Peter Cappelli Reveals the Barriers to Effective HR Management
Peter Cappelli, best-selling author and George W. Taylor Professor of Management at The Wharton School and Director of Wharton’s Center for Human Resources, will join the i4cp 2025 Next Practices Now Conference in Scottsdale, Arizona (March 3-6, 2025) to discuss his latest book, Our Least Important Asset.
Cappelli’s book catalogues the most pressing human resources and people management issues of our time. He recently spoke with the Institute for Corporate Productivity (i4cp) about his views on the latest challenges in HR, people management, and the most critical priorities for HR organizations in 2025.
What does your latest book, “Our Least Important Asset,” add to the conversation about the current state of HR and people management?
The book is about what the current problem [with people management] is. We’re doing it poorly in ways that are obviously bad.
There’s at least 80 years of evidence that managing people better matters to performance. It’s not about focusing on shareholder value because that does not tell you how to do it.
The problem comes in part from the fact that we assume—particularly everybody who took an economics class in college—that companies are always trying to be efficient because if they were not, they would not be profitable. The problem with that is that in the contemporary environment, companies are not trying to maximize profits. They're trying to maximize share price, and that's not the same thing.
Share price is an expectation of where things are going in the future, and it is driven by the information investors have. That information is largely coming from financial accounting, but financial accounting ignores everything about human capital …beginning with the assertion that people can’t be assets because to be an asset something has to be owned.
Look at training as an example. Training is important to invest in people, but accountants say it’s not an investment because you can only invest in assets. It’s an operating expense, which fits in there with coffee and office supplies. If you're an investor, you can't see what investment in training is being done because it's lumped in with other stuff.
What can HR do about this?
The ground rules are stacked against human capital. You’re not going to persuade the CFO to invest more in improving people management because it's just not the game that they're playing. They're playing to investors, and they're playing to financial accounting, which really doesn’t like employment costs.
Employment costs are somehow seen as “fixed costs” that cannot fall even if business declines, ignoring the reality of layoffs. HR instead needs to persuade the CEO because the CEO is concerned not just about current financial accounts, but about operating effectiveness.
The most obvious example is with turnover costs because they're not on the balance sheet. Our CEO is never going to see them. But they do see employment costs. What human resources must do is bring those costs to the attention of the CEO, and to the CFO, too. Everybody thinks [turnover cost] is important, but unless you can put a number on it and show it to them, nobody higher up is going to care. So much about HR is trying to reduce turnover costs.
What are some other common human capital management misconceptions?
CEOs can believe things that are often not true. For example, AI is not bringing sweeping productivity improvements everywhere. But they only hear from people who are building those tools, not the people trying to use them… [CHROs] need to share what it means to think about implementing AI, it's not going to be quick, it's not going to be fast, it’s not going to be cheap to do this.
CEOs also assume that flexibility means the ability to lay people off quickly, hire new people, or use more contractors. There are other ways to reduce labor costs and even head count—just attrition. And contracts are not necessarily flexible. We pay a price in the contract if a vendor allows us to flex the supply up or down. It might be more expensive. HR leaders are going to have to push back and have a point of view for the CEO.
What is the one takeaway you want HR leaders to have from reading your latest book?
If you're an HR person, it is that if you stay passive and don’t at least post out the costs of managing poorly, you're in a losing proposition. There’s also been a big change in the people who are leading companies. Few CEOs today have really had experience running and managing people, which means we have to help them see what the issues are. That makes strong HR leadership and people management even more critical.
Join Peter Cappelli and Other Thought Leaders at i4cp’s Next Practices Now Conference
Don’t miss the opportunity to hear more from Peter Cappelli at i4cp’s Next Practices Now Conference in March, where he will dive deeper into the pressing challenges facing HR and people management today. As a best-selling author and recognized authority in the field, Cappelli will join other industry leaders in sharing actionable strategies to help organizations thrive in an ever-evolving landscape.
Register by November 15 to secure your spot and save $300 on early registration. The Next Practices Now Conference offers an exclusive, vendor-free environment where HR executives can connect, learn, and leave with insights that translate into real-world impact. This event is a must-attend for HR leaders seeking to drive innovation, foster collaboration, and elevate their people practices.