The letters in LAMP stand for logic, analytics, measures, and process, four critical components of a measurement system that drives strategic change and organiza- tional effectiveness. Measures represent only one component of this system. Al- though they are essential, without the other three components, the measures and data are destined to remain isolated from the true purpose of HR measurement systems. The model is shown graphically in Figure 2–1. Figure 2–1 shows that HR measurement systems are only as valuable as the decisions they improve and the organizational effectiveness to which they contribute. That is, such systems
* Material in this section is drawn from Cascio, W. F., & Boudreau, J. W. (2008). Investing in people:
Financial impact of human resource initiatives. Upper Saddle River, NJ: Pearson Education.
Figure 2–1 Lighting the
“LAMP.”
Source: Reprinted by permission of Harvard Business School.
Boudreau, J. W., &
Ramstad, P. M. Beyond HR: The New Science of Human Capital.
Boston: Harvard busi- ness School, 2007, p. 193. Copyright © 2007 by the Harvard Business School Pub- lishing Corporation;
all rights reserved.
HR Metrics and Analytics That Are
a Force for Strategic Change
“The Right Logic”
Rational Talent Strategy”
(Competitive Advantage, Talent
Pivot Points)
“The Right Measures”
Sufficient Data (Timely, Reliable,
Available)
“The Right Process”
Effective Knowledge Management (Values, Culture, Influence)
“The Right Analytics”
Valid Questions and Results (Information, Design, Statistics)
are valuable to the extent that they are a force for strategic change. Let’s examine how the four components of the LAMP framework define a more complete mea- surement system. A brief description of each of these elements follows.
Logic: The “Story” That Connects Numbers and Outcomes
Without a compelling logic, it’s just not clear where to look for insights about what the numbers (HR measurement data) mean. Conversely, with well-grounded logic, it is easier to help leaders outside of HR to understand and use the measure- ment systems to enhance the talent-related decisions they make. Consider one such logical framework, the “service-value-profit” framework that connects man- agement practices to financial outcomes. We will have more to say about this framework later in the chapter, but for now, the important point is that it calls at- tention to the connections between HR and management practices, which, in turn, affect employee attitudes, engagement, and turnover; which, in turn, affect the experiences of customers. The experiences of customers, in turn, affect their buy- ing behavior, which, in turn, affects sales, which, in turn, affects profits.
Can you appreciate the value of this approach, as opposed to a simple link- age between management practices and profits? Making the linkages explicit allows managers to understand more fully the intermediate connections and how investments in them might enhance profits. Perhaps the most well-known application of this framework was at the retailing giant Sears; the company thoroughly explored the quantitative relationships among these factors and used them to change the behavior of store managers. 2
Analytics: Drawing Appropriate Conclusions from Data
Analytics transforms HR logic and measures into rigorous, relevant insights.
While statistics and research design are analytical strategies for drawing correct conclusions from data, measures comprise the numbers that populate the statis- tical formulas. Yet it is easy to be misled. To illustrate, assume that a researcher observes a positive correlation between employee attitudes and customer atti- tudes. The correlation by itself does not prove that one causes the other, nor does it prove that improving one will improve the other. Such a correlation also happens when customer attitudes actually cause employee attitudes. This can happen because stores with more loyal and committed customers are more pleasant places to work. The correlation could, however, also result from a third, unmeasured factor. Perhaps stores in certain locations attract customers who buy more merchandise or services and are more enthusiastic. Employees in those locations like working with such customers and are more satisfied. Store location turns out to cause both store performance and employee satisfaction.
The point is that a high correlation between employee attitudes and customer purchases could be due to any or all of these effects. Sound analytics can reveal which way the causal arrow actually is pointing.
Measures: Getting the Numbers Right
The measures part of the LAMP model has received enormous attention in HR. In fact, if you type “HR measurement” into a search engine you will get more than 900,000 results! Scorecards, summits, dashboards, data mines, data warehouses,
and audits abound. Indeed, the array of HR measurement technologies is daunt- ing. Consider the measurement of employee turnover. There is much debate about the appropriate formulas to use in estimating turnover and its costs, or the precision and frequency with which employee turnover should be calculated.
Today’s turnover-reporting systems can calculate turnover rates for virtually any employee group and business unit.
Armed with such systems, managers “slice and dice” the data in a wide variety of ways (ethnicity, skills, performance, and so on), with each manager pur- suing his or her own pet theory about employee turnover and why it matters. Are their theo ries any good? If not, better measures, or more precise ones, won’t help. That is why the logic component of the LAMP model is so vital to sound measurement.
In fact, the logic guiding the measurement of turnover is straightforward. It begins with the assumption that employee turnover is not equally important everywhere. Where turnover costs are very high, or where turnover represents a significant risk to the revenues or critical resources of the organization (such as when departing employees take clients with them or when they possess unique knowledge that cannot be recreated easily), it makes sense to track turn- over very closely and with greater precision. However, this does not mean sim- ply reporting turnover rates more frequently. It means that the turnover measurements in these situations should focus precisely on what matters. Lack- ing a common logic about how turnover affects business or strategic success, well-meaning managers might well draw conclusions that are misguided or dangerous. Conversely, they can make strategically sound decisions when a logical framework in which the measures are embedded guides them. When they do that, they get the numbers “right.”
