Episode 109: What is the Impact of Hybrid Working on Employees and Employers? (Interview with Peter Cappelli)

On the show today, I am talking to Peter Cappelli, the George W. Taylor Professor of Management and the Professor of Education and Director for The Centre for HR, at The Wharton School. Throughout the conversation Peter shares his extensive knowledge and research on the world of work, HR, and leadership and we cover a number of different topics that Peter, has unique insights on.

These include:

• The impact of hybrid working on employees and employers and the effect this could have on people in their careers, now that we are coming out of the pandemic

• How employers are approaching bringing employees back to the office and what that means for employee productivity and engagement

• The rise in employee activism and how organisations should respond to this and why, in Peter’s view, companies just aren't getting better at workforce planning

• Peter’s thoughts on how HR can add business value, as we start to come out of the pandemic

Support for this podcast comes from orgvue. You can learn more by visiting https://www.orgvue.com.

You can listen to this week’s episode below, or by using your podcast app of choice, just click the corresponding image to get access via the podcast website here.

Interview Transcript

David Green: Today, I am delighted to welcome Peter Cappelli, the George W. Taylor Professor of Management at the Wharton School and Director of The Wharton Centre for Human Resources, to The Digital HR Leaders Podcast.

Welcome to the show Peter, it is fantastic to have you on as a guest. Can you provide listeners with a brief introduction to you and your work? 


Peter Cappelli: Thank you, David, pleasure to be here.

So I guess I have been all over the place, in terms of my interests and things. So I began my career at Oxford and Nuffield College, studying inflation, which seemed like a dead issue for a while, but now it is topical again. So there you go.

I went to back to the US, just at the point where unions were beginning to collapse and I studied that stuff for a while. And these topics seem to die and I have to move on to other things. I was interested in public policy and spent a fair amount of time around Washington and many of the questions about workforce policy have to do with employer decisions. Who do they hire? What are they looking for? Do they train people or not? What do they actually allow people to do? And that sort of informed my teaching, which I had to do at The Wharton School, is to think about how people are actually managed and thinking about why it matters, in a kind of bigger sense.
In the last few years, I have been writing articles that describe a lot of contemporary practices, a lot of them which are new and evolving, and in the academic world, we don't seem very interested to be honest, in what is happening in the world around us. And there is just a lot of quirky things that have been happening on topics that are fundamental, like hiring, who do you actually employ, and how do we pay people? So just describing how things actually work and sometimes the quirkiness of those. 


David Green: I wrote down that you studied the unions and I will definitely be asking you have a follow up question later on, around the rise we are seeing, particularly in the US, around employee activism and what that means for companies in HR. But before we talk about some of your recent research, it would be great to hear a little bit about your career history and how you became interested in HR and the world of work. What are the things that really drove your interest levels towards management, HR, and the world of work?

Peter Cappelli: As I was saying, I came at this through public policy questions. So in the nineties, I was commissioned to do a study about, at that time we were talking about high performance work systems and what was going on with those. We wrote a book, my colleagues and I, about the restructuring of the US economy. The punchline there was that frankly, a lot of the costs of restructuring were pushed onto employees in the US, broken employment contracts in particular, the end of lifetime employment and those sorts of things, so we were writing about those. 
After that, I wrote a book about the decline and end of lifetime employment, which is still the most fundamental issue around human resources, because we have all these legacy systems from the GE days, GE was doing just what every other big company did, they were just the last ones to do it, about managing people internally. 
But then in practice, we don't manage them internally. So we still have a lot of practices, like succession planning. We go through the exercise, we don't do it, don't do anything with it, but we are still going through the exercises.

So, how do you manage people in the context of the end of lifetime employment. That first book on that was called, The New Deal at Work, and then after that I wrote a book called, Talent On Demand, which was basically asking the question, if there is a lot of uncertainty in what we are going to need, in terms of talent. If there is certainty, by the way, it is pretty simple how to manage people and that is the old GE kind of model, that is let’s predict, let's plan, et cetera.

If planning isn't working very well and you don't know where you are going to go, what should you do? And so I wrote a book about that, that basically just borrowed from supply chain management.

