Evidence-Based Human Resources
Trusted
Insights for
Business
Worldwide
research reportE-0015-07-RR A Primer and Summary of Current Literature
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Evidence-Based Human ResourcesA Primer and Summary of Current Literatureby John Gibbons & Christopher Woock
contents
4 Introduction:
Setting the Context
5 Evidence-Based Human Resources:
What Makes this Approach Different
6 Part I.
The Evolution of Human Resources Management Literature
10 Part II.
The Paralell Evolution in Labor Economics
13 Part III.
The Emergence of Evidence-Based Human Resources
17 References
20 Appendix 1
21 About the Authors
Human capital is possibly the most vital,yet overlooked, means of establishingcompetitive advantage for companiestoday. Business periodical have featuredthe “global war for talent”, the need forbetter ways to encourage innovation, thecomplexities posed by the maturing work-force, or the preparedness of the talentpipeline. Further, rarely can one lookthrough a company’s annual report orlisten to a CEO presentation withoutbeing reminded that “people are ourgreatest asset.” Regardless of how well executives may genuinely extol thenecessity to attract, grow, motivate, andretain talent, the means of measuring themanagement of talent and, more impor-tantly, empirically demonstrating itsimpact continues to lag behind.
A 2007 study by The Conference Board (StrategicHuman Capital Metrics: Orientation, Accountability, and Communication by Stephen Gates) reveals some
encouraging signs. It found that human capital analytics
are being used by many companies to establish perform-
ance goals.. However, it is not clear whether these human
capital measures are being linked to meaningful company
financial or operational performance outcomes, or are
simply being used to evaluate how efficiently the human
resources function is managing itself. Since more than
half of the participants in the study also said that their
HR department plays “no role at all” in developing their
company’s strategy, it stands to reason that these advances
in the use of human capital analytics are less focused on
business strategy and more on department efficiencies.
Advancing the study of human capital analytics and
the profession of human resources in general, faces
challenges:
� Human resources leaders should not be satisfied with
simply demonstrating the efficient use of human capital
and begin to work on empirically demonstrating how
talent drives the performance of their organization.
� Human resources professionals need to learn that
“being at the table” is just the beginning. New tools and
competencies are necessary for leading the conversation
once they “get the seat.”
� If business leaders genuinely believe that “people are
our greatest asset”, human resources leaders have the
mandate to move the management of human capital
beyond simply being aligned with their companies’
strategies and discover how talent can be powerfully
integrated into them.
This literature review of Evidence-Based Human
Resources marks the beginning of what is anticipated
to be a series of reports dedicated to exploring the appli-
cation of rigorous empirical methods and “standards of
evidence” to assist executives in integrating strategy
and talent.
The central purpose of this report is to demonstrate
that, as a result of the convergence of technological
advances, academic research, and economic necessity a
new evidence-based approach to measuring and manag-
ing talent is emerging.
4 The Conference Board
Introduction
Setting the Context
Ev idence -Based Human Resources 5
“Faith is the substance of things hopedfor, the evidence of things not seen.”New Testament, Hebrews 11:1
“All credibility, all good conscience,all evidence of truth come only from the senses.”Friedrich Nietzsche (1886)
For generations the field of human resources has been a
discipline of faith, embedded in a business/economic sys-
tem dependant on hard evidence. For human resources
practitioners, the two statements above, aligned side by
side, resonate with how they work every day. HR profes-
sionals know that intangible assets, such as talent, drive
the performance of their business. They have faith inthings not seen. Yet, they also understand that business
cases are built on empirical demonstrations of how strat-
egy gets implemented into action, and how that action sub-
sequently leads to observable (and predictable) outcomes.
They know that, in business truth comes from the senses.
Fortunately, advances in research, technology, and tech-
niques for measuring intangibles—along with a timely
convergence of academic disciplines—may have pro-
duced a solution that allows Human Resources practition-
ers to stay true to their faith, yet gives them the means
of producing business cases that appeal to the senses.Evidence-Based Human Resources applies scientific
standards of causality to demonstrate how intangible
human capital can be observed and shown to add tangible
business results.
Evidence-Based HR—State of the ArtThis evidence-based approach to managing talent uses
both empirical methods of analysis and standards for
evaluating evidence to build the argument that talent
drives business performance.
This new movement toward using evidence to guide
decision making holds great promise, and does not
require HR to discard its scorecards, strategy maps,
or other modes of reporting measures. Instead, this
evidence-based movement compliments, and indeed
enhances existing practices, by providing factual evi-
dence as a foundation for decision making. Evidence-Based Human Resources, rests on two key
characteristics:
1. Focus on Business Strategy: HR professionals start
with the financial and organizational performance
measures that are most critical to their business. Then
they use quantitative methods to identify the human
capital strategies that drive those outcomes.
2. Standards of Evidence: Researchers and practitioners
apply a set of criteria to determine the presence and
strength of a causal relationship. Such critical
evaluation will allow practitioners to design human
capital strategies that have predictive heft.
The latest developments in HR management are about
changing the way HR managers think and the questions
they ask. It also is changing the way they gather, process,
and (most importantly) evaluate information. These
developments hold the promise of helping the profession
move beyond chasing fads and looking for the next great
“plug-and-play,” to getting to the real work of helping
their organizations improve business results through
more effective management of people.
