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Ethos Issue 5, Nov 2008
Talent on Demand: Managing Talent
in an Age of Uncertainty
Author: Peter Cappelli
Published by Harvard Business Press, Massachusetts: 2008
Reviewed by Toh Boon Kwan
In his new book Talent on Demand, Peter Cappelli defines talent management as "the process through which employers anticipate and meet their needs for human capital".1 He argues that the number one challenge confronting organisations seeking to manage their talent is uncertainty and risk. Shorter business cycles and increasing competition have intensified the war for talent. Managing business risk, which derives from the uncertainty surrounding business demand, has a direct impact on talent management.
The risks of talent management are two-fold: firstly, the costs of a mismatch in employees and skills. An organisation either has a shortage of talent to meet rising business demand or a surplus of employees when business demand slackens, necessitating lay-offs. Secondly, when employees resign, it loses the talent development investments that it has made. Both risks could derail an organisation’s efforts to meet its goals.
THE LIMITATIONS OF CURRENT TALENT MANAGEMENT PRACTICE
It does not help that the two primary talent management approaches in use today have not been able to help organisations manage talent effectively.
The first of these approaches is reliance on internal development of talent. The principle of internal development is that companies invest in the development of employees and later secure the benefits of that investment through enhanced employee performance. Organisations make long-term plans for talent development on the assumption that they can forecast demand for talent with reasonable certainty years and decades in advance. They develop succession plans to identify the positions that need to be filled at every level; recruiting, developing and promoting top talent into key positions and retiring them in a system of life-time employment.
This approach also assumes that there are no leaks from the talent pipelines. However, unpredictable markets dominate the contemporary economic scene. Boom and bust cycles have led to the demise of the life-time employment model. Staff turnover creeps up during tight labour markets. Leaks in the talent pipeline accelerate as employees change jobs with greater frequency and after shorter terms of service. Developing talent internally remains an expensive option and, with rising staff turnover, is an investment that seems mostly to go down the drain—or worse, to the benefit of competitors.
The second of these approaches is to rely on outside hiring. Why develop staff internally when you can poach a well-trained hire from another organisation on the cheap? Outside hiring, however, assumes that there is a big pool of well-trained talent waiting to be headhunted. Internal development of talent is a much more attractive proposition, particularly when outside hiring becomes too expensive in a tight labour market and outside hires are not able to meet unique organisational needs. Outside hiring is also a reactive strategy and imposes a time lag before the talent could come on-stream.
The shortcomings of both contemporary talent management practices have led Cappelli to propose a third approach in Talent on Demand. His new talent management paradigm aims to enable organisations to respond quickly to changes in our highly competitive economic environments. It balances the use of internal talent development with outside hiring, taking into account both employee and organisational interests. The key lies in acknowledging uncertainty, responding and adapting to it.
FOUR PRINCIPLES FOR THE FUTURE
Cappelli proposes four principles in
talent management in our age of uncertainty:
First, make and buy talent to manage demand side risk. Every organisation has to determine its talent management strategy. In meeting the demand for talent, is it more costly for the organisation to produce an excess of talent than to experience a shortfall of talent? Or would it be more cost-effective for the organisation to accept a shortfall of talent and top it up with outside hiring to meet its talent needs? Having an excess of talent may not necessarily be a good thing as ambitious talents may not wait around for a higher-level job opening to appear. They would leave for a competitor who needs their skills immediately. Having a talent shortage may mean missed business opportunities when the market experiences an upturn and boom times return. Hence, a talent strategy that includes the making and buying of talent minimises the risk about being wrong in forecasting demand for talent.
Second, reduce the uncertainty in talent demand. Longer-term forecasting is fraught with inaccuracies in view of rapid changes in business conditions. Succession planning is limited in usefulness, as trying to predict which employee should fill a position (and with which precise skill-sets) many years in advance is fraught with risk under ever more volatile circumstances.
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