The "LAMP" Framework

We believe that a paradigm extension toward a talent decision science is key to getting
to the other side of the wall. Incremental improvements in the traditional measurement
approaches will not address the challenges. HR measurement can move beyond the
wall using what we call the LAMP model, shown in Figure 1-3. The letters in LAMP
stand for logic, analytics, measures, and process, four critical components of a
measurement system that drives strategic change and organizational effectiveness.
Measures represent only one component of this system. Although 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.

Reprinted by permission of Harvard Business School Press, from Beyond HR: The New
Science of Human Capital by John Boudreau and Peter M. Ramstad. Boston, MA, 2007,
pp. 193. Copyright 2007 by the Harvard Business School Publishing Corporation. All
rights reserved.

Figure 1-3 Lighting the "LAMP."

The LAMP metaphor refers to a story that reflects today's HR measurement dilemma:

One evening while strolling, a man encountered an inebriated person diligently

searching the sidewalk below a street lamp.

"Did you lose something?" he asked.

"My car keys. I've been looking for them for an hour," the person replied.

The man quickly scanned the area, spotting nothing. "Are you sure you lost them
here?"

"No, I lost them in that dark alley over there."

"If you lost your keys in the dark alley, why don't you search over there?"

"Because this is where the light is."

In many ways, talent and organization measurement systems are like the person
looking for his or her keys where the light is, not where they are most likely to be
found. Advancements in information technology often provide technical capabilities
that far surpass the ability of the decision science and processes to use them properly.
So, it is not uncommon to find organizations that have invested significant resources
constructing elegant search and presentation technology around measures of
efficiency, or measures that largely emanate from the accounting system.
The paradox is that genuine insights probably exist in areas where there are not
standard accounting measures. The significant growth in HR outsourcing, where
efficiency is often the primary value proposition and IT technology is the primary tool,
has exacerbated these issues. Even imperfect measures aimed at the right areas may
4

be more illuminating than very elegant measures aimed in the wrong places.

Returning to our story about the person looking for his or her keys under the street
lamp, it's been said that "Even a weak penlight in the alley where the keys are is better
than a very bright streetlight where the keys are not."

Figure 1-3 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 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
measurement system. We present the elements in the following order: logic, measures,
analytics, and finally, process.

Logic: What Are the Vital Connections?

Without a proper logic, it is impossible to know where to look for insights. The logic
element of any measurement system provides the "story" behind the connections
between the numbers and the effects and outcomes. The chapters in this book provide
logical models that help to organize the measurements, and show how they can
articulate useful decision frameworks. Examples include the elements of turnover
costs, the conditions that determine the value of enhanced selection, and the
connections that link employee health and vital organizational outcomes. Missing or
faulty logic is often the reason why well-meaning HR professionals generate
measurement systems that are technically sound, but make little sense to those who
must use them. With well-grounded logic, it is much easier to help leaders outside the
HR profession understand and use the measurement systems to enhance their
decisions.

For example, recall Figure 1-1, which shows how finance organizes its measures of
return on equity to reflect the logic that equity is used to purchase assets, which are
used to generate sales, which, in turn, produce profits. The logically derived measures
include leverage (assets divided by equity), asset productivity (sales divided by assets),
and margin (profits divided by sales). You can directly calculate return on equity
simply by dividing profits by equity, but that would obscure the logical connection
points that are vital to make decisions about equity, assets, and sales effectively. The
power of the framework is to embed the measures within a logic that enhances
decisions.
In the field of human resources, there are many logical frameworks, including salary
structures, workforce-planning models, and even labor contracts. All are useful, but
they are not sufficient to connect decisions about investments in HR programs to
strategic outcomes. In contrast, some authors have proposed a "service-value-profit"
framework for the customer-facing process. This framework calls attention 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. This, in turn, affects customer-buying behavior, which, in turn, affects
sales, which, in turn, affects profits. Perhaps the most well-known application of this
framework was at Sears, which showed quantitative relationships among these factors
and used them to change the behavior of store managers. 5

Measures: Getting the Numbers Right

The measures part of the LAMP model has received the greatest attention in HR. As
discussed in subsequent chapters, virtually every area of HR has many different
measures. Much time and attention is paid to enhancing the quality of HR measures,
based on criteria such as timeliness, completeness, reliability, and consistency. These
are certainly important standards, but lacking a context, they can be pursued well
beyond their optimum levels or they can be applied to areas where they have little
consequence.

