Talentship and theNew Paradigmfor HumanResourceManagement:From ProfessionalPractices to StrategicTalent Decision ScienceJohn W. Boudreau, Marshall School of Business and Center for Effective Organizations(CEO), University of Southern California; Peter M. Ramstad, Personnel DecisionsInternational (PDI)

s HR strives to gain

greater strategic

influence, human

resource and busi-

ness leaders must look beyond

the HR profession. They must

learn how the strategic "deci-

sion sciences" of finance and

marketing evolved from the

professionol practices of

accounting and sales. Today's

HR is focused mainly on its

professional practice, v/hich,

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 mar-

keting, 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,

HUMAN RESOURCE PLANNING 28.2 17

and enhance the strategic insights and influence

of those decisions.People, intellectual capital, and talent are ever more critical to

organizational stratejiic success. This observation is so common todaythat it almost goes without saying. Digitization, labor shortages,growth through acquisitions, simultaneous downsizmg and expan-sion, workforce demographic changes, and globalization are just a fewof the trends that have made talent a top priority (Lawler &CMohrman, 2003; Frank & Taylor, 2004).

Today, top executives are quick to point out tbat managing talentwell is their persona! concern; it is perhaps the most difficult issue pre-venting their organization's maximum success. Yet, when we ask themif their decisions about the talents of their people are made with thesame rigor, logic, and strategic connections as their decisions aboutmoney, technology, and products, they readily admit that their talentdecisions are much less rigorous. Business leaders are increasinglyfrustrated with traditional HR, even when it is executed well or best-in-class. One CFO (now the CEO of his organization) put it well: "Ivalue the hard work of HR, but 1 worry that our organization may notknow which talent issues are the important ones, versus which aremostly tactical. I know how to answer that question in finance,marketing, and operations. I'm not sure how to do it for talent. I wishHR had more to offer here."

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

"Why is there so little logical connection between our core businessmanagement processes and our talent management processes? Ourstrategic planning, marketing, operations, and budgeting processesconnect deeply and logically with how we create competitive successand shareholder value. Yet, at best these processes reflect only generaltalent goals like headcount, labor costs or generic HR programs. Atworst, people issues appear only as a headcount budget at the end ofthe plan."

"We invest heavily in the latest HR measurement techniques: HRscorccards, HR financial reports, ROI on HR programs, and studiesof how HR programs enhance attitudes, skills, and abilities. Yet, theseHR measures seldom influence key business decisions, such as acqui-sitions and entry into new markets. They provide little insight onhow well we compare with our competitors in creating competitiveadvantage through people. Can talent measures truly drive businessdecisions and investments?"

"Not all investments are equally important in all situations.Marketing would never get away with a strategy to 'provide 40 hoursof advertising for every product." Yet, our HR programs t>-picallyapply similarly to everyone, such as '40 hours of quality training.'Shouldn't we deploy our HR investments with greater precision anddistinction, 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 valuethrough results: How much they help our leaders make better deci-sions about those resources to drive organizational effectiveness.Why is HR different?"

The recent surge in HR measurement systems suggests that manybelieve the solution lies in better metrics. Finance, marketing, andengineering appear to have better "facts and figures" than HR does.HR measurement systems typically strive to show the return on invest-ments in HR programs, or apply scorecards and six-sigma techniquesto HR processes; however, research shows that two important goals

for HR measurement, (1) to enhance decisions about human capitaland (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'smeasurement systems typically adapt measures designed for otherresources and apply them to HR. For example, six-sigma initiativesoften appiy accounting-based cost-efficiency or operational measures.The best result is less costly and quicker HR processes, but not neces-sarily better talent. At worst, six-sigma prtKesses achieve gains inefficiency (which is measured) at the expense of significantly reducedquaiit)' of talent (which is often unmeasured). The same patternemerges when measures designed for finance, marketing, or processimprovement are applied indiscriminately to HR. F'xamples such as"HR accounting," "HR quality," "HR branding," "HR balancedscorecards" can be useful systems if applied properly (Jamrog &cOverholt, 2004), but they typically fail to address the fundamentalchallenge of improving talent decisions (Boudreau 6c Ramstad,2003a; 2003b).

Today's HR has advanced significantly in its sophistication andstrategic planning (e.g., Gubman, 2004); however, the majority oftoday's HR practices, benchmarks, and measures still reflect atraditional paradigm: excellence defined as delivering high-quality ser-vices in response to client needs. For years, writers have advocatedmore "strategic" HRM, or adopting a more outside-in rather thaninside-out approach. Market-based HR and accountability for busi-ness results are undeniably important (Gubman, 2004); however, inpractice these ideas are often implemented simply by asking strategicclients what services they want (leadership development, competencysystems. Board governance, etc.) and delivering them. Marketingprinciples are used to convince clients of the value of HR services, orfinancial calculations are used to correlate HR practices with businessresults. These all reflect a traditional service-delivery paradigm that isfundamentally limited, because it assumes that clients know what theyneed.

Fields such as finance have a different approach (Boudreau &cRamstad, 1997). They have augmented their service delivery para-digm with a "decision science" paradigm that teaches the frameworksto make good choices. Significant improvements in HR decisions willbe revealed not by applying finance and accounting formulas to HRservices, programs, and processes, but rather by learning how fieldslike marketing and finance evolved into the powerful, decision-sup-porting functions they are today. Their evolution provides a blueprintfor the new paradigm for HR (Boudreau &: Ramstad, in press).

