions in more mature decision sciences such as finance and marketing, where the decision frameworks are more mature and more integrated in leaders’ mental models.

We believe this must change, and frameworks like talentship and HC BRidge can contribute to that change. Still, in today’s organizations successfully implementing important talent and organization investments means calling in favors, or credits, from key opinion leaders. This approach may be required to gain leaders’ contributions in implementing the program, to acquire financial or time resources, or to convince employees to participate. When that’s true, such costs are not included in formal accounting, but they are nonetheless very real.

We encourage organizations to aspire to a future in which calling in credits is less necessary because all organizational leaders understand the value of talent investments. That said, a discussion about the necessary investments to achieve talent programs and practices would be incomplete without acknowledging this reality.

What Efficiency Does Well and Avoiding the Pitfalls

With a better idea about the full extent of investments required for talent and organization programs and processes, we can turn our attention to the uses of efficiency-based analysis. Efficiency provides an essential element of a complete decision framework. Without it we don’t know our investments, so it is impossible to judge whether they are producing a significant return. Efficiency also has the ability to gain leaders’ attention and to connect tangibly to organization reporting systems. In this section we will describe what efficiency does well. Efficiency is so compelling that organizations tend to emphasize it over effectiveness or impact. So as we describe what efficiency does well, we will also provide cautionary notes about the pitfalls to avoid.

Efficiency Ties Tangibly to the Accounting System

The accounting system is essential and effective for guiding decisions about money. It is among the most mature management systems with well-developed and reliable measures, so it is a common perspective through which leaders view organizational success. Efficiency provides a significant path to demonstrate relevance within the accounting system. HR leaders and writers have long sought to connect HR to the bottom line by presenting accounting measures for the HR’s department or by applying cost accounting to talent issues such as turnover, absences, and theft. The potential accounting returns are sizable and often very real.

For example, it is not unusual for the cost of processing and replacing a single employee turnover to be one and one-half times the average compensation and benefits in that job.⁶ So, if HR can demonstrate that investments in staffing, pay, or employee communication reduce turnover in very high-turnover jobs, the cost savings are often very large. The same sort of analysis can be applied to the cost savings of reducing absences and other costly employee behaviors.⁷

Prominent examples of impressive economic cost savings from efficiency are often found in centralizing HR programs. It is not unusual to calculate millions of dollars in cost savings by centralizing and standardizing HR activities and removing the duplication and waste that results when such activities are done in each business unit, function, or region. If leaders doubt that decisions about talent-related programs and processes affect the economics of the business, saving millions of dollars through program centralization can quickly dispel such doubts.

The fact that these connections to the accounting system are quantifiable and concrete also makes them dangerous. A fixation on talent costs can lead organizations to invoke across-the-board workforce cutbacks as a way to meet cost goals. Yet, as Cascio and others have shown, evidence suggests that long-term financial success is not related to the size of across-the-board cuts but rather to restructuring that is targeted to where cuts make sense in light of the organization’s strategic goals.⁸ Because efficiency connects so tangibly to the accounting system, an efficiency focus can lead to downsizing directed at the talent pools where costs are highest. It’s easier to make your cost-cutting goals if you cut in the high-cost areas, so highly paid or high-cost talent pools are a tempting target. But often they are also the pools where the greatest value is lost through cuts.

Overemphasizing accounting cost savings can lead organizations to chase cost-saving opportunities in talent and organization areas that they would not tolerate in other areas. For example, we have noted that when oil prices are falling, petrochemical companies often cut costs by laying off professionals in the exploration and production areas only to rehire those people when oil prices rise again, often at a much higher expense than if they had just kept their existing talent employed through the downturn. In contrast, petrochemical companies routinely hold leases on oil fields throughout the business cycle on the expectation that prices will rise to a level to make those oil fields economically viable.

Efficiency Is Easily Benchmarked

Efficiency measures are often derived from objective information about the activities, expenditures, and staffing levels of the HR function or HR programs. It is much easier to compare efficiency measures between organizations versus effectiveness or impact measures. The components of efficiency are fairly comparable—including the number of HR employees to total employees, the total HR functional budget to total costs, cost per hire, cost per training hour, or other such measures.

