Labor Pains: Talent Shortage Drives New Approach to Management
By Brendan Coffey
The statistics should give any executive pause. Just four years from now, in 2010, the US Department of Labor predicts there will be a workforce shortfall of as many as 10 million people. It’s a significant problem that business will have to address, and outsourcing won’t be the solution: India is forecast to have its own labor shortage in 2010.
“We are at the beginning stages of the most severe shortage of skilled labor in history. Plain and simple,” says Roger Herman, chief executive of the Herman Group, a business futurist firm concentrating on workforce issues.
Faced with the prospect of greater competition for people, the businesses that excel at retaining and motivating employees will post superior profits and growth, according to Peter Capelli, director of the Center for Human Resources and a management professor at the Wharton School of the University of Pennsylvania. Early signs are, however, that many executives are doing little to prepare. “Few employers now have memories long enough to recall anything but slack labor markets,” Capelli says, explaining the past 25 years as a statistical and historical anomaly of excess workers.
Boomer Bust
While companies have experienced periods of relatively tight labor markets, demographic trends show that the American labor force has been in a period of unusual surplus since 1970, due primarily to the Baby Boomers, a generation that is some 15 percent larger than usual. With the boomers entering retirement and the U.S economy continuing to grow, the 10 million skilled worker gap foreseen for 2010 is only going to grow wider, says the labor department. Experts differ on what that means for the economy, but there is widespread consensus that wages will have to rise if companies want to stay in business. That’s a significant shift, since the average American salary of $27,000 (adjusted for inflation) hasn’t budged since 1990.
Internal Branding
But cash isn’t the whole solution. Companies are going to have to compete for employees, and part of winning that competition will be branding the company as a desirable place to work, explains Michelle M. Smith, vice president of business development at O.C. Tanner Company, an employee recognition consulting firm. Even the hottest companies have to strive to attract the employees they need. For instance, Google sows the seeds early, sending pizzas at midnight to computer science labs at universities they want to draw employees from. The company secures a student volunteer at each school for the academic year to ensure pizza deliveries are made at peak study periods. The idea is if someone is dedicated enough to be in the computer lab at midnight, that’s the type of employee Google wants. In turn, the free pizza creates a positive impression about Google on a new batch of computer grads.
There are signs a number of companies are approaching recruiting more seriously than ever. Corporate consulting and headhunting firm McKinley Group says the position most in demand from its corporate clients is for corporate recruiters – those with the skill to run a program designed to attract and retain the best employees. Such recruiters are seeing salaries between $55,000 and $85,000 plus incentives in the midwest, more with larger companies in the major coastal markets. At the moment, the company says it just doesn’t have enough candidates identified to fill the demand they have from clients.
Most Looking to Leave
Branding and recruitment efforts are important not just for pulling in new employees, but in holding on to the ones already on board. As if demographic trends weren’t enough to deal with, companies are also being faced with a more immediate problem: most employees hate their jobs and will leave when they get the chance. An estimated 76 percent of employees are looking for new employment opportunities, according to the Society for Human Resource Management. More than half of those expect to be working someplace else within a year, with the remainder passive searchers who will leap at better opportunities as they come along, Herman explains.
Of course, while most businesses won’t experience the mass exodus of three quarters of their workers, “Suppose you lose 10 percent of your workforce,” asks Herman. “What 10 percent is it going to be? The most talented group, the most difficult to replace. How big of a risk is that for you?”
No More Loyalty
O.C. Tanner’s Smith adds that the repeated image of companies laying off workers and slashing benefits during the past two decades makes earning employee loyalty even more difficult. “Many of the past sins are coming back and haunting companies,” she says. “Companies certainly demonstrated a real lack of loyalty to their workforce and they were pretty quick to cut people when they wanted. Now Generation X and Generation Y don’t even have a concept of corporate loyalty. They want to do something cool and they are going to go where and when they find that.”