History Shows Decision Sciences Evolved fromProfessional Practices

At least three markets are vital to organizational success

L The financial market2. The customer/product market3. The talent market.

In the financial and customer/product markets, there is a cleardistinction between the professional practice associated with howorganizations operate in the market, versus the decision science thatsupports analysis and deployment of the resources within that market.There is a clear distinction between accounting (the professionalpractice) and finance (the decision science). Accounting is vital formanagement reporting and external requirements yet very differentfrom the financial tools used to decide about appropriate debt struc-ture, internal rate-of-return thresholds, et cetera. There is an equally

1« HUMAN RESOURCE PLANNING 28.2

clear distinction between the professional practice of sales and thedecision science of marketing. Kxcellent sales practices and measuresare vital, but very different from the tools used to make decisionsabout customer segmentation, market position, product portfolio, etcetera.

Today, the differences between accounting and finance are so clearthat we seldom even consider them. The competencies of a successfulaccountant are related to, but clearly quite distinct from, those for asuccessful financial executive, and professional curricula reflect this.The industry itself has segmented this way: 1-arge accounting firms arevery different from investment banking firms that focus on finance.Similarly, the competencies and activities of sales are clearly disrinafrom those of marketing. This does not mean that the professionalpractice is merely "administrative," or less important. The decisionscience cannot exist without the professional practice. In fact, the pro-fessional practice must precede the decision science. Few organizationssurvive with great marketing and ineffective sales, nor great financewithout highly professional accounting. Today, the synergy betweenaccounting and finance, or bet\veen sales and marketing, is so strongthat it is easy to overlook how decision science evolved from profes-sional practice, and how they are both inextricably related, yet

on capital was vital to making effective decisions. Before that,organizations typically consisted of business units that, even if quitelarge, had generally consistent capital returns. For example. Sears wasa large organization, but the capital model varied little from l(Kationto location. With advancing industrial production, capital investmentdecisions took on more importance within companies and acrosscapital markets, and the tools of finance evolved to improve thesedecisions |Jt)hnson Sc Kaplan, 1991).

Similarly, sales is as old as trade itself, and sales praaices were awell-developed profession long before the decision science of market-ing used sales information to create decision models such as customersegmentation and product life-cycles. When Sloan restructured GM byaligning specific brands within the portfolio to specific customersegments, a new course was charted. In the years that followed, thedecision science associated with marketing made rapid advancements,as the size and sophistication of customer and product markets madesystematic decisions a competitive factor for organizations. Marketingevolved from an almost exclusive focus on advertising practices torecognizing advertising as only one of many tools to be synergistical-ly deployed to achieve strategic success and increased value (Bartels,1976). During the 1950s, the management of the customer

"I value the hard work of HR, but I v>/orry our organization

may not know which talent issues are the important ones,

versus which are mostly tacHcal. 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."

distinct. A closer look at this symbiotic relationship between theprofessional practice and the decision science reveals insights aboutthe evolution of FIR.

HR, like finance and marketing, helps the firm t)perate within acritical market—in this case, the market for talent. Organizations can-not succeed without effective decisions and professional practices foroperating in the financial and customer markets, and they also increas-ingly require effective decisions aligned with professional practices inthe talent market. Organizational decision prinresses and toolsemployed in the talent market are far less mature and refined thanthose used in finance or marketing.

Although accounting and finance are clearly distinct, as are salesand marketing, perhaps the most valuable insights can be drawn fromtheir synergy, and how decision science evolved from professionalpractice. Accounting is about 500 years old, and was a well-developedprofession long before the decision science of finance showed howaccounting measures could support decisions based on concepts suchas relative returns on capital, and how different factors (margin, assetproductivit); and leverage) affect those returns. Finance emerged in theearly l900s and is l.irgely credited to the duPont organization, withthe duPont mt)del still in wide use today. Why the early 1900s?Because that is when capital acquisition and deployment became animf)ortant source of competitive advantage, and the ability' to differ-entiate which types of businesses could generate an appropriate return

competitive space moved from being advertising-research-oriented tobeing decision-oriented (Howard, 1957). Ibp management becameaccountahk' and was provided tools to integrate marketing with theoverall business objectives through strategic deployment decisions(BordenSc Marshall, 1959).

Management of tht- talent resources is at a similar inflection pointtoday. The HR function creates tangible value in organizations byfocusing primarily on delivery of HR practices (staffing, development,comp>ensation, labor relations, etc.), based on professional and oftenresearch-based principles. These practices are important, and researchindicates that when they are done well they add tangible value to the()rganization (Becker &: Huselid, 1998). Professional practices alonedo not systematically address the increasing sophistication and impor-tance of talent markets and decisions to today's competitivechallenges. For all their contributions, good professional practices arenot the same as having a logical and deep decision science for talent.Today, such a talent decision science is a source of competitive advan-tage, just as decision sciences for financial and customer markets werein the previous century.

Today, HR faces the challenges from business leaders describedin the introduction. Similar challenges characterized the capital andcustomer markets, at the point in their evolution when they hadachieved a sophisticated professional practice, but lacked a fully devel-oped decision science to give it context and direction. The histtirical

HUMAN RESOURCE PLANNING 28.2 19

lessons from finance and marketing suggest that today's HRchallenges will not be addressed simply by incremental improvementsin the professional practices of HR, nor by measuring tbem moreprecisely, nor by asking clients what tbey want. The next step in tbeevolution of HR is a new paradigm, based on a decision science fortalent {Boudreau 8c Ramstad, 1997).

