ADVIRTISING 30

scary health
warnin. can make
products more
appealing
DIFINDYOUR
RDURCH 32
Entrepreneurs feel
closer to God than
the rest of us do
VISION
STATIMINT 34
Africa's $2.6 trillion
opportunity
COLUMN 40
Kevin Sharer on
developinggreat
leaders
New Thinking. Research in Progress hbr.org
PEOPLE
HRfor
Neophytes
Line managers are taking
on duties that once
belonged to human
resources. Here's what
they need to know.
by Peter Cappelli
t's a worldwide trend that has been un-
der way for nearly a decade: Responsi-
bility for talent management is shifting
from HR to frontline executives. The transi-
tion is driven partly by cost cutting-head
counts in HR departments fell sharply dur-
ingthe Great Recession-but it isalsofueled
by the recognition that many aspects oftal-
ent management are best handled by day-
to-daymanagers. In a 2005Australian study,
70%ofrespondents saidthat line managers
had takenover many HRtasks in their firms
during the previous five years. In a 2013 sur-
vey of UK companies, senior executives re-
ported playing a much bigger role than HR
departments insettingemployees' develop-
ment goals. In the United States, 45%ofthe
HR departments surveyed plan to restruc-
ture before the end Of2013, in part to reflect
this trend. And research by CEB shows that
when line managers, rather than HR, are re-
sponsible for recruiting, performance man-
agement, and retention, companies are 29%
more successful at those tasks.
For many line managers, the shift
presents challenges. Investments in human
capital are highly uncertain; the returns are
less predictable than those from, say, new
machinery. Some talent management ac-
tivities that worked well for decades no
longer payoff. (See the sidebar "Stale Prac-
tices:') And acquiring skills in this area can
be difficult: Research suggests that some of
the most widely held beliefs about manag-
ing people are misguided.
Executives newly responsible for talent
management-and employers in general-
may benefit from thinking about the ques-
tions below. The emerging best practices
described will be familiar to most experi-
enced HR professionals, but surprisingly
few companies actually follow them.
1. What Are Our Talent Needs?
The first problemfacing managers thinking
about talent is the quality ofinformation at
their disposal. Consider other decisions-
for example, which parts supplier to use.
You would assess vendors and their prices
and analyze the costs of carryingtoo much
inventory or of running out. But when it
comes to human capital decisions, your
data are probably thin. Can you quickly
answer these questions: Which schools, re-
cruiters, and rival firms have providedyour
best employees? What are the costs of a
vacant position, or of underused workers?
What percentage of vacancies do you fill
internally, and how does that square with
your investments in development? What
is the turnover rate for each job? What are
the performance differences between your
employees?
October 2013 Harvard Business Review 25
IDEA WATCH
Some of what you think you know
about these issues is probably wrong. For
instance, one of the biggest misconcep-
tions about managing talent is the belief
that performance problems spring from
individual failure. Research shows that the
notion of"K' players is largely a myth. Most
people aren't innately good, average, or
poor performers; the quality of their work
depends in large part on context, includ-
ing the systems and support around them.
Harvard Business School's Boris Groysberg
has shown that hiring a rival firm's star
performer rarely works, because the sup-
port structure that helped her shine at that
company doesn't follow her to yours. Get-
ting the best performance from employees
often depends on putting themin the right
job, with the right boss. Keep that in mind
before investing money and energy to "up-
grade" your talent.
2. How Should We Meet Our
Talent Needs?
Often when managers think about obtain-
ing talent, they think only about hiring.
More than 60% of vacancies in large u.S.
firms are now filled by outside hires, com-
pared with just 10%a generation ago. This
is partly owing to a cultural shift from life-
long employment to a more mobile work-
force, but it also results from poor hiring
decisions, lack of employee development,
and the myth of the "A" player. In fact,
there are three ways to meet talent needs.
You can buy talent, by hiring from the out-
side. You can build it, by developing exist-
ing employees. Or you can borrow it, by
engagingcontractors or temporaryworkers.
How to choose? Start with costs. My
Wharton colleague MatthewBidwell stud-
ied executives recruited from the outside
and ones promoted to the same jobs from
within. It took three years for the outside
hires to perform as well as the internal
hires-but it took seven years for the pay
of the internal hires to catch up with that
of the outsiders. Consider, too, the direct
costs of conducting an outside search and
the indirect costs (low morale, high turn-
over) ofbypassing internal candidates. It's
26 Harvard Business Review October 2013
usually much more expensive to bring in
talent. And it's even more expensive to bor-
row it, because of agency fees and contrac-
tors' steep profit margins.
Also weigh costs against risk. Develop-
ing existing employees can save money,
but it's a long-term bet, which increases
the chances that something will go wrong.
Will you still need the skills in which you're
training your employees five years hence?
Hiring a rival firm's star
employee rarely works-
the support structure
that helped her shine at
that company doesn't
follow her to yours.
Are they on board for the long term? Hir-
ing can give you someone who already has
the right skills, but, as noted, the price tag
is higher-and yOU'll face a different sort of
ramp-up time as the newworker adjusts to
your company. Borrowingtalent provides a
just-in-time solution-most contract work-
ers are practiced at getting up to speed and
fitting in quickly-but do you want to pay
the premium? Ifyou're fairly certain ofyour
future needs and your ability to retain tal-
ent, a long-term bet makes sense. If that's
not the case, it's worth spending more to
reduce your risk.
Despite the cost of borrowed workers,
few companies are strategic about their
use-the median u.S. employer uses no
temps or contractors, but in 5% of compa-
nies they make up 37% of the workforce.
Some firms overestimate the flexibility
these workers provide: Another study by
MatthewBidwell found that employers are
slowto terminate temp workers when busi-
ness turns down. Too often they contract
these pricey outsiders for essential tasks
rather than special projects-making them
just as indispensable and hard to layoff as
regular employees are.