Reconstructing loyalty is going to take work, along with an effort to motivate and incentivize employees to stay in place and recognize those who excel at their responsibilities. Marty Fisher, vice president of stores, human resources and training for Abercrombie & Fitch, explains that workers want to “feel the company cares about them. Are there investments made back into the workforce? Is there communication, and are they included or excluded? There needs to be an openness and inclusiveness that goes throughout the organization,” Fisher says. At Abercrombie, Fisher strives to make employee training engaging and memorable. For a recent session with district managers on the importance of brand image and store employees, Fisher flew managers to Hollywood, where the morning session featured an agent from powerhouse Creative Artists Agency talking about the importance of casting. In the afternoon, managers visited local Abercrombie outlets and those of competitors, and then discussed what they liked and disliked about each store. All of that could have been done with a PowerPoint at corporate headquarters in Ohio, but with far less impact, Fisher explains.
Training Not in Vain
Experience and studies show that companies that train employees see lower turnover rates and greater employee —and customer — satisfaction rates.
The Container Store, a Dallas-based chain of 35 retail stores, is one spot that takes training seriously, with good results. Traditionally, retail jobs have been relatively unskilled order-taking and cash register positions that offer low pay. The Container Store goes against that, training employees for 230 hours before each store opening, laying out everything from how to effectively communicate with customers to elicit their needs to how to operate the store’s own shelving systems and computer systems. The company also pays employees 50 percent to 100 percent more than the industry average, along with 68 percent of health care premiums for even part-timers. The result is that the company has annual employee turnover of 10 percent and sales growth close to 20 percent.
A further sign of the importance of training comes from loyalty management firm Walker Information, which found in a recent study that a key driver of employee loyalty is the quality and quantity of training and development opportunities offered to staff. According to Walker, only 44 percent of employers offer what their employees consider adequate training opportunities, decreasing their loyalty to their employers. “Employers have to train and develop their employees or their employees will find somewhere that will,” says Chris Woolard, an employee loyalty specialist at Walker. For younger employees in particular, Woolard says the value of offering training cannot be overstated. Workers now don’t anticipate being with the same company for their entire career, so they place a higher value on assets such as knowledge, which they can take with them when they leave. Workers with tenures of one year or less on the job (and who are more likely to be younger) have the lowest loyalty rate of any group of workers.
Set Them Free
In fact, it may seem counterintuitive, but some employers are finding the best approach to keeping employees is preparing them to leave. One senior executive from a major computer maker (speaking off the record at a recent executive conference) finds his most talented subordinates are so frequently recruited away he now deals with new hires realistically: “I tell them, ‘Give me five years and I’ll make sure you learn enough to be able to have my position at another company,’” the executive says. The job then includes rotating responsibilities, so employees have some exposure to most areas of the company. The results of such honesty and job structuring have been mixed however, given the demand for talented people continues unabated.
At smaller companies, executives say turnover is a reality that simply has to be accepted. Another executive at the same conference said his firm has a system in place to track where and to what type of position employees move on: if the employee went to a more prominent position at better pay, that’s viewed as a positive. If employees are seen making lateral moves or taking a step down, that is seen as cause for concern, since it means the person probably left for reasons related to their experience with their manager and the company.
Living Assets
The most effective solution is to realize “employees are an asset,” and treat them that way, says Don Parker, vice president and chief financial officer of SAS, a Cary, N.C. based financial software maker and consulting firm. That means offering workers a combination of everything from flex time and better benefits, to clear opportunities for advancement and on the spot incentive rewards. As part of its employee retention program, SAS opened a new onsite health care clinic, work-life center and employee services center in August. The company already boasted two child-care centers, an eldercare referral service and a 77,000-square-foot recreation center. According to Parker, SAS has just 3 percent employee turnover annually, compared to as much as 30 percent elsewhere in the software industry. Always looking to refine its system, SAS is hoping to implement a system where human resources would project out three to five years what skill sets are going to be retiring out of the company. HR can then tell managers in various divisions, so they can plan strategically to both recruit and train employees to seamlessly take over those responsibilities. Otherwise, the fear is the company will be caught shorthanded and having to scramble.
Whatever approach is taken, companies have little choice but to start to adapt to the new reality of a labor market where employees will have more leverage than ever. “It will be harder to attract and retain employees if companies continue along the old school methods of recruiting and employment practices,” says Abercrombie’s Fisher, who previously spent seven years as head of Starbucks’ employee management. “Companies are going to have to do a lot of things differently.” ms