This report documents the evolution of the field of
human resources and, in particular, the advances in
techniques and technologies for measuring human capital
dynamics. It also serves as a review of the current litera-
ture from an array of the social sciences, providing an
overview of the achievements in measuring the impact
of talent on business performance. Finally, it specifically
reviews examples in the literature that employ evidence-
based approaches to human capital management.
Evidence-Based Human Resources
What Makes this Approach Different
The application of analytics to humanresources is not new. For decades statis-tics have been used to track such thingsas the costs of labor and employee bene-fits, manufacturing downtime, and workerproductivity. However, the use of meas-urement in human resources was revolu-tionized in 1984 when pioneer Jac Fitz-enzand his firm, The Saratoga Institute, pro-duced the first national study on HR met-rics. His book How to Measure HumanResources Management, which wasreleased in the same year, quicklybecame the field’s standard text formetrics, and is now in its third edition.
Fitz-enz’s work was revolutionary, applying basic formu-
lae to everyday HR functions to measure their efficiency
and effectiveness. His research sought to identify basic
formulas for identifying the costs and benefits resulting
from employee turnover, recruiting methods, training
learning curves, etc. The application of metrics to HR
was a critical step forward, demonstrating that it is possi-
ble to measure some of the key aspects of the human side
of a company. The research by Fitz-enz and the Saratoga
Institute during the 1980’s introduced measurement
into how human resources departments are managed.
Nonetheless, most firms continued to view HR primarily
as an overhead expense.
Since Fitz-enz introduced measurement to the HR func-
tion in the 1980’s most of the focus has been primarily
on measuring the efficiency of HR functions. This focus
fails to address the more meaningful issues of o how
human capital creates value and how HR interventions
serve as catalysts for improving business outcomes. In
his 1997 book, Human Resource Champions, Dave Ulrich
challenged HR professionals to show the value they deliver
to a firm. He argued that human resource practices must
be viewed as a source of competitive advantage, or else
the HR function will be treated as a cost that must be
minimized (likely resulting in outsourcing).
The Importance of Talent to CompetitivenessAs the U.S. economy continued to transition toward a
greater emphasis on services and innovation in the mid-
and late 90’s, the business community began to place
greater emphasis on the strategic use of human capital.
In particular, the high-tech boom and the rise of interna-
tional competition from Asia led to a realization that
global competitiveness depended upon a company’s
ability to compete in the marketplace of “talent.”
David Lewin and Daniel Mitchell (1995) advocate seg-
menting the workforce into two groups: “a core and a
periphery.” The core segment is essentially the group
of workers who are considered a valued resource to be
invested in (they receive training, promotion, and promo-
tion based pay, and often participate in decision-making
processes), while the periphery are viewed as a basic
input whose costs should be minimized. Under this
framework, Lewin and Mitchell (1995) and Lewin
(2003, 2005) suggest targeting high-involvement HR
management practices (such as employee involvement/
teams, variable pay tied to performance, training, selec-
tive hiring, and employee decision making) at the core,
while targeting low-involvement HR management
practices (characterized by part-time and temporary
employment, contract employment, and outsourcing) at
the periphery. These high-involvement HRM practices
are “investments in human capital that will (ultimately)
yield net economic return (value added) to the entity
making the investments.”1
The publication of the book The Service Profit Chain(Heskett, Sasser, and Schlesinger, 1997) was an impor-
tant milestone in recognizing the importance of human
capital on customer satisfaction and loyalty. While the
authors primarily emphasized customers and their central
role in growth and profit strategies, they posited that
employee productivity and work quality also had a bear-
ing on how companies create a lasting relationship with
their customers. While The Service Profit Chain pro-
motes a conceptual model for understanding how
6 The Conference Board
Part I. The Evolution of Human Resources
Management Literature
1 Lewin (2003).
Ev idence -Based Human Resources 7
employees drive customer value (which ultimately drives
business performance), the authors find that in practice
firms are only monitoring a small subset of the links. As
a result, The Service Profit Chain is filled with examples
of each link, but none that demonstrate a complete chain.
Ed Gubman’s book The Talent Solution (1998), focuses
in on the employee relationship to demonstrate that talent
is critical to the success of business. Gubman calls for
human capital strategies to be aligned with the various
components of the company’s overall strategies, and
included guidance on how to implement HR metrics.
Viewed together, The Service Profit Chain and The TalentSolution represent the natural progression toward a con-
ceptual model of the talent-customer-profit relationship.
This framework was expanded by John Boudreau and
Peter Ramstad (2002), who advocated “a new decision
science … ‘Talentship.’” They emphasized providing
strategic decisions based on the talent within the firm.
The responsibilities of “Talentship” within the firm, as
defined by Boudreau and Ramstad, is as a strategic
business partner akin to finance and marketing, while the
traditional operational functions of HR play supporting
roles similar to accounting and sales.
Another important perspective on the impact of human
capital on organizational performance was contributed by
Dave Ulrich and Norm Smallwood in their book Why theBottom Line Isn’t (2003). Ulrich and Smallwood asserted
that enterprise-level HR capabilities such as the ability to
attract and retain talent, to recognize and adapt to new
market conditions, or to innovate quickly and deliver
new goods and services in a timely way are, by nature,
intangible human capital assets of an organization, yet
they obviously have a direct impact on a firm’s overall
value. Their perspective essentially called for the human
resources function to move away from simply providing
support for executing the organization’s strategy, and
toward actually driving the strategy itself.
