Every business these days has to contend with change and uncertainty. Nowhere is this more apparent than in the area of talent management. It is critical that global enterprises seize the opportunity to prepare themselves for the future shortage of qualified talent by having the right human resources executives to lead this charge.
Data indicate that the demand for workers soon will dwarf the available supply; within a few short years, experts predict a global talent gap of nearly 23 million as a result of a “perfect storm” of converging factors. This conundrum will encompass all levels of talent regardless of industry or location. The Fortune 500 anticipate losing half of their senior management team members over the next five to six years and, unfortunately, many in middle management are ill-prepared to take on greater responsibility. Yet, while human resources executives in the United States agree that retaining key talent and succession planning are two of the most critical issues for their company, more than 75% spend less than a quarter of their time preparing for the future.¹
Companies need to start planning for the changes in the talent landscape. This requires senior-level HR executives who understand both senior leadership and the workforce as a whole and are capable of executing the necessary recruitment, development and retention programs to best arm their companies to compete for the scarce resource that is talent.
FORCES CREATING THE PERFECT STORM
Collectively, there are four major trends reshaping the global workforce: aging populations, widening skills gap, increased diversity and changing priorities.
Aging populations
By 2010, experts predict that in the US there will be a 33% increase in the number of workers 40 or older, while those aged 25-39 will decrease 5.7%.² According to the American Association of Retired Persons, roughly two-thirds of workers over the age of 45 are planning to work past traditional retirement age. This fact may offset the projected 23 million talent gap, making the drop-off of talent less jarring. Companies, however, will need HR executives skilled at attracting and managing a multigenerational workforce.
Iain Conn, group executive officer of strategic resources for BP, which includes global responsibility for HR, said: “Within energy, especially certain technical functions, the issue of older workers and retirement is clearly a concern. There are approximately 220 petroleum engineers graduating in the US today; yet, 20 years ago, it was closer to 1,400. While I have confidence that the retirement age is going to extend, we’ll probably witness more people wanting to contribute in new ways — working part time, coaching others, recruiting the next generation. We need to avoid the scenario where everyone leaves at once.”
Widening skills gap
Several factors contribute to the idea of a developing skills gap in the US and Europe:
- Efficiency “purges” of the 1990s and the dot-com boom/bust era that dislocated layers of middle managers
- Increased international competition
- Decreased visa issuance — once the largest importer of talent, today the US issues only 65,000 visas annually, down from 195,000
- Lower math and science scores — the US continues to lag behind the rest of the world in science and math education; thus the skills shortage among engineers, scientists and information technologists likely will be felt most strongly in the US.
Kevin Cox, executive vice president of human resources for American Express, said: “I believe a widening skills gap will be the biggest challenge over the next decade, which will be exacerbated by the rapid pace of globalisation, increased diversity and the dynamics of age.”
According to the Society of Human Resources Management, HR executives are actively working to address this skills gap by increasing investment in technology and general management training (more than 83%), focusing on succession planning (67%) and increasing investment in recruiting (65%).³
Increased diversity
Over the next decade, it is predicted that Europe and North America will produce and educate only 3% of the world’s entering labour force, while Asia will account for approximately 75%. As the population of talent grows more diverse and global, companies will need to consider nontraditional candidate pools and senior HR executives will need to make sure companies are equipped to manage this diverse group of people.
A significant percentage of General Electric’s opportunity base is in Eastern Europe, Middle East, Africa, China and India. Susan Peters, vice president of executive development for General Electric, said: “We need people who understand globalisation from the standpoint of the market, the competitors and the opportunity. And the source of this talent will shift... China and India both are producing more engineers than the US.”
For L’Oréal, the world’s largest beauty products provider, nurturing global talent is recognised as a top priority. Geoff Skingsley, executive vice president of HR for L’Oréal, said: “We develop leaders while they’re young, often identifying people in their early 30s for leadership roles 15 years in the future. Given this 15-year time lag — and given that less than 20 years ago we were purely a French company — we don’t have the required pipeline of people in Russia, India and China.”
Changing priorities
The result of a decade-long diet of cost-cutting, layoffs, mergers and acquisitions and corporate scandals is an increased sense of disenchantment with the workplace. The younger generation of talent places greater importance on trust, respect, pride and ethics, while blind company loyalty is part of a bygone era. In the search for a “higher meaning,” many talented workers are more inclined to join smaller companies or enter into entrepreneurial situations.
“The younger generation of workers is much less committed to companies. There’s an increasing cynicism about what large companies stand for. We’re going to face a skills gap in some pretty key areas, as we’re seeing more and more M.B.A. students thinking about middle market and nontraditional corporate roles — that’s where a lot of the business growth will be,” said Cox.
