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 / Winter 2008 /Issue 53(originally published by Booz & Company)


Best Business Books 2008: Human Capital

Cappelli believes that centralized and coordinated development programs are needed if organizations are to reduce mismatched costs. But he maintains that such efforts must be flexible, data-based, and capable of reflecting a full range of cost factors. He also suggests these programs adopt a variety of tools to manage talent. These include the separation of work from job title to facilitate the distribution of stretch assignments, the creation of job boards to help employees manage their careers, and online learning that can be delivered as needed (while recognizing its drawbacks compared to face-to-face instruction, in terms of both social context and motivation).

Cappelli’s eagerness to sniff out and rebut conventional wisdom propels this book well past the boilerplate that is so common in books about talent management. The bottom line of Talent on Demand: Companies have almost exhausted the value of cost-cutting schemes and incremental process improvements as a competitive advantage, so they must pursue innovation. In order to develop their capacity for innovation, they have to commit to growing more talent; the endless back-and-forth poaching of people from other companies is a zero-sum game that will not be sufficient to build the human capital needed in the years ahead.

Edward E. Lawler III, director of the Center for Effective Organizations and a distinguished professor of business at the University of Southern California’s Marshall School of Business, has also taken on the human capital conundrum this year. His book Talent: Making People Your Competitive Advantage demonstrates a rigorous but humane patience with organizational change that provides an interesting contrast with Cappelli’s head-on assault. (See “The Talent Lie,” by Edward E. Lawler III, s+b, Summer 2008.)

Lawler grounds our present plight with regard to human capital in the shift to a global knowledge econ­omy that thrives on innovation but undermines the structures required to sustain it. And he can be scathing, particularly in his description of the kind of siloed, bureaucratic, and shallow way that many organizations now approach the development and management of talent. He proposes that before they act, companies gain a more rigorous understanding of where they stand on the spectrum of HR strategies, from talent-driven to expediency-driven approaches.

At the talent-intensive end of this spectrum is what he calls the HC-centric organization (HC standing for human capital), in which business strategy is determined by talent considerations, functions are aligned to support working relationships, and performance is systematically managed and measured. At the other end is a structure-centric organizational model that seeks competitive advantage through low wages and sparse benefits, a com­mitment to automation and mech­an­ization, and the extensive use of offshoring.

Lawler adjusts his recommendations depending on where an organization lands on the spectrum. He acknowledges that the structure-centric approach can be highly profitable when well designed and executed, though only for businesses that deliver simple, low-value-added products and services. Yet he cautions that the low-cost operator approach, though it may look like a rational choice, often contains such heavy hidden costs as high turnover and alienated customers. He also notes that many HC-centric organizations are “high-involvement companies” that leverage the power of their brand to appeal to people who want work that enables them to develop their skills and contribute to a company or a cause. Because these companies invest in employees, turnover tends to be expensive, so they provide incentives that emphasize work–life balance and a sense of community.

Lawler is not reluctant to question conventional wisdom, though he does so in less probing terms than Cappelli. He notes that many HC-centric organizations talk about the need to treat people fairly without ever bothering to define precisely what fairly means. He says that focusing on best practices can cause an organization to lose its competitive advantage by teaching solutions to yesterday’s problems, and views process improvement programs like Six Sigma as potentially hostile to innovation. Lawler is also dismissive of the kind of forced appraisal distributions (known as “rank and yank”) popularized by Jack Welch, asserting that such schemes often spur the departure of talented people who do not wish to work in internally competitive environments.

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