Technology Changes HR’s Capabilities
The work of Jac Fitz-enz and the Saratoga Institute dur-
ing the 1980’s introduced measurement to HR, but it was
the computer revolution, with its delivery of greater stor-
age capacity and speed, that brought these measurements
to the broader HR community. From the early 1980’s
through the mid-1990’s, U.S. businesses invested over
$1.1 trillion in computers and peripheral equipment.2
This investment in computers, along with the exponential
increase in computing capabilities, the development of
and access to the internet, and the development of HR
information systems (PeopleSoft, Lawson, Oracle, SAP,
etc.) greatly expanded most large organization’s capacity
to collect, tabulate, and report a myriad of measures.
Benchmarking, which began over 25 years ago in the
Xerox Corporation,3 has advanced dramatically since the
advent of the information age. While comparing an orga-
nization’s human capital strategies against the “best in
class” companies is not a new concept, the sophistication
with which benchmarking now takes place has been rev-
olutionized by the advent of massive databases main-
tained by leading research and consulting firms such as
Gallup, Mercer, SAS, Hewitt, and Price Waterhouse
Coopers. Companies can now compare themselves to
other companies using any number of financial and
human factors with a speed, precision, and richness that
was not available ten years ago.
While capacity for computing HR metrics has been dra-
matically improved by the creation of these database
services, the basic technique of benchmarking continues
to have its limitations. First, benchmarking is a method
of generating a rich, vivid “mirror” which, although
increasingly accurate, only reflects the practices of one’s
competitors. It does little to provide insights into how or
why financial and human strategies should be aligned.
Moreover, if misused, benchmarking can serve as a dis-
service to HR departments, since there is typically an
underlying assumption that benchmarks serve as the fuel
in a continuous process of “doing more with less” while
failing to recognize how human capital serves as a means
for generating value for the company.
2 Sichel (1997); investment amount expressed in 2007 constantdollars.
3 Tucker, Zivan, and Camp, 1987.
In 2001 Brian Becker, Mark Huselid, and Dave Ulrich
published The HR Scorecard. This book was a human
resources extension of Robert Kaplan and David
Norton’s The Balanced Scorecard (1996), which moved
beyond benchmarking and advocated individual firms
choose the measures appropriate for monitoring their
execution against strategy. The HR Scorecard provided
a wide array of Human Resources metrics that could
be applied and integrated into a Balanced Scorecard
methodology. In 2005 Huselid, Becker, and Richard
Beatty followed up with The Workforce Scorecard,
expanding the metrics to include overall human capital
measures in addition to Human Resources functional
measures.
The scorecard technique4 is valuable—it serves as a
means by which human capital metrics are viewed in
alignment with the execution of the company’s overall
strategy. It also elevates human capital issues as mean-
ingful to the entire organization, not simply the HR
department. However, while the scorecard approach
serves as a valuable means of determining how to use
human capital metrics, it doesn’t provide the more impor-
tant insight into why metrics are important, which metrics
to choose, or what they represent in terms of how human
capital generates value.
Somewhat paradoxically, these more recent techniques
for analyzing data demonstrate how little ground has
been covered in the past two decades. Benchmarking is
akin to the original human resources measurement work
in that, despite its sophistication, it is simply a tool for
measuring the efficiencies of particular HR functions.
Certainly, scorecards have moved human resources
toward the C-suite, providing HR practitioners with
measures and means of presenting their function in ways
that are more consistent with finance, operations, and
marketing. As a result, HR has become a strategic partner
in a growing number of firms. However, none of the pre-
viously mentioned concepts or practices go beyond using
intuition to determine which levers HR can pull to impact
the firm’s overall success —that is, providing concrete
evidence of the true drivers of the firm, and how can HR
influence those drivers.
Existing Evidence in the Academic Literature
The late 1980’s and 1990’s brought the first serious
attempts to link HR practices to a company’s financial
performance. A number of early studies looked at the
impact of specific human resources functional areas
such as training,5 selection and staffing,6 performance
appraisals,7 and compensation8 on various financial
performance indicators of individual companies. These
studies9 based their (sometimes bold) conclusions on
the intuitive appeal that an HR practice (or group of
practices) causes the performance outcome. With few
exceptions, however, the empirical rigor of these studies
was limited to finding correlations between two variables
(e.g. incentive compensation and increased sales). In
other words, they failed to meet more rigorous standardsof evidence to show that these practices actually causedthe business performance outcome.
As shift in focus within the Human Resources
Management literature from the impacts of individual
HR management practices to the interrelations and
impacts of groups, or bundles, of HR management prac-
tices began to take hold in the early 1990’s. The research
supporting this shift consistently found that the impacts
of implementing a group of HR management practices
are larger than the combined individual effects of the
practices (e.g. MacDuffie, 1995). The focus on groups
of HR management practices also began to (oftentimes
implicitly) make the link between HR management prac-
tices and firm strategy. As MacDuffie (1995) observed, it
is not the bundle of HR management practices alone that
creates a competitive advantage for the firm. Innovative
HR management practices designed to increase motiva-
tion, involvement in the production process, and the
accumulation of skills must be matched to a production
process “for discretionary effort to be appropriately chan-
neled toward performance improvement” (p. 199).10
8 The Conference Board8 The Conference Board
4 The scorecard technique originated at Analog Devices. SeeKaplan and Norton (1992 & 1993) for background.
5 Russell, Terborg & Powers (1985).
6 Terpstra & Rozell (1993).
7 Borman (1991).
8 Gerhart & Milkovich (1992).
9 The research on Human Resources Management practices hasbeen primarily empirical. For an overview of the theoreticalunderpinnings of HR management, see Delery and Doty (1996).