The Elements of Decision Sciencewbat does decisit)n science do? It provides a logical, reliable, and

consistent framework that enhances decisions about a key resource,wherever those decisions are made. Decision science does not rigidlyprescribe actions, but instead provides a system to identif)' and ana-lyze key decision issues, adapting to the unique information and char-acteristics of tbe specific context.

For example, in finance, the duPont model allowed organizationsto allocate financial capital across business units using more tban thetraditional accounting measure of profit. It revealed a new insigbt attbe time: Allocating financial resources to tbe areas of highest returnon capital, not simply tbe bigbest profit, was a path to superiorperformance. Perhaps more important, it articulated the necessaryconditions for high returns, such as higher asset utilization, and itshowed bow to anticipate tbe effectiveness of financial investments,not simply account for tbeir outcomes after the fact. In marketing,customer segmentation enabled organizations to allocate theircustomer and marketing capital not merely equally to all customers,nor to tbe customers witb the bigbest sales, but rather systematicallyto choose the appropriate marketing investments and methods foreach market segment, and to identify in advance the segments witb thegreatest potential impact on the organization's success (Bartels, 1976).

Finance creates organizational value by enhancing decisions tbatdepend upon or affect financial resources. Marketing creates organi-zational value by enhancing decisions that depend on or have animpact on customer or product resources. Finance and marketing pro-vide reliable and deeply logical frameworks that connect financial andcustomer capital to tbe organization's sustainable strategic success.Strategic decisions must go beyond generic best practices to create aunique and sustainable competitive position for tbe organization(Porter, 1996).

The Value of Decision Science Is Often Outside theProfessional Function

Tbe finance and marketing decision sciences certainly bave impor-tant effects on the professional practices of accounting and sales, aswhen different sales efforts are matched to different customer seg-ments. Paradoxically, the most important effects of decision sciencesare outside tbe professional function itself, as managers, employees,shareholders, and others learn to reliably and consistently improvetheir own decisions about the financial and customer resources thatthey affect.

For example, tbe logic of return-on-investment (ROl) is somethingevery manager leams, and can be applied to decisions as diverse asinvesting in new equipment, marketing initiatives, productionimprovements, or mergers. ROI does not force managers to follow arigid program imposed by accounting or finance. Rather, ROI pro-vides a framework that helps managers identify and logically analyzethe relevant success factors for deploying financial capital in tbesediverse decisions. Sucb decisions are made by countless managers andleaders throughout the organization, mostly outside the fields ofaccounting and finance. Thus, tbe decision sciences of finance andmarketing support and structure decisions, wberever they are made.

Finance and marketing provide a "teachable point of vievy" (Tichy &:Cohen, 1997) about how financial and customer resources createsustainable organizational value. Ultimately, the success of finance andmarketing is judged less by tbe quality of their programs, than by tbequality of decisions throughout the organization, about financial orcustomer resources.

Today, HR seldom has a teachable point of view, so HR processesoften feel controlling and dogmatic to line managers. It is oftendifficult for managers to connect what HR is asking them to do(tbe professional practices) witb tbe competitive business issues thatdetermine the organization's success.

The Decision Science of TalentshipThe lessons from marketing and finance tell us tbat tbe goal of a

talent decision science would be "To increase tbe success of tbe orga-nization by improving decisions tbat impact or depend on talentresources." We have coined tbe term "talentship" to describe the newdecision science, and to reflect the notion of stewardship for theresource of employee talents. Talcntsbip is to HR wbat finance is toaccounting, and what marketing is to sales.

As talentsbip evolves, organizations will increasingly succeed notsimply through HR practices, but by the quality of decisions about tal-ent resources, throughout tbe organization. Just as witb decisionsabout financial and customer resources, talent decisions reside withcountless strategic managers, leaders, and employees, deciding aboutthe talents available to them, and tbeir own personal talents.

When we ask business and HR leaders to think of a decision thatdepended on or affected talent, but was not made well, even compa-nies with "best in class" HR functions have little difficulty generatingexamples. The examples carry a remarkably consistent message: Thetalent decision mistakes are NOT being made by HR professionals.Poor talent decisions seldom focus on HR programs, but insteadreflect well-intentioned leaders making decisions without fully under-standing the talent implications. So, the greatest opportunity' toimprove talent decisions is outside of tbe HR profession. Tbere aretwo cboices:

1. Try to control these decisions (such as requiring that they be madeby only HR professionals)

2. F,quip those outside the HR profession (line managers, employees,executives, etc.) to better understand the talent implications of tbedecisions tbey make.

HR programs are only one way to enhance talent decisions, just asaccounting and sales programs are only one way to enhance decisionsabout financial and customer resources. Today's HR functions typi-cally define tbemselves in terms of their practices. HR textbooks andcertifications are organized around tbe practices and functions thatHR delivers, not the strategic decisions that HR supports. HR careerstypically involve broadening expertise in the HR disciplines (staffing,compensation, labor relations, training and development, etc.), on tbeway to becoming "HR generatists."