3. How can We Do a Better
Job of Hiring?
Hiring may be the single hardest task in
organizational life. The process has two
distinct phases. The first is recruiting-at-
tracting qualified candidates. Managers
may be delighted if they're besieged by
applicants, taking it as a sign that their
company is a desirable employer and that
they're doing a good job recruiting. But
screening applicants is expensive, and a
glut actually signals poor recruiting. Smart
managers want a small pool ofhigh-quality
applicants. You can attain that by scaring
away unsuitable candidates (by, say, listing
stringent requirements) or communicating
that your organization isn't for everyone.
(Specialist branches of the u.S. military,
such as the Navy Seals, are masters of this
tactic.) Good recruiters also find "pas-
sive" applicants-people who aren't look-
ing to change jobs but might consider it if
approached.
The second phase is selection. This is
hard too, because candidates may over-
state their qualifications, and because
many managers are poor at predicting who
will be the best hire, especiallyfor a job that
requires significant experience; unless they
have special training in the process, they
may succumb to personal biases.
Fortunately, there's a solution: Out-
source the hiring function. Unless you reg-
ularly bring in a lot of people for the same
types ofjobs (as accountingand consulting
firms do) or operate on a very large scale,
yOU'll probably get better results at lower
cost if outside recruiters gather applicants
HBR.ORG
Stale Practices
Many talent management practices developed in the post-World War II era targeted problems that
no longer exist or that cannot be solved in the same ways they once were. The activities below are still
carried out at many companies-but it's time they were abandoned.
Succession planning. This is intended to
identify the right person to fill a given job
years in the future. That means you need
to be able to predict with some certainty
what that job will look like years hence-
which in turn means being able to predict
business demands-and to know which
person would perform best in the role.
If the job changes or the person you've
chosen leaves or fails along the way, the
succession plan doesn't work. The time
and energy that went into it are wasted,
and the employee who did not get the job
he or she was expecting may be as an-
noyed as employees who weren't tapped
for advancement. Afailed succession plan
can be worse than no plan at all.
and winnow the field to a small number
from which you can select.
4. How Can We Develop
Internal Talent?
Avicious cycle drives the reliance on exter-
nal hires: Leaders think they can't afford
to groom employees for bigger roles be-
cause those employees might leave. And
employees who aren't groomed for bigger
roles often do leave, reinforcing managers'
fears about the instability of their current
employees.
But entire industries, including account-
ingand professional services, invest heavily
in development, experience high turnover,
and yet remain highly profitable. They can
succeedwith this model because classroom
training is just a small part of their develop-
ment process, most ofwhich takes place as
employees do real, billable work. The same
model has long been used in carpentry and
other trades, in the form ofapprenticeships.
More companies should adopt the
model. The skills in greatest demand-
technical, sales, and executive skills-can
be learned only on the job. Work-based
learning is best done in stretch assign-
ments, and it's best managed by direct
supervisors, who have the keenest sense
High-potential programs. These were
designed to quickly move postwar college
graduates (initially, engineers) with new
skills in running manufacturing opera-
tions into the leadership ranks, because
at the time, few executives had college
degrees. It's not clear why companies
still run these programs. Like succession
plans, high-potential programs require
that you predict who will succeed in a dif-
ferent, bigger job in the future. But most
companies have a poor track record when
it comes to assessing potential, so the
right people don't always end up in the
programs.
of when an employee is ready for a new
task and have ready access to appropriate
project work. Learning by doing also elimi-
nates the problem of front-loading invest-
ments in development and having to wait
for returns (or having a rival poach your
newly schooled employee and reap the
benefits you paid for).
Ifyour employees want classroomtrain-
ing' provide tuition reimbursement pro-
grams-the most underused development
resource in business. The beauty of those
programs is that employees attend classes
after hours; companies incur no costs for
lost work time. My research shows that em-
ployers who offer tuition reimbursement
attract better applicants and have lower
turnover than other firms.
5. How can We Manage
Employees' Career Paths?
The single best way to retain valued em-
ployees is to give thembetter opportunities
than they could find elsewhere. The prob-
lem is that promising a clear career path-
"You'll advance to this role in five years"-
is impossible given all the uncertainties in
business.
One way companies skirt the problem
is by creating a transparent internal market
Workforce planning. Many HR depart-
ments create detailed estimates of their
future talent needs. But if you are uncer-
tain about where your business will be
and what kind of turnover you'll experi-
ence, no workforce plan will be right. As
with succession plans, a failed workforce
plan wastes the time and energy spent
creating it. It can also lock you into a path
that is difficult to change.
for talent. They post any vacancies, and in-
terested employees apply and make their
case. The U.S. Navy's Sea Warrior program
goes even further, alerting individual sail-
ors to suitable assignments and increasing
compensation to spur applications for un-
desirable ones.
In the face of pressing day-to-day busi-
ness demands, it can be tempting to put
talent management at the bottom of your
to-do list-an item yOU'll get to someday.
It's true that focusing on it will increase
your workload in the short run. But it can
generate significant returns over the long
term, by reducing under-the-radar prob-
lems that might undermine operational
success. Asking (and answering) the ques-
tions above can decrease turnover among
ambitious employees, minimize reliance
on expensive outside hires or borrowed
workers, and limit the number of employ-
ees who are disengaged from their jobs be-
cause they don't see those jobs as leading
to a better future. 0
HBR Reprint F1310A
Peter cappelli is the George W. Taylor
Professor of Management at the Wharton
School and the author of Why Good People Can't
Get Jobs: The Skills Gap and What Companies
Can Do About It (Wharton Digital Press, 2012).
October 2013 Harvard Business Review 27