I think everybody recognised that was a big problem, but nobody did it, and partly that is because of bad timing, it came out right at the beginning of the great recession and nobody was interested in planning at that point. So I wrote a bunch of other books that were about topical issues, like managing older workers and why people weren't able to get jobs in the great recession, even though employers were constantly complaining that there was nobody to hire, which was quirky. 
The explanation there is that employers had moved to this model of not training people, because you could just hire them on the outside and then at some point it gets harder and harder to find people who fit exactly what you want, if you are not going to train them. And so then, the employers are saying why can't I hire somebody with five years of experience in C++ mobile app programming in the context of these other clients that I deal with? And guess what, you can’t. So I wrote some things about that. Then I started writing articles for The Harvard Business Review and a lot of them in The Wall Street Journal, about things like what has happened to performance management, or what has happened to hiring and how that is working. 
We had one this last month about wellness programs, with a colleague and it turns out that the evidence is pretty clear, they don't actually improve anybody's health. So why are we doing them? It was an interesting question.

I have been writing for the last year or so, working on a book which is a big kind of sweeping book for Oxford University Press, about can we explain why we manage people so differently than how the textbooks describe it? 
Why do we hire so differently? And things like, with respect to hiring, why so few employers seem to care whether the hiring practices they are using work? So they track how much it costs, how long it takes, but not whether it gets you better people or not, which just seems bizarre. And there are so many of these bizarre practices. Why is that?

I wrote an article that was in HBR a year ago, about the effort to try to optimise everything, even when engaging employees and allowing them to make decisions has all kinds of benefits, we want to take that away and impose various kinds of optimisation solutions on those practices, which otherwise seemed to work fine. Part of the problem with this optimisation approach to human issues, is that it ends up creating problems elsewhere. So you impose an optimal schedule on employees and the problem with that is it is actually more rigid than if employees can use a flexi time approach, which is common, where they negotiate among each other and work out the schedules and they can accommodate last minute things. 
A lot of these optimisation things seem to undercut the role of supervisors too, because there is nothing for them to do if schedules are determined by software, promotions are determined by an algorithm, there is very little for the supervisors to do. There's nobody to complain to, or readdress your problems if you are an employee and something doesn't seem fair, who do you talk to? If they give you the phone number for the program who wrote the software, it is not very compelling, right?

And this last iteration of this, which I think is also going to be in HBR this Fall, is about the role of financial accounting, which seems to be the main quirkiness in what is driving these strange employment practices. A lot of what you folks would call, penny-wise and pound-foolish, approaches same term we would use here, which is a lot of things which seem cheaper when you are looking at the upfront costs, but if you are looking at the longer term costs, they are obviously more expensive or just creating problems someplace else. So that takes me to where I am right now.

David Green: Clearly these practices aren’t really working, certainly if you start to look at the longterm. What is some of the research you are doing, suggesting as to why companies do it? Are they doing it because they are not tracking it longterm, they are only tracking it short-term for example? Are they doing it because everyone else is doing it? What are some of the things that you are seeing as to why this is happening?

Peter Cappelli: I think some of it is that the nature of business leaders, their attributes are a little different now than they were a generation ago, by some measures, a third of our CEO’s in the US anyway, are engineers by training, which is a hugely disproportionate number. And if you think about the career track that produces more of them than any others, it is finance, which is another kind of rational optimising view of the world. And we have gotten rid of management development programs. So it used to be people who started in business were typically put through a year or two of management training, where they learned why all that optimisation stuff has limits and they learned about people and people management. Those programs are gone. So some of it is that you have people at the top who don't really know much about the management of people.

Silicon Valley is part of this, right? Because the founders of those companies, who are still largely around, had no management experience typically and those who did, Jeff Bezos is one who had worked before, but he was an investment banker so had no management experience. So you have people running these companies who don't know much about management. There is a famous quote in the US, that is attributed to Mark Twain, but also about a dozen other people. It says “it's not what people don't know, that's the problem. It's what they’re sure of, that just ain't so.” They have views about managing people which fit this rational, incentive-based, optimisation kind of view. Business schools teach this pretty heavily, it is out of the economics paradigm, and so then where are they going to get any other information?

