The New Deal at Work: Managing the Market-Driven Workforce. Peter Cappelli. HBS Press, 1999.

The Human Equation: Building Profits by Putting People First. Jeffrey Pfeffer. HBS Press, 1998.

Every company, in some way or another, is dealing with the same problem—how to achieve a high performance organization with a high performing workforce, while the rules of the new economy are still being written. What’s the play that will achieve success? It depends on who you ask.

Recent books by two renowned business and HR experts—Peter Cappelli’s The New Deal at Work: Managing the Market-Driven Workforce (HBS Press, 1999) and Jeffrey Pfeffer’s The Human Equation: Building Profits by Putting People First (HBS Press, 1998)—offer different perspectives. By now, the books aren’t so new. But they play a key role in an important debate on performance.

The authors agree that the key to long term success and competitive advantage is having an effective system for obtaining, mobilizing, and managing the organization’s human assets. However, their definitions of obtaining, mobilizing, and above all managing people are strikingly different. Cappelli takes a pragmatic, let’s deal with the here-and-now approach, providing strategies for dealing with the market sensibilities that have invaded organizations today. Pfeffer takes a longer-term approach, acknowledging the invasion of market forces within companies, but urging those organizations to stand firm and repel the invader. Cappelli comes across as a realist, while Pfeffer, even with excellent quantitative and qualitative information, seems much more idealistic.

Cappelli lays out a clear and convincing argument that the traditional employment relationship has been replaced by a less predictable force. He calls this the market-driven relationship. Power shifts between employer and employee based on conditions in the labor market, and every person and function within an organization is now exposed to the pressures of the market. Hence, both skills and people become highly mobile and highly poachable. Companies spend less on developing their employees through learning programs because they don’t want to lose their investment.

Cappelli spends quite a bit of time tracing the historical factors that brought us to the ‘new deal’ as he terms it, and provides ample evidence of its effects in the marketplace. He does not offer a prescribed set of solutions. Rather, he gives a host of examples of how this power shift has been successfully managed by other organizations, and lets the reader draw his or her own conclusions.

Pfeffer agrees that the market-based economy is affecting people management. Indeed, who could deny it? But Pfeffer thinks that most of the new deal practices cited by Cappelli are dead-end policies, particularly such practices as relying on temporary and contract workers and cutting company-sponsored training programs. Through quantitative evidence and case examples, Pfeffer argues that people-centered management is the key to organizational success. He offers a framework of interrelated practices (employment security, selective hiring practices, development and learning programs, self-managed teams, high compensation contingent on performance, reduced status distinctions and barriers, and wide sharing of performance and financial information) that drive people-centered management. That some of these policies are counter to the new deal practices many companies espouse today doesn’t matter–all the elements working together create an effective system that can withstand the market conditions. In fact, Pfeffer contends that these principles working together will lead to new deal-defying results such as increased retention, long-term loyalty across the extended enterprise, and a rapidly adaptable learning organization.

According to Cappelli, working within the new deal means that organizations must find creative and non-traditional ways to provide and leverage learning and retain skilled employees. In the tight labor market in which skills become obsolete very quickly, and where mobility means investments in worker skills are easily lost, many companies are less willing and able to invest in learning initiatives. Companies and individuals turn to the Employability Doctrine. The individual takes responsibility for developing skills by turning to the outside market to gain them. In return, the organization keep the employee as long as market conditions allow, and provide the means and opportunities for the individual to develop skills to ensure career advancement—employability—even if at another company. Organizations can therefore push the cost of training and development off onto the employee and out onto the market. This makes companies more flexible—they can rapidly bring in new skills and competencies. However, it also leads to problems. Organizations can’t control the quality of the workforce if trained outside the company. Workers won’t invest in learning skills not valued by the market, so may not want to gain skills unique to the employer.

Pfeffer counters the employability doctrine by devoting a lot of print to case studies like Men’s Warehouse and Service Master, companies in which high investment in training and employee development become the linchpin of competitive advantage. Both organizations have highly developed employee education programs as a central focus, though both are in industries not typically recognized as requiring a highly skilled workforce. These organizations recognize and value all employees no matter how skilled as key knowledge workers, and invest extensively in their development. Pfeffer quantitatively ties that focus on learning to low turnover rates, highly motivated workforces, and returns consistently 10% above industry average.

However, Pfeffer concedes that success stories like these are rare. Results achieved by people-centric management seem simple enough—but it takes a long time to achieve benefits from training and other performance management initiatives, and a very steadfast commitment to programs that might go against the accepted management practices of today. Some organizations, led by CEOs with three years or less to implement policies, will not persist long enough to see the benefits. In reality very few organizations today can look beyond the short term when dealing with the bottom line.

The short-term versus long-term difference in approach surfaces again when Cappelli and Pfeffer discuss the retention question. Cappelli recommends companies adopt an honest assessment of what skills and employees they need now and in the future, and aim retention efforts toward key groups rather than all employees across the board. In effect, he thinks that organizations need to learn to effectively recruit, retain, and release talent when it is no longer needed. He cites a growing number of organizations that focus on recruiting new talent rather than on retaining and retraining older resources. For example, some electronics companies in Ireland hire a continual stream of new engineers out of the university system that trained them, making little effort to retain current employees. They can keep their organizations stocked with employees with the most up-to-date skills, without having to make deep investments in retention and training.

For Pfeffer, these practices are directly at odds with people-centered management. He asserts that all efforts should be made to redirect non-essential employees to other areas of the organization through training or lending them to other organizations, before releasing them. Retention policies aimed at certain groups and not others destroy morale, and again, impact organizational success. Pfeffer thinks that organizations adopting short-term practices cited by Cappelli may achieve short-term successes, but will not be able to achieve a long-term competitive advantage. The problem is that they view their people in the same way they view capital equipment—as expendable commodities. Key factors of organizational culture and loyalty are sacrificed when employees are treated and viewed as expendable.

Cappelli and Pfeffer both offer compelling strategies for managers trying to solve people issues in the uncertain climate of today. Managers looking for solutions to problems hitting right now, with an eye to fixing them quickly, should look to Cappelli’s book. Pfeffer is for those who have a long-term vision, and have the fortitude and endurance to carry out practices that might be counter to market trends. Your company, your choice.

Beth Garland Scofield is Managing Editor of LiNE. You can reach her at beth@linezine.com. She’s ready for her next reading assignment. Suggestions?

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