Managing Talent

by Marion Devine

  Prospective employees have to jump through many more hiring hoops today than they did before the recession. Employers are often looking for more bang for their buck. A skill set that was satisfactory five years ago might not be now, as employers look towards the long-term potential of new hires. It’s not enough to demonstrate you can do the job being advertised – you need to show you can develop in the role and bring something valuable to that organisation in the future.

  ManpowerGroup has also noted this trend but nonetheless believes there are real talent shortages. Its 2013 survey suggests that “sluggish demand is actually exacerbating talent shortages”. Companies are being more selective about potential hires, seeking an exact match instead of taking the time to develop the skills of less-qualified applicants. Weak demand is effectively clogging up the system. The survey concludes:

  If demand for their products and services was more robust, [employers] would not have the same luxury of time – hence the apparent head-scratcher of listless jobs growth and greater skills shortages.

  Is it possible to reconcile static wages and large numbers of unemployed people, including university graduates in many European countries, with the complaint from business that they cannot find sufficient numbers of skilled workers? The answer, provided by Hays, a UK recruitment company, and Oxford Economics, a global forecasting and analysis company, is that wage pressure and unemployment rates are not accurate indications of skills shortages. Several factors need to be taken into account to understand the market for skilled labour. Hays and Oxford Economics pooled their data to identify seven “components” that together give a better picture of skill shortages:

  Labour-market participation. The degree to which a country’s talent pool is fully utilised; for example whether women and older workers have access to jobs.

  Labour-market flexibility. The legal and regulatory environment faced by business, especially how easily immigrants can fill talent gaps.

  Wage pressure overall. Whether real wages are keeping pace with inflation.

  Wage pressure in high-skill industries. The pace at which wages in high-skill industries outpace those in low-skill industries.

  Wage pressure in high-skill occupations. Rises in wages for highly skilled workers are a short-term indication of skills shortages.

  Talent mismatches. The mismatch between the skills needed by businesses and those available, indicated by the number of long-term unemployed and job vacancies.

  Educational flexibility. Whether the education system can adapt to meet the future needs of organisations for talent, especially in the fields of mathematics and science.

  With these seven measurements Hays and Oxford Economics created a “global skills index”, which they used to analyse the market for skilled labour in 27 key economies across all five regions of the world during 2012.

  The result was a clear picture of skills shortages in 16 of the 27 countries. The study concluded that despite rises in unemployment around the world, particularly in North America and Europe, there is “little evidence that this has led to an easing in skill shortages. Indeed, evidence seems to point to a worsening of the situation”. Even though wage pressure is weak in the United States, the UK and Ireland, these countries are experiencing the greatest degree of “talent mismatch”, where companies are struggling to recruit the skills they need, despite a large pool of available labour.

  The index reveals that skill shortages occur for varied reasons within countries. For example:

  Germany has the highest overall score for skill shortages and is experiencing wage pressures for high-skill industries and occupations; the engineering, IT, utilities and construction sectors have been particularly hard hit. There is an estimated shortage of 76,400 engineers and 38,000 IT professionals.

  France is experiencing skill shortages for different reasons. Labour-market inflexibility is stopping firms recruiting foreign talent, and there is a “talent mismatch”, where skilled workers are opting for jobs in the financial and commercial sectors instead of sectors such as engineering where there are skill shortages.

  The UK is experiencing skill shortages in sectors such as energy, banking and finance. It has one of the highest scores for talent mismatches, suggesting there is a serious gap between the skills that employers need and those available in the labour market. However, this is not leading to a rise in wages, as the UK’s relative openness to migrant labour is enabling employers to attract staff from overseas (although recent changes in employment laws suggest the country is becoming less welcoming).

  The United States has the highest overall score for skill shortages. There is a strong demand for skilled people in the oil and gas industries, life sciences and information technology. A big problem is a shortage of experienced and skilled workers but an oversupply of people at entry level. Large numbers of people are either unemployed or underemployed in semi-skilled and part-time jobs because of a lack of skills.

  Overall, the index provides evidence of both genuine skill shortages and “talent mismatches”. Hays and Oxford Economics conclude:

  It is clear from our report that while many graduates are out of work, particularly in Europe, at the same time the world is chronically short of particular skills … Some of the most important skills for driving growth are in shortage on a global basis …There is a serious disconnect between higher educational bodies, employers and graduates about the skills now needed in the workplace.

  Demand for more advanced skills

  Part of the problem for organisations and employees is that new and increased skills are required in the workplace. As economies move from being product-based to being knowledge-based, the number of specialist jobs increases. It is hard for employers and educational providers to anticipate these changes. By 2020, the European Centre for Vocational Training predicts that 81% of all jobs in the EU will require “medium and high level qualifications” because of the continuing shift towards knowledge-intensive activities.