Part of this problem is that HR is so beaten down, in many places, that the HR people just do whatever the CEO wants them to do and they don't have, as we would describe it, a point of view on any of these issues. So if you talk about training and they are talking about cutting the training budgets because they are expensive so we are just going to cut them. The point of view would be well, what is this going to cost us in knock on effects? Well, we know something about that, but I think initially the HR people were shut up because they couldn't speak the language of finance. They couldn't describe this in terms of, what is the effect of this on whatever outcome you want. And I think some of this is we were just cowed because we thought everybody else was doing fancy stuff, and they are not, right? Look at our marketing colleagues, they are mainly guessing about most of their impacts. Directionally, it would be important just to be able to say here is the direction in which this goes, here is our best guess as to what the costs are. But if you won't guess and you won't be directional because we have made perfect the enemy of good, then you are saying nothing and then the CEO thinks that the rational thing to do here is to not train people because it is cheaper and we can just hire other people's people. Let's just drive down the upfront costs. Nobody is raising their hand and saying “we could do that, but here are the consequences in the next period or here is where it is costing us more, someplace else.”

And as a result, we just tread along this merry line. 
One of the things in this book I am writing, is that you could look back over my career, which has been a while now, and you can see every few years, there is a new notion about why it pays off to manage your employees carefully or invest in them. And they present evidence showing why it works and then people talk about it in the press and then it dies. And then the next one will come along, basically all saying the same things about trusting your employees, empowering them, it gets a lot of attention and then it dies.

So I was trying to explain a little bit about why it keeps dying, despite evidence each time, nobody contradicts the evidence, it is not that other stories come along showing that this is not true. And there is actually several studies in the world of finance, showing that you could beat the market simply by betting on companies that do more investing in their employees. These are careful studies, these are not the simple correlational studies that we see consulting firms cranking out all the time. 
So there is a lot of evidence showing this works and we ignore the evidence, why is that? It is a puzzle once you step back from it a bit. 


David Green: It is. I know you have done some research about the impact of the pandemic, could the pandemic act as something that might change that as we start to invest more in the people in the organisation and we start to see some of the results. You have done some research about the impact of the pandemic and particularly on the changes in the way that people think about work. What has your research shown on how people's perception, as well as their priorities and their values, have changed in the last two years?

Peter Cappelli: I think on that topic, particularly in the US and to some extent in all the common law countries, the employers have most of the say over what is going on. So unless they can see right in their face, the problems, they tend not to pay attention to them and governments are not going to intervene and do much about them. So the question about the pandemic, in particular working from home in an office context which many employees say they like, is to say, how does this help the employer? And so far, what we have seen is there is an enormous amount of interest in this in the press and the interest, not surprising, is always on the extreme end. 
The extreme end is people who want to work permanently remote and move to Portugal and work from a small village there, isn't this cute, everybody wants to do this, right? It turns out that actually most people don't want to do that. Even though that one, at least from the employer's perspective, the CFO's like that idea because they are going to take your office away and save on real estate costs, and they can see immediately why that might save them some upfront money, but actually not many people want to do that.

The problem is on the employer side, they seem disproportionately to want to go bring people back to the office. And at least in the US but maybe you are hearing this elsewhere now too, the last couple of weeks, we have heard more and more stories like that and more and more poll results saying that employers want to bring everybody back. So the question is, if you are not going to do that, if you want to keep people working remotely or some sort of in-between hybrid model, how does that help the employers? Because if it doesn't help them, then it is not going to happen and frankly, they are not going to do anything just because employees want it, unless there is a payoff. Employees want lots of things, we just never get. We want higher pay, we don't get that, so why would we expect to get this? The problem is the employers at the top, the leaders, are not disposed to think about how this might work for them, so they are not inclined to do it. I think we are starting to see now, people trying to bring more people back to the office on a permanent basis. Has it changed the way employees think about work? There is very little evidence that people are quitting their jobs and moving to Tibet and becoming Buddhists. That is not what is going on. They are quitting this job and moving to another job. And the reason they are all doing that now, is frankly, because they can. You see these surveys saying, a third of workers say they will quit unless they get blah-blah-blah. They say that all the time, there is nothing new about those surveys, they have always said that. The problem is, they don't quit and the correlation between saying you are going to quit, intentions to quit as the psychologists call it, and actually quitting, is just a couple of percent.

So almost nobody who says they quit, actually quit. And the main reason is, as we know, quitting is hard. It's easy to say I want it to quit, it is difficult to do it and the main reason why it is difficult to do is you have to have another job and unless somebody is offering you one, you don't quit. So we have known this forever, right? As soon as the unemployment rate drops, the quit rate goes up, because there are more jobs when the unemployment rate is low and more people can quit, so they do. I think the one thing which is different is that for people who have been working remotely, social ties have frayed and one of the main factors that retains people in organisations, all kinds of organisations, are social ties. Particularly ties with supervisors and my immediate peers. And it has been two years since I have seen those people, I don't feel particularly close to them or particularly tied to them and especially if somebody offers me a job where I can just stay remote and all I have to do is change my IP address, now it is pretty easy for me to move, right?

