Defusing the Talent Time Bomb

When it comes to the talent crisis looming over most organizations in the industrialized world, there is good news and bad news. The good news is that, thanks to an increasing number of books, articles and conferences on the topic, the general problem is unlikely to sneak up on anyone. The bad news, however, is that the challenge is even more complex and difficult to manage than most have presumed it to be.

Until recently, most executives could count on a relatively steady pool of potential workers in terms of numbers, as well as employees' basic skills and career expectations. Today, that is no longer the case. In many industries, the workforce is changing dramatically through demographics, culture, technology and new methods of sourcing work. Organizations that hope to achieve and maintain high performance must take a wide-ranging approach to understand these changes, diagnose their impact and put in place an integrated suite of solutions that manage the potential risk they pose.

Understanding the Multifaceted Challenge

The changing workforce is, in part, a product of global demographics. The "hourglass" understanding of workforce ebb and flow — a steady state in which the influx of new employees readily matches those leaving or retiring — is now broken, but too few organizations are operating under that new reality. In many industrialized nations, the average age of the population is increasing steadily, so a higher percentage of the working population is approaching retirement age. Add to this the decline in birth rates in many of these same nations, and now companies are at risk of having valuable knowledge and skills leave the organization when employees retire — without enough new employees to replenish those skills.

Yet, while some analyses of future workforce issues focus almost exclusively on aging populations, the talent crisis is actually much more multifaceted. Here are some of the other changing workforce issues that organizations are facing:

• Early-Retirement Programs. During the recent economic downturn, many companies took a short-term approach to cost cutting through early-retirement programs. That strategy has now exacerbated the impact of the maturing workforce on the ability of these companies to compete.

• Different Expectations of Younger Workers. The changing expectations of younger workers — "Generation Y" or "Millennial Generation"— affect companies in various ways. These workers find some traditional jobs in certain industries less appealing. They also have different expectations about career goals and work-life balance issues, requiring new approaches to incentives and compensation.

• Global Expansion and Sourcing. Multisite collaborative work, which increasingly characterizes the modern workplace, poses several challenges. For example, handoffs

must be made from one time zone to another without loss of productivity, and companies must create a community among workers who interact in primarily a virtual manner.

• The Continued Pace of Mergers and Acquisitions. Post-merger integration activity too often focuses on processes and information systems, giving short shrift to enabling the workforce to make the transition more easily while minimizing productivity loss.

• New Skill Requirements. Changing technologies, new ways of selling and higher customer expectations are affecting the skills needed for workforces to perform optimally.

The impact of the changing workforce on an organization's ability to achieve high performance can be significant and measured in areas such as decreased productivity, lower customer satisfaction, and retention and quality deficiencies.

Consider the cost impact alone: Training and recruiting typically cost 70 percent to 200 percent of an annual salary, so higher percentages of newer employees translate into higher costs.

Inexperienced employees also result in additional costs via increased supervisor time. The time needed to attain full productivity also is extended when onboarding. If retired employees are brought back for contract work as a stopgap measure, that can add an additional 5 percent to 10 percent of costs.

The Changing Workforce and Risk Management

Although these challenges are considerable, the talent crisis is, at heart, a risk management issue, no different than other external or environmental risks organizations face every day. Thus, it is possible to tailor well-known strategies in business-continuity planning to anticipate and avoid the potential disruption of workforce shortages and deficiencies in vital skills and capabilities. The following is a high-level description of three steps organizations should take to more effectively mitigate their workforce risks.

Align Workforce Strategy with Business Strategy

The first phase involves translating business strategy into a workforce strategy. An organization must identify the high-impact, critical workforces that make the most difference in business performance while it weighs changing issues and potential business impact. It then should assess the risks of retirement and attrition within critical workforces. New tools also can enable the analysis of an enterprise's supply and demand for workforce skills, helping organizations calculate the overall financial impact of their anticipated workforce changes.

Assess Workforce Capability Gaps

Next, an organization should conduct a diagnostic evaluation to determine the potential magnitude of workforce risks and to set a general direction toward risk mitigation. Here, too, new diagnostic approaches are available to assess human capital capabilities and the processes that drive them and to link human capital assets and approaches to business performance outcomes.

Deliver an Integrated Suite of Solutions

Once a company effectively has translated business strategy into a workforce strategy and has assessed its workforce capability gaps, it must focus on the right mix of four types of workforce solutions:

Knowledge Solutions: Many companies are too focused on replacing workers and just maintaining adequate productivity levels to worry about extracting valuable expertise from those who are leaving. Thus, the first order of business should be to implement a formal process that ensures the organization captures the experience and expertise of retiring workers and transfers this knowledge to retirees' successors.

