Organisations around the the world are finding skills gaps, headcount gaps and leadership gaps in their workforce that they must fill to grow. But in the new economy, the talent game has changed, and traditional recruitment and retention strategies no longer work. Talent Management Review reports on the changing dimensions of the modern labour market and outlines some of the key challenges that businesses must overcome if they are to retain their top talent.
Few will argue that recruiting and retaining the best talent is one of the greatest challenges facing any company in today’s competitive, global marketplace. Since McKinsey coined the expression ‘the war for talent’[1], the term ‘talent management’ has enjoyed a meteoric rise in popularity among human-resource (HR) professionals around the world. But talent management is a lot more than yet another HR process. It is a belief that talent differentiates organisational culture and breeds competitive advantage, with benefits for both the individual and the organisation.
Talent management is not a new concept, of course, and originated in the US over ten years ago as companies woke up to the challenge of succession planning. “Company bosses realised that they were losing a lot of good people,” says Roger Pearman of Leadership Performance Systems(LPS) in North Carolina, the US. “And there weren’t a lot of people in the queue to replace the departing stars. The concept of talent management was born out of this climate of fear about company performance and sustainability.”
Today, one of the key drivers for talent management is the changing skills and competency requirements of the business environment. Shifting market requirements, global business models, increasing technical demands and rapidly changing labour markets, are all intensifying the need for organisations to revisit their talent strategies.
According to research by the Chartered Institute of Personnel and Development (CIPD), the UK’s leading professional body for those involved in the management and development of employees, 75 per cent of organisations with more than 500 staff are undertaking some form of talent-management activity [2]. Similar trends are echoed in North America - in a survey by the BPM Forum, a thought leadership group in the US that attracts senior level executives from more than 1,000 companies, 73 per cent of respondents ranked the strategic importance of talent management within their organisations as being ‘high’ or ‘very high’.[3]
But there is still a long way to go - despite showing increased levels of interest many organisations are just scratching the surface when it comes to retaining talent. The CIPD’s latest learning and development research found that 74 per cent of UK organisations didn’t have a well-developed plan for talent management [4]. This is supported by a survey undertaken with senior managers in more than 1,500 UK organisations, where it is was generally found that “there is no systematic and coordinated approach in the public and private sectors to developing and nurturing the next generation of business leaders”.[5]
The talent-management challenge
The global talent war is clearly upon us. Whether in business, sport or politics, hardly a day goes by without reports of senior personnel being poached by the competition, jumping ship to pursue greener pastures or parting ways because of irreconcilable differences. And as organisations struggle to find, retain and develop their key people, they face the changing demographics of the labour market, ongoing skills shortages and employee demands for a better work-life balance.
Ageing workforces
The arrival of the twenty-first century heralds a significant turning point for the post-war welfare state. While most of the advanced industrial democracies entered the new millennium with a record share of their populations in the working ages (20 to 65), by 2010, tens of millions of post-war baby boomers will be streaming into retirement. According to the US Census Bureau, by 2030 the EU can expect to have 14 per cent fewer workers, while in the US, the rate of increase in population size has decreased from 13 per cent to just five per cent in less than 15 years.[6].
The implication for organisations is clear to see, with competition for talent set to become much more intense as organisations quite simply watch their expertise walk out the doors when the boomers retire.
And businesses around the world are rightly concerned. In the US, more than one-third (34 per cent) of all American employers - and nearly half (46 per cent) with 25,000 or more workers - agree that the ageing workforce will have a significant impact on their company, according to the findings of MetLife’s Employee Benefits Trend Study 2005/2006.
There is no higher-profile example of the impact of demographics on the workplace than the dilemma faced by NASA, the US space agency. Like many agencies, NASA is facing shortages in its workforce, which will worsen as the workforce continues to age and the pipeline of talent shrinks. Recognising the need to act and capture the knowledge of key workers before they retire, NASA and the state of Florida have funded the development of an entirely web-based virtual learning and collaborative community. Significant emphasis has also been placed on employee development via an agency-wide leadership development initiative, a more systematised mentoring programme, and increased usage of computer based training. [7]
Skills shortage
Just as many key workers approach retirement age, the number of graduates produced by universities is shrinking, presenting the real possibility of a crippling shortage of skills in many industry sectors, particularly in the UK and the US.
Indeed, the British government is so concerned about its impending skills shortage that it commissioned Lord Sandy Leitch in 2004 to undertake an independent review of the UK’s long-term skills needs. The final report, 'Prosperity for all in the Global Economy: World Class Skills', shows that the UK must urgently raise skills at all levels and recommends that it commit to becoming a world leader in skills by 2020, benchmarked against the upper quartile of the Organisation for Economic Cooperation and Development (OECD).