So that is the main thing which has happened, is it is a lot easier to move, there are more jobs, the labour market at least is tight, at least in some places, not everywhere. And actually quit rate is not up everywhere, it is only certain industries. But it is also easier to let go because there is not very much holding me anymore.

So I would say that is the one thing which is different.

Are employers responding to that? I would say they were at the beginning, but I think a little bit, they did that at the beginning because it sounded like everybody else was doing it. They are all waiting to see what everybody else is doing, but you can already see the industry patterns forming. Banking has said, in New York, everybody back in. In California, Silicon Valley, they were saying fine go work from home, but now they are walking that back. In Silicon Valley, they are walking it back by charging you a penalty on your compensation if you want to work remotely, they are saying, we are going to cut your pay. And they don't say it that way, they say, we are going to pay you based on the labour market where you are living, knowing that nowhere else is the labour market higher than where they are, or the cost of living where you are going to move. No one has ever thought about doing that before, they never looked at the zip code where your houses is in Silicon Valley and pricing your compensation based on that, their cost of living differences are already pretty big. 
So I always tell my friends who are there, just tell them you want to move to Hong Kong, where the cost of living is 30% higher than Silicon Valley and see if they give you a pay raise. They don't mean it, that is not why they are doing it. So I think even in Silicon Valley, they are walking this back. The other thing which is not so well known is that the tech firms who were big on pushing remote work, are also buying commercial real estate like crazy, during the pandemic. They are the single biggest purchasers of long-term office space. So what is going on there? It doesn't sound like they are moving toward a permanently remote world.

David Green: Yes it is interesting, you have to look beyond the headlines sometimes and as you said, supply and demand, if the unemployment rate goes down then there are more jobs around, that has always been the case. 


Peter Cappelli: It's pretty simple. Yeah. I shouldn't complain about employers, it is an incredibly difficult situation they are in and trying to know what to do. Many of them were trying to be upfront early on and communicate well, with their employees, as to what was going on. The problem is, I think they feel, much like governments around the world with the pandemic, that they were getting beaten up for being wrong. In the US, we thought that by Labor Day, which is the big September holiday that usually marks the end of summer, everybody would be back in the office. That was the assumption in 2020, and the employers were saying that. And then in 2021, they started to say that again, okay, we were just off by a year but we had the right day. Then they started to say, we are just not going to predict anymore because things are so uncertain. And that, I think also meant they weren't communicating at all with their employees and that is a really bad thing though, at the very least they want to know, here is what we don't know and here are the issues that have to resolve before we can make decisions. If you don't do that, people make up explanations as to what they think is going on, which is what they have been doing and generally those are worse than the reality, right? So that has been a problem. 


David Green: And of course what is interesting, back to what you said earlier around actually when you do the research and you look at the data, you start to see that actually if you treat employees better, then actually it has a positive impact on business results. 
Similarly, a lot of companies, Microsoft is a great example because they have been publishing a lot of the information that they have been getting during the pandemic. They have been studying office workers, those working remote. The workers themselves, are saying they feel more productive. Other measures of productivity that they might look at, are also saying that is positive. Microsoft aren’t, they are openly communicating that they will be moving to a more hybrid work pattern. Other companies are seeing that data as well and yet they are still potentially trying to pull everyone back into the office, even though the data is telling them that might not be the best thing to do.