In his book, "Lost Knowledge: Confronting the Threat of an Aging Workforce," Dr. David DeLong notes some exemplary cases of companies that have developed the capability to inventory their knowledge base and use that information to inform their talent management practices. Northrop Grumman, for example, went through several downsizing programs in the 1990s without managing knowledge loss. Executives realized they would be better served if they had a more effective process for identifying which employees held what kinds of knowledge. Such a capability could lead to better decisions about how to redeploy experienced engineers and retain their knowledge. The company created a discipline management program, breaking down the basic skill bases of its 2,000 engineers into 35 disciplines such as software engineering and structural analysis, and then it assigned a discipline manager to oversee hiring, firing and movement of people associated with that discipline. Today, Northrop Grumman is smarter about knowing where its knowledge and experience resides, which helps inform the company's entire talent management life cycle.

Performance Solutions: New workers take a long time (often 12 to 18 months) to reach acceptable levels of competence and performance — at least given current methods of training and leveraging on-the-job experience.
To help speed up the process, companies need a strategic workforce enabler that is more effective than the common one-size-fits-all portals. They need real-time, active support for the performance of their most important jobs and roles, integrated across all essential resources and supporting applications. Such support also should be tied to an enterprise-wide performance management capability that links differentiated individual performance to higher workforce performance and, ultimately, to high performance for the organization as a whole.

content, legacy applications, productivity tools, learning, collaboration and expert network capabilities that enable workers to increase their performance to new levels. Some industry analysts suggest organizations that successfully implement these sorts of tools will lay the foundation for maximizing their long-term competitiveness during the next decade.

One company that has successfully leveraged new performance solutions is BT Retail. This U.K.-based telecommunications firm, which provides end-to-end communications services for more than 18 million customers, uses a new tool that integrates vital product, service and procedural information into a single structured content architecture and intuitive portal interface. Using this tool, customer service representatives readily can access accurate information while handling and resolving customer inquiries on the first attempt. Business results have been impressive. Over a three-year period, the tool delivered more than $4.5 million in tangible business benefits through improved productivity and cost reductions. Detailed measurement studies conducted by BT Retail found that its performance solution reduced call-handling time 5 percent, lowered the number of repeat calls and transferred calls by 16 percent and 20 percent, respectively, and improved customer satisfaction with advisers by 15 percent.

Talent Management Solutions: While knowledge solutions mitigate the risks of knowledge loss, and performance solutions mitigate the risks posed by inexperienced employees who replace retiring workers in critical jobs, talent management solutions accelerate the pace at which companies move people through the entire employee life cycle, from acquisition to development to performance management. In the most recent Accenture High-Performance Workforce Study, 43 percent of respondents said talent sourcing is a challenge or severe challenge primarily because of a smaller or shrinking talent pool. But what exactly can be done?

Insurance company MetLife is addressing this issue by taking a new and more flexible approach to employment in the latter years of a person's career. Many baby boomers might not be able to retire as early as they once expected, but that situation can dovetail nicely with a company's need to retain workers longer. So MetLife is promoting more flexible work arrangements involving part-time or flextime status.

As noted, dealing with a mature and experienced workforce is actually only one element of the larger suite of changing workforce issues. Another is the different qualities, needs and expectations of younger workers. These workers, born in the last couple of decades of the 20th century, are either now entering the workforce or will be over the coming decade.

"The younger generation is now moving from job to job — and even from career to career — every 2.8 years on average," said Debra Capolarello, MetLife senior vice president of human resources and people practices. "That's just part of their nature, so companies must find ways to work within those constraints."

MetLife is considering establishing an alumni network as one way to deal with employees who change jobs more frequently. By staying in touch with past employees after they have left the company, MetLife could keep open the possibility of bringing the highest performers back onboard, in effect leveraging the additional skills and experience they have received in the interim.

The company also is exploring proactive work with universities to increase the flow of qualified applicants. Capolarello said companies need more than better college-recruiting efforts.

"We are working to make connections with specific colleges that can feed us talented young people in math and IT," she said. "In essence, we're establishing a 'feeder pool,' creating relationships with professors and helping to participate in curriculum development so we can help shape the kinds of candidates who could then potentially come directly to our company when they graduate."

Service Delivery Solutions: In spite of their best efforts at talent management, companies might never have the luxury of the "perfect" workforce, that is, enough people trained in the right capabilities to perform exactly as desired. Talent scarcity and doing more with less constitute the "new normal" for most companies and government agencies.

Accordingly, part of the toolbox of risk mitigation strategies for a changing workforce are various types of service delivery solutions, including automation technologies, cosourcing/outsourcing opportunities and shared services models, that help them maintain acceptable productivity levels, even as capabilities change and as the people needed to fill critical positions grow scarcer.

Consider one example of how service delivery solutions mitigate the risk of hiring shortages in call centers. When companies improve their ability to implement self-service capabilities — either over the Web or as automated phone functionality — they, in fact, lower their risks of having an insufficient pool of workers to fill critical customer service positions. Automated testing procedures and tools play a similar function for software companies.

Creating a High-Performance Workforce in the Face of Change

Just as companies in the late 1990s came to appreciate the critical nature of their information systems, companies and governments in 2010 and beyond will come to appreciate the critical nature of their workforces and will devise new programs to improve their speed to optimal performance.

Scarcity and change are upon us, and organizations on the path to high performance must act now to manage their workforce risks in a disciplined, comprehensive and integrated fashion.