Prioritizing Human Capability Investments: Separating Signal from Noise

By Norm Smallwood, Partner, The RBL Group?(nsmallwood@rbl.net), Harrison James, Product Manager, The RBL Group (hjames@rbl.net), Mike Ulrich, Assistant Professor of Management, Huntsman School of Business, Utah State University (mike.ulrich@usu.edu) & Dave Ulrich, Rensis Likert Professor, Ross School of Business, University of Michigan; Partner, The RBL Group (dou@umich.edu)

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How confident are you in prioritizing your human capability investments so that they create the value you desire?

A?tsunami of innovative ideas, initiatives, and solutions exist to advance human capability (talent + leadership + organization + HR), as reported through?social and electronic?media, blogs, conferences, books, journal and magazine articles, expert opinions, openAI, podcasts, research reports, web pages, and so forth.?

Knowing which of these ideas deserves investment requires prioritization.?

In order to prioritize the complexity that overwhelms us, we need simplicity that leads to action. We have proposed a playbook with a simple four-step logic that shows the flow of ideas from (and to) environmental context to strategy to human capability to analytics.?Within human capability,?we categorized four pathways to classify numerous initiatives into four domains (yellow in figure 1). This logic of a human capability playbook helps turn the complex array of human capability initiatives into a?simple typology?that enables discussion and helps but does not fully accomplish prioritization.

Based on information from social media, published articles, and personal experiences, we identified 68 current initiative innovations (in a recent HR Learning Partnership [HRLP], see figure 2) that fit into the playbook flow in figure 1. For each of these initiatives, we are able to answer?why?it matters,?what?it means, and?how?to improve and make progress. Managing this large menu shows the breadth and depth of a today’s reinvented HR.?

After organizing these many initiatives into the human capability playbook, we then have to answer this question: “Which of the 68 (and you could easily add more) initiatives should your organization focus on now?” When we ask thoughtful business and HR leaders how they prioritized, we get answers like:

• Other respected companies are doing this.
• I have seen this work in the past.
• An advisory firm recommended it.
• We have skills to do this.
• I think this initiative will help us succeed.
• It makes sense to me.

We (colleagues at The RBL Group) believe that we can bring rigor to the prioritization process with a simple formula designed to create value from human capability investments through three criteria:?status, impact, and variance?(see figure 3).

Opportunity:?

A prioritization formula clarifies which human capital initiatives will have a higher opportunity to create value. Opportunities do not guarantee success but rather inform choices. The best opportunities consider many alternatives and then offer rigorous analytic guidance to select the most likely human capability initiatives to succeed. Prioritization by opportunity occurs in all aspects of life: relationships, careers, financial planning, personal well-being, purchases, and so forth. Human capital opportunity prioritization leads to better stakeholder results or value.?

Status:

Status comes from an evaluation of a firm’s current state by asking the question: “How well are we doing at (name the initiative)?” Some evaluations are subjective and qualitative; others can be more objective through analytics. Benchmarking has a (good and bad) capacity to gauge the effectiveness of an initiative by comparing to others. Most management books, conferences, articles, and conversations rely on benchmarking to share best practices or cases that others can learn from. For opportunity prioritization, the status of any initiative can be determined by scoring how that initiative compares to comparable organizations. Low scores imply an initiative is a weakness and could be improved upon and is worthy of investing in; higher scores imply strengths to be maintained and leveraged.

Impact:

Status, or benchmarking, communicates how well an initiative is done; impact focuses on the results of doing the initiative and the value created for key stakeholders. In our work, we have identified five key stakeholders of human capability initiatives, each with a desired result or dependent variable (see figure 4). Impact then reports the extent to which each of the human capability initiatives (independent variables) delivers these five stakeholder outcomes. This impact score could be perceptual (“What do we think?”) or it could be empirical with a database that allocates variance in the five stakeholder outcomes by investments in human capability initiatives. Statistically, this regression analysis allocates impact of each HR initiative on desired outcome.?

Variance:

Status benchmarks how well initiatives are done relative to others; impact highlights the relevance of initiatives; variation suggests how much room exists for improvement. Some initiatives are standardized processes where an organization simply matches the industry norm for parity without much room for differentiation. Opportunity comes when initiatives have a high variance, and an organization may differentiate and outperform others by targeted investments. Like status and impact, variance can be perceptual or it can be scored by looking at the standard deviation of how an initiative is scored. An initiative may have a mean score on five-point scale of 3.0 with scores 3, 3, 3, 3, 3 or a mean score of 3.0 with scores 1, 2, 3, 4, 5. The higher the variance or standard deviation, the more opportunity to improve.

Opportunity Formula: Status * Impact * Variance

Figure 5 shows how this formula works. For this example, we have six possible initiatives being considered (A, B, C, D, E, F). Drawing on data, each of the three elements (status, impact, variance) is measured and scores given. The green boxes show the initiatives that could be prioritized as opportunities based on the scores.?

Conclusion and Next Steps

Human capability investments often represent 1–3 percent of revenue, and they matter?to all stakeholders.??Prioritizing these investments starts with a human capability playbook and classification of human capability pathways. But within pathways, human capabilities initiatives can be prioritized with an opportunity formula: status * impact * variance.

This work is what we call the?Organization Guidance System (OGS)?and can help any business or HR leader make human capability investments that create value. See?RBL OGS?for more information.?

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Dave Ulrich?is the Rensis Likert Professor at the Ross School of Business, University of Michigan, and a partner at The RBL Group, a consulting firm focused on helping organizations and leaders deliver value.