Peter Cappelli: Yeah, I think that is right. And even worse I think, we have seen an explosion of interest in tattleware, the software that monitors you at your desk. I think that what employees liked the most about working remotely, it was not just being able to wear your pyjamas through the first half of the day, although it has some appeal frankly, but it was that they were managed differently. The bosses treated them differently, they trusted them more because they had no choice. Some of this was because we were all in this together too. Everybody had to work from home, your boss was working from home, you could see what happens when her dog comes in, it is humanising and all that stuff. Employers had to trust their employees and say, look, here is what needs to be done. In some ways, performance management was better because they were saying, here is what you have to do this week. Here is the goal. I don't care when you do it. And so what was good about that is, I could start working early in the morning and then stop and go get coffee, or get dressed later, take the dog for a walk, come back in, have lunch, run an errand, come back. My kids home from school, I sat them down to work and then I come back to work. One of the things that Microsoft research and others show is the work day has gotten a lot longer, but employees are still okay with that because they are taking breaks along the way. So if you impose tattle-ware software on this, it defeats the entire purpose of being at home. And as you say, every employer seemed to think this worked okay for them and yet they want to impose tattle ware software to make people work differently, because now they don't trust them because they never really trusted them, even though the evidence suggests that it worked fine, they don't believe it. It is ideology. But there is one other point about the difference between the pandemic working from home and going forward, this is quite crucial for employees, and that is it won't be the same. So right now, when you are still working from home because of the pandemic restrictions, you have to but so does everybody else. As soon as we get past that point and we are asking you to raise your hand and say, okay, do you want to work remotely or not? 
Now there is a big signalling and self-identification thing. And we have studied this a lot.

So there is a bunch of studies that looked at what happens to people who work remotely when their peers are back in the office and the results are pretty uniform, that if you are staying home, your career suffers in lots of ways. Your promotions slow down, your career advancement stalls, you are less engaged, you are less committed to the organisation and part because social relations carry a lot of engagement and commitment. It is not that I care about the company logo so much, but I care about the people I work with, I care about the leaders, and I think what they are doing is good.

So it is going to be a really different event, if you are working remotely after the pandemic, because your career will take a hit. Now that doesn't mean you shouldn't do it, but it is something to go into with your eyes open, if you are an employee volunteering.

Just a little career advice, if you are at the beginning of your career and you want to work remotely, you are nuts. It is just a bad idea at the beginning of your career to not be in an office because you are going to learn so much and if you don't go, you will be so far behind your colleagues who do go, in a matter of two or three years that your career will suffer from then on out.

It is not fair and we might want to say, boy, employers should fix that. They are not going to. It is so hard to fix, it would require changing everything about the way we supervise people, being much more formal about management, all the things we have been cutting over the last few years, are we going to turn all that around just to help the remote workers? As we say in Philadelphia, a great expression here, we say “God bless” Which just means good luck with that because it is not going to work out well for you.

David Green: Laszlo

Bock, has been quoted recently and I don't think he necessarily thinks it is a good thing like you and me, but when he says hybrid work probably won't survive, he is likely to be proved right.

Peter Cappelli: Which is certainly not a statement that it would be better if everybody goes back to the office. It would be better if we could find ways to accommodate more human needs and we know that there are all kinds of benefits that will come from that. But if you are betting, another great American expression from a sports writer who’s name will come to me in a second, anyway, his expression was “the race is not always to the swift, nor the battle to the strong, but that's the way to bet.” And the employers have all the muscle in this and what they seem to want is for people go back to work, that doesn't mean they are right, but they tend to get their way.

David Green: Yeah. Some of the companies who are more aggressive about this to start off with, might lose out in the short term. Some of the key employees might leave and go somewhere else because they think that they are going to have a more hybrid life perhaps. Ultimately most companies are going to move to try and get back to, or as close to what it was before the pandemic.

Peter Cappelli: Right and I think that is the one place where there is a counter is, if there is a continuing strong labour market and you are an employer who is willing to allow people to work remotely, you will have a competitive advantage in hiring, at least with some chunk of the labour force. If that becomes a big enough deal, employers will probably accommodate that because even if you are in the C-suite, it is hard to miss that. Especially if the idea is, for the same wage we can attract better people, or we can keep them more easily without having to raise their pay, that is a compelling argument for the CFOs. However, simply because you go to work for a company that allows you to work remotely, it doesn't mean it will stay that way. I don't think many employers are putting any of this in writing. But I think one of the concerns for employers, is if you are creating this a lot of short-term solution. So in the last year there have been a lot of hiring of managerial and executive level people where they each were allowed to cut special deals to keep staying remote and a lot of them remote on a reasonably permanent basis, like I don't want to move my family and the company said fine, you don't have to move your family as we are working remotely anyway.

So then you have a bunch of new hires who can work remotely on a permanent basis, what are you going to do for everybody else? The equity pressures internally, become quite compelling, especially if my boss can work remotely, but I can't. Why is that? And you have seen probably the story with the Facebook new incarnation Meta, where it turned out in the Wall Street Journal story, that a big chunk of those folks were living in Hawaii and other places like that. Okay, that's fine if you want to be a virtual company and everybody is going to be working remotely, that is fine. But if you want your employees to be in their office and the executives are in Maui, that is going to be a hard thing to swallow, right? 


