The far-sweeping impact of globalization has wrought myriad uncertainties for the modern organization. Today, no matter the industry, there are so many unknowns — not the least of which is the firm's unpredictable talent demand.

Because it is becoming increasingly difficult for employers to hold on to their best employees, the retention of top talent has become a key strategy for small, midsized and large corporations around the world.

This in part helps explain why employers must ask themselves — even more so today — one of the most fundamental organizational questions: promote from within or hire from outside?

In his new book Talent On Demand: Managing Talent in an Age of Uncertainty, Peter Cappelli, a professor of management at the University of Pennsylvania's Wharton School and director of Wharton's Center for Human Resources, argues that the majority of companies today continue to rely on practices that worked five decades ago but are, by and large, no longer applicable in corporate America as it exists today.

According to Cappelli, most companies design hiring practices and tools for all employees under the presumption they will be company lifers. Under what he calls the "Organization Man" model, companies train employees to learn the skills that are specific to their business needs, with the understanding that those employees will grow with the company.

But the reality today is that the "Organization Man" was well-suited for an earlier era simply because large companies were able to nurture talent over an extended period of time without too much concern that employees would pick up and leave. Companies today simply can't predict what their talent needs are going to be years from now, and even if they could, it's not likely that their employees will stay with them for that long.

Employees have let go of their commitment to a specific employer and, like athletes unhappy with their current station, have become "free agents" in search of the best opportunity available. The prevalence of job dissatisfaction and resultant job hunting can, in part, be seen in the explosive use of job-search boards online (Monster, CareerBuilder, et al.).

Most employers have recognized the dilemma. Many, it can be argued, have thus become overly dependent on outside hiring. Of course, promoting from within is no promise of success, either.

A look at CEOs, for instance, provides stark contrast: Xerox CEO Anne Mulcahy started out as a sales rep for the company in 1976 and took the top job in 2001, and the company has since rebounded from near death to be a $16 billion player in the document industry; while Stan O'Neal was with Merrill Lynch for 21 years and became CEO in 2002 before his forced resignation last October.

The "inside or outside?" quandary is anything but exclusive to determining a CEO position. And each approach has its own challenges.

"Insiders know the firm and its people, but they're often blind to the need for radical change," Harvard Business Review explained late last year. "Outsiders see the need for change, but don't know the company well enough to foster it."

So how does one decide whether to go outside ("buy") or develop and promote from within ("make") to fill a vacancy?

In his book, Cappelli advises that companies apply the principles of a state-of-the-art supply chain and just-in-time (JIT) when examining their talent needs and addressing their talent management. He contends that having the right talent requires a hybrid approach that is equal parts outside hiring and inside nurturing.

To that end, Cappelli says that employers need to work on an "on-demand" talent-management model, where they should work on developing workforce skills according to competencies that could be valuable no matter where their business is headed in the next 10 years.

"You have to examine your needs and, very importantly, your certainty about your needs going forward," the Wharton professor explains in a recent interview with Human Resource Executive. "But there are always going to be differences."

Cappelli himself writes at Microsoft Office Online:

The simple answer — choosing the path that produces the best candidate — leaves unresolved the question of what one means by best and can lead to further problems in the long run.

In the past, the George W. Taylor Professor of Management at the Wharton School has pioneered the idea of taking HR management out of standard performance metrics — such as productivity, turnover and attrition — instead, looking at it as source of revenue.

Although attaining and retaining talent has become a key strategy for companies everywhere, part of the problem remains the same: companies giving lip service to employee development — saying how much they value their people, that they're the No. 1 asset, etc. — but failing to follow through. And when things get rough, those same people are the first to get the ax.

Resources

Talent on Demand: Managing Talent in an Age of Uncertainty
by Peter Cappelli
Harvard Business School Press, April 10, 2008

Hire Talent from Inside or Go Outside?
by Peter Cappelli
Microsoft Office Online

Managing Talent In Trying Times
by Ed Silverman
Human Resource Executive, May 16, 2008

'Talent on Demand': Applying Supply Chain Management to People
Knowledge@Wharton, Feb. 20, 2008

Growing CEOs from the Inside
by Sean Silverthorne
Harvard Business School Working Knowledge, Nov. 14, 2007