10 For example: If a manufacturing plant switches to a “lean”production process, the HR management practices must beadjusted to compliment an environment which provides a largerrole for employee influence.
Ev idence -Based Human Resources 9
More recently, Wright et al. (2005) evaluated 66 studies
from the HR management and Organizational Psychology
disciplines that examine “the relationship between a sys-
tem of HR practices … and organization-level perform-
ance measures.” They apply a rigorous set of criteria to
identify the studies that have provided a compelling case
for a causal relationship between HR-related measures or
actions and performance outcomes.11 As a result, Wright
et al. reduce these 66 studies down to 10 that they
describe as “true ‘predictive’ designs.”
The 10 studies identified by Wright et al. as having a
truly predictive design all address the same basic ques-
tion: What is the impact of multiple HR management
practices on firm performance? Despite the wide range of
HR measures and firm performance measures, nine of
these studies present (at least some) evidence that HR
strategy has an impact on firm performance. In most
cases, the HR measures are indices or scales created by
the authors to measure the degree of presence. The down-
side of creating indices to measure HR management
practices is that there is no clear, practical interpretation
of the coefficients. As a result, practitioners can find con-
firmation in what they already believe: HR management
systems have a significant positive relationship with firm
performance measures. But there are no definitive actions
for the practitioner to take away from studies that meas-
ure HR management practices using an index number.
Another finding that emerges from these studies is that
once past performance is controlled for, many of the rela-
tionships between HR management practices and firm
performance are reduced and in some cases disappear.
Huselid, Susan Jackson, and Randall Schuler (1997) sur-
vey senior executives in HR management and line posi-
tions to assess “HR management effectiveness across a
wide range of practices” and the capabilities of the HR
staff. Their results suggest that HR capabilities are signif-
icantly correlated with future performance, while HR
effectiveness is not a significant predictor. However,
when the contemporaneous performance measure is
included as a control variable, the magnitude and signifi-
cance of HR capabilities are reduced. Like Huselid,
Jackson, and Schuler (1997), David Guest et al. (2003)
also find a strong positive association between their HR
management index and firm performance, but the rela-
tionship disappears once previous firm performance was
included as a control.
Finally, Benjamin Schneider et al. (2003) look at the
temporal relationship between employee attitude and
firm performance. Using seven different employee atti-
tude scales, the authors find some positive relationships
between employee attitudes and future firm performance.
However, there were more significant and strong rela-
tionships between employee attitudes and past firm per-
formance. These results highlight an important limitation
in many studies: including prior firm performance takes
into account the possibility that previous firm success
could influence both HR management practices and
future firm performance.
11 Combs et al. (2006) use a meta-analysis of 92 studies todetermine the magnitude of the relationship between HighPerformance Work Practices and firm performance. Their meta-analysis highlights a strong relationship between HPWP and firmperformance, but does not allow them to determine causal order.
In his book, The Wealth of Nations (1776),Adam Smith espoused the general con-cepts behind what economists refer to ashuman capital— the acquired skills andinnate abilities of an individual that makethem productive.12 Smith identified theinfluence of human capital, and morespecifically investments in it, on produc-tivity and economic progress.13 Howeverit was Gary Becker14 in the 1960’s wholaid out the fundamental conceptualframework for the modern economictreatment of human capital, whichincluded the distinction between general(or transferable) human capital and firm-specific human capital. Becker was alsoone of the first economists to apply eco-nomic methods to topic areas that hadpreviously been the domain of sociolo-gists and psychologists.15
The Development of Personnel EconomicsIn the years following the publication of Human Capital(1964), many labor economists set out to test and expand
the theories laid out by Becker. By the early 1990’s the
area of personnel economics had begun to take shape.
Personnel economics, which is the application of eco-
nomic theory and principles to the human resources prob-
lems of the firm, provides a solid theoretical foundation
to the rules and strategies of human resources manage-
ment— with much of this theoretical foundation backed
by rigorous empirical analyses. Much of this early work
was done by Edward Lazear,16 who is recognized as the
founder of personnel economics.
The role of economists in studying human resource man-
agement practices is becoming increasingly important,
since researchers and practitioners are sensing an urgency
to move away from casual observation and toward
causal evidence. The statistical tools used by economists
offer ways to control for individual worker ability, firm
(or plant) specific characteristics, simultaneity of events,
and prior conditions to establish a causal relationship.
Much of the work by economists has focused on individ-
ual components of HR management,17 such as piece
rates18 and other pay-for-performance measures,19
pensions and mandatory retirement, teams,20 promotion
schemes, training,21 turnover, and screening.22 But as
10 The Conference Board
Part II.
The Parallel Evolution in Labor Economics
10 The Conference Board
12 See Hamermesh and Rees (1993).
13 Smith also recognized how human capital accumulationimpacted the individual’s earnings capability.
14 The seminar work by Becker is his book Human Capital, originallypublished in 1964.
15 In 1992 Becker won the Nobel Prize in Economics “for havingextended the domain of microeconomic analysis to a wide rangeof human behaviour and interaction, including nonmarketbehaviour.” (http://nobelprize.org)
16 See Lazear (1991).
17 See Lazear (1995) and Lazear and McNabb (2004) for reviews.
18 Lazear (2000) finds the piece rate pay system implemented bySafelite Glass Corporation increased productivity and attractedmore productive workers.
