From Harvard Business School Publishing, 2007.
The Science of Human Capital. Julie Devoll of the Harvard Business School Press, talks with John Budreau, author of Beyond HR: The Science of Human Capital.
JD: This is Julie Devoll from Harvard Business School Press. I’m here today with John Budreau, Research Director at the Center for effective organizations and Professor of Management and Organization in the Marshall School of Business at the University of Southern California. John is coauthor of a new book Beyond HR: The New Science of Human Capital. John, thank you for joining us today.
JB: Thanks for the opportunity Julie.
JD: So your book talks about perhaps the most crucial resource in today’s companies and that is …their people whether is called labor, human capital, talent or some other term. The resource that lies within employees and how they organize this increasingly recognized as critical strategic success and competitive advantage, but while executives know that their talent is important and they build a strategy around their talent that would give them a unique competitive advantage.
One of the problems that you say in the book is that companies traditionally use what you call “a peanut butter approach” in terms of the human resource strategies. Can you talk about what this means and why it’s not working?
JB: You bet, the peanut butter approach metaphor actually came from some of the leaders of companies we were working with and what it means is that very well meaning organizations have adopted principles like “to be fair we need to be equal” and so they approach their talent with the idea that if some people have certain incentives others should have the same incentives. If we’re going to get people engaged we should get everybody engaged and we call that the peanut butter approach because it’s like applying a very good thing equally across the population.
What struck Peter Ramstad and me on the book was…we don’t behave that way with customers, for example, every customer isn’t the subject of maximum advertising; every machine isn’t run at maximum capacity so there’s a different answer in other disciplines rather than just doing the same thing for everyone or maximizing everything.
JD: And one of the things you also say is that the future of talent management would go beyond today’s HR programs, programs like benefits and payroll and training practices and even beyond segmenting talent according to performance or personality, and that seems pretty controversial in terms of how we generally think about HR. Can you talk a little bit about what’s driving this change in Human Resource practices?
JB: Well, first of all, let me say that the attention to great HR practices is a good thing. The metaphor we like to use is that just because we have a discipline of finance and we start to differentiate why we make investments doesn’t mean that fundamental practices like accounting go away, just because we have a discipline like marketing that help us differentiate customer segments doesn’t mean that important practices like sales and advertising go away, so the first thing is to say that those programs and practices in HR going to remain fundamentally important but what it’s going to happen is that they’re going to be embedded within a decision focus approach, as we call it. And the idea is that not only that we understand differences between people’s performance or whether certain individuals have different personalities or whether some people are high potential and others aren’t. The world in front of us suggests that we can differentiate talent pools into talent segments like customer segments. The fundamental question would be "where do improvements and talent performance make the biggest difference to our strategic success?", just like we ask "which customer segments make the biggest difference to our strategic success?"
JD: So as part of having the strategic approach to talent management, one of the first things you recommend that executive make decision around is what you say is the pivotal talent in the organization or the pivot points. Can you talk about these pivot points within the organization and why they matter in terms of talent strategy?
JB: You bet. The question of pivot point is something that comes out in every other discipline so as other disciplines like finance, marketing, operations, research, etc. as they mature they start to begin to focus on optimizing not just maximizing. Like I said, we don’t run every machine at full capacity, we have a particular optimized level of capacity across an assembly line, and the way we find out where changes in any process will make a difference is something like a constraint or a bottle neck or a pivot point. So if you have all your machines running well but there’s one process or machine that doesn’t, fixing that machine so all the others can work well is the critical thing. It’s like a bottle neck in a hose or a bottle neck in a pipe. So what we suggest is that in organizations their strategic pivot points, places where improving the delivery or something makes the biggest difference to your success, and once you find those there are often talent pivot points where improving the performance of talent will make a big difference to those strategic pivot points.
JD: So what I found interesting is what you say that the pivot points in an organization are not the usual suspects so they may not be the leaders or even the top sales people or even technical professionals.
JB: Well I think that’s right. What we see a lot in organizations is a great deal of attention to the same talent pools that everybody else is working on, so if we need more sales it seems logical to invest in our sales people and to train them and select them and reward them. Virtually every leadership group believes that they’re pivotal and so we end up working hard on it improving leadership and building better leaders. There’s nothing wrong with that and those are definitely important. But very often what we find is that in the places no one is looking there may be pivot point that no one‘s found. For example, we might say that pilots in an airline are very very important but the difference between average and super good pilot performance in an airlines is by design not very much. It’s different from the navy where the difference between average and super pilot performance is very very large so the pivot points require that we think about "how does a given role make a difference to our strategy?", and that helps us understand where improving the performance of talent will make the biggest difference, not just where talent is very very important.