David Green: A couple of things related to that, is there a rise in employee activism and then a second thing, back to something you said right near the start around planning and are companies getting better at that now.

So in some of the research you are doing, are you seeing a rise in employee activism? I know we are seeing it in some of the tech companies, for example, but is it having a difference, is it something that companies should be thinking about more, moving forward?


Peter Cappelli: So there is two parts of that. One is the union part and this is surprising to lots of people, but the American public has had favourable attitudes toward unions for ever. The majority of the population has always supported the idea of trade unions and it is up at a higher level now than in the last 20 years or so.

On the other hand though, the context so favours employers in unionisation, there is just a million ways to beat the unions. Even if unions get a contract and you are seeing these stories now, at one Amazon warehouse anyway and in a bunch of small Starbucks in those places, simply winning the election does not mean that you get anywhere. The employer doesn't have to negotiate with you. So you could have a union, you are paying dues, we are not talking to you as the employer, eventually everybody gets tired and they go away.

The institutions are not strong enough to require unionisation, if the employees want it right, and if the employers are willing to kick up a fuss, as they are, then it is not going to happen. Unless there is enough public objection, that they feel that they can't do it. If you think about some companies, for example, I think Walmart has got much better at the way it manages and treats its employees and I think, there is no doubt that was directly because they got tired of being pilloried all the time, as being the worst employer. They were never the worst employer, but they were the biggest employer, so you get a lot of attention on that regard. That takes us to what does the public think about employers? And I think what has changed more broadly on activism in the white collar workforce, is that employees who have bargaining power individually, like the tech employees, where they can easily quit and go someplace else, if they object to what the company is doing the company is much more likely to respond. If it is hourly employees, frankly, they would fire them. Which they are allowed to do in the US, under most circumstances. Particularly if you believe they are disparaging the employer, even under common law, that is something you are not supposed to do, it violates some of the duties.

So I think what we are seeing in some places is also a geographic issue because the US has polarised on a pretty clearly geographic dimension, a big part of it is urban rural, but a big part of it is still a red state, blue state. Mainly the south versus the coasts. And if you are one of those employers headquartered in a blue state, the views of your employees, at least the ones that you are seeing the most, are quite likely, radically different than the ones in the red states. 
So if you have got a small office in the red states, you look at Disney, for example. Disney is a corporation that is very talent intensive, highly skilled people in idiosyncratic jobs and roles, operating at least one big operation in a reddish state, Florida. And so what do you do if your employees really object to what is going on in that red state? 
And these are people who could disengage and you would never know it, not enough that you could just go around and fire the people who were not working as hard because they were irritated at you, or quitting, your quit rate goes up because of this. What would you do? They do have a problem and I do feel for employers on this because they would like to stay out of these fights and frankly, there is no easy win on these things because your workforce is rarely uniform in its views on political issues, but when you have got a lot of employees who are important to you, who have very strong views on issues which frankly are quite divisive, there is not a lot of middle ground on these things that the employees are objecting to, what do you do on this?

So the employers are trying to dance around it. They are pressed by shareholders in the investment community, to ignore the employees and go where the money is. And on the other hand if you start to see enough of these people leave or screaming at you in your office meetings and things, it is hard not to take that seriously. 


David Green: Yeah and I guess particularly when it gets to the press as well and it has a negative impact on the reputation of a company, certainly in the short to medium term.

Peter Cappelli: Yes. That costs money and it damages your brand, right? 


David Green: And then on the planning side, certainly a lot of the companies that we are working with, we primarily are working with heads of people analytics for large global companies, half headquartered in Europe and half in the US. We have seen a real shift in the last couple of years, to the way they do workforce planning.

So A] people analytics teams are increasingly having responsibility for it, so there is perhaps a more data centric view of actually doing this work.

And then B] is that they are breaking it down to skills. So understanding first of all, the skills within the organisation and then mapping that with the skills that they need now and in the future and taking a whole comprehensive planning approach to that.

Is that something that you are seeing? And if so, what companies are you seeing out there that are doing this? 


Peter Cappelli: This was in this book I wrote called, Talent On Demand, which was okay, what are you doing when you can't plan? And I am afraid that what a lot of companies are doing is just assuming they can plan, even when they can’t.

