Maximizing the return on your human capital investment, from Watson Wyatt

Although some people disdain HR as a soft-headed haven for "people" persons, truly high performing companies know that HR is a key ingredient of profitability. But what's the ROI?

Since 1998 Watson Wyatt has set out to document the expected ROI on the full spectrum of HR functions. This year marks the release of their third report (following 1998 and 2002). The key theme from 2002's report was how superior HR today corresponds strongly to growth in shareholder value tomorrow. The 2005 report continues in that vein but with more specific commentary on exactly which HR practices generate the most ROI. Take a guess which of these HR functions tops the ROI list:

• Communication
• Benefits
• Recruiting
• Employee Development

Ready for the answer? Recruiting headlines the 2005 Watson Wyatt report as the most powerful differentiator of shareholder returns--specifically, time to fill. Companies that average two weeks to fill a position outperform those that take seven weeks by almost 50 percent in "total return to shareholders" (the change in a company's share price over three years, plus dividends, as a percent change from its opening value).

Excellence in training, by comparison, boosts return to shareholders about 20 percent. And as reported here earlier, some kinds of training actually produce negative returns.

Watson Wyatt's emphasis on time-to-fill in general, and employee referrals in particular, is especially good news for services like Jobster, which aim to connect those looking to hire to the world of vetted candidates. My colleague Mal Watlington has been watching this space for some time and you can learn a lot about it by starting here and then browsing this. See also Mal's commentary on Watson Wyatt's 2005 report.

For another perspective on talent management, see this report by Robin Athey of Deloitte. I will say more about this in a future post.

"Networks" are hot but "social" is not

Last week I met Dennis Smith to learn about Team Project Acculitics. Dennis has not only a great sense of what it takes to make a project successful but also a very nuts-and-bolts way of delivering that. I was especially struck by Dennis' negative experiences with the word "social," which invariably puts his clients' defenses on alert. Perhaps that's partly why Patti Anklam has been advocating organizational network analysis instead of social network analysis?

Dennis also shared with me his love of writing. I was so inspired that I decided to kick off my own newsletter, which some of you have already received. It's a monthly executive summary of what you find here, in email form. Dare I subject my blog readers to yet another email? Alas, yes. I decided to cast a wide net and so added pretty much all of my reciprocated "network" network to the distribution list. If I missed your email, then please do subscribe using this link or the one on my sidebar. And if I added you to the distribution list and you don't want Connectedness email, please accept my apologies and take advantage of the unsubscribe button.

Coincidentally, Dennis responded to my inaugural newsletter with a perceptive comment. My post "Pros and Cons of Open Source" is really about self-organizing teams and not open source. Good point. Perhaps I should demote Malcolm Gladwell a half-notch on my guru hierarchy for writing it that way; and I will be more keen on noticing the distinction from now on. Thanks, Dennis.

Real-Time SNA at the Trainers' Roundtable

Last Friday I presented to the Trainers' Roundtable. My friend Michele Simos was very kind to share the action shot at right, in which I am talking about David Krackhardt's seminal case study.

If you're interested in HR, facilitating, and training, and live in the Boston area, I highly recommend the Trainers' Roundtable to you. It's a very sharp group.

The highlight of the meeting for me (and I think for the audience too) was a real-time social network analysis. We went through the entire process, from goal-setting and survey design, to data collection, analysis, and discussion, all "in the room." The only paper we used was a flipchart at the front, and I administered the survey verbally while typing UCINET coordinates into my laptop. With twenty people attending, we had more than enough to make the network perspective very enlightening, but not so many to get bogged down in data collection. We found a not-surprising cluster of leadership at the center, as well as a very intriguing boundary-spanner.

To network or not to network

Steve Borgatti calls it "connecting to heterogeneous others." My Unitarian Universalist friends call it "celebrating diversity." Either way, we are talking about the benefits of learning from different kinds of people. Certainly that's an unmitigated good thing, right?

Not exactly. Sometimes we prefer to have social closure, which brings with it some reassurance of well-defined security. From the outside, however, social closure can easily appear outright close-minded.

