Transformative HR: The Importance of Embracing the Optimization Mindset

Nov 7, 2011

By John W. Boudreau and Ravin Jesuthasan

HR always wants to make the best choices, but traditionally HR leaders have not been tasked with optimizing choices in the way an engineering department or an investment manager would be.

This opens up a great opportunity for HR to raise its game.

Although there are specific tools to bring to the task of optimization, the greater element is mindset. HR leaders can make asking about optimization a natural way of approaching their work, even though no one has asked them to. As we have seen from other functions’ experiences with optimization, once business leaders see that HR can be optimized, they will start asking for that.

Optimization by organizing investments

To take a familiar example, organizational leaders now routinely accept the idea that optimal investments in leadership development require both segmentation and integration. High-potential leaders receive different opportunities and challenges than others, and the combination of rewards, development, and staffing is designed to work together.

If high-potential leaders are seen to need development as team players, then care is taken to ensure that rewards are not overly focused on individual performance and that development strikes the right balance of individual advancement and team-based experiences. Few investors or members of executive teams would accept an HR strategy that did not differentiate high-potential leaders from others or that failed to consider how all the elements of the program for high-potential leaders fit together.

Yet, as Boudreau and Ramstad (2007) have noted, the realm of high-potential leaders is often unique in its attention to optimization. The same principles can also apply to many other areas of the organization, with quite good effects.

Forward-thinking organizations optimize by investing differently in frontline leaders and customer-facing associates. They organize those investments around such themes as diversity, customer-centricity, and leading global brands. They require that different HR functions consider how their programs work together rather than simply how each function will achieve best practice or sufficient return on investment.

But this kind of clear choice is not actually typical of HR work. The more typical approach is that senior executives discover or become convinced that such issues as diversity or a global employment brand are important and then ask HR to address them with improvements. The HR function then implements broad-based programs of engagement, training, rewards, and development aimed at increasing diversity or awareness of the global employment brand.

Misreading Welch’s 20-70-10 system

HR does this without pushing back or asking, “Where does global brand really matter most? Where is an investment in diversity or inclusion going to make the most difference?” Optimization means having the knowledge that certain employee segments (for example, frontline leaders in retail banking) may benefit more than others from such investments. It also means having the courage to allocate disproportionate resources to those segments.

Does this mean that diversity or global brand is not universally valuable? No, we are not denying they have value, but that’s not the right question. The optimization question is “Where would improving these things make the biggest difference to our sustainable strategic success?”

Perhaps the most notorious example of this problem was the rush among organizations to implement forced-distribution systems for performance assessment because Jack Welch, the CEO at General Electric (GE), was using that kind of system in the 1980s and 1990s, when GE was achieving enviable growth and returns. This type of system identifies the top 20 percent, the middle 70 percent, and the bottom 10 percent of performers.

A moment of reflection will reveal, however, that draconian efforts to identify and weed out the bottom 10 percent are appropriate only in certain circumstances, and that an optimal approach will tailor this kind of performance management to those circumstances. As Conaty and Charan (2010) point out, GE’s success often owed far more to an intimate, tailored approach than to a rigid, across-the-board application of policy.

Instead of simply providing what is asked for, HR can reframe issues with an optimization mindset, saying, in effect, “We have expertise in finding optimal solutions to people-related issues. Let us do that rather than jump to implementing programs.” HR needs to take a teaching role with respect to the CEO as opposed to being an order taker. HR ought to be examining and illustrating the choices so that the organization makes optimal use of scarce resources.

No need for HR to always march across the swamp

As we said earlier, organizational leaders often approach people-related issues with nonoptimal frameworks, saying, “We need the best possible performer in every role” or “We need to reduce turnover as much as possible” or “Everyone in this organization must be customer-focused.”

In fact, however, improvements in such things as performance, turnover, and customer-centricity often have much greater effects in some areas than in others, and the right investment approach may be to make such improvements where they will matter most and avoid trying to make these improvements where things are already good enough, or where improvements would make less difference.

Retooling HR means educating leaders to see that nice sounding traditional guidelines can be used more effectively if an approach is taken that is more closely aligned with such optimization-focused business models as engineering tolerances, bottleneck analysis, and market segmentation. Good CEOs will want HR to stand up and tell them when the solutions they are suggesting are wrong. HR needs to build in awareness of the optimization mindset to discover what the choices are.

HR can help organizational leaders become aware that there is a path through the glade, and HR can then lead the organization onto the best path rather than cheerfully helping leaders march across the swamp simply because a trek through the swamp will get them to the village and the swamp is the route they have always taken.

Reprinted from Transformative HR, by John Boudreau and Ravin Jesuthasan. Published by Jossey Bass, A Division of John Wiley & Sons, Inc. by permission of the publisher. Copyright 2011. All rights reserved.

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