19 Knez and Simester (2001) find on-time performance improved atContinental Airlines once the airline introduced monthly bonusestied to firm-wide performance.
20 Hamilton, Nickerson, and Owen (2003) found that when agarment manufacturing facility switched from an individual to ateam based pay system, productivity increased.
21 See Bassi and McMurrer (2006) for a review.
22 Huang and Cappelli (2006) find that screening results in hiringworkers who are more productive under systems with lessmonitoring, but firms also gain from implementing the lowmonitoring systems that complement these independentworkers.
Ev idence -Based Human Resources 11
economists have begun to gather insights from other
HR researchers, recent work has evolved to consider a
system of HR management practices that acknowledges
their potential complimentary roles and interactions.
Casey Ichniowski and Kathryn Shaw (2003) have intro-
duced an approach they call “insider econometrics,”
where they combine extensive field work with rigorous
econometrics to address the effects of HR management
on firm performance. The field work is focused on a
specific production process, allowing the researcher to
produce a detailed model of the production process and
collect the appropriate data needed to estimate the model.
To date, Ichniowski and Shaw have used this approach to
study steel finishing lines23 and valve manufacturing,24
but also recognize several other existing studies that fit
their model of insider econometrics.25
Economists can also provide broad macroeconomic
(national or global) information, in addition to analyses
of firm-specific phenomena. The macroeconomic infor-
mation helps provide a background and context in which
the HR policies and practices take place. For example,
global trends, such as increasing demand for high-skill
labor, without a countering increase in the supply of
high-skill labor, will result in fiercer competition (and
thus higher prices) for the “high-talent” workers.
Moreover, because supply of skilled labor has been
shown to catch up to demand with a significant lag,
firms can expect to pay a large premium for talent for
at least the near future. Broad information and insights
such as these may not be of great interest to the tradi-
tional HR managers, but those who participate in the
strategic decisions of their organization should be careful
not to ignore them.
Evidence of the Relationship betweenHR Management Practices and FirmPerformance in the Economic LiteratureThe growing body of work addressing clusters of HR
management practices26 often refers to and focuses on
“high-performance work practices.”27 Economic theory
says the transfer of (at least some) decision-making
power to employees leads to higher labor costs per
employee (with employees benefiting from higher
wages and benefits) while employers gain from increased
productivity. Thus, the implementation of “high-perform-
ance work practices” increases both labor costs and
productivity, resulting in a theoretically ambiguous
impact on profitability.
Using monthly data collected on 36 steel finishing lines
in the United States, Casey Ichniowski, Kathryn Shaw,
and Giovanna Prennushi (1997) investigate the produc-
tivity effects of “innovative employment practices.” In
their analysis of the impact of HR management on pro-
ductivity, they find that those plants with the most
sophisticated HR systems have the highest uptime, and
productivity is sequentially lower as you move toward
the traditional HR system. Further, by measuring the
“prime-yield rates”28 for the plants, the authors estimate
that the adoption of more innovative HR management
practices also resulted in improved quality (as measured
by an increase in the prime-yield rate).
23 Ichniowski, Shaw, and Prennushi (1997), Boning, Ichniowski, andShaw (2001)
24 Bartel, Ichniowski, and Shaw (2005)
25 See Ichniowski and Shaw (2003), p. 169.
26 Black and Lynch (2005) highlight some of the findings in theeconomics literature and address the difficulties that arise whentrying to measure organizational capital such as work design andemployee voice.
27 Cappelli and Neumark (2001) note the confusion introducedthrough the use of this phrase. For many studies, what is meantby “high performance work systems” depends on what ismeasured. Cappelli and Neumark cite Becker and Gerhart (1996)who count 27 different variables used as “high performance workpractices” across 5 studies, with only 4 of those practicescommon in 3 or more studies.
28 The percent of total production that met the standards to bedesignated “prime” finished steel.
Ann Bartel (2004) observes that prior studies on the
impact of HR management on productivity and perform-
ance focus on the goods-producing sector. Yet the serv-
ice-providing sector continues to increase in significance
and employment (in 2006 over 80 percent of employees
were in the service-providing sector of the U.S. econ-
omy).29 She addresses this gap in the existing literature
by collecting data on bank branches, and finds variation
in the applications of HR policies across branches, in
spite of a company-wide formal mandate for these poli-
cies. Once prior performance is controlled for; “perform-
ance and reward” is a significant factor in the percentage
change in loans balances, but not a significant factor in
the percentage change in deposits. Bartel (2004) con-
cludes that the “incentives” dimension of a high-perform-
ance work system in the most important predictor of
performance in the banking industry.
Peter Cappelli and David Neumark (2001) attempt to
solve the difficulty in the existing literature in establish-
ing whether observed links between work practices and
organizational performance are causal or merely reflect
pre-existing differences among firms. Using data from
the National Employer Surveys and the Census Bureau’s
Longitudinal Research Database, Cappelli and Neumark
find evidence that suggests “high-performance work
practices” increase sales per worker (productivity) and
labor costs, but no evidence that synergies between prac-
tices reduce costs.30 Because these HR management
practices appear to increase both productivity and costs,
the authors also estimate their impact on sales per labor
costs, or “labor efficiency.” The majority of the effects
point to offsetting relationships. As a result, implement-
ing “high-performance work practices” results in higher
labor costs and higher productivity, resulting in no net
effect on labor efficiency.
