The Operations Research / Management Science Blog

According to an article titled “‘Talent on Demand’: Applying Supply Chain Management to People”, professor Peter Cappelli at the Wharton School of the University of Pennsylvania claims that the principles of supply chain management can be applied to human resource management to help companies find the talents they need, when they need them at lower costs.

Traditional human resource management have typically focused on meeting individuals’ needs by placing people in the positions that best suit their strengths and personal characters. However, this approach isn’t very effective from the perspective of reducing human-capital related costs and having the right people in place to do the necessary jobs. These kinds of questions are precisely what those who study supply chain management have been tackling.

In his new book titled “Talent on Demand: Managing Talent in an Age of Uncertainty”, Dr. Cappelli discussed the application of state-of-the-art supply chain management principles to solve the talent management problem in today’s business world where uncertainty and competition cause inevitable leaks in a company’s talent pipeline. The talent management processes at companies such as IBM, General Electric, Citibank and Johnson & Johnson are also described as examples in the book.

“Managing supply chains is about managing uncertainty and variability. This same uncertainty exists inside companies with regard to talent development. Companies rarely know what they will be building five years out and what skills they will need to make that happen; they also don’t know if the people they have in their pipelines are going to be around.” Says Dr. Cappelli.

Talent management involves forecasting the number of people and types of skills that a company is going to need in the future, and then planning ahead to meet that need. Supply chain management is essentially the same task: “We think that demand for our products next year is going to be ‘X’. How do we organize internally to meet that demand?” Cappelli notes.

Maintaining the optimal inventory level for just-in-time manufacturing is a big part of supply chain management. In talent management terms inventory often comes up when employers talk about having a “deep bench” of talent.

“You hear that phrase a lot — ‘we have a deep bench,’ or ‘we have a big talent pipeline’ — and it is said with pride,” Cappelli says. “Yet if you think about it in supply chain terms, a deep bench is the equivalent of lots of inventory, which- sounds terrible when we think of products. In fact, it is worse when we talk about talent. That’s because an inventory of talent is much more costly than an inventory of widgets. Talent doesn’t sit on the shelf like widgets do. You have to keep paying talent. And the best way to have a piece of talent walk away is to tell it to sit on the shelf and wait for opportunity. Anyone who is ambitious will leave, and then you will lose the big upfront investment you made in that person.”

Other tools in Operations Research can also be applied to improve talent management. For example, if a company forecasts that it will need X new sales persons in the next year and proceed in the hiring process. The prediction can easily be wrong due to the uncertainty of the business world. There will be two possible results: Either the company ends up realizing that it needs more sales persons than they thought and then spend more money to find extras or it will realize that it actually needs fewer and have to either carry the extra sales persons or lay them off. In this case an OR tool called the portfolio approach can be applied to reduce the odds of making wrong forecasts. Portfolio approach is used in finance to create a portfolio of diverse investments where some are likely to appreciate while others depreciate so that the overall risk is reduced. In talent management, portfolio approach can be used to balance out the types of errors that might occur. For example, a large organization might contain many divisions, each of which forecasts its own demand of talents and does its own hiring.

“Some divisions will end up with too many sales people, and some with too few, but if you pool these different divisions with respect to hiring, it’s likely the variations will cancel out rather than multiply,” Cappelli says. “The problem has been that companies have decentralized so much that they stopped even thinking about how to coordinate talent questions across divisions.”

The portfolio approach deals with this type of problems by enhancing the abilities to coordinate the different talent development efforts into one common program.

When some divisions overshoot demand and others undershoot it, “the company can offset the mismatch by moving candidates around.”

Another example of OR used in talent management is the application of queueing theory to solve problems where employees are waiting for rotational assignments but can’t get them because the incumbents have no vacancies to move into.

“The analogy in manufacturing is an ‘unbalanced assembly line,’ in which inventory builds up behind the slower-moving station, or in this case, the assignment that takes longer to complete.”

Click here to read the full article.