The article “Talent Management for the Twenty-first Century,” by Peter Cappelli, discusses the many weaknesses of current talent management practices being used in a large number of companies. Such weaknesses lead to either a surplus or shortfall of employees to meet the needs of the company. Two ineffective methods that evolved to solve these problems are either: do nothing, or make predictions and plans to determine the human resource needs of the company. Cappelli suggests looking at talent management from a supply-chain perspective instead, and following four main principles.
Unlike the market of the 1950’s and 60’s, when market trends were relatively easy to predict and employees tended to stay within a company for life, many economic changes have dramatically changed the structure of companies today, as well as created a highly unpredictable market. Economic recession in the early 1980’s caused white-collar lay-offs for the first time, and lifetime employment was no longer guaranteed. As a result of decreased hiring and promoting employees, many companies removed talent development programs from their organizational framework. Why keep something that will not be used and will potentially cut into company profits? Inevitably, companies that retained these programs throughout the recession got into more trouble during the 2001 recession.
Removing talent development programs in companies resulted in a switch to hiring talent externally, which was practical at a time when there were large resources of white-collar lay-offs. Many companies make it their goal to perfect the method of recruiting talent away from competitors while also improving their ability to retain their own talent. However, continued economic expansion in the following years diminished the size of this ready source of developed talent, and companies discovered themselves acquiring and losing employees at the same rate.
Many companies at present are referring back to the 1950’s model of talent management of forecasting human resource needs and basing plans on those predictions. However, such long-term models are incapable of dealing with the unpredictability of today’s economy. Using this method may force a company to restructure their business, and develop a new plan often to account for changes in the market. However, Cappelli brings up the interesting point that a plan is meant to be a long-term action guide towards a goal, which for all firms is to make money. What is the point to making a plan then, if it will need to be changed often? Cappelli suggests that the best way to deal with talent management is to look at it as analogues to supply chain management. In the same way companies perform line balancing and just-in-time manufacturing to determine the fastest and cheapest way of production, they must switch to a method Cappelli calls, “supply-chain-management” to meet the talent needs of the company while reducing costs associated with necessary training and retention fees. Such a switch means companies will have to follow four main principles when dealing with talent management.
The first principle that Cappelli urges companies to follow is to balance internal development and external hiring to minimize costs associated with training and retention fees. Fifty years ago, talent had to be home ‘grown’ and job-hopping was a sign of failure. Hence, shortfall of talent was a company’s biggest concern. This would result in the need to either push inexperienced people into unfulfilled roles, or simply drop or put off projects. The only way of preventing this was to overshoot projections. If too many trained employees result, the extra people would stay on the sidelines until a need develops. Today, this method is expensive and ineffective since employees may not want to sit on the sidelines and choose to leave the company once they are trained and have a competitive advantage. It is also costly to overshoot predictions in terms of training costs and retention fees. On the other hand, if a firm decides to hire all of its human resources needs externally, it may negatively affect the culture of the company, which may cause conflicts. Therefore, the best option for companies is to use a combination of both developing talent internally and hiring ready talent externally. Given the high error rate on forecasts regarding business needs, a firm should always aim to undershoot those predictions, and hire more employees as needed later. This works to minimize waste of company resources.
The second principle companies should follow is to develop a method that allows for easy adaptation to changing trends and demands. Consider buying something in bulk: this would require predictions regarding how much you will need, and how long the product will last. However, if we purchase smaller quantities more frequently, we do not have to make predictions for a long period. If a firm applies this principle to talent management and development, it would mean that they could better react to changes in the economic environment. This principle can also be applied to long-term programs by subdividing the program into smaller parts, and making predictions for each part separately. This allows companies flexibility in planning.
It is impractical to invest all of one’s money in one stock, since there is a high risk of losing money should the company perform poorly. It is much more practical to spread investments between a variety of companies so that if one company perform poorly, earnings from another will balance it out. Similarly, when training employees, it is better to have a general program, in which employees from different departments are trained together, so each have a broad range of abilities. This way, if one department has a surplus of talent, extra employees can be easily transferred to a department where there is a shortfall. In this process, the company also stands to save a lot of money in regards to training costs.
The third principle is to “improve on the investment return in developing employees”. Many companies, especially those in Singapore and Malaysia, have taken steps in this direction by asking employees-in-training to sign a contract, which states that unless they stay with the company for a specified length of time after their training, they will have to pay back the cost of the training to the company. This provides an incentive for employees to stay with the company for an extended period of time.
The fourth-major principle Cappelli suggests is for firms to “preserve the investment by balancing employee-employer interests”. In the past, employees allowed companies to make career choices for them, and felt like they had no choice but to follow those choices for fear of losing their job. Today, if a talented employee does not receive the job that they want, it is relatively easy for them to find another job. In an effort to reduce turn over rate, some companies, like Dow Chemical, opened up vacancies to its existing employees. A down side to this is that management losses some control over their internal talent distribution. The interests of employers and employees may differ and cause conflicts within the company. It is important for companies to seek a solution that weighs the wants of both parties equally.
Cappelli argues that by incorporating these principles into the company’s talent management, companies would be able to integrate the interests of all parties involved (employers, employees, and society in general) into their general framework. Such actions will ultimately support company goals, which, in all cases, is to make money.
Bibliography
Cappelli, Peter. “Talent Management for the Twenty-First Century.” Harvard Business Review
Vol. 86 issue 3, Mar. 2008: p74-81.