JD: One of the company examples you use is Disney and you say that their pivotal positions are actually not the ones we normally think of, and I know I wouldn’t think of Mickey Mouse. Can you talk about Disney’s approach to managing their talent?
JB: Well, that’s exactly right. When I do this exercise and I’ve been doing for about fifteen years, when you think about the Disney Theme Park and you think about "what is the vital critical talent there?", almost everybody answers characters first and they’re absolutely right. Again the idea is to differentiate what’s vital or important from what’s pivotal. Your most vital customer segment may be the people who’ve been purchasing your products for a long time but your most pivotal customer segment may be consumers in China or India or some other place that have great opportunity and potential for sales increases but may not your biggest customers at all.
While at Disney, characters are very important but the difference in performance between Mickey Mouse at the C level and the A level is by design very very small, it’s just too important. On the other hand, there are other positions I'd like to use the metaphor of Sweepers and my favorite story is: a sweeper who stops sweeping, notices that your child is a little sunburned and helps you find a shady spot up the hill where you can watch the parade: that is a critical strategic element that creates great surprise and delight and that sweeper makes much bigger difference if they know how to do that, than the character might make. Now the characters are important but they’re so important that they actually don’t differ very much in performance where as sweepers are pivotal because their difference in performance make a big difference to customers' surprise and delight...
JD: So John what you’re saying is that there seems to have implications for the rest of the people in the organization: the people who aren’t necessarily the sweepers. So how do you recommend managers deal with this? How do they tell their Mickey Mouses of their organizations that they’re not just as pivotal as the sweepers?
JB: That’s a great question and I like the way that you phrased that, because very often what I hear from organizations that are used to a policy that says “to be fair we must be equal” or a word in which they really don’t have a logic for these hard conversations ah is...how can we ever do this?...We just have to treat everybody the same or we wouldn’t want to talk about Mickey Mouse and the Sweeper this way. The answer of course is that fairness doesn’t equal equality but rather Mickey Mouse is very important but important to maintain performance at a very specific level. We can’t have Mickey Mouse innovating because we have to have too many of them in the park. Sweepers, on the other hand, have the freedom to innovate with regard of customer service because of the position they’re in and because of what we need from them.
So the conversation should really be: "If you are in the Mickey Mouse custom you are unbelievable important to us and we are going to reward you and we are going to manage you so that you deliver a very consistent performance", very much like pilots in an aircraft. If you want to have lots of discretion and if you want to have lots of interaction with our guests then you should think about becoming a Sweeper and I know it seems kind of intuitive to say that but it’s not that Mickey Mouse isn’t important but it has an important role with a very specific definition. The sweeper has a different role and once people understand that and once we can have these conversations, I think we start to have a world in which it’s much more like customers. For example, with me, when I buy certain products from certain people I’m not a frequent buyer and so I get a certain level of service and when I fly a certain airline, on other airlines or with other products I get a very high level of service. We all understand that. It may not feel great when were purchasing a product we don’t purchase that often we don’t quite get the service level we get elsewhere, but we understand that businesses have to optimize their "customer resource" and that we’re part of that. I think we can reach a place where employers can understand that too and we give leaders that power to have logical, principal conversations so that everyone understands that fairness and equality don’t have to be the same.
JD: So in turning around a little bit let’s talk about what this means for the individual worker. What are some tactics that you think the individual workers can do to improve their own visibility within a company and become that pivotal person and how do they start to have those conversations with their managers?
JB: Well that’s a great question. One of the…right now…a lot of the recognition of the importance of these ideas is happening among business leaders and among HR leaders and one of the tasks we have is to help business leaders think more clearly about their strategies and how talent is pivotal to those strategies to identify the difference between a character and a sweeper or a pilot and a gate agent and to understand that "importance" versus "pivoteness" difference but you raise a great point because I think in the future the great power of this idea is when the sweepers know that they’re pivotal when they serve customers or when they help that child find a shady spot up the hill and they understand the difference between the importance of sweeping but the pivoteness of customer service.
So how to become pivotal? Well, I think what we need is for all employees to start asking the question: What is it that I do that makes the biggest difference to the success of this organization? And is that necessarily the thing that’s in my job description?...So if a sweeper discovers that you’re measuring me a lot on how I sweep but I’m finding that customers are more delighted when I can give them great information etcetera, somehow that information needs to get off the channels, managers need to hear it, leaders need to hear it. And in the best organizations we find that this concept of talent pivoteness, this concept of connecting talent with strategy is not just a purview of business leaders, it’s not just a purview of HR, but the whole organization starts to have a language and a logic for seeing these differences including employees who become immensely empowered when they’re allowed to act on their understanding of what’s pivotal and what’s important.
JD: Great John, well thank you for taking the time today to speak with us.
JB: You’re very welcome. Thanks for the opportunity.
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