Magnitude

HR managers and business executives generally have been content to know that their practices and policies are moving people in the right direction. For example, if spending more money on training improves productivity, knowing that the spending produces a positive outcome generally has provided sufficient justification for the added cost.

Are These Best Practices?

The drivers of retention at Fleet may not be relevant to a different organization. Remember what we said in our introduction: Context matters. Advocates of external benchmarking will say that Fleet’s decision to focus on supervisor loyalty and its attempt to move good employees into a new position every two years are two “best practices” that you should adopt at your company. We disagree. These practices worked for Fleet, but they will not necessarily work for you.

Unfortunately, good economic decisions must consider direction and magnitude. For example, you wouldn’t be satisfied if one of your managers said, “Boss, we should invest $10 million in this equipment. It will produce positive cash flow every year.” You would say, “It’s nice to know that cash flows will be positive, but we cannot make a good decision without knowing how large the cash flows will be.” And you’d be right. It is impossible to determine the value of an investment or its rate of return without knowing the magnitude of its future cash flows.

The same reasoning applies to decisions about human capital. It is necessary to know the magnitude of a program’s effect on who stays and who leaves, the magnitude of the results of a new hiring initiative, the magnitude of productivity improvements from costly training, and so forth. Otherwise there is no basis for choosing from among competing alternatives for a company’s considerable investments in people.

Thanks to more comprehensive and accessible HR databases and new tools of analysis, it is now possible to measure the magnitude and significance of the impact of programs on critical workforce outcomes (e.g., attraction/retention, development, individual performance) and business results (e.g., profitability, productivity, quality). That should be apparent in the story of Fleet where the ability to quantify the relative impact of alternative interventions helped the organization avoid tactics that were patently noneconomical and focus instead on those that promised a real return. It also should be clear in the story of the high-tech company described earlier, in which measuring the actual dollar investment in low performers helped the company recognize the previously hidden failure of its “pay-for-performance” reward system and galvanized management support for fundamental change in some long-standing programs.

However, there is another story that illustrates perhaps even more powerfully why magnitude matters and why knowing only the direction of workplace outcomes is of little use to executives faced with expensive decisions about human capital decisions.

Marriott International, Inc., is a leading hospitality company with nearly 2,200 lodging properties in the United States and over 60 other countries. It operates and franchises facilities under 14 brands, including Marriott Hotels and Resorts, Marriott Executive Apartments, Renaissance Hotels, Courtyard by Marriott, and Ritz Carlton Hotels & Resorts, among others.

Among Marriott’s 129,000 employees is a cadre of hotel and resort managers. In many respects those managers are the linchpins of the company’s success. The company develops those managers in many ways, including moving them from one location to another. That strategy is intended to broaden their backgrounds and give them experience in managing progressively larger or more complex properties. It also is meant to motivate managers to reach the premier properties. The company views this strategy as the best way to groom its managers, develop careers, and produce higher retention of high performers.

Were there potential risks to that strategy? Might not the process of taking good people out of a property and bringing in someone new challenge that business unit’s performance? Intuition could not answer these questions with reliability. It was insufficient to sort out the positives and negatives of this development strategy. Marriott wanted the kinds of facts that come from good measurement and analysis. It would have to dig for the facts about the effects of its program (and their magnitude) on managers and on property performance. Marriott needed to know whether the negatives of moving people around offset the positive benefits of developing managers’ careers, and it asked us to help.

We gathered internal data on the retention of hotel managers in the program over a period of four years and assessed the profitability of the affected hotels over the same time frame. Here’s what we found: The movement of managers contributed not only to their development but also to their retention. Further, their movements produced no measurable loss of profitability in the affected locations: There wasn’t even a short-term dip.

It seems clear why movements would enhance managers’ careers, but why didn’t the movement of Marriott’s managers produce negative effects on business results? Intuitively, managers’ moves could bring about complications of disruption or discontinuity that would reduce the performance of a property. However, those negatives appeared be offset by the benefits of the new perspective and fresh ideas brought in by the newcomers. Further, the progression of managers from one property to the next was very systematic, designed to move individuals “up” in an orderly way. Indeed, the overall movement of managers between properties appeared to be a well-managed process that served the operational needs of the enterprise while enhancing individual careers.