ETHOS Issue 05, Nov 2008
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 key to talent management lies in acknowledging uncertainty, responding and adapting to it.
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. Instead of attempting to forecast and plan around uncertainty, Cappelli advices a portfolio approach to manage the risk of uncertain demand for talent in future.
A strategy that includes the making and buying of talent minimises the risk of being wrong in forecasting demand for talent.
Instead of having decentralised management development programmes, Cappelli advocates a centralised approach instead. He argues that this is more efficient in allocating talent, since departments that have a surplus of talent may release those talents to departments which are experiencing a shortage. It also reduces costs since duplication of effort is eliminated. Developing talent pools of generalists who can fill a range of jobs rather than training specialists for specific jobs will also help to reduce uncertainty in demand. Skills shortfalls could be met by just-in-time training and coaching. Making shorter forecasts for talent will also reduce uncertainty.
Third, earn a return on investments in developing employees.
The huge cost of management development could be reduced by shortening the time employees spend on such training. It is important to identify early the employees who have the potential for advancement and provide them with opportunities to quickly advance to positions where they can contribute significantly to the organisation. Getting employees to share the costs of such training would help improve the rate of return. Asking employees to volunteer for important projects led by senior management over and above their normal workload is one way of meeting organisational goals while providing opportunities for these employees to gain access to senior management. Providing tuition funding for employees who read their courses after office hours is also another way of sharing costs.
If we are unable to fill key positions on a consistent basis, it may be timely to review the length of term appointments.
Fourth, balance employee interests by using an internal market.
Employers who make it easier for employees to switch jobs within the organisation improve their chances of retaining talent rather then losing them. This necessarily involves negotiating a balance between the interests of the employee and the organisation in career advancement, working out compromises that take into account the preferences of both employee and employer.
TALENT ON DEMAND IN SINGAPORE: IMPLICATIONS
How might Cappelli’s framework fare within the context of Singapore? Cappelli notes that larger Singapore companies continue to emphasise internal talent development despite losing a significant amount of talent to smaller companies that focus on outside hiring to meet staffing needs. This practice, he surmises, is due to government influence on listed company boards to ensure a continuous transfer of talent as it benefits the country and society.2 He cites the Singapore Public Service’s centralised talent management approach for its Administrative Service in support of his criticism of decentralised talent development models.3 Cappelli also describes the Public Service’s systematic talent development approach in developing a pipeline of leaders to fill senior management positions.4 In addition, he also explains the use of bonded full fee government scholarships to protect the Public Service’s talent investments as well as to fill its high-potential programmes.5
What remains missing from Cappelli’s references to the talent management strategies of the Singapore Public Service is an assessment of their effectiveness, particularly in terms of talent development. Internal development of talent has been a key to the success of the Public Service, especially when it comes to filling of key positions at the public sector leadership levels. Outside hiring at these levels is very limited due to the specialised needs of the Service.6 The use of term appointments has also led to constant rejuvenation of talent at the highest levels. However, this stance assumes that we have a deep bench of talent who are waiting in the wings to step up to fill these positions. If we are unable to fill these positions on a consistent basis, it may be timely to review the need to constantly rejuvenate talent and even consider extending the length of the term appointment.
Similarly, the use of bonded scholarships as a recruitment tool of largely untested fresh recruits into high-potential programmes as distinct from the use of scholarships as a retention tool for high performing serving officers may be contentious. It could in fact undermine morale among serving officers who have not received these scholarships when they were recruited.7 Addressing this divide would be one way of building a more cohesive public service. For instance, more emphasis could be placed on the in-service nomination of high-performing serving officers for entry into high-potential programmes and less emphasis given to the automatic placement of scholarship holders on such programmes.
The Public Service may have to leverage on recruiting directly from top universities, going forward.
How do we go forward from here? Cappelli has already offered some answers.
Some companies buy talent by recruiting directly from top universities. The Public Service may have to leverage more heavily on this option going forward, in line with the trend of rising numbers of Singaporeans who are able to fund their own education at premier universities independent of government scholarships. Hiring is also immediate, without the need to wait for the inevitable time lag for scholarship holders to graduate.
Buying talent also limits the need to forecast manpower needs years in advance. For instance, the Building and Construction Authority’s release of its graduating scholars from their bonds at the height of the Asian financial crisis in 1998 illustrates how inaccurate manpower forecasting can be in the short span of a few years.
Cappelli’s idea of incorporating the making and buying of talent into corporate human resource strategy may not sound new. In fact, he reminds us that most of the management development practices in use today are of recent vintage. For instance, the first high-potential programme was only introduced in 1926.8 Peer assessments and forced ranking was pioneered in the armed services before making its way into industry. Similarly, the use of psychological assessments and selection boards became common practice after their pioneering use in the military. This is not surprising since the armed services had to develop and deploy huge numbers of manpower quickly and efficiently during the Second World War.9 However, before we dismiss Cappelli’s ideas as largely common sense with nothing new to offer, it is worth noting that common sense is not common practice. By focusing senior management’s attention on what is inadequate in current talent management approaches, Cappelli has done human resource practitioners a great service. Take heed.
- See p. 1.
- See pp. 101-102.
- See p. 148.
- See pp. 201-202.
- See p. 181.
- See Neo Boon Siong, Dynamic Governance: Embedding Culture, Capabilities and Change in Singapore (Singapore: World Scientific, 2007), pp. 354, 456-457.
- For an American perspective on the divide between inexperienced scholarship holders and long-serving officers within the Singapore Armed Forces context, see Sean P. Walsh, “The Roar of the Lion City: Ethnicity, Gender, and Culture in the Singapore Armed Forces”, Armed Forces & Society , 33, No. 2 (January 2007), pp. 265-285.
- See p. 35.
- See pp. 40-43; The British armed forces perspective is provided in Jeremy A. Crang, The British Army and the People’s War, 1939-1945 (Manchester: Manchester University Press, 2000).