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), each manager pursuing his
or her own pet theory about turnover and why it matters. Are those theories any good?
If not, better measures won't help. That's why the logic element of the LAMP model
must support good measurement.

Precision alone is not a panacea. There are many ways to make HR measures more
reliable and precise. An exclusive focus on measurement quality can produce a
brighter light shining where the keys are not! Measures require investment, which
should be directed where it has the greatest return, not just where improvement is
most feasible. Organizations routinely pay greater attention to some elements of their
materials inventory more than others. Indeed, a well-known principle is the "80-20
rule" that suggests that 80 percent of the important variation in inventory costs or
quality is often driven by 20 percent of the inventory items. Thus, although
organizations indeed track 100 percent of their inventory items, they measure the vital
20 percent with greater precision, more frequently, and with greater accountability for
key decision makers.

Why not approach HR measurement in the same way? 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 re-created easily), it makes sense to track turnover
very closely and with greater precision. However, this does not mean simply reporting
turnover rates more frequently. It means that the turnover measurements in these
situations should focus precisely on what matters. If turnover is a risk due to the loss
of key capabilities, turnover rates should be stratified to distinguish those with such
skills from others. If turnover is a risk due to losses of clients with departing
employees, turnover rates should not focus on skill differences, but instead should be
stratified according to the risks of client loss.

Lacking a common logic about how turnover affects business or strategic success,
well-meaning managers draw conclusions that might be misguided or dangerous. This
is why every chapter of this book describes measures, as well as the logic that helps
explain how the measures work together. For example, Chapter 4, "The High Cost of
Employee Separations," deals with turnover.

Analytics: Finding Answers in the Data

Even a very rigorous logic with good measures can flounder if the analysis is incorrect.
For example, some theories suggest that employees with positive attitudes convey
those attitudes to customers who, in turn, have more positive experiences and
purchase more. Suppose an organization has data showing that customer attitudes and
purchases are higher in locations with better employee attitudes? Does that mean
that improving employee attitudes will improve customer attitudes? Many
organizations have invested significant resources in programs to improve frontline-
employee attitudes based precisely on this sort of evidence of association (correlation).

The problem is that this conclusion may be wrong, and such investments misguided. A
correlation between employee and customer attitudes 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 can 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.

Analytics is about drawing the right conclusions from data. It includes statistics and
research design, and then goes beyond them to include skill in identifying and
articulating key issues, gathering and using appropriate data within and outside the
HR function, setting the appropriate balance between statistical rigor and practical
relevance, and building analytical competencies throughout the organization. Analytics
transforms HR logic and measures into rigorous, relevant insights.

Analytics often connect the logical framework to the "science" related to talent and
organization, which is an important element of a mature decision science. Frequently,
the most appropriate and advanced analytics are found in scientific studies that are
published in professional journals. In this book, we draw upon that scientific
knowledge to build the analytical frameworks in each chapter.

Analytical principles span virtually every area of HR measurement. In Chapter 2, we

describe general analytical principles that form the foundation of good measurement.
We also provide a set of economic concepts that form the analytical basis for asking
the right questions to connect organizational phenomena such as employee turnover
and employee quality to business outcomes. In addition to these general frameworks,
each chapter contains analytics relevant specifically to the topic of that chapter.

Advanced analytics are often the domain of specialists in statistics, psychology,

economics, and other disciplines. In fact, HR organizations often draw upon experts in
these fields, and upon internal analytical groups in areas such as marketing and
consumer research, to help augment their own analytical capability. Although this can
be very useful, it is our strong belief that familiarity with analytical principles is
increasingly essential for all HR professionals and for those who aspire to use HR data
well.

Process: Making Insights Motivating and Actionable

The final element of the LAMP framework is process. Measurement affects decisions
and behaviors, and those occur within a complex web of social structures, knowledge
frameworks, and organizational cultural norms. Therefore, effective measurement
systems must fit within a change-management process that reflects principles of
learning and knowledge transfer. HR measures and the logic that supports them are
part of an influence process.