TACKLING THE NEEDS OF TOMORROW, TODAY
Companies are far from powerless in the face of numerous forces contributing to a future talent shortage. Leading multinationals require HR executives to undertake initiatives, which include assessing the current talent against future needs, looking at nontraditional candidate pools and encouraging creativity in the recruitment and retention programs. The first step, however, is having an HR function that lives and breathes the company’s long-term business strategy. At L’Oréal, HR is ingrained in the business and approximately 50% of the HR team comes from the company’s operational side. Skingsley, in fact, spent the greater part of his career on the operational side of business, including stints in general management in the UK, Holland and India. “By being able to speak the same business language, HR will earn its credibility,” he said.
“At BP, we believe you’ve got to understand the business well enough today to understand the business needs in the future,” said Conn. “Without that, you have nothing. A lot of companies presume they possess this understanding, but they don’t demonstrate it.”
HR executives who understand the nature of company growth can ensure that the talent strategy will drive this growth. “The hardest part,” said American Express’ Cox, “is getting the strategic alignment between what you want and where you want to be. Once the growth strategy is clearly articulated and understood, the talent strategy becomes much easier to develop and execute.”
Assessing current talent
Once HR and top management understand the current and future talent needs globally, locally, market-by-market and role-by-role, they need to take an inventory of the talent currently within the company and compare it with the capabilities that will be required. “A strategic resourcing plan allows you to identify the talent gaps and then decide what to do next,” said Conn.
“American Express continually sharpens its talent assessment process. HR works closely with our major functions to define competencies to form the basis for talent assessment. We are identifying capability requirements — not only for today, but for emerging growth areas globally. We work with the organisation to use these competency plans to shore up critical gaps or accelerate deployment of talent,” said Cox.
Equally important, according to Cox, is American Express’ focus on measuring potential rather than focusing exclusively on performance. “Potential is assessed using a capability model against our major functional lines. By doing that, we’re able to groom our high potentials and then work with them to actively manage their careers. It’s about their long-term potential to be successful in the next role, often looking out three to five years,” he said.
GE also focuses on the long-term people needs, and recently has crafted five “growth traits” for the organisation: external focus, clear thinking, imagination, inclusiveness and expertise. Last year, GE assessed the top 600 senior executives against these traits and this year they have assessed 5,000 executives. “This assessment gives us a snapshot of our top people,” said Peters. “By knowing where the competency gaps are, we’re able to efficiently teach and coach to these gaps.”
But, as Skingsley points out, assessing talent goes beyond the purely quantifiable. “When reviewing our talent at L’Oréal, we look at nine key competencies, which range from communication to entrepreneurship,” he said. “While the formalisation of the program is important to assessing our talent, we do not view this as a standalone program. HR directors, in discussion with their operational colleagues, bring values into their decisions. Assessing talent needs to be embedded in everyone’s way of thinking.”
Looking at a variety of options
In order to assess nontraditional sources of talent, HR needs to consider of variety of different candidate pools to fill the gaps; including workers who are older, those who need additional training, have left the workforce or come from different countries and sectors.
As an example, the resource base for BP is moving further away from North America and Europe and closer to Russia, the Middle East, Asia Pacific and West Africa — not countries that normally have supplied the company’s traditional senior-executive ranks or workforce. “As part of our first phase of hiring in Angola, we are working with overseas universities, bringing back many Angolan nationals,” said Conn. “We’re helping them resettle in their own country and are giving them prestigious jobs that help them be part of the country’s rebuilding. Phase two, however, will involve building capability within the country.”
L’Oréal addresses its long-term talent needs through early identification, and as a result, the average senior executive is aged 41. “It’s one of our core principles: take people at 23 and turn them into a leader 15 years down the road. It may sound old-fashioned, but we want to give people a long-term career plan,” said Skingsley. The company stretches this younger generation of talent by developing complementary job responsibilities through deliberately requiring them to manage complex situations. “We do not want to create generalists. Rather, we take a bet on a promising leader, expose them to responsibility early and see how they cope with the expanding breadth of responsibility and visibility. It’s a shared risk between the company and the individual.”
Creativity reigns in recruiting
Innovative recruitment practices — and fresh ways of working — will be critical in attracting new sources of talent. To accommodate the older worker, many companies are looking into phased retirement and flexible schedules. “Companies may have to change the structure and content of work to meet the needs of the older workforce. It’s not just hiring additional older workers. It’s about providing flexible schedules, including more part-time options. We need to make the most of those people who want to work hard for 15 hours a week,” said Cox.
Outside of North America, companies are adopting different tactics. “When entering new markets, GE initially imports experienced GE executives from around the world, which includes HR. We then get to know the local recruiters and build ties with two or three key universities. We establish relationships with professors, recruiters and customers to help build our hiring pipeline,” said Peters.
In an effort to gain competitive advantage in attracting and retaining talent, GE launched its “China Acceleration Program,” which, said Peters, potential employees find beneficial. In addition to providing new employees with basic training — teaching them everything from how to do presentations to leadership skills — it also signals to candidates that the company cares about their individual success, which is imperative in the recruiting and retention process.