Finally, macro-level research by Laurie Bassi and Daniel
McMurrer (2004) shows that firms investing in employee
education and training (employee development) experi-
ence extraordinary shareholder return. They constructed
both hypothetical and actual investment portfolios
comprised of firms that invested heavily in employee
development in a given year, tracked them for several
following years, and found these indices to outperform
the S&P 500 over the same time horizon.
More recently, Bassi and McMurrer (2007) use informa-
tion from several dozen firms to look for human capital
measures that predict organizational performance. Using
the literature as their guide, Bassi and McMurrer were
able to discover which metrics consistently predict orga-
nizational performance (leadership, employee engage-
ment, knowledge accessibility, workforce optimization,
organizational learning capacity) and which metrics do
not (turnover rate, time to fill, total hours training).
They conclude, however, that while it is possible to use
a single framework to identify the most important human
capital drivers of organizations’ performance, it is not
possible to identify a single set of human capital metrics
that are equally important drivers of performance across
organizations (or even within a single organization at var-
ious points in its evolution).
12 The Conference Board
29 Authors’ computation based on Bureau of Labor Statistics,Current Employment Statistics program, Historical Table B-1.
30 Using firm level panel data, Black and Lynch (2001, 2004) alsofind high performance work practices significantly increaseproductivity, and find no evidence that more productive firmsimplement high performance work practices.
Ev idence -Based Human Resources 13
The advances in the sophistication ofanalytics in the field of Human ResourcesManagement, along with a convergenceof work coming from PersonnelEconomics, has led to a new approach to the practice of HR. This new approach,EEvviiddeennccee--BBaasseedd HHuummaann RReessoouurrcceess,, capi-talizes on these new analytic capabilitiesand the causal empiricism of economics.
Evidence-Based Human Resources is a philosophical and
pragmatic approach to the management of human capital.
Practitioners of Evidence-Based Human Resources focus
squarely on the impact of management practices on
observable financial and organizational outcomes; and
their decisions are guided by the best available evidence.
Much of the work in HR metrics to date has been
focused on improving efficiency or proving the value
of the HR function. Evidence-Based Human Resources
extends beyond this focus. In particular, practitioners ofEvidence-Based Human Resources are motivated by thedesire to find the critical human levers for improvingbusiness results.
This approach has been advanced in the academic litera-
ture beginning with the work of Brian Becker and Mark
Huselid (1998), and more thoroughly expounded by
Patrick Wright and colleagues (2005). Meanwhile, the
need for the use of empirical evidence in decision mak-
ing is being promoted in the popular press by Jeffrey
Pfeffer and Robert Sutton’s book, Hard Facts,Dangerous Half-Truths, and Total Nonsense: Profitingfrom Evidence-Based Management (2006).
The future is indeed promising. Boudreau and Ramstad’s
most recent book, Beyond HR (2007), advocates for the
emergence of a “talent decision science.” They assert
that, for HR to truly be a strategic partner, it must evolve
into a bimodal structure similar to the relationship
between accounting and finance, or sales and marketing.
According to Boudreau and Ramstad, human resources
practitioners currently have measures that are similar to
the tactical functions of accounting and sales. But the
strategic future lies in HR’s success in developing a set
of decision science standards comparable to those that
serve as the foundation for the fields of finance and mar-
keting. In particular, Finance and marketing use measures
that focus on delivering firm-level strategic outcomes,
rather than focusing on how well the (finance and mar-
keting) departments operate.
As mentioned earlier in this report, this approach rests on
two key characteristics:
1. Focus on Business Strategy; and
2. Standards of Evidence
Focus on StrategyFirst and foremost, Evidence-Based Human Resources
places strategy at the forefront. In their book StrategyMaps, Kaplan and Norton (2004) define strategy as
describing how the company “intends to create value”
for its stakeholders. The increasing reliance on intangible
assets to create and sustain firm value magnifies the
importance of a firm’s strategy.31 A key component
of intangible assets is the firm’s people— the existing
employees, knowledge base, customer relationships,
and organizational relationships —thus creating a critical
strategic role for human capital management.
Part III.
The Emergence of Evidence-Based Human Resources
31 Bassi and McMurrer (2007)
14 The Conference Board
Inherent in the firm’s strategy— its plan for developing
and sustaining competitive advantages—is a set of goals,
the achievement of which is synonymous with the suc-
cess of the strategy. Key Performance Indicators (KPIs)
are quantifiable measures that provide the firm with a
way of measuring progress toward their strategic goals.
KPIs are also useful because they are accepted across the
enterprise as indicators of success. The usefulness and
impact of KPIs will typically be greatest when they are:
� aligned with overall strategy;
� quantifiable and measurable; and
� recognized throughout the organization
as indicators of success.
Further, by establishing target values for each KPI,
organizations create a transparent and ongoing mecha-
nism for determining whether their strategic goals are
being (or have been) reached. KPIs help facilitate the
process by which each functional unit within the firm can
prioritize its efforts and focus resources on those levers
within its domain that impact the observable measures
that indicate the firm’s strategic success.