HR professionals are urged to develop competencies as "partnersin strategy execution," "cbange agents," and "employee advocates"(Ulrich, 1998), but, unlike in finance and marketing, such competen-cies are not logically linked to a decision-making framework.Enhancing the strategic role of HR means equipping HR to improvetalent decisions throughout tbe organization. Aiitomatlng administra-tive work or shifting it away from high-level HR professionals can behelpful, just as separating bookkeeping away from accounting wasvaluable, but it is not the same as incorporating a decision science intotalent decisions wberever they are made.

JO HUMAN RESOURCE PIANNING 28.2

Control Systems Are Not the Same as Decision SupportSystems

A typical reaction to rhe idea of talentship is that many HR frame-works art- already used by orgiinizations.. and they certainly affectdecisions. One example is salary grades. Virtually everyone knowsthe salary grade to which they belong, and employees and managersroutinely use salar\' grades in their decisions about budgeting, head-count planning, merit pay, and other rewards. Because salar)' grades areoften the only available framework for mapping the organization'stalent resources, it becomes the default framework for things suchas signature authority, participation in leadership programs, parkingspace allocation, and many other decisions unrelated to the originalpurpose.

The salary grade system certainly affects decisions, but it is not adecision science. It is a control system, similar to the accounting andsales frameworks that existed before their decision sciences developed.The salary grade system in HR is like the chart of accounts in account-ing. It provides a classification system to organize large amounts ofdata, and it improves the consistency of decisions (it limits the amountof merit increases to provide budgetary and salary structure control).Like most HR systems, salary grades arc "control" frameworks thatcreate value mostly by limiting discretion to prevent mistakes.

Talentship Defines Partnership as Teoching Rafher thanTelling

Today main HR professionals lament that they are "at the table"but not influential in the strategy and business planning process, whenkey decisions are made, such as mergers and acquisitions, entry- intonew markets, expansion globally, and introduction of new technolo-gies. Interestingly, sales and accounting are usually not at the tableeither. The decision sciences of finance and marketing are at the table.The professional practices of accounting and finance reflect the impli-cations of the strategic decisions that rely on finance and marketingframeworks. To participate fully in the strategic discussions, HR musthave a unique, talent-focused perspective for improving decisions, notjust a process for implementing decisions.

Improving decisions requires teaching more than telling. Financeand marketing are effective because they are taught to businessleaders and become a part of their work. Likewise we envision that thefuture talent decision science wil l be taught to others, becoming anatural part of their work and improving their talent decisions.

A decision science improves reliability, consistency, and sharedunderstanding. Give several finance professionals the same businesschallenge., and they likely will approach it with similar logic, anddevelop reasonably similar analyses. This is one reason that finance

Poor talent decisions seldom focus on HR programs, butinstead reflect well-intentioned leaders making decisionswithout fully understanding the talent implications. So,the greatest opportunity to improve talent decisions isoutside of the HR profession.

Strategic decisions require discretion and uniqueness., not merelyconsistency and control. Lacking a decision science when such deci-sions present themselves, leaders are motivated to "work around"control systems. For example, faced with the imminent loss of keytalent to high-paying competitors, managers may inflate the job gradebecause it is the only way to comply with the control system and stillachieve the pay increase necessary to the key talent. These "workarounds" undermine the credibility of the HR systems. A true talentdecision science would provide a rational and logical framewiirk todetermine where and why off-grade pay increases are needed.

Ironically, the lack of a decision science creates a greater need forcontrol, because without a more rational framework, decision mak-ers wil l use fads, benchmarks, tradition, et cetera. Such frameworksproduce decisions of lower quality, so the organization must use con-trol systems to restrict the range of action. Managers, in turn, oftenresent such systems, because they imply that managers arc not to betrusted with talent decisions. This is one reason that HR is seen asadministrative, or even obstructive. HR managers are often perceivedto be effective business partners only when they help business leaderswork around the HR control systems. They are good partners with-in a bad svstem.

and marketing have such strong functional "brand identification." Incontrast, when several HR professionals attack the same businesschallenge they {)ften produce inconsistent solutions, quite often reflect-ing their different HR professional practices (e.g., compensation,development, organizational design), or a different individual's partic-ular experience (e.g., "this is how they did it at GE"). Each solutionmay be good, but by definition they cannot all be optimal. Lacking aconsistent logical framework, talent decisions wil l be made usingframeworks influenced by politics, fads, or fashions (Abrahamson,1^96). Alternatively, talent decisions will be made by applyingexisting decision frameworks, such as focusing only on HR programcosts because that is what the accounting decision system recognizes.

A Decision Science Requires A Point of ViewTo teach others to make better decisions requires a shared point of

view that provides a common language and structure for decisions. Itis a fundamental component of every successful decision science. Infinance, this includes concepts such as return on investment and freecash flow, and the models that trace the implications of organizationdecisions on them. Economic value added (KVA| and return oninvested capital (RO!G) are not rigid reporting systems. Rather, theyprovide a logical starting point that helps decision makers reliably andconsistently ftKUs on the important elements. Rusmess units adapt the

HUMAN RESOURCE PLANNING 28.2

generic models to reflect the specific challenges that they face. Eorexample, one organization may decide to use ROIC to evaluate newcapital investments while others may use EVA, internal rate of return,or even payback period. In all cases., the framework is consistent,teachable, and focused on decisions, not programs. It can be explainedand taught to those who manage financial resources throughoutthe organization, who are usually outside the finance or marketingprofession.