Process: Creating Actionable Insights
Process is the final element of the LAMP framework. Measurement affects de- cisions and behavior, but decisions and behavior unfold within a complex social system. Hence effective measurement systems must fit within a change- management process that begins by influencing key decision makers. That influence process begins by convincing managers that the analysis of people- related business processes is possible as well as informative. The way to make that happen is not necessarily to present the most sophisticated analysis. The best approach may be to present relatively simple measures and analyses that match the mental models that managers already use. For example, calculating the costs of employee turnover can reveal millions of dollars that can be saved by reducing turnover. For many leaders outside of HR, a turnover-cost analysis may be their first realization that talent and organization decisions have tangible ef- fects on the economic and accounting processes with which they are familiar.
Certainly it is valuable for leaders to see that the same analytical logic used for financial, technological, and marketing investments can apply to human re- sources. Then, the door is open to more sophisticated analyses beyond the costs.
Education is also a core element of any change process. The return-on- investment (ROI) formula from finance is actually a potent tool for educating leaders in the key components of financial decisions. In the same way, HR mea- surements should be used to educate constituents, and they should become embedded within an organization’s learning and knowledge frameworks.
In summary, we began this section by asking how we might make HR measures more strategic. As Figure 2–1 shows, the answer is by embedding the measures into a broader framework of logic, analytics, and process that will enable the mea- sures to serve as a force for strategic change. In other words, the LAMP framework can help make measures matter. We will use it to illustrate the costs and benefits of several important areas within HR in the remainder of this chapter. Before we do that, however, it is necessary to define some important terms.
Some Definitions
The measurement methods described below are based on several definitions and a few necessary assumptions. To begin with, there are, as in any costing situation, both controllable and uncontrollable costs, and there are direct and indirect measures of these costs.
Direct measures refer to actual costs, such as the accumulated, direct cost of recruiting.
Indirect measures do not deal directly with cost; they are usually expressed in terms of time, quantity, or quality. 3 In many cases indirect measures can be converted to direct measures. For example, if we know the length of time per pre-employment interview plus the interviewer’s hourly pay, it is a simple mat- ter to convert time per interview into cost per interview.
Indirect measures have value in and of themselves, and they also supply part of the data needed to develop a direct measure. As a further example, consider the direct and indirect costs associated with mismanaged organiza- tional stress, as shown in Table 2–1 . 4 The direct costs listed in the left column
Table 2–1
DIRECT AND INDIRECT COSTS ASSOCIATED WITH MISMANAGED STRESS
Direct costs Indirect costs
Loss of vitality:
Low motivation Dissatisfaction
Communication breakdowns:
Decline in frequency of contact Distortions of messages Faulty decision making
Quality of work relations:
Distrust Disrespect Animosity Opportunity costs Participation and membership:
Absenteeism Tardiness
Strikes and work stoppages
Performance on the job:
Quality of productivity Quantity of productivity Grievances
Accidents
Unscheduled machine downtime and repair
Material and supply overutilization Inventory shrinkages Compensation awards
Source : Macy, B. A., & Mirvis, P. H., Evaluation Review, 6 (3), Figure 4–5. Copyright © 1982 by Sage Publications, Inc. Reprinted by permission.
of Table 2–1 can all be expressed in terms of dollars. To understand this concept, consider just two items: the costs associated with work accidents and with grievances. Figure 2–2 represents just some of the direct costs associated with accidents; it is not meant to be exhaustive, and it does not include such items as lost time, replacement costs, institution of “work-to-rule” by cowork- ers if they feel the firm is responsible, the cost of the safety committee’s inves- tigation, and the costs associated with changing technology or job design to prevent future accidents. The items shown in the right column of Table 2–1 cannot be expressed as easily in dollar terms, but they are no less important, and the cost of these indirect items may in fact be far larger than the direct costs. Both direct and indirect costs, as well as benefits, must be considered to apply HR measurement methods properly.
Controllable versus Uncontrollable Costs
In any area of behavior costing, some types of costs are controllable through prudent HR decisions, while other costs are simply beyond the control of the organization. Consider employee turnover as an example. To the extent that people leave for reasons of “better salary,” “more opportunity for promotion
Figure 2–2 The costs of accidents and grievances.
ACCIDENTS
GRIEVANCES Employee needs first aid?
YES
YES
NO Does Employer
Maintain Staff and Facilities?
Does Employer Pay Workers’ Compensation?
Does Grievance Reach Arbitration?
Grievance and Arbitration Costs a. Salaries of nurse and
medical personnel b. Medical equipment c. Medication
d. Cost of revisits (a–c)
a. Uninsured medical costs (fees, medication) b. Transportation to facility c. OSHA records (salary
and supply costs)
Premiums paid to workers’ compensation
a. Staff salaries: first-line supervisor, second-level supervisor, management, union officials
b. Arbitrator’s fee c. Arbitration cost: facility,
transportation d. Awards
a. Staff salaries: first-line supervisor, second-level supervisor, management, union officials
b. Awards Medical
Costs
YES YES
NO
and career development,” or “greater job challenge,” the costs associated with turnover are somewhat controllable. That is, the firm can alter its HR manage- ment practices to reduce the voluntary turnover. However, if the turnover is due to such factors as death, poor health, or spouse transfer, the costs are
uncontrollable.
The point is that in human resource measurement, the objective is not simply to measure costs but also to reduce the costs of human resources by devoting resources to the more controllable factors. To do this, we must do two things well:
1. Identify, for each HR decision, which costs are controllable and which are not.
2. Measure these costs at Time 1 (prior to some intervention designed to re- duce controllable costs) and then again at Time 2 (after the inter vention).
Hence the real payoff from determining the cost of employee behaviors lies in being able to demonstrate a financial gain from the wise application of human resource management methods. The following sections present both hypo- thetical and actual company examples of such measurement in the areas of employee attitudes, absenteeism, turnover, work-life programs, and training.