Standards of EvidenceThe second characteristic of Evidence-Based Human
Resources requires that information be rigorously evalu-
ated. Only recently has the academic research on HR
management practices paid explicit attention to the rigors
and methodologies required to lay claim to a causal rela-
tionship. Patrick Wright and colleagues (2005) have
drawn attention to the inability of past research to con-
vincingly show a causal relationship. They highlight
Cook and Campbell’s (1979) three criteria for showing
a causal relationship:
� a strong relationship exists between the two factors;
� the cause factor occurs before the effect factor; and
� the analysis must account for other possible influences.
Wright and colleagues add a fourth requirement for
establishing causation:
� data must be collected in a timely manner.
This fourth requirement is especially important when
measuring opinions and other subjective information.
Research has shown that people’s responses to subjective
questions about past events or practices are skewed based
on recent firm success or failure.32
How the Evolution of HR ManagementImpacts HR ProfessionalsA recent publication by Phil Rosenzweig, The HaloEffect (2007a), underscores the need for Human
Resources (and other business managers) to acquire the
basic skills necessary to analyze and interpret statistical
analyses. As Professor Rosenzweig states, “evidence-
based management can be a powerful tool—but only if
we’re clear about what constitutes valid evidence. Unless
we can distinguish ‘hard facts’ from questionable data,
we may not get very far, no matter how good our inten-
tions may be.”33 He also echoes the sentiments of
Boudreau and Ramstad, and Pfeffer and Sutton—that
it is crucial to measure what is important, not what is
easy (to measure).
As practitioners move forward, it is important not to let
the management of human capital be paralyzed by a lack
of consensus; “an approximate answer to the right ques-
tion is worth a great deal more than a precise answer to
the wrong question.”34 There is likely no single, univer-
sal answer. Our evidence-based approach provides a
framework that practitioners can use to find the right
answer for their unique organization. Businesses that
adopt the evidence-based framework must place the
existing literature within the context of their unique
situations, and evaluate the degree to which the
existing evidence fits their problem.
32 For greater detail, see the discussion and references in Wright etal. (2005), pages 410-415.
33 Rosenzweig (2007b)
34 Kennedy, 2003
Ev idence -Based Human Resources 15
Observations Concerning the Current Literature/Future Research
There are a number of ways that the body of research on
evidence-based approaches to management needs to con-
tinue to advance. First, while there has been a great deal
of research that identifies and reports the various metrics
that are employed by HR departments, there is very little
research or popular literature that has been designed to
identify the KPIs across organizations within the same
industry or (perhaps more importantly) publish these
KPIs in a format that makes them easy for the average
human resources practitioner to apply them to their own
organization, design human capital strategies that are
targeted toward them, and establish evidence-based
standards to determine whether these strategies are
having an impact.
Second, nearly all of the studies that have met Cook and
Campbell’s standards for showing causality have been
conducted within the context of a single enterprise. While
these studies may have demonstrated the impact of HR
management practices within a particular organization,
there is little evidence to show that the results could be
generalized to other organizations, let alone other indus-
tries. Therefore, there is a need for future research to
focus on the impact of particular practices (or combina-
tions of practices) across organizations while also meet-
ing the standards of causation.
Third, since there isn’t a large body of literature that
demonstrates the causal impact of human capital strate-
gies on organizational performance across organizations,
there is very little in terms of a “paved road” to identify a
universal set of concepts, standards, practices, or princi-
ples that are necessary for creating a genuine “decision
science” for human resources. Until this body of research
is created, the field is limited to simply describing what
the characteristics of the decision science are, without
actually creating it.
Finally, the impact of human capital extends beyond
the collection of contributions by individuals. Ulrich
and Smallwood (2003) make the important point that,
collectively, human capital creates organizational capabil-
ities that also create value. For example, organizational
cultures that foster innovation, structures that encourage
collaboration, or leadership teams that instill a feeling
of trust among employees are all enterprise-level intangi-bles, yet their impact on a firm’s performance (in the
form of new ideas and products, higher quality goods
and services, or a more dedicated workforce) are strategi-
cally important, and tangible. Future research should
not overlook the impact of these enterprise-level human
capital capabilities.
The Need for Cross-DisciplineCooperationSo how can economists, sociologists, and industrial
psychologists gain from each others’ work? Lazear
believes there is a mutually beneficial relationship
between economists and sociologists and industrial
psychologists that arises from the skills and approaches
within each group.35 The strength of economics is its
rigorous and analytic approach. However, such an
approach often requires the use of simplifying assump-
tions which, in turn, produce concrete, but narrow, solu-
tions. Sociologists and industrial psychologists, on the
other hand, have paid more attention to a deeper behav-
ioral approach to the relevant questions. Traditionally this
has resulted in findings that are less empirically rigorous,
but offer much more detail in the way of identifying the
problems, offering insights into individuals’ behavior
at work, and providing courses of action for managers
to follow. Lazear suggests that integrating economics
into the discussion can result in research that provides
practitioners with findings that combine the richness of
sociology and industrial psychology literature with the
empirical rigor of economics.36
35 See Lazear (1991) for more discussion on the role of economistsin addressing the practices within an organization.
36 Researchers in these fields have already begun to displaybenefits of integrated work, as sociologists and industrialpsychologists are stressing empirical rigor, and economists arebecoming more aware of underlying organizational behaviors.See Ichniowski and Shaw (2003) for a detailed discussion.