The initial step in effective measurement is to get managers to accept that HR analysis
is possible and 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.
Calculating turnover costs can reveal millions of dollars that can be saved with
turnover reductions, as discussed in Chapter 4. Several leaders outside of HR have told
us that a turnover-cost analysis was their first realization that talent and organization
decisions had tangible effects on the economic and accounting processes they were
familiar with.

Of course, measuring only the cost of turnover is insufficient for good decision
making. For example, overzealous attempts to cut turnover costs can compromise
candidate quality in ways that far outweigh the cost savings. Managers can reduce the
number of candidates who must be interviewed by lowering their selection standards.
The lower the standards, the more candidates will "pass" the interview, and the fewer
interviews that must be conducted to fill a certain number of vacancies. Of course,
lowering standards can create problems that far outweigh the cost savings from doing
fewer interviews! Still, the process element of the LAMP framework reminds us that
often best way to start a change process may be first to assess turnover costs, to
create initial awareness that the same analytical logic used for financial, technological,
and marketing investments can apply to human resources. 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, we believe that HR measurements
increasingly will be used to educate constituents and will become embedded within the
organization's learning and knowledge frameworks.

In the chapters that follow, we suggest where the HR measures we describe can be
connected to existing organizational frameworks and systems that offer the greatest
opportunity for using measures to get attention and enhance decisions. For example,
the accounting and finance systems in organizations currently pay a great deal of
attention to escalating health-care costs. The cost measures discussed in Chapter 5,
"Employee Health, Wellness, and Welfare," can offer additional insights and more
precision to such discussions. Moreover, starting by embedding these basic ideas and
measures into the existing health-care-cost discussion, HR leaders can gain credibility
to be able to extend the discussion to include additional logical connections between
employee health and other organizational outcomes, such as learning, performance,
and profits. What began as a budget exercise becomes a more nuanced discussion
about the optimal investments in employee health, and how those investments pay off.

You will see the LAMP framework emerge in many of the chapters in this book, to help
you organize not only the measures, but also your approach to making those measures
matter. Our next section illustrates how some alternative measurement frameworks
can help us understand the benefits and limitations of several of today's most popular
approaches to HR measurement.

Today's HR Measurement Approaches 6

Table 1-1 shows four key categories and examples of today's HR measurements. The
last two columns of Table 1-1 describe the primary appeal of each category of
measures, and the "tough questions" that reveal potential limitations or assumptions
of each method.

Table 1-1. HR Measurement Alternatives

Measurement Example Measures Primary Appeal Tough Questions

Approach

Efficiency of Cost per hire, time to Explicit cost-value Wouldn't

HRM fill, training costs. calculations. outsourcing cut
operations costs even more?
Ratio of HR staff to Logic of cost savings
total employees. is easy to relate to Do these cost
accounting. savings come at
the price of
Standardization
workforce value?
makes benchmarking
comparisons easier. Why should our
costs be the same
as the industry's?

HR activity and Human capital HR practices are What is the logic

"best-practice" benchmarks. associated with connecting these
indexes familiar financial activities with such
Human capital index.
outcomes. huge financial
Measurement Example Measures Primary Appeal Tough Questions
Approach

Data from many effects?

organizations lends
Will the practices
credibility.
that worked in
Suggests there may other organizations
be practices or necessarily work in
combinations that ours?
generally raise
Does having these
profits, sales, etc. ...
practices mean
they are
implemented well?

HR dashboard How the organization Vast array of HR Can this scorecard

or HR or HR function meets measures can be prove a connection
scorecard goals of "customers, categorized. between people
financial markets, and strategic
The "balanced
operational outcomes?
scorecard" concept is
excellence, and
known to business Which numbers and
learning."
leaders. drill-downs are
most critical to our
Software allows users
success?
to customize analysis.

Causal chain Models link employee Useful logic linking Is this the best
attitudes to service employee variables to path from talent to
behavior to customer financial outcomes. profits?
responses to profit.
Valuable for How do our HR
organizing and practices work
analyzing diverse together?
data elements.
What logic can we
use to find more
Measurement Example Measures Primary Appeal Tough Questions
Approach

connections like
this?

