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Peter Cappelli, a professor at the Wharton School, the business school of the University of Pennsylvania, is the author of Talent on Demand: Managing Talent in an Age of Uncertainty. He is also the head of Wharton's Center for Human Resources.Knowledge@Wharton is the electronic journal of the Wharton School.
Failing to manage your company's talent needs, says Wharton management professor Peter Cappelli, "is the equivalent of failing to manage your supply chain." And yet the majority of employers have abysmal track records when it comes to the age-old problem of finding and retaining talent.
Supply-chain managers "ask questions like, 'Do we have the right parts in stock?' 'Do we know where to get these parts when we need them?' and 'Does it cost a lot of money to carry inventory?' These questions are just as relevant to companies that are trying to manage their talent needs," he says. In other words, the principles of supply-chain management, with its emphasis on just-in-time manufacturing, can be applied to talent management.
"This is a fundamentally different paradigm in terms of thinking about talent," according to Cappelli, the author of the recently published book Talent on Demand: Managing Talent in an Age of Uncertainty. His theory, he suggests, addresses a major complaint about the field of human resources -- that it is "touchy-feely, squishy stuff with little applicability to business problems. HR practices have typically been about meeting individuals' needs, figuring out what psychological profile they fit and what should be done to help them grow and advance. But if you're an employer who is worried about issues like the finances of the company, you would like HR to think about personnel from the perspective of money and costs, and what happens if you don't have the right people in place to do the necessary jobs."
Those who study supply-chain management tackle these kinds of questions all the time, says Cappelli. "Managing supply chains is about managing uncertainty and variability. This same uncertainty exists inside companies with regard to talent development. Companies rarely know what they will be building five years out and what skills they will need to make that happen; they also don't know if the people they have in their pipelines are going to be around."
Part of the problem is that many companies are locked into an older paradigm based on the assumption that they can accurately meet their talent needs through static forecasting and planning models, even though the global marketplace is an increasingly unpredictable, unforgiving environment. "The idea that we can achieve certainty through planning is no longer true," Cappelli states. "Instead, we have to deal with uncertainty by being more responsive and adaptable."
Sitting on the Shelf
The term "talent management" simply means "trying to forecast what we are going to need, and then planning to meet that need," Cappelli notes. The definition of supply-chain management is essentially the same: "We think that demand for our products next year is going to be 'X.' How do we organize internally to meet that demand?"
Underlying supply-chain questions is the issue of inventory, which in talent management terms often comes up when employers talk about having a "deep bench" of talent. "You hear that phrase a lot -- 'we have a deep bench,' or 'we have a big talent pipeline' -- and it is said with pride," Cappelli says. "Yet if you think about it in supply-chain terms, a deep bench is the equivalent of lots of inventory, which sounds terrible when we think of products. In fact, it is worse when we talk about talent. That's because an inventory of talent is much more costly than an inventory of widgets. Talent doesn't sit on the shelf like widgets do. You have to keep paying talent. And the best way to have a piece of talent walk away is to tell it to sit on the shelf and wait for opportunity. Anyone who is ambitious will leave, and then you will lose the big up-front investment you made in that person."
Avoiding inventory buildup directly relates to companies' efforts to manage the uncertainty around their talent needs. "Suppose a company forecasts that it will need 100 new engineers this year," says Cappelli. "No one ever asks the question: 'How accurate is that forecast?' As it turns out, that forecast is almost always wrong because business needs are so hard to predict. So the way to proceed is to ask the next question: 'What happens if we are wrong?' You can be wrong in one of two ways: You can end up having more engineers than you thought and have to either carry them or lay them off, or you have fewer engineers than you thought and have to scramble to find extras. Next question: 'What does that cost us in each case? Does it cost us more if we have too many, or if we have too few?' It's almost always the case that it is much worse in one context than in the other."
If companies start thinking about what the odds are of being wrong, and what the associated costs are, "then they know which way to bet and they greatly reduce their likelihood of losing a lot of money," Cappelli says.
Reducing bottlenecks is another supply-chain concept relevant to talent-on-demand. The CIA had this problem when it faced a two-year waiting list to get people through security clearances, according to Cappelli. "New hires were stacked up with nothing to do, exactly the way goods can get stacked up in an assembly line. It's important to remember that the assembly line can move only as fast as the slowest part."
In the CIA's case, because it wasn't able to increase the flow of people through security, the question becomes: Why is it hiring so many people, knowing they can't get through the bottleneck? "The organization shouldn't make that many hires at once," Cappelli says. "You see this in many companies, including those that hire people only once a year, like college grads. Say they hire 50 graduates in June into training slots. At the end of the year, they have 50 people expecting to move from the training program into more permanent positions. Why doesn't the employer stagger the process and hire people twice a year instead of once?" Then the company needs only half the number of training positions and, more important, can adjust the amount of hiring in the latter period to changes in demand.
Controlling "Inventory" of Workers
In his book, Cappelli cites the talent management processes at a number of companies, including Unilever, IBM, General Electric, EDS, Dow, Capital One, Citibank, Corning, Johnson & Johnson and Bear Stearns, to name a few.
At Capital One, where the challenge was to help the company plan its workforce -- which had gone from 20,000 employees in 2001 to 14,000 in 2005 to 30,000 in 2007 after a series of acquisitions -- the company assembled a team with experts in marketing and operations research, but none from the traditional HR function. The group used data mining techniques, manufacturing models and information from its PeopleSoft system to generate talent planning models for each business unit.
"Rather than just predict the number of people required in each role, they also modeled outcomes such as attrition rates, employee morale, rates of promotion and outside hires." The big innovation is that models such as these have moved past traditional forecasting and toward simulations in order to deal with uncertainty in business. "Rather than generating a static estimate of how many workers will be needed two years out," says Cappelli, "they say to operating managers: 'Tell us the assumptions you have about your business, and we'll give you a talent estimate. Better yet, give us a range of different assumptions, and we'll give you a range of talent estimates within which the reality will most likely lie.' "
Cappelli recounts efforts by some companies to give employees more control over their career paths and the career development process and thus make them more likely to stay with the company.
Duke Power, for example, allows employees, under certain conditions, to post and swap jobs with other employees at their same job and salary level. Gap operates an internal headhunting office where employees with at least two years' experience can look for other positions within the company.
During the IT downturn in 2001 and after, Cisco offered a "voluntary sabbatical" to its employees in which the company agreed to pay one-third of their salaries while they spent time working at nonprofit organizations.
This summary was drawn from a longer article by Knowledge@ Wharton. To read the entire piece, including discussion of why so many current talent management trends are self-defeating and how to make staffing forecasts more accurate, click here.
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