By Peter Cappelli
My resolution for the year would be to get serious about addressing the issue of uncertainty in business. If you don’t think this is an issue, ask how well your own organization did in forecasting the 2008 financial crash. Virtually no one saw this coming, of course, just as no one saw the sharp jump in oil prices in the mid-2000s, the terrorist attacks in 2001 and the associated business slump, the Y2K boom and bust, etc.
The competitive environment for businesses is so changeable and firms adjust their own strategies and practices so frequently that business forecasts are rarely accurate. The error rate in the US on a one-year forecast of demand at the SKU code or individual product level, for example, is over 30 percent, and long-term forecasts are essentially worthless in all but the most predictable operations. Even in stable industries like public utilities, an unexpected CEO change or a restructuring program can throw all plans up in the air.
What does this mean for human resources? It means that exercises that require long-term forecasts – workforce planning, succession planning, etc. – just don’t work because those forecasts are rarely right. Perhaps that’s why so many companies simply don’t do them anymore. Assuming blindly that our forecasts will work out is simply putting our heads in the sand. But doing nothing to address the future doesn’t make sense, either.
Instead, what we should do is what has been done in many other contexts, from the military to foreign policy: First, try to get our hands around the uncertainty. What aspect of our business environment is reasonably stable, which aspects are changeable, what are the different possibilities for outcomes? Second, once we have a sense of the range of possibilities, what can we do to adapt to the uncertainty? Are there any actions we can take that are “robust,” that is, they make sense across most of the possible outcomes?
Finally, how can we be more responsive so that we can adjust to inevitable changes in what the business requires of human resources?Follow the series 10 Talent Resolutions for 2010.
Peter Cappelli is the George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources. He has degrees in industrial relations from Cornell University and in labor economics from Oxford where he was a Fulbright Scholar. He currently serves on commissions for The Business Roundtable, the World Economic Forum, and the U.S. Department of Labor. His latest book Talent on Demand: Managing Talent in an Age of Uncertainty (Harvard Business 2008), outlines the strategies that employers should consider in developing and managing talent.
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