Source: John W. Boudreau and Peter M. Ramstad, "Strategic HRM Measurement in the
21st Century: From Justifying HR to Strategic Talent Leadership." In HRM in the 21st
Century, Marshall Goldsmith, Robert P. Gandossy, & Marc S. Efron (eds.), 7990. New
York: John Wiley, 2003.

HRM Operations...Measuring Efficiency

The first row of Table 1-1 describes measures focused on "efficiency" (see also Figure
1-1). These measures are usually expressed in terms of "input-output" ratios, such as
the time to fill vacancies, turnover rates, turnover costs, and compensation budgets
compared to total expenses. These approaches are compelling because they connect
7

HR processes to accounting outcomes (dollars), and because they can show that HR
operations achieve visible cost reductions, particularly when compared to other
organizations. They are frequently a significant motivator for HR outsourcing. Many
applications of Six Sigma to HR tend to focus on such measures to detect opportunities
to improve costs or speed. One of the major limitations of these types of measures,
however, is that they are not really HR measures at allinstead, they are efficiency
ratios that can be used to monitor overhead costs in nearly any staff function. As a
result, efficiency-focused systems can omit the value of talent. Fixa ting on cost
reduction alone can lead to the rejection of more expensive decision options that are
the better value. Efficiency-based measures alone, no matter how "financially"
compelling, cannot reflect the value of talent. Finally, they focus almost exclusively on
the HR function, and not on the decisions made elsewhere within the organization.

Measuring Effectiveness...Demonstrating the Effects of HR

Practices
The next row of Table 1-1, "HR activity and 'best-practice' indexes," directly measures
the association between the reported existence of HR activities, such as merit pay,
teams, valid selection, training, and so on, and changes in financial outcomes, such as
profits and shareholder-value creation. Some results show strikingly strong
8

associations between certain HR activities and financial outcomes, which has been
used to justify investments in those activities. However, most existing research cannot
prove that investing in HR activities causes superior financial outcomes. Another
9

limitation of such measures is that they use one description of HR practices to

represent an entire organization, when in reality HR practices vary significantly across
divisions, geographic locations, and so forth. This may partly explain why managers in
the same organization might inconsistently report the frequency of use of human
resource management (HRM) activities. Also, such systems typically only measure the
10

existence of HRM activities or practices, but not their effects. Even when an actual
relationship exists, simply duplicating others' best practices may fail to differentiate
the organization's competitive position. The best the organization can hope to achieve
is to become a perfect copy of someone else.

These limitations can be seen by an analogy to advertising. It is quite likely that

studies would show an association between financial performance and the presence of
television-advertising activity, perhaps even that advertising activity rises before
financial outcomes rise. This would suggest that among organizations that compete
where advertising matters, advertising decisions relate to financial outcomes. Would it
also mean that every organization should advertise on television? Obviously not.

Thus, these approaches shed some valuable light on the important question of whether
HR activities relate to financial outcomes, and they have made important contributions
to HRM research. However, even their strongest advocates agree that they do not
measure the connections that explain why HRM practices might associate with
financial outcomes, and they do not reflect other key elements of strategic success.
They leave unanswered whether and how groups of employees significantly affect key
processes and outcomes.

HR Scorecards
The third row of Table 1-1 describes HR "scorecards" or "dashboards," inspired by
Kaplan and Norton, who proposed adding measures of "customer" (such as customer
11

satisfaction, market share, and so on), "internal processes" (such as cycle time, quality,
and cost), and "learning and growth" (systems, organization procedures, and people
that contribute to competitive advantage) to traditional financial measures. HR
scorecards include measures aligned and arranged into each of the four
perspectives. Such approaches tie HR measures to a compelling business concept and,
12

in principle, can articulate links between HR measures and strategic or financial

outcomes.

