The demand for accountability among all business functions has never been greater. A key responsibility of human resource (HR) leaders and consultants is to articulate the logical connections between progressive HR practices and firm performance, and they need to demonstrate those connections with data. This book provides logic and technology to look inside the “black box” between HR practices and financial/business performance.

We argue that investing in talent should be as systematic as investing in any other vital resource, based on logical frameworks and focused on optimization rather than simply cost reduction or mimicking best practices. This argues against the common “peanut-butter” approach to talent investments that spreads the same investments (for example, in training or staffing programs) over the entire organization, in an effort to be fair by being equal. Such approaches engender justifiable skepticism from leaders and employees who are asked to invest in programs or activities because HR—or even the CEO—says that “everyone must do it.” That approach is in stark contrast to other resources, such as customers and technology, where investments are targeted where they have the greatest effect. Why not make greater talent investments where they matter most and smaller investments where they do not make a significant strategic difference? This “decision-science” approach provides the foundation for the techniques we present here. We emphasize that ultimately measurement is valuable when it improves important decisions about talent. That requires not simply more or better measures, but an integrated approach that combines those measures with logic, analytics, and knowledge processes (what we call the LAMP framework). Each chapter begins with a logic diagram that shows the links between particular HR programs, employee behaviors, and operational and financial outcomes. Each chapter includes a discussion about process, describing opportunities and effective ways to communicate results to decision makers.

We draw extensively on our decades of experience assisting senior-level decision makers to better understand and measure the impact of talent decisions, and also on our scholarly research on the connections between talent and organizational outcomes. We have been fortunate to work with both practicing leaders and academic researchers. This combination is essential for talent measurement and decisions that achieve both practical relevance and logical rigor.

Investing in People draws upon research in psychology, economics, accounting, and finance to provide tools that leaders inside and outside the HR profession can use together to describe the financial results of their investments in people. We focus on HR investments with a rich history of data-based research, including staffing, training, workplace health, employee attitudes, and employee turnover, which also represent some of the most important strategic HR functions.

This book provides specific formulas and calculations that you can use to evaluate the impact of your own talent decisions. To make the formulas easier to use, we developed software to accompany the chapters on the following topics: absenteeism, turnover, health and welfare, attitudes and engagement, work-life issues, external employee sourcing, the economic value of job performance, payoffs from selection, and payoffs from training and development.

The Society for Human Resource Management (SHRM) provided generous support for the development of the software, and you can access this software at the SHRM website (www.shrm.org/publications/books), regardless of whether you are a SHRM member or not. The software performs the calculations of measures, so that readers can focus on the logic, analytics, and processes necessary to improve strategic decisions about talent.

Business leaders, inside and outside of the HR profession, need more rigorous, logical, and principles-based frameworks to understand the connections between human capital and organizational success. We hope that this book serves as a “go-to” resource for those frameworks.