In the organizations that we work with, there are almost alwaysa few HR professionals who effectively demonstrate how talentconnects to strategic success, and are known for improving the talentdecisions of the managers and employees they support. Typically, theseare rare individuals, well-known, and business units feel rather luckyto have them. These HR professionals invariably admit that theylearned to provide decision support on their own, and in their ownway, with little systematic instruction or development. Their success isdifficult to reproduce in their HR colleagues, employees, and businessmanagers. One HR professional put it well: "This capability- is criticalto our future, but it doesn't 'scale' because everyone does it and learnsit differently." A talent decision science contributes to scale by lendingconsistency to the strategic logic, and how it is learned and used byHR professionals.

Although a talent decision science certainly improves specific HRdecisions, plans, and strategies, an even more significant contributionof talentship is developing, using, and teaching a consistent logicalpoint of view about bow talent resources connect to strategic success.

particular customers or customer segments?" In marketing, customersegmentation determines how much strategic success would increaseby improving sales to a particular customer segment, and thus whichsegment should get more attention. Answering the impact question fortalent resources requires what we call "talent segmentation," a termwe coined to describe the logical differentiation of talent pools by theirimportance to strategic success (Boudreau & Ramstad, in press).

The analogy to customer segments in talentship is "talent pools."Traditionally, organizations describe work in terms of jobs.Sometimes a talent pool is completely contained in one job, butusually talent pools combine elements from several jobs or skill sets.Examples of talent pools are "those with customer contact at thepoint of service," "those who integrate product lines to supportcross-selling" or "leaders."

Organization leaders sometimes say that they already know whichtalent pools are most crucial, and that the "impact" question is soobvious that their opinion will be shared by everyone; however, whenwe actually ask several business leaders to name the high-impacttalent pools, their answers are so different that they could not possi-bly support reliable and consistent talent decisions. For example, somebelieve the highest-impact talent pool must be front-line leaders,because they touch so many employees and processes; others believe itmust be salespeople because you cannot have profits and growth with-out sales; still others believe it must be top executives, because theirscope is so broad and the market rewards them so highly. There aretwo reasons for this inconsistency.

Although a talent decision science certainly improves spe-cific HR decisions, plans, and strategies, an even moresignificant contribution of talentship is developing, using,and teaching a consistent logical point of view abouthow talent resources connect to strategic success.

A logical point of view provides a consistent script for an ongoingdialogue about talent and strategy, allowing more reliable and consis-tent diagnosis, analysis, and action on talent issues throughout theorganization. This improves talent decisions within the HR functionand (Hitside it, where the opportunity for impact and improvement isthe greatest.

The Elements of a Tolentship Point of View: Impact,Effectiveness, and Efficiency

What will be the elements of tbe decision framework that supportstaientship? Nearly all decisions that depend upon or affect peoplewithin organizations can be described in terms of three elements:impact, effectiveness, and efficiency. Moreover, these elements baveuseful analogies within existing decision sciences, such as marketing.

Impactin talentship, "impact" concerns "How much will strategic success

increase by improving tbe quality or availability of a particular talentpool?" The analogy in marketing is "How much will organizationalprofitability increase by improving market share or sales success with

First, business leaders and strategists t>'pically focus only onbusiness processes and market outcomes, and rarely connect strategiesto human capital or talent. Human resource leaders typically focus ondesigning and gaining support for HR programs, rarely asking whichtalent pools would be the most productive targets for those programs.The connecting point between strategic business process and the HRprograms is the talent pool, and it is often overlooked by both groups.

Second, business and HR leaders typically consider talent pools interms of their average importance. Traditional HR systems divide jobsinto categories based on their average value to allocate pay, training,and other resources equitably. Salary grade midpoints are a goodexample. Identifying the talent pools in which investments will pay offmost handsomely often requires focusing on the effects of changes intalent value, not the average value. We coined the term "pivotal talentpool" to capture this idea. Talent pool "pivotalness" is the differencein competitive success that would be achieved by improving the qual-ity or availability of that talent pool. In marketing, customer segmentswith the highest average sales or profits may not be those in whichimprovements in market share most improve sales and profits. Whenbusiness leaders consider only the average value of talent, they

22 HUMAN RESOURCE PLANNING 28.2

routinely overlook talent pools that could have a significant effect onstrategic success.

Lacking a good sense of talent pool differences., organizationsfrequently adopt a "peanut butter" approach, spreading programsacross everyone equally, such as "40 hours of quality training foreveryone" or "stock options for everyone." The marketing decisionscience is so well developed that recommending "40 minutes of adver-tising for every product" would never be tolerated. Differentiatingamong customer segments is fundamental to marketing, just as"impact"—differentiating among talent pools based on their impor-tance to strategic success—must be at the heart of talentship.

EffectivenessIn talentship, "effectiveness" concerns "How much do HR programs

and processes affect the capacity- and actions of employees in talentpools?" 'T'he analogy in marketing is "How much does an advertisingor pricing program change the behavior of the customers in a cus-tomer segment?" "Effectiveness" is independent of "impact."