Today's scorecards or "dashboards," built on data warehouses, allow users to "drill

down" using a potentially huge array of variables customized to unique personal
preferences. For example, HR training costs conceivably can be broken down by
location, course, and diversity category, and then linked to attitudes, performance, and
turnover. Although impressive, in the hands of the unsophisticated, such approaches
risk creating information overload, or even worse, a false certainty about the
connection between talent and strategic success. As Walker and MacDonald observed
in describing the GTE/Verizon scorecard, "The measures taken in isolation can be
misleading." They describe one GTE/Verizon call center where, "when HR reviewed the
call center results from the HR Scorecard...the HR metrics showed a very low cost per
hire, a very quick cycle time to fill jobs, and an average employee separation rate ... the
staffing metrics showed a high efficiency and cost control." However, the call center
accomplished this by "changing talent pools and reducing the investments in selection
methods [that] kept costs low while bringing in applicants who were ready to start
quickly but were harder to train and keep ...a bad tradeoff." GTE/Verizon was fortunate
to have HR analysts who discovered this flaw in logic, but the example shows that even
the best scorecards and drill-down technology alone do not necessarily provide the
logical framework users need to make the best talent decisions.

HR scorecards are also often limited by relegating HR to measuring only the "learning
and growth" category, or by applying the four categories only to the HR function,
calculating HR-function "financials" (for example, HR program budgets), "customers"
(for example, HR client-satisfaction surveys), "operational efficiency" (for example, the
yield rates of recruitment sources), and "learning and growth" (for example, the
qualifications of HR professionals). Both lead to measurement systems with weak (if
any) links to organizational outcomes.

When we work with scorecard designers, they note that the majority of scorecards
measure only HR operations and activities, the elements of efficiency and effectiveness
in Figure 1-1. Scorecards admirably draw attention to impact, but the actual link
between logic and measurement is often superficial, such as linking the organizational
goal of "speed to customers" with the HR scorecard measure "faster time to fill," or
linking the strategic goal of "global integration" with the HR scorecard measure of
"number of cross-region assignments completed." Still, the scorecard-design principle
of connectedness has promise, as we shall see in Chapters 3 through 11.

Causal Chains
The bottom row of Table 1-1 describes causal-chain analysis, which focuses on
measuring the specific links between HRM programs or individual characteristics and
business processes or outcomes. Recall our earlier example, where Sears, a large U.S.
retailer, used data to connect the attitudes of store associates, their on-the-job
behaviors, the responses of store customers, and the revenue performance of the
stores. This measurement approach offers tangible data and frameworks that actually
measure the intervening links between human capacity (in this case, store-associate
attitudes reflecting their commitment or motivation) and business outcomes (such as
store revenues). In terms of Table 1-1, causal-chain analysis comes closest to mapping
all the linking elements.

The drawback is that all causal chains simplify reality. At the same time, they are so
compelling that they might motivate oversimplification. Finding that employee
attitudes predict customer responses, organizations may invest heavily to maximize
employee attitudes. At some point, other factors (such as employee knowledge of
products) become more important. Continuing to raise attitudes can actually be
suboptimal, even if it produces small additional changes in business outcomes. It's
important to have a logical framework that can reveal the new paths as they emerge.

Conclusion
HR measures must improve important decisions about talent and how it is organized.
This chapter has shown how this simple premise leads to a very different approach to
HR measurement than is typically followed today, and how it produces several
decision-science-based frameworks to help guide HR measurement activities toward
greater strategic impact. We have introduced not only the general principle that
decision-based measurement is vital to strategic impact, but also the LAMP framework,
as a useful logical system for understanding how measurements drive decisions,
organization effectiveness, and strategic success. LAMP also provides a diagnostic
framework that can be used to examine existing measurement systems for their
potential to create these results. We return to the LAMP framework frequently in this
book.

We also return frequently to the ideas of measuring efficiency, effectiveness, and

impact, the three anchor points of the talentship decision framework of Boudreau and
Ramstad. Throughout the book, you will see the power and effectiveness of measures
in each of these areas, but also the importance of avoiding becoming fixated on any
one of them. Like the well-developed disciplines of finance and marketing, it is
important to focus on synergy between the different elements of the measurement and
decision frameworks, not fixate exclusively on any single component of them.

We show how to think of your HR measurement systems as teaching rather than

telling. We also describe the opportunities you will have to take discussions that might
normally be driven exclusively by accounting logic and HR cost-cutting, and elevate
them with more complete frameworks that are better grounded in the science behind
human behavior at work. The challenge will be to embed those frameworks in the key
decision processes that already exist in organizations.