ConclusionEvidence-Based Human Resources is the natural outcome
of the ongoing evolution of the field of HR management.
However, this evolution would not be possible without
simultaneous evolution of Organizational Psychology,
Labor Economics, and other academic disciplines that
provide direction and insight for the management of peo-
ple in business. Additionally, advances in database tech-
nology, the emergence of the service-driven economy,
and the globalization of the labor market have all served
as catalysts for this transformation.
While many of the evolutionary forces are relatively new,
Evidence-Based Human Resources also applies long-
established standards for demonstrating causation using
the scientific method. These are not new standards, but
they are very new in their application to the field of
human resources.
Most importantly, Evidence-Based Human Resources
uses business performance measures as its outcome units
of analysis. By doing so, Evidence-Based Human
Resources serves as a means of providing genuine insight
into how talent drives the business.
Evidence-Based Human Resources serves to inform the
next generation of human capital analytics research and
development. Specifically, for non-HR business leaders,
it gives a better understanding of the human component
of the equation of business performance. For HR practi-
tioners, it sets the groundwork for making better business
cases. And finally, for everyone in the business commu-
nity, it provides greater appreciation for the traditionally
“intangible” contributions of talent. Indeed, it appeals to
the senses while keeping the faith.
16 The Conference Board
Ev idence -Based Human Resources 17
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20 The Conference Board
John W. BoudreauProfessor and Research Director
Center for Effective Organizations
Marshall School of Business
University of Southern California
Jac Fitz-enzChief Executive Officer
Human Capital Source
Edward L. GubmanPartner
Strategic Talent Solutions
David LewinNeil H. Jacoby Chair in Management
Anderson School of Management
University of California, Los Angeles
Jeffrey PfefferThomas D. Dee II Professor of
Organizational Behavior
Graduate School of Business
Stanford University
Jack PhillipsChairman
The ROI Institute
Peter M. RamstadVice President of Business and
Strategic Development
The Toro Company
Kathryn Shaw, Stanford UniversityErnest C. Arbuckle Professor of
Economics
Graduate School of Business
Stanford University
David O. UlrichProfessor of Business Administration
Director, Human Resource Executive
Program
Ross School of Business
University of Michigan
Patrick M. WrightProfessor of Human Resources Studies
Director, Center for Advanced Human
Resources Studies
School of Industrial and Labor Relations
Cornell University
Appendix 1
Evidence-Based Human Resources Advisory Panel
Evidence-Based Human Resources Research Working Groups Participating Companies
ABN AMRO/LaSalle Bank Corporation
Aetna, Inc./Schaller Anderson, Inc.
Alliant Energy Corporation
Allied Irish Banks
AMR Corporation/American Airlines
A.P. Moller-Maersk A/S
Avaya Inc.
Bank of America Corporation
Bank of Ireland
Best Buy Company, Inc.
BMO Bank of Montreal
Capital One Financial Corporation
The Clorox Company
Deere & Company
Deutsche Post World Net/Exel Inc.
FedEx Corporation/FedEx Ground
Fidelity Investments/Fidelity
Management & Research Company
GMAC ResCap
Humana Inc.
IBM Corporation
Lockheed Martin Corporation
McDonald’s Corporation
National Aeronautics and Space
Administration (NASA)/Johnson
Space Center
Nationwide Financial Services, Inc.
Navy Federal Credit Union
PetSmart, Inc.
Pharmaceutical Research and
Manufacturers of America (PhRMA)
The Royal Bank of Scotland Group
SAP America, Inc
Saudi Aramco/Aramco Services
Company
Science Applications International
Corporation (SAIC)
State Farm Insurance Companies
Target Corporation
Thrivant Financial for Lutherans
UBS
The Walt Disney Company
Wells Fargo & Company
The World Bank
Ev idence -Based Human Resources 21
John Gibbons is a Senior Research Advisor in the Management
Excellence Program at The Conference Board. In addition to
leading The Conference Board’s research in Evidence-Based
Human Resources, he is also responsible for the organization’s
employee engagement research practice. Gibbons joined The
Conference Board with more than 15 years as a Human
Resources practitioner, serving in HR management roles as well
as in specialist capacities in organizational development, com-
pensation design, and sourcing and staffing. He has a Masters
of Science in Organizational Psychology from Purdue University.
Christopher Woock is a Research Associate in the Management
Excellence Program of The Conference Board. In addition to
exploring the empirical links between human capital and busi-
ness performance, his research addresses the human capital
components of a number of topic areas, including creativity and
innovation, the relationship between age and productivity, and
business’ role in improving the economic opportunities and
well-being of disadvantaged groups. Woock received his PhD in
Economics from the University of Kentucky.
About the Authors
The Conference Board, Inc.845 Third AvenueNew York, NY 10022-6600United StatesTel +1 212 759 0900Fax +1 212 980 7014www.conference-board.org
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related publications and resources
Publishing Director Chuck Mitchell
Authors John Gibbons & Christopher Woock
Design Peter Drubin
Production Pam Seenaraine
Finding a Definition of Employee EngagementExecutive Action Report Number A-0236-07-EA, 2007
Employee Engagement: A Review of Current Research and Its ImplicationsResearch Report E-0010-06-RR, 2006
Strategic Workforce Planning: Forecasting Human Capital Needs to Execute Business Strategy,Research Report R-1391-06-WG
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