Peter Drucker summarized the next frontier for American businesses as follows: “The ability to make good decisions about people represents one of the last reliable sources of competitive advantage, since very few organizations are very good at it.”
Our country is in the throes of a major shift in employment. As a direct result of the Baby Boomer surge, we will rapidly lose a significant core of experienced talent, at all levels of employment. In the war for talent, based upon Department of Labor Statistics, the United States will lose 160 million Boomers to retirement over the next 15 years, with the replacement generation of Gen Xers accounting for only 150 million people. As such, our businesses will be forced to accommodate a net loss of 10 million tenured, experienced and responsible contributors to the overall economy. From tradespeople to factory workers to vice presidents and CEOs, the pool of qualified, experienced talent is the thinnest at any time in our history. This war for talent is well underway and will have major ramifications in your compensation, recruitment practices, training and outsourcing strategies for years to come.
Drucker's comment is accurate because our country has spent 20-plus years implementing operational strategies to become leaner and more cost-effective. Many medium-to large companies have gone lean by using programs such as Toyota, Six-Sigma, etc.
However, the pursuit of profitable growth through the implementation of best practices will begin to deliver fewer sizable returns. Coupled with the dearth of talent in the pool, Drucker's comments will ring true and loudly for years to come. Companies can no longer peg a significant bottom-line performance to getting more efficient. Supply chain strategies have limitations and shop-floor design and material-handling equipment will only deliver bottom-line improvements for so long.
The true differentiation of a company will come back to its essence — people. People still matter, despite the Internet and e-communication systems. People remain the primary reason for a company to do business with another company. We're at a point where core products are not significantly differentiated to command a change in vendor relationships, and price isn't as strong a motivator to change as is an assurance from someone that they will service the business after the product has long been installed or used. It's people; and we're running out of them.
We have become so efficient that in many instances we have abandoned true customer service. Outsourcing customer service has not improved service. Instead, it has cut costs and reduced headcounts and indirectly cost companies their live touch with their customers. How many of us actually remark about good service when we find it? It's so rare we rejoice in it.
The nuances of the war for talent become more interesting when you review a 2006 study by Ernst and Young on the anticipated brain drain that will occur over the next decade. The very people who hold the most intellectual capital to do their job, who know the customers, the processes, the nuances of how to get things done within that company, are retiring. How fast? As of Jan. 1, 2006, every seven seconds someone turns 60 years old. The eligibility of retirement goes to 15 percent of the current labor pool over the next 3.5 years, and then accelerates thereafter. A full 50 percent of government employees will be eligible to retire in the next five years! Most companies estimate that only 10 percent of their labor pool will actually retire at age 65, but that's a very rough guess. Funny things happen to people who are suddenly emancipated from the daily requirement to go to work. They may not look forward to impending retirement right up to that 65th birthday, but then they awaken and recognize they don't really have to work. Some may need to for financial reasons, while others may decide to continue working for the emotional support it brings them.
This comes at a time of a near-perfect storm. Throughout the recession of 2001-2002, companies downsized and shed thousands of employees, most of them rendered their companies very lean with little bench strength. The backlash from that recession was an employee base of largely resentful employees. A recent survey estimated that 65 percent of employees are looking to leave their current employer within the next year. Worse, the Ernst & Young consulting firm reports that 85 percent of the companies surveyed had no retention programs in place. Only 30 percent of the respondents had documented where their business' intellectual capital resides. Of those, 67 percent of the companies had begun processes to transmit that intellect to the next generation. That means only 17 percent of all surveyed companies have adopted a program to begin documenting and transferring intellectual capital to future generations.
How about specific retention programs? 90 percent of the surveyed companies said they are planning to develop a retention plan. (I'm thinking hard about starting an exercise program, too). Eighty-five percent of those companies had no plan in place yet. Of the meager 15 percent that had started a plan, the key elements included hiring retirees as consultants or contractors, paying retention bonuses and/or starting pre-retirement planning programs.
Where does this take us? The war for talent is real and the battles are intense because the availability of talent is already thin. The bigger threat, though, may not be the ability of a company to find talent — it may be the ability of a company to retain enough business wisdom to adequately train and mentor the new talent they can attract.
But, just as all politics are local, all crises exist in the “now.” Getting executives to focus on the talent shortage when their crisis is reporting the current quarter's results isn't likely to happen — not until the day arrives when there aren't enough executives with sufficient business wisdom who can report those current quarter results. The crisis is real, but it won't become real until it directly impacts each company over the next few years. And in the 70 seconds it takes to read this article, 10 more Boomers turned 60!
Ted Konnerth has been president/CEO of Egret Consulting Group, Mundelein, Ill., a retained search firm with specialties in electrical manufacturing, distribution, consulting services (architectural and engineering) and mergers and acquisitions consulting. Prior to founding Egret Consulting in 1999, Ted was with Cooper Industries for 16 years. He was vice president of sales for 4.5 years for a $1 billion division of Cooper before starting his search firm. Contact info: 847-307-7125; or e-mail: [email protected]; website: www.egretconsulting.com.