So I always ask them, how far out do your business plans go? And I have started to hear people say longer numbers now. A year or two ago, before the pandemic, it was a year plan and now they are talking about two year plans or three-year plans.

But then I say, okay, how often do you update your plan? And they say, every year. So okay, you have got a one year plan then, right? Because you can change your plan every year, so you have got a one year plan. 
Okay. So what does it mean to plan, when you have got a one year plan? And I think what happens is you go through this planning exercise, like succession planning, which lots of organisations still do, but as far as I can tell, they rarely ever use them because the new CEO comes in and they want their entire new team. 
Sorry, guys, they want to be able to pick. You have got this plan that says, these are the people who should be in these roles, but then you ignore the plan. You have gone through this big expensive exercise, which just irritates people because they don't get the jobs they thought they were expecting and so they quit. And the company changes direction, they honestly don't know what the skills they need are going to be because they don't know what the business they are in, is going to be, more than a year or so out.

So what is the problem we are solving with this planning exercise? I think that is where we are, as far as I can tell, there is more interest in planning. It is not clear if it is doing any good, it is something they feel they ought to do. Like succession planning, they feel it is something they ought to do.

To some extent, this again is a problem from the top down, is that they don't understand the difference between replacement planning, which just means what happens if the boss gets hit by a bus tomorrow, who signs the checks? That is pretty easy to do that, that kind of planning.

Promotion from within, which we ought to be doing more of and we are still not doing much of that. And then internal development, which just means let’s prepare people for bigger roles. You can't seriously do succession planning, if you are not going to do promotion from within. You can't do promotion from within, if you are not developing people for bigger roles, so we are not doing that. And yet at the end, we are going to talk about succession planning. This is a waste of time, so why are we doing it?

I think we are doing it because it makes us feel good. It makes us feel like we are doing something important. People at the top say, oh yeah, succession planning, you should do that. If you were to ask them, what does it mean to do that? I am sure what they think that means is to prepare people for internal advancement, but that is not what succession planning means. If you are not developing people internally, succession planning is just the diagram. So I don't see we are getting any better at this. I think the good thing about data analytics, data science basically in human resources, is that it is at the very least forcing people to collect data. 
So before the pandemic, we were gathering people who are doing data science in human resources at different companies, to talk about what they were doing and it is stunning how little they were able to. The reason for that is their biggest problem is database management, they can't get the data into a context where they can actually examine it, that is their biggest problem. So is it building analytical models with machine learning, to do predictions as to who should be promoted? To do that, the first thing, you need an enormous amount of data. Almost no companies have that much data to do it. You would have to be able to merge the data on performance success with the data on personal attributes, with the data on hiring, all that stuff. They are all in different data sets, in different silos, they don't talk to each other. So what ends up happening is vendors sweep in and they have already built a solution for that, sounds great, except that unless this solution is built with your data, there is no reason to think it is going to predict anything about your company. So what is happening is we have created the buzz that this is important stuff to do. Inside the companies they can't do it, partly because they don't have data, partly because when they have the data it is so intensive to build these models and expensive, nobody wants to pay for or give the authority to make these different silos share data, or to require that the vendors you are using be compatible so you could do it.

So as a result, we go to a vendor, the vendor gives us something. We use it. We have no idea whether it works or not. We claim success. That is another example of what I was describing earlier. 


David Green: HR, let's say they have built this muscle within the function, they have got the right data people around, they are actually orienting the work of that team onto the big business priorities, so for example, what are the people factors that drive higher sales? Business leaders are going to care about that. Is that a way that HR can change the game a little bit in using data?

Peter Cappelli: I think in general, what I hope HR can do is have a point of view on all these questions. Like for example, I have a colleague who has done some very careful studies of sales and particularly looking at the leadership of sales teams. What they find is that promoting the best individual contributors to leadership positions, has a negative effect on sales performance, yet that is what we do most of the time. Somebody in HR who could say, it is not obvious that promoting the best individual contributors is going to work here, there are some reasons for thinking it is not. This is like the Google story with their project Oxygen, a long time ago, which if you were outside you would say they documented things that everybody already knew. If you were inside, you would say that was necessary because the leadership team did not believe that the lessons from other places applied to them because they were special.