Publishing the report, Leitch said: "In the 19th Century, the UK had the natural resources, the labour force and the inspiration to lead the world into the Industrial Revolution. Today, we are witnessing a different type of revolution. For developed countries that cannot compete on natural resources and low labour costs, success demands a more service-led economy and high value-added industry.
"In the 21st Century, our natural resource is our people - and their potential is both untapped and vast. Skills are the key to unlocking that potential… Without increased skills, we would condemn ourselves to a lingering decline in competitiveness, diminishing economic growth and a bleaker future for all. The case for action is compelling and urgent..."
Of course, the current global skills shortage has been widely publicised in the media for many years. Such shortages are particularly acute in the IT sector, with software giants such as Microsoft quick to point out that the UK faces a major shortfall in programming skills. In fact, since demand for IT skills peaked in 2000 at the time of the millennium bug problem, UK applicants for degree courses in computer science, engineering and information systems and software engineering have declined to pre-1996 levels. [8]
Beyond the IT industry it’s a similar picture. A cursory glance at the UK Skills Shortage Occupation reveals dozens of shortages in sectors such as healthcare, engineering and education.[9] Even in India, which has an expanding middle class estimated to include 50m to 300m people, the single biggest limitation to most corporate chief executives achieving their growth plans is people [10]. Of course, in a country of more than one billion people, the view from outside India is that the country has a bottomless pit of ready-to-use talent.
Global and local
The number of Britons emigrating has jumped in recent years, with a growing proportion leaving professional or managerial jobs to work overseas. By contrast, the number of immigrant workers - many of them manual workers - has risen sharply.
Findings from the government’s international passenger survey show that in 2005, 34 per cent of immigrants were professionals or managers before entering Britain, 29 per cent were in lower-grade jobs while 37 per cent were not in work. By contrast, 42 per cent of emigrants were professionals or managers, 25 per cent were in other jobs and 33 per cent were not in work - often because they were retired. [11]
Migrant workers now make up seven per cent of the total UK population, or almost ten per cent of the working population. The influx of workers from Eastern Europe into the UK has spiralled since May 2004, when eight nations (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia) were given unfettered access to the UK’s jobs market. And levels of migrant workers entering the UK will no doubt continue to rise this year, particularly from recent EU entrants Romania and Bulgaria, which joined the club in January 2007.
Within the EU itself, it is estimated that 1.5m migrant workers arrive each year. In the US, meanwhile, one in every two of the new US labour force is foreign born. [12]
But it’s not just Britain’s skill base that is being eroded. While many migrant workers from Eastern Europe are manual workers, there are many well-educated professionals leaving their home countries to pursue greener pastures.
Romarketing, a HR consultancy based in Romania, is one agency that has noticed the start of a brain drain in Eastern Europe, and a changing business culture and climate in the region. “We develop our services in accordance with market needs,” says Romarking senior consultant Sorina Bradea. “Even a year ago, there wasn’t much specific discussion about talent management, and we were focused on honing our assessment and training services for recruitment. But now, with top talent leaving Romania and other areas of Eastern Europe, everyone recognises the need to look at retention and alternative recruitment tools.”
Bradea counsels her clients that talent management should be cultural rather than functional. “It’s the ability of the whole company to learn how to empower its workforce – especially its top people. You have to look at talent management in a holistic way.” She warns that far too many companies rely on pay rises and promotions to retain their talent. Yet the feedback she has received from senior executives in the region is that they value career development above everything else.
Louisa Gray of Bernard Hodes Group, an international provider of talent solutions, echoes Bradea’s comment about the drain of talent from East to West. “Multinationals are finding it difficult to keep their local talent in place when they have good English skills or, in many cases, a third or fourth language, particularly when there are opportunities elsewhere. Job rotation within the company is one solution. ‘Keep me challenged’ is a phrase that we hear constantly, either implicitly or explicitly.”
But in contrast, Gray observes a shift in behaviour of local talent in the ‘Tiger Economies’ of Asia. “They are staying in country because it’s exciting,” she says. “Multinationals can no longer count on luring away senior managers from this region for assignments in the West. This is a trend that we are also starting to see in South Africa.”
Ian Wood, director of consulting services for Taleo Asia Pacific, agrees that companies in the Asian-Pacific countries (APAC) are investing in talent-management services to fully develop, deploy and retain their top performers. “Organisations in this region face different challenges depending on the make up of their workforce, competition for local and global talent, language requirements and cultural differences,” says Wood. “While the recruiting practices and pain areas of Australian and New Zealand companies may be similar to those faced by European and North American organisations, the same cannot always be said for the rest of Asia where retention and recruitment issues can be more pressing.”
