Learn a new word: Goodhart's Law

Happy 'First-day-of-the-rest-of-the-year'. I suppose every day is the first day of the rest of the year, but for some reason on the Tuesday following the long Labor Day weekend that feeling is much more acute.

Quick shot for your cram five days of work into four week. Another installment of your favorite series here on the blog - Learn a new word, where I share a word, term, phrase, or concept that I had not been familiar with previously, and for some reason seemed interesting/important/cool enough to share.

So here goes - and this one is especially for the 'You can't manage what you can't measure' types out there.

Our submission - Goodhart's Law

(from our pals at Wikipedia)

Goodhart's law is an adage named after economist Charles Goodhart, which has been phrased by Mary Strathern as: "When a measure becomes a target, it ceases to be a good measure." This follows from individuals trying to anticipate the effect of a policy and then taking actions which alter its outcome.

Actually Goodhart himself stated the 'law' just a little bit differently, theorizing that "When a measure becomes a metric, it ceases to be a good measure.”

Either way, the key point by Goodhart is still sound (and pretty obvious, even if you have never heard of our friend Goodhart).

Make a measurement - say time to fill open jobs, percent of new hires who stay longer than 6 months, or even number of new patents filed by the R&D department - doesn't matter, the sole or even a primary metric of success and evaluation and things tend to get a little strange.

The effected people pretty quickly learn how to manage/game the measurement, they start thinking, maybe too much, about how to drive that specific measurement in a manner that is positive for them, and they stop thinking so much about other, perhaps more cross-functional or strategic measurements.

And even worse, too many managers or leaders focusing too much on measurements can sometimes be an excuse for not exercising good judgement, a method that corporate bureaucrats use for CYA and holding on to territory, and an imperfect way to try and describe people and relationships in a numerical manner.

'You can't manage what you can't measure' is a fun thing to say. And sort of easy to agree with. But like Drucker's other widely quoted maxim, 'Culture eats strategy for breakfast' it definitely deserves more and closer scrutiny than it is typically given.

We manage the unmeasurable all the time. And reducing everything to something we can measure, to a number, is probably the fast path to inflexibility, failure to adapt, and a workforce conditioned to respond and behave to the movements of numbers on a spreadsheet.

Have a great week!

You might not like 'Time to Fill' as a recruiting metric, but it matters to candidates

A few weeks ago I wrote about how the latest data shows that in the US it has never taken longer, (in terms of business days), to fill the average open position. Here's the chart backing up that statement, in case you want a little bit of a refresher.

After I ran the post I got a couple of emails and a few comments on Twitter that more or less said the same thing - 'Time to fill' doesn't matter. It is not important to the C-suite, and is getting less important to hiring managers'. Most of the comments ended up saying something along the lines of 'It is better to take longer to find the 'right' hire' than simply trying to find the 'fast' hire - the kind of strategy that would negatively impact time to fill.

And while I do grant that there is probably some truth in those sentiments, I also think that like most of the reasonably difficult challenges in the talent game, the real truth is somewhere between the extremes. Does 'time to fill' matter in all cases? Certainly not. But are there some circumstances where it matters a lot? Absolutely. 

Let me share some details from a recent piece from the BBC about how giant consultancy KPMG is adapting their recruiting practices, at least in one important area, all around the idea and realization that their recruiting process has to move more quickly, thus reducing time to fill measures.

From the piece:

Accountancy firm KPMG has changed its graduate recruitment process to suit people born between 1980 and 2000 - the so-called millennial generation.

Instead of conducting three separate assessments over several weeks, it will now combine the process into one day.

The firm says the change will mean applicants will find out if they have got a job within two working days.

It made the change following research suggesting millennials were frustrated by lengthy recruitment processes.

KPMG said its survey- conducted among 400 of this summer's new graduates applying for a graduate job at a UK firm - found that more than one-third were annoyed about how long they had to wait to hear the outcome of an interview, and how long the recruitment process took.

At first read the changes that KPMG are implementing seem totally aimed at improving the candidate experience and adapting to meet the expectations of the newer generation. And that is definitely part of the story. What was not stated in the BBC piece but what certainly must be true was that KPMG was losing out on desirable new hires because their process was simpy taking too long. 

In-demand new university graduates likely have lots of options for employment once they leave school, and rather than wait weeks for KPMG to make a decision, some, if not many of them were just moving on to other, more agile companies. By implementing these process changes, KPMG hopes to both improve the overall candidate experience and reduce the number of candidates that 'get away' to competing firms.

And guess what else happens when the time it takes for KPMG to make offers and execute hires for new university graduates is reduced from weeks to days? 

