Andrew Marritt reflects on a People Analytics Podcast episode, a fascinating conversation between Laurie Bassi and Max Blumberg about the myths of Employee Enegagement, and looks into the real impact of Employee Engagement in business performance and value.
A large part of economics is concerned with understanding and modelling individuals’ behaviours when faced with various incentives. Whilst some believe that economists are only interested in money as an incentive, in truth incentives can take many forms.
George Akerlof co-wrote a fascinating book – with Rachel Kranton – on how identity is an incentive (Identity Economics: How our identities shape our work, wages and well-being). There is even a sub-discipline of economics called ‘Personnel Economics’ which is dedicated to understanding how organisations work.
Ten years ago, when I was part of the HR Analytics team at UBS, I was the only economist in a team of psychologists. Looking at People Analytics from the perspective of an economist forms a significant part of this podcast between Laurie Bassi and Max Blumberg.
One of the things economists spend a huge amount of time learning at university is calculus. Calculus is useful to tackle problems involving optimisation. Given we are always dealing with limited resources almost all problems in organisations are optimisation problems. I would argue that one of the key historical basis of modern people analytics in organizations comes from the discipline of operations research, like economics an applied mathematics discipline concerned with optimisation.
The reason calculus is useful is that rarely is there a straight-line relationship between a variable and its desirability. For many firms it would be beneficial to reduce employee turnover, however I’ve worked with a couple of organisations over the last 18 months where more attrition would be beneficial. There is an optimal level, past this the benefits decreases. You can have too much of a good thing.
Our organisations work as systems. There is rarely a clear, unique, optimal solution. Invest money in one area and – given limited resources – you can’t invest the same money elsewhere. Much of management is about prioritising resources to maximise returns.
This brings us onto a key point in Max & Laurie’s conversation – how much resource should one allocate to improving engagement. As the resources are limited what should we reduce spend or effort on? New production investments? Training?
In a system, many inputs depend on each other. In a dynamic system they often depend on the levels of the previous state. Rarely is it true that you provide the optimal solution for the system by optimising each individual input. Furthermore, optimisation doesn’t mean maximisation.
Unfortunately this is often the belief of many in the HR profession when considering engagement. Grand action plans are built without considering the alternative uses of the needed time or money. As Laurie so eloquently mentioned ‘Engagement is a necessary but not sufficient condition’.