Traditionally, HR organizations are more adept at "effectiveness"than "impact," tracking the effects of HR programs on such things asperformance ratings, competencies, climate, and attitudes. Forexample, we worked with several organizations that carefully trackedtheir sales training and compensation programs against the associatedchanges in sales behavior, only to realize upon more careful analysisthat the biggest reason for low sales was outside of the sales talentpool (i.e., product was unavailable when it was promised). Althoughsales training did effectively improve sales behavior, the "impact" wassignificantly limited by the quality of a different talent pool: back-office employees who operated the supply-chain. Because "effective-ness" was the focus, back-office employees received much lessattention than the front-line sales group did, and "impact" suffered.Today's widespread desire to calculate the "return on investment" in

EXHIBIT 1

HC BRidge"" Decision Framework

Linking Elements

Siisrainahle Strategic Success

Resources & PnH;esscs

Talent Pools & Structures

Aligned Actions

I luman Capacity

Policies &C Practices

Investments

Copyright ©1999, 2002, John W. Boudreau & Peter M.Ramstad (PDI). All rights reserved. HC BRidge® is atrademark of the Boudreau-Ramstad Partnership.

HR programs reflects "effectiveness rather than impact." The salestraining described probably produced an ROI wel! above the mini-mum hurdle rate, but that ROI was still much less than the potentialreturn from directing training resources to the more pivotal talentpool, back-office employees. Ignoring impact in favor of effectivenesscan produce well-meaning HR programs that have large "effective-ness" on low-"impact" talent pools.

EfficiencyIn talentship, "efficiency" concerns "How much HR program and

process activity do we get for our investments (such as time andmoney)?" The analogy in marketing is "What program activit>'(advertising, sales, etc.) is generated for a certain investment ofresources?" In marketing, typical efficiency measures include the num-ber of television program segments acquired per advertising dollar, orthe number of billboards acquired per region.

"Efficiency" is independent of "impact" or "effectiveness." Mostof today's HR measures focus on efficiency, such as ratio of HR staffto total headcount, cost per hire, training hours per employee, benefitcosts per employee, HR functional costs as a percentage of revenues(Conference Board, 2004; Corporate Leadership Council, 2001).Attending only to efficiency can produce extremely lean advertising orsales organizations, that have only small effects. This is the typicaldilemma of trying to "shrink to success." Some HR functions haveshown impressive cost savings, for example, by outsourcing theiractivities. Relying solely on such input-output measures risks fixationon lowest-cost, often by standardizing and centralizing HR programs.Many organizations realize too late that although outsourcing savedmoney, it also reduced the distinctiveness of their HR systems andpractices compared to competitors, decreasing both effectiveness andimpact far more than the original tempting cost savings. The effec-tiveness and impact of the talent decisions are not readily captured bytypical accounting and finance measures. Without a point-of-view thatclearly articulates all three elements, HR efficiency may get more thanoptimal amounts of attention.

The HC BRidge® Decision Framework: LinkingTalent to Sustainable Strategic Success

Making the talentship decision science actionable requires havingprocesses and tools that encourage and enable the organization'sdecision makers to ask the right questions about their talent. Thatrequires a framework that integrates "impact," "effectiveness," and"efficiency," articulates the connections between HR, talent, andstrategic success, and provides a consistent approach to talentdecisions and a common language to communicate about those deci-sions. Lacking such a framework, it is easy to drown in a sea of dataand opinions, and to lose sight of the key issues.

In finance, decision frameworks such as EVA are made actionablewith models and tools that show the elements of the calculation, andhow to combine them. Such frameworks also make it easy for decisionmakers to identify elements where data exist versus where they do not,and to see clearly the effect of gaps in data on the assumptions andconclusions they reach. RVA did not simply evolve from hundreds ofaccounting measures, but from a systematic analysis of how returns oncapital create value. Yet, routinely HR organizations proudly presentbusiness leaders with systems or "HR scorecards" containinghundreds of indices and data elements, with no guiding framework,hoping that business leaders will invent the required decision scienceto use them wiselv.

H U M A N RESOURCE PLANNING 2 8 . 2

Talentship becomes actionable through a framework that definesthe components of impact, effectiveness, and efficiency, explains howthey relate and combine logically to connect HR, talent, and strategicsuccess: the HC BRidge® Decision Framework. (HC BRidge® is atrademark of the Boudreau-Ramstad Partnership. For more informa-tion, see http:liwww.hchridge.com.) This framework is shown inExhibit 1.

In this framework, impact, effectiveness, and efficiency are definedmore explicitly through a set of linking elements. The framework is anoutline, like KVA or ROIC in finance, with each linking element repre-senting deeper logic and analysis. It does not prescribe actions, nor doesit describe a particular business or strategic situation. Rather,the framework spans different situations and decisions, providing alogical way to organize the information, describe different situations insimilar ways, create deeper understanding, and improve decisions.

The framework is useful as a planning tool, working from sustain-able strategic success at the top, to derive implications for HR practicesand investments at the bottom. This is the traditional approach, typi-cally adopted by business and HR leaders, textbooks, and consultingfirms. Our work has shown, however, that the framework is alsouseful in guiding execution, by starting with HR investments and prac-tices at the bottom and clarifying how they connect upward to businessprocesses, resources, and sustainable strategic success. We also find ituseful when talent questions "start in the middle." HR professionalsare often confronted with a request such as "we need to get ourmanufacturing employees to be more innovative." The frameworkguides a dialogue beginning with this element ("human capacity" in theform of innovation), identifies how it connects to key aligned actions,talent pools, and business processes/resources (moving upward). Ifinnovation is found to be a high-impact human capacity, the model canhelp to identify the HR practices that will most enhance it (movingdownward from "human capacity").

