Talentship and the new paradigm for Human Resource Management: from professional practices to strategic talent decision science.

As HR strives to gain greater strategic influence, human resource and business leaders must look beyond the HR profession. They must learn how the strategic "decision sciences" of finance and marketing evolved from the professional practices of accounting and sales. Today's HR is focused mainly on its professional practice, which, like accounting and sales, is important but incomplete. Full strategic partnership requires a "decision science" that enhances decisions about talent resources; finance and marketing enhance decisions about money and customers. We describe the historical lessons from finance and marketing, and how they reveal the elements of a new decision science for talent resources, and a logical framework to support the decision science. Then, we provide an example showing how organizations can use this framework to gain new insights about the talent decisions that are most critical, and enhance the strategic insights and influence of those decisions.

People, intellectual capital, and talent are ever more critical to organizational strategic success. This observation is so common today that it almost goes without saying. Digitization, labor shortages, growth through acquisitions, simultaneous downsizing and expansion, workforce demographic changes, and globalization are just a few of the trends that have made talent a top priority (Lawler & Mohrman, 2003; Frank & Taylor, 2004).

Today, top executives are quick to point out that managing talent well is their personal concern; it is perhaps the most difficult issue preventing their organization's maximum success. Yet, when we ask them if their decisions about the talents of their people are made with the same rigor, logic, and strategic connections as their decisions about money, technology, and products, they readily admit that their talent decisions are much less rigorous. Business leaders are increasingly frustrated with traditional HR, even when it is executed well or bestin-class. One CFO (now the CEO of his organization) put it well: "I value the hard work of HR, but I worry that our organization may not know which talent issues are the important ones, versus which are mostly tactical. I know how to answer that question in finance, marketing, and operations. I'm not sure how to do it for talent. I wish HR had more to offer here."

Frustration with the current state of traditional HR, and hopes for something more, are reflected in questions like these:

"Why is there so little logical connection between our core business management processes and our talent management processes? Our strategic planning, marketing, operations, and budgeting processes connect deeply and logically with how we create competitive success and shareholder value. Yet, at best these processes reflect only general talent goals like headcount, labor costs or generic HR programs. At worst, people issues appear only as a headcount budget at the end of the plan."

"We invest heavily in the latest HR measurement techniques: HR scorecards, HR financial reports, ROI on HR programs, and studies of how HR programs enhance attitudes, skills, and abilities. Yet, these HR measures seldom influence key business decisions, such as acquisitions and entry into new markets. They provide little insight on how well we compare with our competitors in creating competitive advantage through people. Can talent measures truly drive business decisions and investments?"

"Not all investments are equally important in all situations. Marketing would never get away with a strategy to 'provide 40 hours of advertising for every product.' Yet, our HR programs typically apply similarly to everyone, such as '40 hours of quality training.' Shouldn't we deploy our HR investments with greater precision and distinction, to have more impact and less wasted effort?"

"HR spends a lot of time showing the value of HR programs. Yet, in Finance, Marketing, and Operations we judge their value through results: How much they help our leaders make better decisions about those resources to drive organizational effectiveness. Why is HR different?"

The recent surge in HR measurement systems suggests that many believe the solution lies in better metrics. Finance, marketing, and engineering appear to have better "facts and figures" than HR does. HR measurement systems typically strive to show the return on investments in HR programs, or apply scorecards and six-sigma techniques to HR processes; however, research shows that two important goals for HR measurement, (1) to enhance decisions about human capital and (2) to connect human resources to strategy, are rarely met (Corporate Leadership Council, 2001; Lawler, et al. 2004).

HR measurement cannot solve the problem alone, because today's measurement systems typically adapt measures designed for other resources and apply them to HR. For example, six-sigma initiatives often apply accounting-based cost-efficiency or operational measures. The best result is less costly and quicker HR processes, but not necessarily better talent. At worst, six-sigma processes achieve gains in efficiency (which is measured) at the expense of significantly reduced quality of talent (which is often unmeasured). The same pattern emerges when measures designed for finance, marketing, or process improvement to are applied indiscriminately to HR. Examples such as "HR accounting," "HR quality," "HR branding," "HR balanced scorecards" can be useful systems if applied properly (Jamrog & Overholt, 2004), but they typically fail to address the fundamental challenge of improving talent decisions (Boudreau & Ramstad, 2003a; 2003b).

Today's HR has advanced significantly in its sophistication and strategic planning (e.g., Gubman, 2004); however, the majority of today's HR practices, benchmarks, and measures still reflect a traditional paradigm: excellence defined as delivering high-quality services in response to client needs. For years, writers have advocated more "strategic" HRM, or adopting a more outside-in rather than inside-out approach. Market-based HR and accountability for business results are undeniably important (Gubman, 2004); however, in practice these ideas are often implemented simply by asking strategic clients what services they want (leadership development, competency systems, Board governance, etc.) and delivering them. Marketing principles are used to convince clients of the value of HR services, or financial calculations are used to correlate HR practices with business results. These all reflect a traditional service-delivery paradigm that is fundamentally limited, because it assumes that clients know what they need.

Fields such as finance have a different approach (Boudreau & Ramstad, 1997). They have augmented their service delivery paradigm with a "decision science" paradigm that teaches the frameworks to make good choices. Significant improvements in HR decisions will be revealed not by applying finance and accounting formulas to HR services, programs, and processes, but rather by learning how fields like marketing and finance evolved into the powerful, decision-supporting functions they are today. Their evolution provides a blueprint for the new paradigm for HR (Boudreau & Ramstad, in press).

History Shows Decision Sciences Evolved from Professional Practices

At least three markets are vital to organizational success

1. The financial market

2. The customer/product market

3. The talent market.

In the financial and customer/product markets, there is a clear distinction between the professional practice associated with how organizations operate in the market, versus the decision science that supports analysis and deployment of the resources within that market. There is a clear distinction between accounting (the professional practice) and finance (the decision science). Accounting is vital for management reporting and external requirements yet very different from the financial tools used to decide about appropriate debt structure, internal rate-of-return thresholds, et cetera. There is an equally clear distinction between the professional practice of sales and the decision science of marketing. Excellent sales practices and measures are vital, but very different from the tools used to make decisions about customer segmentation, market position, product portfolio, et cetera.

Today, the differences between accounting and finance are so clear that we seldom even consider them. The competencies of a successful accountant are related to, but clearly quite distinct from, those for a successful financial executive, and professional curricula reflect this. The industry itself has segmented this way: Large accounting firms are very different from investment banking firms that focus on finance. Similarly, the competencies and activities of sales are clearly distinct from those of marketing. This does not mean that the professional practice is merely "administrative," or less important. The decision science cannot exist without the professional practice. In fact, the professional practice must precede the decision science. Few organizations survive with great marketing and ineffective sales, nor great finance without highly professional accounting. Today, the synergy between accounting and finance, or between sales and marketing, is so strong that it is easy to overlook how decision science evolved from professional practice, and how they are both inextricably related, yet distinct. A closer look at this symbiotic relationship between the professional practice and the decision science reveals insights about the evolution of HR.