HR and business leaders in search of objective information on how their efforts compare to others often find great value in comparing such numbers to industry standards. In 2006 the standard of a hundred employees for every HR employee was so widely accepted that it was almost a mantra for many business leaders, and many HR organizations were told that their top priority was to achieve this ratio. The availability of benchmarking surveys that report industry and national averages on efficiency ratios provided a compelling opportunity for HR organizations to measure their progress (“we have achieved a lower cost per hire than our peers”). Again, when faced with business leaders and other constituents for whom accounting results are prominent, this kind of evidence is satisfying and compelling.

Relying too heavily on accounting cost savings in designing HR programs or HR organizations, however, tends to promote a “shrink-to-success” perspective that leads to less-than-optimal investment in talent and organization infrastructure. It can lead to arbitrary budget limits on HR and organization programs and practices that may have very significant positive net returns. This phenomenon is often encountered when cost cutting leads to excessive layoffs or early retirement that removes talent that’s essential for the future, as happened in companies such as AT&T in the 1990s.⁹

The same thing can occur with regard to HR programs or staff. We have encountered many HR organizations that say, “Investing more in staffing, compensation, or training pays off, but if we invested more, our cost per employee would exceed the benchmark standard. Our leaders expect us to achieve a cost level comparable to the lowest-cost quartile in our industry. We need to meet our cost objectives to have the credibility to make a case for more investment.”

Yet, as we have seen, when effectiveness and impact are appropriately considered, spending more on talent often creates value far beyond any costs saved by adhering to industry norms. Recall what would happen if Disney theme parks invested in sweepers at the benchmark levels of competitors who don’t realize sweepers’ value as customer ambassadors, or if Starbucks invested in baristas at the same level as competitors whose business models are built on standardized processes and minimal customer interaction. Efficiency-based benchmarking is useful for drawing attention to possible overspending, and it certainly demonstrates to non-HR leaders that talent programs can be evaluated objectively. However, it is best used cautiously as a guide to the quality of particular talent decisions.

Efficiency Provides a Tangible Measure of Outsourcing Performance

Perhaps the most dominant use of efficiency is in estimating the effects and tracking the performance of efforts to outsource HR activities. A significant justification for typical HR outsourcing decisions is that they will lower the costs of HR programs. The logic is that by having HR activities (such as payroll, applicant tracking, and employment information management) done by an outside organization, costs can be reduced through economies of scale, centralization, and access to the most efficient infrastructure and systems. It is rare to encounter an outsourcing deal that doesn’t include a significant commitment to cut such costs. Indeed, outsourcing contracts often contain key performance indicators that largely reflect savings in time, cost, or other efficiency measures. Because of their objectivity, their relevance to the well-established accounting system, and their obvious connection to the bottom line, efficiency-based cost savings are useful ways to hold outsourcers accountable.

The cautionary note here is probably best summed up in a common observation by many organizations that pursued outsourcing only for its impact on costs: “We ended up with our old mess for less.”¹⁰ More thoughtful and successful approaches to HR outsourcing emphasize the importance of first considering how HR programs and processes can be improved and how they relate to the organization’s strategy and mission.¹¹

There is a paradox in overemphasizing efficiency in outsourcing. The same programs and practices that offer tempting outsourcing savings also may create the largest effectiveness and impact. For example, providing information about employee benefits incurs high costs and offers a tempting outsourcing opportunity. Yet, in many organizations, benefit discussions give employees an opportunity to voice concerns about such things as work-family balance, supervisory problems, and other issues that may be precursors to their departure, sickness, or burnout. If this activity is outsourced in the most low-cost way, accurate information may well be communicated, but there may be no resources to take the time to explore what’s behind employee questions or decisions, losing valuable information about how well the organization is competing for and with talent.

