Wednesday, January 14, 2015

What Theory Can and Cannot Do in (HR) Practice

the·o·ry \ˈthir-ē\ : an idea or set of ideas that is intended to explain facts or events (Merriam-Webster)

I’m gearing up to again teach my course on Personnel Economics to graduate and advanced undergraduate students interested in human resources (HR). Each time I teach this course, I’m struck by the difficulty that students have in understanding the role of theory in HR practice. I’m not talking about understanding the actual theories—that’s a story for another day; rather, I’m talking about what theory can and cannot do.

For starters, theory doesn’t  make something true. Standard theory in personnel economics assumes that work is lousy (but endured to earn income), workers are self-interested and rational, and money is an important motivator. I then cringe when someone says that personnel economics teaches us that work IS lousy, workers ARE self-interested and rational, and money IS an important motivator. It doesn’t. Someone who uses or favors a particular theoretical paradigm certainly hopes that the underlying assumptions are realistic to a certain degree, but assuming something doesn't make it true.

Similarly, it’s important not to confuse theoretical assumptions with what someone thinks should be the correct behavior (“normative prescriptions” in academic jargon). To assume that organizations are focused on profit maximization, as is common in economic theorizing, does not mean that organizations should be focused on profit maximization. To assume that workers are motivated by money does not mean that workers should be motivated by money. Unfortunately, it’s easy for a bedrock assumption to become so ingrained that people start to think of it as the desired behavior. Maybe it should be, or maybe not, but simply because it’s a theoretical assumption or a theoretical emphasis doesn’t automatically make it a desirable normative prescription.

Moreover, theory doesn’t cause things to happen in practice. The standard assumptions in personnel economics yield a number of theoretical predictions. For example, standard economic theorizing rooted in these assumptions predicts that a worker who is paid a fixed salary will shirk (that is, will exert the least amount of effort required to keep their job). Workers in teams are predicted to free ride. Workers in tournaments or contests are predicted to do things that increase their chance of winning but that don’t create value for their employer. I then cringe when someone says that personnel economics causes workers to shirk or that tournament theory caused someone to undermine a co-worker. Theory doesn’t make anyone do anything. A certain behavior might be consistent with a theory, but the theory didn't create this behavior.

So what can theory in HR do? Theory should help us think about, and therefore understand, behavior in the workplace. Personnel economics theorizing says that IF work is lousy, IF workers are self-interested and rational, and IF money is an important motivator, then workers are predicted to do certain things depending on the context (for example, shirk if the context is a fixed wage compensation system). So to the extent that these assumptions accurately capture a segment of an organization’s workforce, this theorizing can help predict behavior and therefore inform the design of HR policies (for example, using pay-for-performance instead of a fixed wage). But maybe these assumptions do not accurately characterize some workers. Then a different set of assumptions and a different theory is needed for understanding behavior and designing policies.

For this reason, it’s important to be very clear about the underlying assumptions in all of the different theoretical paradigms that are used to guide HR practice, whether rooted in economics, psychology, sociology, or other disciplines. Jobs are diverse and people are complicated. No one theory accurately captures all workers or all jobs. And theorizing something does not make it true. But thinking carefully about assumptions and theoretical predictions can provide deep insights, help make sense of observed behavior and patterns in data sets (big or otherwise; see my earlier posting "Moving Past the "Gut Feeling" Rhetoric in HR Analytics"), and when used appropriately, foster the creation of better HR policies and the construction of desirable normative prescriptions. So theory can be powerful, when used correctly.

As one of my former students said, "Personnel economics is not a rule book, it is a tool kit." The same is true for all theoretical frameworks in HR. HR professionals should understand what theory can, and cannot, do. 

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