IT Skills Challenges… Learning what not to do from the US

Peter CappelliGeorge W. Taylor Professor of ManagementThe Wharton School

The development of the original IT workforce…

Came from within companies – based on training, development, and experience– IBM execs staffed executive roles across the

country – Fairchild staffed most Silicon Valley start-ups

Route 128, Boston, loses to Silicon Valley– Digital, Data General, Wang give way to Apple,

Sun, Oracle

With the Silicon Valley model came the outside hire

Restructuring for flexibility – layoffs and outside hiring

Reliance on the market to produce IT skills, especially Universities

The rise of the IT professional– Compartmentalizing tasks, project work,

outsourcing Companies largely abandon systematic

development of IT workers

The Boom and Bust Cycle and the Crisis of Supply

1991 downturn – collapse of enrollments– Decline of graduates in 1995, ’96, ’97 when IT boom begins

Real problem lies within firms:– Number of IT workers quitting the field exceeded total

number of new IT jobs! – IT grads twice as likely to change fields as graduates of

other programs– Older IT workers reporting can’t find jobs– Yet employers reporting a shortage of IT workers

What’s Going On?

Everyone chasing the same “best” grads, ignoring others– The “best” truly matter, but employers can’t predict who will be

best. Relying on an expensive proxy – Most important factor predicting success is actually interpersonal

skills, not technical skill Job requirements escalate to match pay demanded by “best”

grads– But then almost no one meets them = shortage

Boring work disconnected from context and lack of career paths = quits

No retraining, so older workers are displaced No investment in substitutes for short-supply skills

– Remember IMS programming shortage

Moral of this story…

IT employers gave up control over the supply of their IT talent

Never developed skills at recruiting but relied on recruiting to solve everything

Ignored management of employees – treated them like a commodity – paid the price in turnover

Why did this happen?

How to strike a balance between flexibility and planning…

By developing talent more carefully

Changes in the Context for Managing Talent…

Much harder to forecast business and talent demands in the future

To meet immediate needs, we hire from outside and then disrupt career paths…

Don’t own the talent, they leave unpredictably Old model too expensive

– Required “training” jobs – rotation, longer job ladders– Big up-front investments – Big commitment from line mgmt

Three Fundamental Questions to Answer in Talent Mgmt….

1st – When should you “make,” when should you “buy”– For which jobs? (Don’t have to do it for all)– If lack scale, “make” is hard to do– If competencies are likely to change, hard to do– If want to change culture, “buying” helps

Costs of “buying” – mistakes selecting, fit issues, expensive up-front

2nd…how much control should employees have in process?

Remember: They now have veto power – good ones easily leave

Opening the internal labor market – 1/3rd of companies have open online bidding– Dow Chemical story

How much direction to give on career planning?– Raise expectations vs. losing control– Fidelity approach

3rd… will talent be a local or corporate asset?

Where divisions have operating autonomy and P&L responsibility, who pays?

Big disincentives for local operations to develop and identify talent if it costs them and they lose the assets

Job posting systems help solve the problem by letting employees self-identify

Where developing talent internally, what’s the best way to do so?

The big returns come from giving internal candidates opportunities before they would get them on the outside

How to spot talent and give opportunity?– Can try to assess/predict who will succeed– Give it a try–P&G motto “Fail quickly and cheaply”– GE model: Keep small P&L for screening

Q: What was your best developmental experience?

How could you replicate it?

(The Boeing experience)

Other approaches…

Develop broadly – “talent pools” Share costs with employees

– Tuition assistance Promote and then develop – DuPont

– Just-in-time training Make development cheaper – o.t.j.

– “Outsource” it– Bidding for project work

Some hard questions

Do you want “hi potential” programs?– Can you predict who will succeed?– Effect on non-hi-potentials– How will candidates get in and out, is it

better to use potential or performance?

Should you hire for potential?– Legal issues in some countries

How formal should the process be?– More formal is less flexible

Improving Return on Talent Investments through Retention

“Poaching” of intellectual capital by competitors– Why this is not going away:

The need for speedBetter information about opportunities

Outside hiring drives internal candidates away

Poor “fits” leave quicker in tight labor markets

Retention Problem

Hiring Directly From College into Management Training Program

50% now leaving within 5 years Mainly for competitors elsewhere Q: How Do you Know if This is a Problem? Q: If it is, What Should You Do About It?

Online Recruiting Changes the Context

Opening up the labor markets Making information free, shifted the balance of power

to employees– Will employees continue to believe management?

The “passive” applicant now SO easy to find and hire– Wetfeet survey – 36% happy with their job but willing to

move within 6 months!

Some will leave… At least Shape Who and When….

Manage the flow of the river – who, when, where Can you pay them to stay?

– Differentiating among employees– Tailoring to their needs

Social relations hold employees– The power of social ties– Reorganizing work

Project work -- help them build their C.V. Using development for retention – Fleet Bank story

Alternatives: When you Can’t Keep Everyone

Accommodate it -- what’s the real problem?– Maybe retention isn’t the only answer– Redistribute turnover and manage flows better– Greater reliance on procedures and systems

Keep the intellectual capital– Even if the people leave

Final thoughts

Think of managing talent as another important business decision

It is strategic in the sense that one has to make choices, place bets

Persuade top management that there is a skill in managing people – real consequences for doing this well or badly