  Firms operating in knowledge-intensive industries depend on their most capable staff to help create value through intangible assets such as patents, licences and technical know-how. This is asking a lot. To operate at this level, many people need not just specialist knowledge or technical skills, but also higher cognitive skills to equip them to handle the intricacies of decision-making and change.

  The twin forces of globalisation and technology have also led economies across the world to become more entwined, adding to the complexity of many jobs and occupations. Firms are now looking for individuals with a range of abilities that might include specialised skills, broader functional skills, industry expertise and knowledge of specific geographical markets.

  Four broad areas of skills will be in greatest demand over the next ten years, according to Oxford Economics and Towers Watson, a global professional services firm. Based on a worldwide survey of 352 human resources managers in the first quarter of 2012 and a modelling exercise involving 46 countries and 21 industry sectors, employers will place a premium on the following:

  Digital skills. The fast-growing digital economy is increasing the demand for highly skilled technical workers. Companies are looking for staff with social-media-based skills, especially in “digital expression” and marketing literacy. Digital business skills are rated as crucial, particularly in Asia-Pacific, where e-commerce is expanding rapidly as the result of a “new digital technology war” among firms.

  Agile thinking. In a period of sustained uncertainty, where economic, political and market conditions can change suddenly, agile thinking and scenario planning are vital. Those respondents from industries with high levels of regulatory and environmental uncertainty, such as life sciences and energy and mining, highlighted the importance of agile thinking. Respondents said that the ability to prepare for multiple scenarios is especially important. HR managers also put a high premium on innovative thinking, dealing with complexity and managing paradox.

  Interpersonal and communication skills. Over
all, HR managers predict that co-creativity (collaborating with others) and brainstorming skills will be greatly in demand, as will relationship building and teamwork skills. Oxford Economics points out that this reflects the continued corporate shift from a “command-and-control organisation to a more fluid and collaborative style”. As companies move to a “networked” corporate world, relationships with suppliers, outsourcing partners and even customers will become more dispersed and more complex. It will take skill to manage these networks and build consensus and collaboration with network partners.

  Global operating skills. The ability to manage diverse employees is seen as the most important global operating skill over the next 5–10 years. In the United States, the top global operating skill was understanding international business. According to Jeff Immelt, chairman and CEO of General Electric, employees need skills in both “glocalisation” (where home-market products and services are tailored to the tastes of overseas customers) and reverse innovation (where staff in emerging markets lead innovation and then the company applies these new ideas to mature markets).

  McKinsey’s research suggests that this “skill inflation” is occurring in many jobs. There has been a significant increase in the number of jobs involving “interaction work” in developed economies – that is, non-routine jobs involving intensive human interactions, complex decision-making and an understanding of context. In the United States, for instance, some 4.1m new jobs involving interaction work were created between 2001 and 2009, compared with a loss of 2.7m “transaction”-based jobs, where work exchanges are routine, automated and often scripted.

  The quantity and quality of graduates

  Countries are not producing sufficient numbers of highly educated people to keep pace with the needs of employers and to sustain economic development. This is the case in both emerging markets and developed economies, as an analysis of the global labour force by the McKinsey Global Institute in 2012 shows. The research, covering 70 countries which account for 96% of global GDP, suggests a global shortfall of 38m–40m college-educated workers by 2020.

  Although the rate of “tertiary educational attainment” has doubled since 1980, advanced economies (some 25 countries with the highest GDP per head in 2010) will have 16m–18m too few graduates by 2020. Demand is likely to outstrip supply because of the expected expansion of knowledge-intensive sectors in advanced economies. In the United States, the gap could reach 1.5m graduates by the end of this decade. Even China, which has rapidly expanded tertiary education, is forecast to have a shortfall of 23m graduates by 2020.

  There is as much a problem with the quality of graduates as their quantity. Work by the World Economic Forum (WEF) shows a growing problem of employability among graduates in many countries. Employability is defined as the skills graduates need to gain employment and work effectively in a company. These include technical skills, industry-based skills and more generic soft skills such as adaptability, time management and the ability to communicate well.

  Employers in a number of countries (including China, Russia, Brazil, Italy, Spain and Turkey) expressed concerns about the level of employability of graduates. In China, for example, although 6.4m students graduated in 2009, 2m were still looking for a job one year later. The Chinese Academy of Social Sciences reported that many of these students lacked the skills required by employers.

  Only a small number of graduate schools in India comply with international standards. According to the International Institute for Labour Studies, only 25% of Indian graduates and 20% of Russian graduates are considered employable by multinationals. The WEF says there is an urgent need for governments, educational institutions and employers to collaborate to provide graduates with more relevant education and training. But if graduates are to keep pace with changes in the workplace, employers need to help them keep learning and developing throughout their careers.

