The HR economist

Deloitte’s Human Capital Trends 2013 raises a number of interesting issues, which we’re going to look at over the next few posts. The first of these is the way in which modern HR leaders must start to think more like economists.

What is an HR economist?

The basic idea is that HR leaders need new ways of thinking to deal with an ever more complex world. It’s a point that’s hard to deny. As the world changes so must we, and working with better data is only part of that adaptation. We have to learn to use that data in new ways.

In some fundamental ways, high level HR is a lot like economics. It’s concerned with the allocation of finite resources. In this case, those finite resources are in the form of human talent. To understand this it examines supply and demand, primarily in the form of employees and posts, the way that these shift, and the patterns of cause and effect underlying it all.

To really make the most of this HR leaders need to consider both internal and external economic indicators, looking for the economic patterns affecting their organization. The successful use of this big data involves aligning better with the rest of the business, both to understand what’s happening in the data and to provide the best possible actions based on it.

HR economics in practice

Deloitte provides a number of examples of the practical implications of this approach. Rather than re-state their case, lets look at one example in greater detail – mergers and acquisitions (M&A).

It is becoming common for an organization to be targeted for acquisition primarily for the value of its workforce. When Microsoft agreed to buy Nokia’s phone business they weren’t after a bunch of Finnish factories, they were after the expertise to make high quality handsets. As Deloitte pointed out, economic data and economic thinking can help to identify M&A targets and where they might be found. It may identify useful takeovers based not on their current potential but on where the market is going.

But economic thinking in M&A can go beyond that. It can allow you to look at the likely impact of a merger on the talent pool within your company. Will it create demand for managers at a particular level to smooth the transition? Will it leave you with a surplus of accountants, and if so should you look to shed them or to hang onto them for another change coming down the line? Do mergers push up demand for bonuses in your business, or have an unexpected effect on the way leave is taken?

Going beyond Deloitte

Deloitte’s paper has brought a powerful set of tools to the table of HR leaders. Economics alone is a huge toolbox. HR leaders will be able to start looking at patterns of supply and demand both within and outside their organizations to identify times and places to recruit. They can try different economic models to see what best represents their organization, and so learn more about the business itself. They can start to model the way that demand for skills affects progression within the organization.

Only time will tell how far this will take us, and how much it will dominate compared with the other big ideas in Deloitte’s paper. It is to the second of those that we turn next – the open talent economy.

– Mark Lukens

Links or other articles in this series:

Link to the full paper on Human Capital Trends