According to management academic and author Peter Cappelli, modern HR was born in a leadership void.
After World War II, the US suffered a talent shortage unlike anything since. Many of the men (it was always men) who might have gone into business had fought instead. The fact that talent development had received little or no attention during the Depression didn't help either. The postwar question "What happens if the boss gets hit by a bus?" pointed to a huge concern. About one-third of executives died in office—many of them from heart attacks—and no one was around to take their place. A lot of small companies went out of business, and many big ones had to be sold.
Change was needed and it brought in practices such as coaching, developmental assignments, job rotation, 360-degree feedback, assessment centers, high-potential tracks, and succession plans.
"They sound routine now, but they were revolutionary then," Cappelli wrote in Harvard Business Review. "And they arose from an urgent need to develop and retain talent in the 1950s."
"In that 'gray flannel suit' era, 90% of positions (and virtually all those in the top ranks) were filled from within—and 96% of large companies dedicated an entire department to planning for workforce needs," the academic explained.
"Those numbers reflect an intense commitment to development, which paid large dividends. HR was a powerful function, voted the most glamorous area in business by executives."
Of course, things have changed a lot since then. "Only a third or so of today's hires are internal. Companies engage executive search firms to fill most senior-level vacancies," Cappelli said.
"One in four CEOs comes from the outside. And companies spend less time and effort than they used to map out the talent they'll need in the years to come: By the mid-2000s only a third were doing any planning in this area."
This happened because of the economic slowdown of the 1970s. It practically eliminated labor shortages, and business leaders began dismantling those postwar programs designed to identify and develop good managers and workers.
"Corporations that held on to them, such as GE, were the exception," Cappelli said. "New companies, particularly in tech, could hire all the executives they needed when—thanks to layoffs and stalled advancement—people left the great organizations."
Microsoft became the largest company in the world in terms of market capitalization, with virtually no investment in developing management skills, and others followed its example. Why should someone train people when their competitors are willing to do it for them?
But while supervisors spent less and less time on their direct reports and had too many people under them to manage everyone carefully, employees weren't getting the investment and attention they needed to grow. "Even HR's brief resurgence during the dot-com boom ... was limited to hiring and retention," Cappelli added.
At the same time, more and more tasks that had traditionally been performed by HR (from hiring to development to compensation decisions) were pushed onto line managers, on top of their other responsibilities.