Time to fill all of a sudden goes down - way down. And while that metric might not matter to you or to your CEO it means something to the these university graduates who make up the talent pipeline for KPMG. 

And it means plenty to any candidate who has options. Time to fill is just code for 'Make sure you can move fast enough to not lose out on the most sought-after candidates.'

Have a great week!

WEBINAR: Six Ways to Make Your Recruiting/Talent Metrics More Strategic

Your friends and mine over at Fistful of Talent are back with the 2015 debut of the often-imitated but never surpassed FOT Webinar - this one titled Six Ways to Make Your Recruiting/Talent Metrics More Strategic – And Make Managers Own Their New Hires - sponsored by Chequed.com, set for Thursday, February 26th at 2pm EST.

Why should you take time out of a busy Thursday to hang out with the FOT crew for an hour?

Let's face it---the recruiting metrics you use at your company are either non-existent or stale.  Sure, you tried to roll out the basics---time to hire, cost per hire---but all that did was put the focus on your HR/Recruiting function, not the people who actually make the final hiring decision.  Flash forward 12 months since the launch of those basic recruiting metrics, and you're bored... heck, everyone's bored.

Not to fear! The FREE FOT webinar, Six Ways to Make Your Recruiting/Talent Metrics More Strategic – And Make Managers Own Their New Hires, was made to help (and to make you look like a superstar).

What will the FOT gang cover?

1. A review of the traditional talent selection/recruiting metrics.  We'll give you a rundown of those metrics like Time To Fill and Cost Per Hire, what the standard benchmarks are for each and then explain why only using these traditional metrics is a lost cause/suckers play.

2. An explanation of the Holy Grail of reporting Recruiting Effectiveness and why it changes the conversation from "Did we fill the position?" to "Did we make the right hire and what happened once we filled the position?". We call this metric Hiring Manager Batting Average (HMBA for those of you that need an acronym), and it's the cleanest, most all-encompassing metric you can have to make your internal recruiting conversation strategic---not transactional---and actually make it tie in to your overall talent strategy, not just Talent Acquisition.

3. How to change the dialog of organizational turnover from being an HR problem to being everyone's problem. Admit it, you report on turnover all the time. We'll show you how to link turnover to your selection process in a way that spreads the wealth related to turnover responsibility---and actually sets you up to be more consultative and less reactive related to employee churn.

4. We'll give you 5 additional metrics to show how your recruiting/staffing process actually reduces risk of bad hires and prepares for future searches.  You need to get out of the trap of only reporting cost and time.  We've got the metrics to show you how to do that.

Convinced yet?

Things that are hard:  Riding a bike on a freeway. Getting your kids to eat peas. Getting managers to own the bad hires they make and be interested in getting better at selection.  Join for Six Ways to Make Your Recruiting/Talent Metrics More Strategic – And Make Managers Own Their New Hires on Thursday, February 26th at 2pm EST, and we'll show you how to create recruiting/talent metrics that get the attention of your organization.  You're on your own with the other two.

REGISTER HERE:

TOP HR DATA PLAY: Kill the FTE

I had a fun time riding shotgun to Kris Dunn yesterday on the Fistful of Talent Webinar titled, HR Moneyball:  The FOT Bootstrapper Guide To Getting Started With Big Data, in which KD and I took a look at some the ways that HR/Talent pros can use Big Data and Business Intelligence approaches to raise their games and drive the adoption of so-called 'Data-driven HR' in their organizations.

Of the five 'Big Data' plays in the FOT playbook, I think the one that I dig the most was #3, an idea called 'Salary Cap Utilization'. The basic idea is this - take a play from the world of sports leagues like the NBA and NFL that force teams to operate under a set of rules that govern maximum total player compensation, (the 'Cap'), and apply it inside your organization.

I know what you are saying, that we already do that, it's called the Annual Salary Budget. We've been managing compensation that way forever. Each budget holding group or manager is allotted 'X' amount of dollars he/she can 'spend' on total comp for the year and they (probably subject to a dozen other HR rules around increase percentages, salary bands, etc.), have to sort out how that salary budget is allocated among their staffs.

But chances are you are placing an additional, and probably unnecessary constraint on your managers as well - something called the full-time equivalent (FTE) budget.

The FTE budget tells managers that in addition to the maximum amount of $$ you can spend on comp (The Salary Cap), there is some (kind of arbitrary) maximum number of headcount that you can spend your Salary Cap on, i.e., the FTE budget.

When I first moved into an HR role, managing the HR systems at a mid-sized company, and first encountered the acronym FTE, I had to ask someone to explain it to me, as I had never seen it before. It seemed like a made-up kind of a construct, especially when you have to spend time breaking down and trying to convert worker schedules into their 'full-time' equivalents. And what, really, is 'full-time' anyway? That too, is kind of an arbitrary measurement to some degree.