  Demographic trends

  Changing demographics are likely to cause substantial shifts in the size and age of workforces around the world. Employers will need to take account of these shifts when they draw up their plans for “sourcing” talented workers, as well as how they manage their existing pool of talented employees.

  The war for talent will intensify, given that the global workforce is predicted to decrease over the next two decades at a time when the demand for advanced skills is expected to increase substantially as a result of globalisation and advances in technology. The WEF warns that “the global economy is approaching a demographic shock of a scale not seen since the Middle Ages”. It predicts that by 2020, for every five workers who retire, only four young workers will enter the workforce in the majority of OECD countries.

  For the first time ever, the EU’s working-age population (aged 20–64) is decreasing from a peak of 308.2m in 2012. The number of workers is likely to drop to 265m by 2060. These demographic shifts, which may be tempered by people working longer, would be even bigger but for an assumed net inflow of over 1m (mostly young) migrants a year.

  Ageing populations, especially in North America and Europe, will lead to large numbers of experienced workers retiring, with a corresponding loss of skills and experience. According to the US Census Bureau, 10,000 Americans will retire every day between 2010 and 2030. And according to the European Commission, on average, Germany, France and Italy have the oldest population. Germany’s declining birth rate, which now stands at 1.38 children per women, has led to predictions of an economic decline in the next two decades.

  An ageing population could offer new possibilities for employers and skilled workers, but it could also create a new set of problems. There could be a new willingness to retain the skills of older workers. In the United States, Germany and Italy, there is active consideration of how skilled older workers can be encouraged and supported to continue working. For example, Germany’s Cologne Institute for Economic Research recently urged employers to build more attractive working environments to retain employers aged 55 and over. This might require redesigning roles and taking into account health-care benefits as much as pay.

  Conversely, employers might find that retaining older workers blocks the career development of younger employees. There is also the possibility that lower-paid employees (who are likely to be less skilled), rather than their more skilled and better-paid peers, will want to take up any offers of continuing employment. The Pew Research Center, an American think-tank, suggests that six in ten of American workers aged between 50 and 61 may have to postpone retirement because they cannot afford to stop work, but just how their wishes can or will be accommodated by employers remains to be seen.

  Employers may still have some way to go before they think about older workers as a valuable source of talent. Research from both sides of the Atlantic suggests that employers are reluctant to recruit unemployed older workers, even qualified and experienced ones. Age discrimination is cited as one likely reason that, in the first quarter of 2012, 40% of older unemployed workers (aged between 50 and 59) in the United States had been out of work for a least one year.

  In the UK, a 2013 study by the Age and Employment Network covering 729 unemployed workers explored the reasons why they could not obtain full-time work. It concluded that “age discrimination” is rife among employers. Many of the respondents were highly skilled: 47% were managers or senior officials; 43% had a degree or an equivalent qualification; and 57% had some kind of professional qualification. Despite their experience, 18% of the respondents had been unemployed for 6–12 months, 19% for more than one year and 31% for more than two years.

  Insufficient skills did not appear to be a problem; three out of four respondents said they had the right skills for their occupation and industry, with managers and officials being most confident. However, the most significant factor affecting their ability to get work was the attitudes (or prejudices) of employers – 83% said recruiters viewed them as too old, and 72% said they saw them as “too experienced or overqualified”.

  Working populations
are also becoming more ethnically diverse, and this may also require employers to confront assumptions or prejudices that might stop them tapping into this growing pool of talent. In the United States, if current trends continue, the demographic profile of the workforce will change dramatically by the middle of this century, according to new population projections developed by the Pew Research Center. It predicts that the population will rise from 296m in 2005 to 438m in 2050, and that new immigrants and their descendants will account for 82% of the growth. Of the 117m people added to the population through new immigration, 67m will be the immigrants themselves, 47m will be their children and 3m will be their grandchildren.

  Talent management to the rescue?

  There seems no doubt that highly capable employees are in short supply and that employers must make strenuous efforts to find them, keep developing their abilities and make sure that they are not poached by rival firms. Are talent management strategies up to the challenge?

  Research for this book reveals that there is an established approach to making the most of gifted employees, but it is beginning to look outmoded and ineffective in the face of the global fight for talent. There is evidence that senior managers and HR managers are highly dissatisfied with their talent programmes, and are looking for new ways to make sure that high-flying employees are identified and nurtured.

  During the past decade a model of good practice has been developed which most organisations with a reputation and track record of success in this field try to follow. This model encompasses:

  Links to graduate entry schemes. For decades before the term was commonly used, talent management strategies have been closely linked to graduate entry schemes with selection processes (often assessment centres, psychological tests, etc) designed to spot potential talent.