Interview with Peter Cappelli on Midlife Crisis
February 2009 - By Dr. Nagendra V Chowdary

Peter Cappelli
Peter Cappelli, the George W Taylor Professor of Management at The Wharton School and Director of Wharton’s Centre for Human Resources.

If you’re not happy with your work as a professor, it’s your own fault because we can choose what we do, what we study. It helps to be around other people who are also working hard and producing work. It is always important to worry about having an audience: Producing work that no one reads isn’t particularly useful. And figuring out where one’s audience is, what is important to them, creates the direction to keep one’s career on track.

• One of the very popular books on talentmanagement is a book authored by you – Talent on Demand: Managing Talent in an Age of Uncertainty (HBSP, 2008). Why is talent management so important for companies and what are the insights from this book for the companies and HR top executives? One of the reviews on this book comments that the author has looked at the talent management problem through a radical new lens. What is the radical new lens?
  Talentmanagement is simply the process of anticipating what your needs for human capital will be and then setting out a plan to meet it. If we don’t take this task seriously, companies end up without the talent they need or, in some cases, too much talent, leading to layoffs or retention problems because of a lack of internal opportunity. I’d say the biggest problemwe face in this area is that companies do too little internal development of talent and rely toomuch on outside hiring. Obviously this can’t work for an economy as awhole:We can’tmeet our needs by hiring from each other. The new lens is to think about these challenges with some of the tools from supply chain management. We’re thinking about these questions from a perspective of costs and benefits, not simply by saying is this “the right thing to do.” The new way of managing talent described here is fundamentally different from what has come before it, first because it takes as its starting point organizational goals and not human resource targets. Its purpose is to help the organization perform, and it does that bymanaging the talent risks that are generated by uncertainty in business demand and the new, more open labor markets. The new approach to talent management may help to resuscitate the development ofmanagerial talent, something that risks being choked off because employers cannot envision how to make it work in the current environment. The lack of internal development of talent has increased the demand for outside hiring, which in turn causes retention problems elsewhere, undercuts the ability to develop talent internally, and creates a vicious circle that erodes managerial talent. The onlyway forward is to recognize these problems and adapt to the uncertainty that drives them.

• In the book, you have advocated four new principles for ensuring that an organization has the skills it needs – when it needs them. Can you please share with us those four new principles and what it entails for the companies to do well on each of these principles?

  Principle 1: Make and Buy to Manage Demand-Side Risk
  Risk has two aspects: the uncertainty of a given outcome occurring, and the costs of that outcome. It may be possible to reduce somewhat the uncertainty associated with business outcomes through better forecasting, but it is easier tomake progress inmanaging risk by understanding and then reducing the costs of mistakes.

  For example, it is hard to forecast with accuracy how many units of some product will be needed, but it is relatively easy to know the costs of not having enough product and services to meet demand (losing opportunities as a result) versus the costs of exceeding demand (producing inventory). Cost-effectiveness demands that we choose the amount to supply that minimizes both costs. In other words, it is not enough to simply estimate the demand. To minimize costs, you need to know what the costs will be when you are wrong, as you inevitably will be in an uncertain world. Producing too little talent may be less of a concern than in the past because it is almost always possible to hire on the outside to make up any shortfall in talent. Although the cost of outside hires typically is greater than the cost of candidates developed internally, that difference pales in comparison with the cost of losing a developed candidate to a competitor. Producing too much talent, or having a “deep bench” as some describe it, is now very costly. A deep bench of talent is inventory, and unlike other forms of inventory, talent does not willingly stay on the shelf until it’s called on. It walks out the door for better opportunities elsewhere.

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