Efficiency Provides Tangible Milestones for Process Improvement

Total quality, process improvement, and Six Sigma tools have provided revolutionary advances in organizational efficiency and profitability. It is not surprising that organizations have applied these tools to talent programs and practices. Efficiency offers compelling milestones to demonstrate the effects of such endeavors. It is enormously satisfying to identify ways to remove time and money from processes such as on-boarding, employment testing, and training. Reduced cost per hire, cost per training hour, or time to on-board are frequently cited as evidence of the effectiveness of quality improvement efforts to improve talent and HR management.

The tangibility of efficiency outcomes seems tailor made for Six Sigma approaches. When the Six Sigma black belt asks HR leaders to identify outcomes that can be objectively measured and that are influenced by HR process decisions, a list of efficiency elements is usually fast in coming.

It is easy, however, to ruin great talentship with Six Sigma. The most articulate expression of this cautionary note comes from several quality green-belt Six Sigma consultants who say that when they were doing Six Sigma process improvement for functions like manufacturing, sales, and service, the goal was pretty obvious. For example, one said, “We knew if the lightbulb needed to be brighter, longer lasting, whiter … We defined our process improvement goals to those outcomes. In HR we always seem to be taking time and money out of the process, but I worry that we don’t know if the faster or cheaper process is still working on the right outcomes. In HR process improvement, no one ever seems to be able to tell me the ultimate objective. It’s like improving a lightbulb manufacturing process when we don’t know if it should be brighter, longer lasting, or whiter.”¹²

Six Sigma tools can do much to improve talent programs and practices, but like so many tools, they can also do much harm. A vital key to the difference is the depth of the logic that governs the decisions. When Six Sigma is embedded within a clear understanding of the connections between programs and business or strategic success, Six Sigma principles can accelerate the process of shifting investments to their most productive places. This is completely consistent with talentship, as we’ve seen. When the logic is faulty or nonexistent, efficiency considerations may swamp very important but less tangible implications, and cost savings may mask the damage done to talent value.

Conclusion

Efficiency is, and will remain, a vivid and readily available element of a complete decision framework. We often have the opportunity to work with very progressive organizations with highly regarded HR functions and HR leaders who are valued strategic contributors. Even in those situations, a frequent reaction to our description of talentship is “We’d love to move in this direction, but our board and executive committee first insist on seeing us reduce our costs.” It’s not unusual to encounter HR functions that have been charged with reductions in their budgets of 10 percent per year for many years running, even in organizations that value talent and respect HR’s contributions. It is a simple fact that business leaders have not yet had enough time to learn frameworks for considering talent and organization programs that go beyond accounting and cost efficiency.

With all due respect to our very talented colleagues in leading organizations, we can’t help but wonder whether HR is really all that well respected if organizational leaders are willing to consider continual cost savings to be so important year after year. There are likely a number of organizations in which the right decision is to look beyond efficiency, to stop cutting and start investing in talent.

Efficiency must be acknowledged and it must be done well, but the emergence of a true decision science requires a more complete perspective. It’s tempting to assume that high-quality talent and organization decisions can be supported by ever-less-expensive programs and practices, but at some point there is little waste to be cut. It seems quite likely that organizations probably underinvest in talent and organization programs simply because the costs are so tangible and the value is so intangible. Moreover, it’s probably dangerous to take the position that attention to the effectiveness and impact of talent and organization investments can wait until HR gets its cost structure in line with benchmarks. Yet we often hear precisely that logic from otherwise very astute organization leaders.

Our view is that efficiency should be part of a broader and complete logical framework and that organizations shouldn’t wait to consider impact and effectiveness until they have mastered efficiency. Frankly, by then it may be too late because competitors that took a more complete view will have already discovered so many ways to compete with and for talent through prudent, if costly, investments.

Throughout this chapter, we have seen how the focus on efficiency is driven in part by the prominence of accounting measures that track it. So it is important to consider how talent measurement systems can contribute to the emergence of the talentship decision science and how the HC BRidge framework can guide that process. That’s the topic of chapter 9.