For example, one HR manager met with a business leader to comeup with a standard headcount budget and expected number of employ-ment requisitions for the coming year. Rather tban simply focusing onheadcount gaps, he used the decision framework, asking: "Whatdo these employees do tbat makes the biggest difference to yourbusiness?" (aligned actions], "How does their activity blend with oth-ers in the organization to create that value?" (talent pools), "What arethe key processes in the business where these activities have theirbiggest effect?" (business processes], and, finally: "How does doingthese processes well contribute most to our ability to build and sustainan advantage in the marketplace?" (sustainable strategic success).The line manager said: "This is certainly a different conversation thanI usually have with someone from HR. I never before saw headcountplanning as so strategic!"

The Decision Framework Applied: Federal ExpressAsia-Pacific

Federal Express in the Asia-Pacific region is useful for illustratingthe framework, because it is a familiar organization that offers someinteresting insights into the model.

Impact concerns "How much will strategic success increase byimproving the quality or availability of a particular talent pool?" MostHR and business leaders asked to identify the key talent at FederalExpress will name pilots, logistics designers, and top leaders. No onecan deny their importance. At Federal Express Asia Pacific, some of thelargest opportunities to improve on-time performance and customersatisfaction might lie with a relatively "undervalued" talent pool:couriers and dispatchers. Our investigation showed it was not unusual

for couriers to encounter a customer who said something like thefollowing: "Can you wait 15 minutes, because I will bave eight morepackages for you." The quality of courier responses, multiplied acrosshundreds of incidents every day, contributed significantly to the effec-tiveness or ineffectiveness of the entire system. Waiting at the wrongtime could cause a truckload of packages to miss the timing windowat the airport hub, and be delivered late. Not waiting, when time isavailable, caused needless customer dissatisfaction. Improving thequality of the courier/dispatcher talent pool on this important alignedaction was actually more pivotal even than improving pilot quality. Atraditional analysis would identify pilots as a more valuable talent poolon average, and we would concur. Pilots have higher salaries, highereducational requirements, and handle aircraft worth millions of dollars.Yet "talent pool pivotalness" ftxruses on how improvements in talentenhance strategic success. Pilots are important, but little gain would beachieved by improving pilot performance. The framework revealedthat there was more opportunity to advance the strategy by improvingthe performance of couriers than that of pilots. Moreover, it identifiedprecisely what elements of courier performance mattered most.

Effectiveness concerns "How much do HR programs and process-es affect the capacity and actions of employees in each talent pool?"Capahility (can employees contribute?), opportunity (do employees getthe chance to contribute?], and motivation (do employees want to con-tribute?) are the elements of "Human Capacity" in Exhibit 1. AtFederal Express Asia-Pacific, the "aligned action" would be tbe correctresponse to the customer request. Understanding this reveals newopportunities for HR programs to create aligned actions through capa-bility, opportunity, and motivation. For example, in Asia, unlike in theUnited States, common social status differences often mean couriersexpect to defer to the customer, and might find it inappropriate to say"No" to a customer request. Considering the impact of this action, cre-ating for couriers the motivation, capability; and opportunity to say"No" may be one of the most strategic investments the organizationcan make. For example, "opportunity" can be created by adding addi-tional shipping trucks to handle overflow. Couriers could then say"No, I can't take your additional packages now, but 1 can send some-one who can." Tbus, a deep and logical analysis of the courier talentpool's aligned actions can reveal improvements in the design of theground operations system.

Efficiency concerns "How much HR program and process activitydo we get for our investments (such as time and money) in HR pro-grams, practices, and functions?" In the Federal Express example, HRmight have benchmarked its efficiency by measuring cost-per-hire, pay-per-employee, or time-to-train. Usually, such benchmarking suggestswhere costs/time can be reduced, or where volume of HR activitycan be increased, without spending more. The more complete analysissuggests that it might make sense to spend more resources than theircompetitors, to get the right couriers and dispatchers, precisely becauseof their strategic importance. Competitors battling to reduce HRexpenses by hiring tbose wbo will work most cheaply may beoverlooking the strategic opportunity that better-qualified workers canproduce in these pivotal roles.

Putting Talentship into Action by Integrating withOrganizational Processes

The new paradigm of talentship and decision frameworks like thatin Exhibit 1 are effective when they improve decisions that matter mostto sustainable strategic success. That requires not just a decision sci-ence, but also integrating the decision science within the organization'songoing processes. The framework often has its greatest value as a

H U M A N RESOURCE PLANNING 2 8 . 2

guide ro reframing talent issues within existing strategy discussions,budgering processes, or talent management and performance process-es. Our experience suggests that it is often tempting for HR leaders toannounce the framework as n "new HR planninj^ model," with a hostof forms to be filled-in by HR and business leaders. Such attemptsrarely work well. Instead, the most successful organizations integratethe principles of the framework into their existing decision processes,just as tbey integrate basic financial models such as EVA and ROIC.The framework provides a way to organize and synthesize data fromdifferent organizational systems (strategy, capital budgeting, opera-tional budgeting, financial reporting, product line analysis, etc.) toinform better talent decisions.