A focus on retention
It is not surprising that retaining talent at all levels is rated as the most important workplace planning issue; but it is worrying that only one-third of HR executives in the US have set it as a measurable goal.4 Best-in-class organisations support retention programs that range from knowledge-based training (including cognitive, creative, reasoning, problem solving, communication and collaboration) and alternative work arrangements to positive work environments that can attract both the younger and older generations of talent.
“While everyone spends money on leadership development programs, at GE we believe that most of us don’t develop by sitting in a classroom. It’s one thing to have been taught a skill, but it’s another to have the experience. True development comes by stretching people — staying in an area of expertise but being given more quantity or quality of work,” said Peters.
“L’Oréal’s leadership development philosophy is driven by intimately knowing the markets and developing our young people,” said Skingsley. “Our plan is to continue to give people responsibility early; it’s never smart to keep good people in one place too long.”
BP has been running a global development program for the 10,000 people who lead its frontline, in addition to its traditional senior-level development and succession planning programs that provide visibility for leaders eight to 12 years in the future. “It’s imperative to have strong programs for developing our people across all levels and functions,” said Conn. “It must go well beyond the leadership ranks if you hope to retain the best.”
THE HR COMPETENCIES REQUIRED FOR SUCCESS
Many HR leaders and top management are quite aware of the impending talent predicament, but have yet to act. Sophisticated, proactive and creative HR executives will be one of the greatest assets in avoiding a talent crisis. Those HR executives who understand and speak the language of business, are cross-culturally competent and capable of influencing top decision makers will force their companies to focus and enable them to win the next battle in the war for talent.
HR needs to continue to make sure it draws attention to the value it delivers. Today’s HR leaders must be business-minded, strategic problem solvers, who are capable of dealing with ambiguity. “We have to present our case and stay very relevant to the business strategy,” said Cox.
Globalisation and an increasingly diverse workforce will require HR executives to be cross-culturally competent. The challenge, especially in the US, is that only one-third of HR executives believe their HR staffs have the skills to serve a diverse workforce and only 22% think they have the skills to serve a global workforce.&sup5; “HR executives, CEOs and boards need to think about the readiness and the capability of the organisation to operate in emerging markets. A lot of people are talking about it, but only a few companies are doing something about it,” said Cox.
HR also must promote methods that go beyond their realm of authority to encourage the attraction and retention of talent. “It’s important not to rely entirely on systems,” said Skingsley. “Each HR director, rather, needs to manage their talent issues in conjunction with their general management teams. In my role, I work with the HR leaders to then create a harmony of treatment — a system of checks and then balances.”
“At GE, HR receives tremendous support from operating leaders. Our projects cannot be done solely on the shoulders of HR,” added Peters. “The business leaders see the value of building this talent pipeline globally. We take a long-term viewpoint because we are a long-term employment culture.”
HR executives cannot act alone. It is imperative that CEOs and boards view talent as one of their key responsibilities. Top leaders need to demonstrate this commitment and capture the imagination of middle management. These executives are inclined to be preoccupied by what is happening next week, next month or next quarter. They need to refocus, realise the challenge on the horizon and then hire and develop exceptional HR executives to help them prepare for the future talent landscape. “Because BP’s success has been about having the right people in the right jobs, which is abundantly clear to everyone, you don’t have to ask people to get involved with succession planning or leadership development,” said Conn.
“GE’s board is quite involved, thoroughly reviewing our leadership and succession plans, including HR, every June and November. Does the board know that we have an interview guide supporting our recruiters on campus? No, but they know the overall HR strategy and our leaders well,” said Peters.
Although understandably difficult for organisations to remain focused on an issue that may not come to fruition until 2011, or even 2016, now is the time to act. HR executives, those who have earned the support of top management, are best positioned to help companies win this new war for talent.
“The process of planning for a company’s future talent needs can be overwhelming,” concluded Peters. “No one has a crystal ball, but we must look at the implications for our business. We’re at the tip of the iceberg in terms of addressing our long-term talent needs — but it’s an important start.”
THE HR EXECUTIVE FOR THE NEXT DECADE
- Strong business acumen — speak the language of business
- Strategic problem-solving skills — creative
- Cross-culturally competent
- Capable of influencing top decision makers
- Credible and trustworthy across all levels of the organisation
- Far-sighted and proactive talent development expertise
- Top leadership skills — unafraid of leading change
- Unassailable judgment
Footnotes
- Hewitt Associates, Timely Topic Survey Results, February 2004.
- Bureau of Labour Statistics, Monthly Labour Review, May 2002.
- SHRM, 2015: Scenarios for the Future of Human Resources Management, p. 25, September 2005.
- Hewitt Associates, Timely Topic Survey Results, February 2004.
- Hewitt Associates, Timely Topic Survey Results, February 2004.
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