Wood’s also notes that in the Asia Pacific region IT is a suggested solution to almost any problem. But he cautions that tacking on a new technology to an old process is usually counterproductive. “We use the formula OP+NT=EOP (Old Process + New Technology = Expensive Old Process) to illustrate this,” he says.
The next generation
Those leaving schools and universities in the ‘noughties’ have different aspirations and expectations to previous generations. Twenty years ago, most people could expect to experience a maximum of two different jobs by the age of 25. In 2006, the figure was four jobs.[14]
Current and future entrants to the job market are also placing a higher priority on work-life balance and flexibility. They also expect employers to deliver meaningful benefits to society and the environment.
“We’re finding that brand is massively important,” says Gray, “Especially to Generation Y – the so-called ‘Me’ generation. Young people, and some older ones, want to know how the employer brand will reflect on them – on the ‘Me Brand’. That’s why I think we are seeing the emergence of corporate responsibility as an important consideration for talented individuals when looking at employment offers.”
And, let’s not forget, as the competition for talent intensifies, so does the cost of attaining and retaining talent. According to the findings of the BPM Forum’s talent management survey [15], 95 per cent of respondents say the cost of acquiring and keeping talent rose in 2006, while 55 per cent note higher salaries were required in their organisation. This comes as no surprise to Gray: “Talent management is the deal made between employee and employer. And in this tight market, the top talent can demand more from the deal.”
Looking to the future
Migrant workers, global skills shortages and demographic changes, these are just some of the forces impacting today’s global talent war and making it far more difficult for companies to address their talent management needs. While some organisations are making great strides to meet these challenges head on, the latest industry research indicates that most are at the earliest stages of understanding the challenges of finding, keeping and engaging talent in today’s intensively competitive, global business environment.
What is talent management?
Talent management is a strategic approach to managing people (human capital). It refers to the process of developing employees throughout the lifecycle of their careers. But talent management is a lot more than yet another HR process. It is a belief that talent differentiates organisational culture and breeds competitive advantage, with benefits for both the individual and the organisation.
Companies that are engaged in talent management (human-capital management) are strategic and deliberate in how they source, attract, select, train, develop, promote, and move employees through the organisation. This term also incorporates how companies drive performance at the individual level (performance management).
According to the CIPD, ‘talent’ can be considered as a complex amalgam of employees’ skills, knowledge, cognitive ability and potential.
Middle East play’s catch up
Research by Ernst & Young reveals a shortfall in leadership and succession planning in private sector organisations in the Middle East. Only 50 per cent of organisations surveyed believe in identifying employees with leadership potential early on in their careers and only 45 per cent of respondents have a formal identification process in place [13]
“Many companies – large as well as small – are moving from family-based management to performance management, and it is not an easy transition,” says Aman Merchant of Paradigmz, a human-capital consulting firm in Dubai, the UAE. “Family-based management is part of the culture, and there are taboos against succession planning. But when there’s a departure of a key manager, or if there’s a death, they realise the need to look outside the family to fill those positions. So, many businesses are starting to look at succession planning in a more systematic, strategic way.”
References
1) ‘The War for Talent’, a yearlong study conducted by a team from McKinsey & Co., 1997.
2) ‘Learning and Development Survey 2006’, The Chartered Institute of Personnel and Development (CIPD).
3) ‘Performance & Talent Management Trend Survey 2007’, the Business Performance Management Forum and Success Factors, in co-operation with the Human Capital Institute, the US.
4) ‘Talent Management: Understanding the Dimension’, The Chartered Institute of Personnel and Development (CIPD), 2007.
5) SOCPO (now PPMA), 2005, p3.
6) ‘Performance & Talent Management Trend Survey 2007’, the Business Performance Management Forum and Success Factors.
7) ‘Lessons Learned: Workforce/Integration of New Personnel/Stress Levels’, Wednesday, October 1, 2003. Source: NASA Public Lessons Learned System (PLLS).
8) ‘Developing the Future’, Microsoft, July 2006.
10)Russell Parera, ‘Skills shortage dogs employers’, FT.com, 4 April 2007.
11)Ben Leapman, ‘Migration tally reveals British brain drain’, Sunday Telegraph, 9 April 2007
12)Report of Work Group on (im)migrant Workers Safety and Health, 14-16 September 2005, European Agency for Health & Safety at Work
13)Ernst & Young's Middle East Human Capital Practices Survey 2006-07.
14)‘Performance & Talent Management Trend Survey 2007’, the Business Performance Management Forum and Success Factors.
15)‘Performance & Talent Management Trend Survey 2007’, the Business Performance Management Forum and Success Factors, in co-operation with the Human Capital Institute, the US.