Many leaders duh this a ''stealth" approach, because it avoids rigid-ly imposing tbe decision l^ramework, or any model, as something thatmust be "completed" or "filled in." Instead, wise managers use theframework to suggest new questions, to reframe existing data and

ser\-ices. It requires extending the traditional senice paradigm tobecome accountable for great decisions about talent, wherever they aremade, and where they matter most. This requires buiiding decisionframeworks that logically connect decisions about talent to strategicsuccess, and provide the language that HR leaders use to collaboratewith, have deeper conversations with, and teach their colleagues to findnew answers to strategic questions—answers that reflect a unique per-spective based on human behavior and the principles of talent markets.

This new paradigm based on talentship, a decision science fortalent resources, is a significant opportunity for organizations toachieve sustained competitive success through one of their most impor-tant resources: the talents of their people. Historically, decision sciencessuch as marketing and finance were paradigm shifts. The time hascome to embrace and build the new decision-based paradigm in humanresource management.

Wise managers use the framework to suggest newquestions, to reframe existing data and questions,and thus to develop a collaborative point of viewabout how talent connects with organizationalstrategic success

questions, and thus to develop a collaborative point of view about howtalent connects with organizational strategic success. In the end, it isabout raising the quality of tbe "conversations" that take place whentalent decisions are made. This embeds talentship within the organiza-tion's existing processes and provides an unthreatening engagement forthe organization's strategic and business leaders.

Many organizations already use models that contain several com-ponents of the framework like HC BRidge® in Exhibit 1, but organi-zations often use them only to describe what HR does or intends to do,or to rationalize investments in HR processes after decisions are made.Talentship, like other decision sciences,, reveals the power of applyingthe decision t-ramework when it can have the greatest effect: Beforemaking the decisions.

It is also important to embed this paradigm shift within the process-es of HR itself. Talentship has significant implications for virtuallyevery element of human resources, including measurement, strategy,competencies, leadership development, and HR infrastructure. Thistransition can be daunting if it implies that leaders inside and outsideof HR must change immediately. Fortunately, the new paradigm canhegin from many points, and often with the issues with which HRorganizations are already engaged. Many organizations have foundtbat they can make significant improvements by working tbrougb oneHR process at a time. As each process is redesigned within a commondecision framework, opportunities for enhanced integration and com-munication can arise to create new synergy for the organization.

ConclusionThe new paradigm for HR requires more than knowing tbe business

or applying financial and marketing principles to HR programs and

BIOGRAPHICAL SKETCHES

John W. Boudreau, Ph.D., Professor and Research Director at theUniversity of Southern California's Marshall School of Business andCenter for Effective Organizations, is recognized worldwide for break-through research on the emerging HR decision science tbat providesthe bridge between superior human capital, talent, and sustainablecompetitive advantage. Dr. Boudteau also consults and conducts exec-utive development with companies worldwide that seek to maximizetheir employees' effectiveness by discovering the specific strategic bot-tom-line impact of superior people and human capital strategies. Hisconsulting and research clients include Asian Development Bank,Boeing, Bristol-Myers Squibb, Citigroup, Corning, Dell, Frito-Lay,Gap, GE, The Hartford, Mattel, Merck, Microsoft, NorthropGrumman, Novartis, PepsiCo, Royal Dutch Shell, Sun Microsystems,ToysRUs, United Technologies, Unisys, the United Nations, the USOffice of Personnel Management, and Williams-Sonoma. He is aninvited facilitator in executive programs witb IMD, Wharton, andCornell University.

Before joining tbe faculty at the University of Southern California,Professor Boudreau was a Professor of Human Resource Studies atCornell University for over 20 years, and the Director of Cornell'sCenter for Advanced Human Resource Studies (CAHRS). He was anarchitect and the first Visiting Director of Sun Microsystems' uniqueResearch and Development Laboratory for Human Capital. ProfessorBoudreau is a Fellow of the National Academy of Human Resources.He has published more than 50 books and articles, and co-authored abest-selling textbook on human resource management (eight editions),translated from English into Chinese, Czech, Spanish, and others. His

HUMAN RESOURCE PLANNING 28.2 25

research has received the Academy of Management's OrganizationalBehavior New Concept and Human Resource Scholarly Contributionawards.

Dr. Boudreau is a member of the board of advisors of the HumanResource Planning Society, WorldatWork, and Brassring.com, a tech-nology information and career portal. He is a Trustee for theFoundation of the National Academy of Human Resources, andchaired the Academic Advisory Board of tbe California Strategic HRPartnership, a Silicon-valley HR executive consortium. He has alsobeen elected to the executive committees of the Human ResourcesDivision of the Academy of Management and the Society for Industrialand Organizational Psychology. Dr. Boudreau received his MBA andPh.D. from Purdue University's Krannert School of Management.

Peter M. Ramstad is Executive Vice President for Strategy andFinance at Personnel Decisions International (PDl). Over the past 15years, Mr. Ramstad has held various leadership positions within PDI,providing many opportunities to work first-band with the core tools ofbusiness strategy, organizational effectiveness, and talent development.Prior to joining PDI, Mr. Ramstad was a partner with a major publicaccounting firm focusing on financial, operational, and systemsconsulting in high-tech and service environments.

Mr. Ramstad has formed research partnerships with faculty frommajor universities to study how people create value, and how thatvalue can be measured. As a part of this research, Mr. Ramstad hasworked with clients to understand and measure the financial implica-tions of employee development and effective management. He hasalso done considerable work on the Imkage between strategy, organi-zational systems, and the talent implications. He bas been a speaker atmany professional and academic conferences and has participated asa faculty member in executive education environments and for manycorporate events.

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