The Great Talent Disconnect

by David Wilkins– Taleo.com

McKinsey has been talking for almost two decades about the War for Talent.  More recently, they have been focusing on the growth in knowledge work, noting that 85% of all new jobs created in the last decade require knowledge worker skills. Yet most companies and countries are still managing their workforce with industrial age practices that fail to recognize how radically the talent landscape has shifted in the past 20 years. The result is a growing disconnect in mature economies between the work and the workforce.

Some Sobering Facts

• Research done by Nobel Laureate Michael Spence for the Council on Foreign Relations found that over the last 30 years, companies of all types have increased the profitability of their operations, but companies that trade goods and services have created almost no “net new” jobs in the US between 1990 and 2008.  Spence further notes that absent high growth in the non-tradable sector, notably healthcare and government jobs, the US “would have already faced a major employment challenge [prior to 2008].”  In other words, the concept of a “jobless” recovery is not only real, it’s directly tied to offshoring.
• The above trend is more troubling still when you factor in technology advances that make more and more work “tradable.”  Thirty years ago, “reading an x-ray” wasn’t a tradable service.  Today, due to advances in telecommunications technology and digital compression, it is.  Automation advances, whether through robotics or software, also impact the challenge of “net new” jobs by reducing the number of workers required to produce an end product or by reducing the skillset to complete a given job.
• Given the above, a huge area of growth is knowledge work.  In fact, a report by Georgetown University Center on Education and the Workforce shows that by 2018, we will need 22 million new college degrees—but will fall short of that number by at least 3 million post­secondary degrees, Associate’s or better. In addition, we will need at least 4.7 million new workers with postsecondary certificates.
• Despite the clear needs above, the percent of US workers with a college degree isn’t growing all that fast.  In February of this year, the press widely celebrated a new milestone in educational attainment in the US: more than 30% of the adult population now have at least a bachelor’s degree.  While this is a significant milestone, it’s also significant for what it is not: a big positive movement; 30.4 percent is only four percent growth over the 26.2 percent attainment level of 1990 (US Census Bureau).
• While college attainment is its own index of workforce readiness, another is the prevalence of untapped talent pools.  And here again, we have some work to do.  Forty percent of all minority students fail to finish high school (American Promise).  How many of these students have the raw intellectual capability to go on to college?  Another untapped pool?   Those who start college but fail to finish – 17% of the working age population in the US (Bureau of Labor Statistics).

Corporate Workforce Connections

While global companies can take advantage of the growth in tradable jobs and tradable services, they also need to proactively develop talent.  Thus far, global companies have largely capitalized on the emergence of a global talent market by poaching talent and shifting work to emerging markets.  This strategy has largely worked to date, but it’s already bumping up against two inevitable realities: boomer retirement and the maturation of emerging economies.  On the former front, the worldwide challenge of boomer retirement in nearly every mature economy and even some emerging ones like China is going to make it very difficult to staff senior roles on a global basis.  On the latter front, the strong growth in BRIC countries means that global firms are not only facing talent shortages “in country” but also stronger competition for talent in their home countries as competition from emerging markets begins to expand globally.

In fact, research by IBM shows that “34 percent of CHROs in growth markets say they anticipate increasing headcount in North America over the next three years, while 37 percent plan additional investment in Western Europe. This includes companies from India, where 45 percent of respondents indicated they plan to increase headcount in North America and 44 percent in Western Europe.” (“Working Beyond Borders,” Jan 2011)

While the preceding data largely addressed the challenges facing the US economy, a recent report by Accenture highlights nearly identical challenges in Europe – lack of strong corporate development practices, growing disconnects between the workforce and the work, and an inability for government or business to address the gaps by themselves.  In other words, the challenges of work / workforce disconnects are systemic, resulting from the rapid the shift from industrial to knowledge based economies and the unrelenting technological advances that enabled such a shift in the first place.  Global companies therefore can’t simply ignore these challenges by relocating workforces and work outside the US.

In other words, the War for Talent has started again, even absent full economic recoveries in the mature economies of West Europe and the US.  If these markets start to really turn the corner, the lack of global talent is going to be a limiting factor in the growth strategies of global companies.

Suggested Strategies

• Take an inventory of the capabilities you have today and the capabilities you need over the next five years.
• Think through the right mix of hiring for the missing capabilities vs. developing the capabilities internally.
• Invest in the long-term hiring / employer of choice strategies to attract the right kind of candidates, including learning and development incentives to attract quality candidates.
• Invest in the development and training capabilities you need to grow your people in support of your strategies.
• Invest in talent mobility strategies that enable you to move talent across geographies and divisions, not just vertically through promotion.
• Invest in deep succession planning and critical skills development.  Map out the career paths, capabilities, and experiences for critical roles and senior leadership positions so that you can cast a wide net for high potentials and possible successors.
• Develop a strong culture of learning and development and reward those managers who are your best talent incubators.
• If you are a big enough player in your industry, consider partnering directly with policy makers in various countries to support education reforms and talent-friendly policies regarding talent mobility and employee development.

With the impending retirement of boomers, the growing disconnect between the work and the workforce, and the fast growth in emerging economies, many companies are going to be surprised by the intensity of the talent wars in the coming years.  Now is the time to think through your strategies and your approach so that you can lay the foundation for success.  Smart companies will find ways to tap into global talent and leverage underutilized talent pools.  Those that fail to plan will end up paying more for the right talent, either in opportunity costs and direct costs, assuming they can successfully compete at all.

About David Wilkins

VP Taleo Research