1. © 2009 Boudreau-Ramstad Partnership. All rights reserved. John W. Boudreau Center for Effective Organizations Marshall School of Business University of Southern California 213-740-9814 john.boudreau@usc.edu SIOP Annual Meeting New Orleans, LA April 2, 2009 Evidence-Based Management as a Decision Science: Considering the Mental Models of Leaders

2. © 2009 Boudreau-Ramstad Partnership. All rights reserved. IPO Investors Miss the HR Connection Companies whose investor communications indicate people are important: At Time of IPO Priced lower Five years later Valued higher Survival is higher  Average HR value 70% survival  High HR value/rewards 92% survival  Low HR value/rewards 34% survival Theresa Welbourne & Alice Andrews (1996)

3. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Manufacturing or technology company High-growth potential in the long term Strong market demand Constrained resource: Project engineers to customize the products to the needs of the clients Example: Managing the Right Asset?

4. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Complete certain projects Add six new project engineers Goals: Actual: Completed projects Only added three new engineers Traditional Budgeting Objectives

5. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Completed all objectives Expenses under budget Most systems would reward budget goal But, the expenses saved are minimal They are in a weaker position – compared with if they had staffed as planned Typical Performance Appraisal

6. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Meet the operating budget for the region Fill the vacant GM positions Goals: Actual: Met the operating budget Hired only GM’s who did not require paying more than target salary Actual Example from a Retail Organization

7. © 2009 Boudreau-Ramstad Partnership. All rights reserved. HR At the Table But Traditional HR Considered Very Important for its “Strategic Contribution” by 67% of Executives Source: High Performance Workforce Study, Accenture, 2003 “Strategic Contribution” Is Defined Traditionally Tools for Attraction and Retention Succession Planning Consistency in rewards, training, etc.

8. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Leader Talent Sophistication (Lawler & Boudreau, “Achieving Strategic Excellence” 2008) To what extent are these statements true about your organization? (1= little or no extent; 2=some extent; 3=moderate extent; 4=great extent; 5=very great extent) Average (HR sample) Average (Non-HR sample) Strategic Role (HR sample) Strategic Role (Non-HR sample) Business leaders understand and use sound principles when making decisions about: Motivation2.73.0.31**.40*.16 in ’04 Development and Learning2.83.0.27**.48**.18 in ’04 Labor Markets2.73.1*.18.33*.28* in ’04 Culture2.93.1.21*.32*.07 in ’04 Organization Design2.83.1.32***.60***.17 in ’04 Compare to more “traditional” management disciplines Business Strategy3.63.7.22*.15.15 in ’04 Finance4.04.1.20-.04 Marketing3.53.2.22*.25 Technology3.3.22*.25 HR systems educate business leaders about their talent decisions 2.52.6.28**.69***

9. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Applying Supply-Chain Principles To Retention Are Turnover Rates Too Dangerous to Share with Non- HR Leaders?

10. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Typical Turnover Analysis Logic Spend months defining the right turnover rate Benchmark against industry competitors Report turnover rates and benchmark levels to non- HR leaders Hold leaders accountable for bringing turnover down Calculate the costs of separating and replacing employees to show the millions of dollars saved

11. © 2009 Boudreau-Ramstad Partnership. All rights reserved. A More Complete Turnover Logic Starting Workforce Value Quantity of employees X Quality of Employees Change in Workforce Effect of Acquisitions Quantity of employees added X Quality of Employees added Ending Workforce Value Quantity of employees X Quality of Employees Effect of Separations Quantity of employees removed X Quality of Employees removed Minus the Transaction Cost of Processing the Separations and Acquisitions

12. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Talent Supply Chain: Sourcing and Screening Building and Planning Improve the number and quality of individuals that might become candidates Potential Labor Pool Labor Pool Applicant Pool Candidate s for further evaluatio n Offer Candidate s New Hires Productiv e Employee s Recruiting Identify the number of qualified candidates that best suits your organization’s recruiting needs. Screening Screen for predictors of performance: Universal metrics as well as specific criteria by company.

13. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Talent Supply Chain: Selecting, Landing and Retaining Selecting Metrics that provide consistent predictors of performance and reduce human variability (error) Offering and Closing Objective is to close a high percentage of the highest potential candidates. On-Boarding Establish new person in their position and retain them. How long must employees stay to payout the recruiting costs? Potential Labor Pool Labor Pool Applicant Pool Candidate s for further evaluatio n Offer Candidate s New Hires Productiv e Employee s

14. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Recurring Theme: The Relationship Between Talent and Organization Quality, and Strategic Payoff

15. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Talentship Approach: “What is Pivotal? Where would improvements in talent quality or quantity make the biggest difference in the most pivotal processes for the Disney theme park business?

16. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Sweepers Stop sweeping and talk to guests Give accurate information Create delightful encounters Fix problems before they occur Bring information to product design teams Aligned Responses “What employee behaviors make the biggest difference?” Aligned Responses “What employee behaviors make the biggest difference?” Example: Sweeper at Disney

17. © 2009 Boudreau-Ramstad Partnership. All rights reserved. Pivotal and Important Are Different Strategic Value Performance Worst Mickey Mouse Worst Sweeper There is more value in improving Sweepers than Mickey Mouse. Best Mickey Mouse Best Sweeper