These are the issues raised by the cover article from the latest issue of UU World: "Who's Afraid of Freedom and Tolerance?" Author Doug Muder discusses the different worldviews of the Christian Right and liberal Left by contrasting their attitudes towards closure and bridging.

As a relative lefty myself, I can easily sympathize with Muder's fondness for religious bridging. Perhaps you can too, dear reader. So let's take this question a couple steps farther and see if we approach the limits of our networking comfort zones.

Step one: consider Jeffrey Toobin's recent profile of US Supreme Court Justice Anthony Kennedy in the September 12, 2005 New Yorker magazine. Toobin explains, "Kennedy has a passion for foreign cultures and ideas, and, as a justice, he has turned it into a principle of jurisprudence. Over the past two years, he has become a leading proponent of one of the most cosmopolitan, and controversial, trends in constitutional law: using foreign and international law as an aid to interpreting the United States Constitution. Kennedy's embrace of foreign law may be among the most significant developments on the Court in recent years-the single biggest factor behind his evolution from a reliable conservative into the likely successor to Sandra Day O'Connor as the Court's swing vote." For the polar opposite point of view, see Antonin Scalia.

Are you still well within your networking comfort zone? Then come with Drake Bennett on step two, his story "Robo Justice" in last Sunday's Boston Globe. Computer scientists have already created an artificial intelligence system to estimate divorve settlements, and that is only the beginning of the rapidly emerging field of computing justice.

How would you feel standing before a judge as he fed your parameters into his laptop and awaited the results?

The Give and Take of Tit For Tat

Network analysis sheds light on the structure of an organization but tends to reduce individual relationships to "yes" or "no" decisions. What happens when the answer is "it depends"? The analytical among us must turn to other branches of mathematics for some measure of reason.

Game theory in particular has a lot to say about the give and take of everyday relationships. This branch of mathematics may owe most of its fame to Russell Crowe's performance as John Nash in "A Beautiful Mind." Since John Nash's heyday of the 1950s, game theory has also been put to good use by evolutionary biologists, who have shown how touching acts of seeming altruism (such as caring for a sick sibling) in fact occur precisely to the degree that they produce maximal genetic survival of the allegedly altruistic organism. See Richard Dawkins for utterly fascinating reading about this.

Lately I have been thinking about another question of game theory: what is the optimal way to build a trusting and mutually profitable relationship with a colleague? Give away too much too soon and you will be taken advantage of. Never give at all and you will probably receive nothing in return. Here's a classic result showing how a surprisingly simple strategy produces almost unbeatable results over the long haul. The strategy is called "Tit For Tat" and boils down to this: Assume the best and start by giving a little. Then the next time you see the same colleague again, simply return the same dose of "give" or "take" that he extended your way in your last encounter.

***

Doing research for this article, I discovered that the "Tit For Tat" strategy referenced above has finally been defeated after a 20-year reign. The new strategy requires a team of competitors to collude: most of the teammates sacrifice their own well-being so that a handful of team leaders win it all. Sounds just like the winning strategy at the Tour de France.

Improving business productivity and leadership with a network perspective

Shameless self-promotional plug:

I am running a day-long workshop, "Improving Your Business With Social Network Analysis," Friday October 21, 2005, in downtown Boston.

The workshop will equip managers and consultants with the skills necessary to improve both productivity of core business units and leadership development with social network analysis (SNA). Social network analysis is a powerful visual and mathematical technique that can be used to create a picture of an organization or group and build a better understanding of how it really works. Participants will learn the benefits of seeing business from a network perspective and how to realize those benefits using UCINET, the world's leading SNA software. No previous SNA experience of any kind is required, but familiarity with Microsoft Excel is assumed.

Class begins with an introduction to accelerating business results with a network perspective. The bulk of the class will continue with a detailed business case study. As students explore the case study, they will learn by discussion and extensive hands-on exercises how to work with network data, analyze it, and create compelling pictures that show how to improve workflow, leadership development, and talent management.

Register now to receive the earlybird discount and guarantee yourself a spot in the class.

