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Wednesday, November 26, 2008
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The article Fighting Cutbacks with Real Options is an example of a valid concept poorly applied.  The author presents an example where HR can "out maneuver" other departments in justifying their headcount.  

The "Grizzly Bear theory of competition" he presents at the end of the article only emphasizes this myopic approach.  Real-options theory is invaluable in supporting decisions regarding the organization's key strategic priorities.  Suggesting its use for the childish pursuit of pitting one department against another is, to say the least, a disappointment. 

Contrary to what Cappelli claims, this is exactly the kind of analysis that does not appeal to CFO's.

In critical times, it's the survival of the organization as a whole that's at stake, not the survival of a department.  The best HR managers I've met are those that place the organization's strategic and operational agenda as their top priority and collaborate with the CEO and CFO in orchestrating this agenda forward -- regardless of its implications within the HR department.  

If what you're after is projecting yourself as a second-class manager and topping the list of candidates to be down-sized, go ahead and follow Peter Cappelli's advice.  If not, start thinking as a C-level executive and dedicate your energy to advancing your company's strategic agenda.  In difficult times, we can use all the help we can get.

Ulises Pabon

COO

QBS, Inc.

Peter responds:

Thanks for the message. I appreciate the point that we should not pit departments against each other.

Unfortunately, as you may know, this is already a widespread practice. In fact, the idea of competition for capital between departments and divisions is ubiquitous in U.S. companies and reflects a model of decentralized operations and P&L responsibility. 

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The alternative model of top-down direction requires a very different organization of the firm that few US firms have, at least large ones. I don't think this decentralization is necessarily a good idea -- in fact, I think it has gone way to far -- and am certainly not advocating it. But it is the reality.

And the reality for most managers who put forward any idea or initiative, however, is that they have to defend the economic value of their projects. 

Every HR exec will tell you that they are under pressure to "show the ROI" from their decisions. And the people at the top are sorting out the different projects based on ROI. That effectively puts the projects in competition with each other. 

Short of a highly centralized, monolithic organization, there is no way around that.

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