But $$ are not arbitrary and are not subject to interpretation or manipulation. Everyone understands what a dollar-based budget means.

What are the advantages of dropping the FTE budget/constraint from your playbook?

1. It gives leaders/managers more autonomy on how they allocate compensation across teams. Instead of operating under the dual constraints of 'heads' and $$, they simply have to make it work within the Cap. Need to makes some big changes to reinvent their department? Make it work under the Cap. Want to expand into something new? What can you give up to stay within the Cap? Have 5 all-star, 'A' players that need to get paid or they will walk out the door? Then pay them, just be ready to make the cuts elsewhere to remain within the Cap. 

2. It forces the organization to be more flexible. The overwhelming tendency in an FTE-influenced budgeting scheme is for managers to guard 'their' FTEs like grim death. Have a position sit open or vacant for too long and managers will scramble to fill it with just about anyone, just so they don't 'lose' that precious FTE in the next budgeting cycle. Have a solid employee that wants to transfer out to a role in a different department? A role  that might better suit their skills and enhance their career development? Better be willing to give up an FTE buddy to make that happen.

3. It allows HR pros to be more consultative and progressive when talking about things like merit increases, equity increases, offers above salary band maximums, counter-offers, retention bonuses, and most everything related to comp. Remove that FTE constraint and now more of the comp game is open for discussion and adaptation. HR is working with the business around what is important to the business - the relative cost of performance and how to get the most production from available resources. HR can now be in the game of reporting/advising on Salary Cap Utilization instead of counting up heads, something that in most instances does not really matter.

We had a few other Big Data plays that we shared in the Webinar that were pretty neat as well (Hiring Manager batting average, turnover prediction, Health Care claims per capita), but for me eliminating the FTE might be the simplest and easiest one to get started with. 

Have a great weekend!

It's hard to rally around a metric

About a thousand years ago I worked for a large, extremely well-known organization that for a myriad of reasons was going through some tough times. Sales were still good, but expenses were out of control, there were growing quality concerns with some of the most profitable products, and after decades of predictable and recognizable market conditions, changes in the regulatory environment had given rise to a new kind of competitor - smaller, faster, better able to adapt to a much more dynamic market than had previously existed.Got it?

Like many large companies that were entrenched and in some ways held captive by their size, history, amount of process and technical debt, there did not seem to be easy solutions, (or at least obvious ones), that the organization could pursue, and more importantly get everyone in the vast value creation ecosystem behind and pulling in the same direction towards, in order to improve results, better position the company for a much different looking future, while continuing to support thousands of customers and employees. As a low-level functionary at the time, I certainly was not privy to all the strategic options our company leaders were discussing to attempt to right the ship, reverse course, clear the anchor, (insert your favorite nautical metaphor here), but I remember well one of the major initiatives that did break free from the board room and impact all of us in the organization.

It was that from that point forward, everyone in the company was directed to be focused on a financial measurement called Economic Value Added, or EVA. EVA attempts to estimate a firm's profit, expressed as the value created in excess of the require return of the company investors. EVA is basically the profit earned by the firm less the cost of financing the firm's capital. Confused by what focusing on EVA might mean for the actual people in the organization? Perhaps a quick look at the EVA equation will clear things up:

Ok got it now?

I won't bother listing out what all the variables mean, (check Wikipedia if you are a glutton for punishment). The real point is not that folks in HR or in Talent management need to better understand the real economic drivers of the organization, and the real cause and effect cycles that keep the doors open, the payroll met, and the shareholders happy. There have been oceans of books, articles, blogs, presentations, etc. that all make that same (valid) point. There is general consensus that HR needs to understand the actual business. 

But here, and as the little EVA story seems to illustrate, (at least to me), is that in this example HR (and management) needed to understand a lot more than the business metrics. They needed to understand how to connect these metrics, business drivers, and silly-looking equations with what actually would resonate with people, and help them to see the value of the strategy, and help motivate them towards execution of these plans. No one I worked with, for, or near could even really understand at a personal level what focusing on EVA meant to us, or at least was supposed to mean. 

Was it cutting costs and expenses? Was it shaving a day or two off a process cycle time? Was it making sure we answered customer complaints in less than 24 hours? Because if those were the things we needed to think about, well, then just tell us that. We could have rallied around saving money, serving our customers better and faster, reducing the energy consumption in the building, or a million other things that were actually real and we could understand and impact.

What we could not do was get excited about an equation, or rally around a flag bearing a formula.

Even if it was the right formula.