The Social-Network Toolkit by Patti Anklam

Cheers to my colleague Patti Anklam, whose book The Social-Network Toolkit was recently published by the Ark Group.
I am a sucker for good graphic design and really like the cover of this book, although I get the impression that no one at Ark Group has ever played the planar graph game. Let this cover stand as another example that network layout is a decidedly subjective exercise in visual storytelling.

Moving beyond the cover, we discover Patti's exceptionally thoughtful perspective on organizational performance, which she views through the combined lenses of social network analysis and knowledge management. Lots of people see business-SNA and KM as related, but few people see them with the refined eye that Patti has. Here is a map from her introduction, outlining relationships of the key concepts to be covered by the rest of the book:
The book includes chapters on "Why networks matter" and "Applying networking practices to knowledge problems in the business." The latter chapter tantalizes the reader with short SNA case studies, which collectively deliver a good overview of the relevance of SNA to business.

You can find out more here.

From the Archives: Krackhardt's "Informal Networks"

How can we contain the AIDS epidemic in Africa? How do new ideas take hold in an organization? Social network analysts frame both of these questions in terms of diffusion. And as experts in the field, social network analysts might be expected to practice optimal strategies in combatting STDs and spreading good ideas fast. But we are human too (thank god). So perhaps it is not surprising that I can still impress my colleagues as an innovator by sharing an article published twelve years ago in the Harvard Business Review.

The ancient scroll to which I refer is "Informal Networks: The Company Behind the Chart" by David Krackhardt and Jeffrey Hansen. The article features a case study of David Leers, CEO of a California computer firm:
When rivalries flare among his four divisions, Leers decides to bring key leaders from each division together into a strategic task force. His initial choice of leaders turns out to be off the mark, but a careful look at information, advice, and trust networks in the company helps him see how to resolve the situation.

As I mentioned, several colleagues of mine have been positively blown away by this article. So the big question is, how can an HBR article from 1993 still strike people as "the next big thing"? I went straight to the source and asked David Krackhardt that very question. Here's what he had to say:

"I think that one of the reasons is that there are a lot more software packages that support analyzing these networks in ways that were not possible before. Up until fairly recently, all of us in the field were also programmers, having to write our own code to do the analysis (and and visual renderings). Coupled with the high profile interest that physicists have taken in the area, and you have lots more exposure. And some of this work is also tapping into large scale networks, like the WWW or email connections, which in some ways is much easier data to collect and write about."

Speaking of software packages for SNA, I put David's HBR case study into Steve Borgatti's NetDraw and came up with this image of the advice network:
Each division is a different color. The size of the node corresponds to the influence that individual has over the advice network. Then, since the trust network also plays a key role in this case study, I represented influence over the trust network by scaling the size of the node labels (i.e., trusted individuals literally have big names). Near the middle of the network, you can see a big yellow node illegibly labelled "Calder" because Calder is so professionally competent and at the same time personally abrasive. Not necessarily good leadership material.

Unlike 1993, the problem with SNA today is preventing information overload. There are so many networks we can collect data on, and so many gee-whiz tools to display them, that it's important to keep focused on the big picture.

September is time for class

What better time than September 1st to add an "Upcoming Events" section to the right-hand column of my blog. Topping the (admittedly short) list is my September 16th presentation with Rob Greenly at the Trainers' Roundtable, entitled "Social Network Analysis: Applications for HR and Training."

I'm really looking forward to this event with Rob, whose experience as VP of Learning and Organization Development at Boston Scientific will keep our presentation firmly grounded in business fundamentals.

Here's our promotional blurb:

Social Network Analysis:
Applications for HR and Training

Participants will learn about Social Network Analysis (SNA), a tool for producing an actual "picture" of informal relationships in an organization, including communication flow, personal support and advice networks. The presentation will show how SNA can help human resource and training professionals to

• Identify and leverage critical roles and talent hidden in an organization
• Take a lead in improving productivity of core business units.

The presentation will include a brief introduction, a practical case study, experiential learning, small group discussion of applications on-the-job, and an overview of how to identify and leverage informal organizational networks.

RSVPs are required by September 13, 2005. See the Trainers' Roundtable for more information, and email troundtable@yahoo.com to register.