So what you could do in HR is to say, let us examine this and see. The big ahas, are not going to come from new machine learning models, they are just not. People have been studying these same questions for a hundred years and the idea that you are going to find some enormous breakthrough is unlikely to ever happen and it is going to cost you a ton of money to find that out. However, you can learn a real lot from simple descriptive data, which simply shows on sales for example, who are the people who are selling the most, right? Which supervisors seem to have the people who are doing the best job? It is these guys. Let's go talk to them and see what is going on. So the best thing that we can do with data analytics here, is simply point management in the right directions. It doesn't mean coming up with the lastricities that say, this much investment here will lead to this much over here. 
It is, this team here is way outperforming, why is that? Let's go look in and figure it out and come back with a report. Thinking that some machine learning model will solve all this, it goes back to this optimisation thinking. That you can just apply the same tools that we use to determine whether a railroad car wheel will break, to figuring out who is going to be the best performer. It sounds like we should be able to, but it is so complicated to do this in a human dimension and frankly, as an employer, you don't have the time or the resources to want to do it.

So what could we get a big bang out of? And there are lots of things you could get a big bang out of with simple descriptive data.


David Green: I have seen it work in many organisations with that, so yeah, exactly.

This is the question we are asking everyone on this series Peter, and it might be that you summarise some of the stuff that we have already talked about.

What do you believe to be the two to three things that HR will need to do, to really add business value as we hopefully come out of the pandemic? 


Peter Cappelli: Yeah, it does recap a little bit.

I think the first is they had a point of view on these things and a point of view means things like, the vice-president over here says people should not work from home because they are just watching TV. Do you have a point of view on that? A point of view means that is an interesting hypothesis, here is what we know about it. Here is what evidence shows about this.

I am not suggesting you go argue with your CEO, you want to be managing up carefully, which means you are phrasing everything in terms of what is good for the company, none of this is your personal opinion, you are not trying to contradict them, you are just saying here is what we know. And we could go look at this inside, if you want? I can come back in a month and give you a full report on what we know about this.

So that is the first thing, is to be able to have a point of view on these issues. The second is, to understand the way that they think, they are for sure thinking about how do these actions pay off, in terms of money and it is not that hard to come up with estimates of that, using your best guesses.

So I wouldn't be a coward about this and say, that is the first inclination is when people begin to learn enough about finance and how to make these causal arguments, is they realise how complicated it is to do it well, which is absolutely true. But if you don't do it at all, then that is worse. Perfect shouldn't be the enemy of good.

So being able to say, if you want, here are all the caveats to this. By the way they are the same caveats that our marketing colleagues have and that our operations colleagues have and our strategy colleagues have too, but here is what we know, here's the best evidence on that. So being able to provide them with evidence and descriptive evidence is good enough, in most of these things. Can you attach a dollar number to these things? Sure you can.

The first one you want to be able to do and it is astonishing the we don't do this in many companies, I have had some occasions where I have asked CEOs if they knew the number and they don't, what is the cost of turnover? 
Because if you think it is low, a lot of the reasons for managing people carefully go out the window. But we know it is not low and the only reason it is low is because we don't measure it very carefully. We just look at the costs of filling a position and we don't look at that very carefully, it is just the administrative costs. You can go look at the research on this and see some careful estimates of what it costs, it is hugely expensive. But if you don't know that number in your own organisation and your executives don't know it, you are already in a lot of trouble because almost nothing that you do is going to matter if the people at the top think it doesn't cost very much if somebody quits. Let's just churn through people, then we will find the good ones. A lot of them still believe that Jack Welch, A player, B player, C player, story, for which there was no evidence, even in GE never had evidence for that, it was just something that he believed. And yet everybody saluted around that thing, even though it was wrong. You have to have responses to this without getting into a fight, just being able to say, here is what the evidence shows on this. 


David Green: A really good place to leave it, I think, as you said, there is enough academic research out there, publicly available material, you just need to take that and see how it applies in your own company. 
And as you said in the example of Google, with project Oxygen, it should actually show them with their own data that it also applies within our organisation.

Thanks so much for being a guest on The Digital HR Leaders Podcast, Peter. Can you let listeners know how they can stay in touch with you, follow you on social media, and find out more about your work?

Peter Cappelli: I am lousy at social media, I never wanted to have to do the work. But I am the only Cappelli with two P’s and two L’s. Stuff tends to appear on my Wharton website, when I publish it, so it is pretty easy to find it if you just put in my name. It is a good thing, I guess, to have a slightly distinctive name. 


David Green: Peter, thanks very much for being a guest on the show, take care and hope to see you soon.