From management-led to evidence-based HR.

The human resource function is at a crossroads.

People are the heart of our organizations, yet many fundamental management and HR practices are based on outdated ideas of human psychology and organizational design. Often they are rooted in stories about successful business leaders operating in specific places and times (for example, Jack Welch at GE in the 1980s and ’90s). These anecdotes and examples evolve into management trends and, later, received the wisdom that executives try to implement—at least while they’re on bestseller lists and magazine covers. But it is rare for such practices to be rigorously evaluated. They lack the character of scientific knowledge. They tend neither to be refuted nor corroborated, but instead merely fade away as people lose interest. The time has come for a fresh look at evidence-based HR, founded on two key premises. First: HR practices, policies, and programs should be designed to reflect our best understanding of human psychology. This simple idea carries huge implications, thanks to the revolution in our understanding of human psychology and behavior that Nobel laureate Daniel Kahneman and his collaborators and followers have ushered in over the past four decades. This work has fundamentally challenged and changed virtually every field involving human behavior, including behavioral economics and finance, marketing, behavioral health, and happiness research. HR should be next.

Second: HR practices, like all business programs, should be tested and validated. While the major findings of cognitive psychology and behavioral economics are well-validated, the practical effectiveness of specific applications varies from context to context. A practice that flies at an online retailer, for instance, might flop at an ad agency. So whenever possible, researchers need to field-test new ideas using what the medical profession calls randomized controlled trials and what Internet companies call A/B testing: Try it on one randomly selected group and compare the results with those of a control group. Doing this enables HR departments to learn what works and what doesn’t and to quantify the economic value being created (or destroyed).

These two principles are the pillars of the “behavioral insights” movement that is reshaping the public policy world. Since the 2008 publication of Nudge by Richard Thaler and Cass Sunstein, policymakers have come to recognize that public sector interventions—ranging from government forms’ color and word choice to the design of job centers and after-school programs—should be designed to go with, rather than against, the grain of human psychology. And rather than simply follow tradition, accept authorities’ prescriptions, or adhere to industry benchmarks, policymakers are using A/B testing and data analysis to help design and evaluate programs.

The HR domain should embrace a behavioral insights movement of its own, founded on three premises that correspond to the major themes of behavioral economics: Play Moneyball (bounded rationality): The fact that the human mind relies on storytelling—not statistics and logic—to make everyday decisions has a profound implication for HR managers. When it comes to hiring and promotion decisions, even simple predictive models run circles around unaided professional judgment. Nudge your colleagues (bounded willpower): Understanding the nuances of our imperfect willpower gives HR leaders a powerful new toolkit—called choice architecture —to bust bureaucracy and help employees make better diet, exercise, charitable giving, and investment decisions. Leverage intrinsic motivation (bounded self-interest): HR leaders can improve business performance by recognizing that such traditional reward-based policies as incentive pay, goal-setting, performance ratings, and promotions have far less impact on actual performance and collaborative activity than traditionally thought. Indeed, the impact can actually be negative.

Copyright © 2020 Sharam Kohan. All Rights Reserved.