Peter Cappelli, author of the March 2008 Harvard Business Review article “Talent Management for the Twenty-First Century,” recently chatted with ERE about his views on talent management, his “talent on demand” approach, and a host of other fascinating management topics.
Cappelli, a management professor at The Wharton School at the University of Pennsylvania and director of Wharton’s Center for Human Resources, is also a research associate at the National Bureau of Economic Research in Cambridge, Massachusetts, and served as senior advisor to the Kingdom of Bahrain for Employment Policy from 2005-2005, and from 2007 is a Distinguished Scholar of the Ministry of Manpower for Singapore.
In this Q&A, he explains how the new way of managing talent is fundamentally different from what has come before it.
ERE: Tell me more about your Harvard Business Review article this month that focuses on talent management. What is the talent-on-demand approach?
PC: The idea is that we have to manage talent — the vast majority of U.S. employers, according to surveys, have just given up trying to forecast or plan. But we also have to address the problem that the business environment is highly uncertain. So rather than pretending that long-term plans will work, we have to find ways to be responsive and adapt to that uncertain environment.
ERE: How is this fundamentally different from past approaches?
PC: Most all of the new stuff being pedaled — succession plans, 360 feedback systems, executive coaching, rotational assignments, etc. — were in fact very common in the 1950s. That approach was common then because the business environment was highly stable. Companies knew what they would be building and selling 10 years or so in advance, and so they could work backwards and build talent pipelines to deliver the talent to fit those plans.
Most companies now have only two-year plans, and they update them annually. That really means, there are no plans. So those previous arrangements, at least as traditionally used, don’t work because they don’t pay off: Demand isn’t there after the skills have been produced, or new demands are there that we didn’t anticipate. And workers no longer stay put. They take the investments with them and leave.
More recently, many companies have tried to deal with their talent problems entirely through outside hiring: Whenever we find a need for talent, we look outside and hire it. This approach has gotten a lot more expensive and a lot less certain because with fewer and fewer companies developing talent, it is harder to find people to do the jobs.
ERE: Most of our readers are pretty sophisticated when it comes to talent management, but still, is there an iron-clad way for companies to prevent jumping between surpluses of talent to talent shortfalls?
PC: Yes, there are ways to get much better at planning, by incorporating in our plans the uncertainty of the forecasts. And it is also possible to develop talent internally in ways that shorten development time to be responsive to changing markets.
ERE: What are easy ways to recoup the investment of new hires? You have discussed the idea of employees sharing part of the investment, but can you define that a little bit more? Is it just in new assignments?
PC: Tuition reimbursement plans are a good example. The employer pays the tuition costs, but the employee is making the bigger investment in terms of time in classes and learning the course material. My studies and others find that these programs actually attract better applicants and that those using the programs actually stay longer. They are a retention device.
ERE: How do you find workers willing to do that?
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PC: Most good workers want to get ahead. These arrangements provide opportunities for internal development, internal advancement. So we’re looking for ambitious employees. The way to find them is to make the opportunities clear — also the requirements needed to pursue those opportunities — so that applicants can sort themselves out before they even apply.
ERE: What do you see as the biggest retention issue among employers?
PC: Virtually all workers who quit move immediately into jobs elsewhere. So keeping employees, especially the best ones, means providing opportunities that are better than they could get elsewhere. The big advantage that employers have with their own employees is that they know — or should know — who is ready to do a bigger job, and they should be able to move those people up faster than they could do so by leaving. But that requires managing the internal marketplace so that it rewards performance.
ERE: What are your thoughts on onboarding? What are some new corporate trends?
PC: I’d say the big issue should be to think about this process as an investment that pays a dividend in terms of improved performance and retention. The reason we don’t have bigger investments in onboarding is because most employers have a hard time measuring performance or even the benefits of improved retention.
ERE: To change course a bit, what are your thoughts on a recession? What will best boost the nation’s job market and overall economy?
PC: At the moment, the problem seems to be psychological, a bit of panic within lenders about taking risk, and that is because they are no longer so sure about their ability to recognize the risks behind the loans they offer. It’s not clear how to snap them out of this, although time tends to heal these things. If we can hang on a bit longer….
ERE: What are the concerns among today’s graduating management students at Wharton? Are they sharing their worries about the job market and overall economy with you? Or are they generally optimistic?
PC: So far, the job market is still pretty good for them.