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The War for TalenT: MyThs and realiTies

Key Takeaways

n Today’s CEO must protect his or her company against a three-pronged attack from adverse demographic trends, education shortages and global labor movements.

n The supply and demand for talent is impacted by a complex set of opposing forces (see Table 1).

n The supply-demand equation fluctuates between abundant and scarce for different occupations, geographies and industry sectors.

n One thing is constant: finding and keeping talented employees is one of the biggest challenges executives will face in coming years.

n Leaders must also be aware of the impact of counter-trends that create complexities but also opportunities on the talent battlefield.

n Winning the war for talent takes an arsenal of tools from planning and recruiting to development and retention, including the careful management of an employer brand.

n The talent war exists for all organizations; in an increasingly competitive world how companies fight this battle has become a critical differentiator.

When it comes to supply and demand, there is one commodity that bears watching even more than oil or wheat. That is people – the 145 million-strong United States labor force in the midst of a global war for talent.

By Brigitte Morel-Curran

The availability of labor in this country is expected to grow by eight percent over the next 20 years, the highest growth in the Western world. Not so bad? How this translates into the availability of talent is where it gets challenging. Talent is a small subset of the labor force: those educated workers who are required to apply critical thinking skills to complex transactions. And finding them will get even more difficult over the next two decades.

deciphering demographicsOne of the most complex trends to decipher is demographics. In the next seven years, the U.S. labor force will continue to age – even faster than before. Government projections show annual growth of the 55-and-older group to be 4.1 percent during 2004-2014, four times the rate of growth of the overall labor force. By contrast, growth in the 25-to-54 age group will be less than one percent.

Supply

EducationDemographicsLabor global movements

Demand

GrowthProductivity

Generational trendsTalent

Leadership

LaborAttrition Lay-offs

The TalenT MarKeT equaTionTable 1

Source: Korn/Ferry Institute, 2008

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The share of skilled workers – those with a post-high school education – continues to grow but not enough. The demand for professional workers between 2002 and 2012 will grow in the U.S. to 75 million from 50 million, while the supply of those workers will grow only to 45 million, according to a study by The Aspen Institute. But these projections must be balanced against some counter-trends that could tip the supply-demand equation. Foremost is the fact that older workers are working longer – beyond the traditional retirement age.

aT WhaT age do you plan To reTire?

At what age do you plan to retire?

Before 50 2%50-54 7%55-59 19%60-64 28%64-69 29%70+ 15%

0

5

10

15

20

25

30

Before 50 50-54 55-59 60-64 64-69 70+

Source: Korn/Ferry, 2005

Korn/Ferry surveyed nearly 2,000 global executives about their future plans, as Table 2 above demonstrates. Sixty-two percent said they were planning to work later in life today than they thought they would three years ago. And the column that got the most responses when asked “At what age do you plan to retire?” was 64-to-69. Almost 30 percent picked that age; the next highest with 28 percent was the 60-to-64 group.

Only 18 percent of U.S. employers report having a program to recruit older workers, according to a 2007 Manpower survey. Nonetheless, businesses have an often unexploited opportunity to better leverage their Baby Boomer talent by deploying proactive strategies to attract, retain, “re-career” and motivate this particular generation, with the potential of extending their participation in the workforce by over ten years.

Industry sectors are also a factor when it comes to scoping out the workforce of tomorrow. Not all sectors are equal. Education has not done a good job of matching schools and training to needs. And in certain sectors, the boom and bust cycles have kept younger workers from pursuing careers in industries such as nuclear engineering or aerospace and defense. For example, there is

Businesses have an often unexploited opportunity to better leverage their

Baby Boomer talent by deploying proactive

strategies to attract, retain, “re-career” and motivate

this particular generation.

Table 2

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a substantial shortage of engineers in this country – the government projects a shortfall of 40,000 to 87,000 defense engineers by 2010. We all know that despite applications to nursing schools rising 40 percent from a decade ago, the U.S. has far fewer nurses than needed, due to an aging workforce and not enough nursing schools. But did you know that there is an oversupply of lawyers with law schools now graduating more lawyers than needed?

Another counter-trend relates to the increased participation of minorities in the workforce. Their share of the workforce increased to 29 percent from 21 percent between 1980 and 2000 and will further increase to 37 percent by 2020, according to the U.S. Department of Labor. This translates into substantially greater numbers of minorities in the professionals and managerial ranks.

In this context, workforce planning now becomes a mission-critical activity for today’s leaders. Organizations need to understand how their industry talent availability will evolve, what competency gaps to expect and how the labor market forces will impact them; they must study their industries and the variables they cannot control: What will the workforce in our own organization look like 10 years out? What can we offer Baby Boomers to entice them to stay past traditional retirement age? Or if they want to stay, what sort of role should they play? How do we manage knowledge transfers to mitigate the loss of intellectual capital and corporate knowledge? What organizational capabilities do we have and will we need? What competency gaps should we plan for? How are we attracting minorities?

Bolstering educationMuch bleak news has made the headlines on the education front, accentuating the mismatch between what schools are producing and what companies need. In the U.S., only about a third of students who graduate from high school are ready for college, according to a 2003 study by the Manhattan Institute for Policy Research, and the rates for African American and Hispanic students are much lower.

Jobs requiring critical thinking skills now make up more than 40 percent of the labor force and are expected to grow much faster. A quarter of the occupations adding the most jobs between 2004 and 2014 require a post-secondary degree, according to the U.S. Bureau of Labor Statistics, with the majority of these occupations being in the health, technology, educational and financial sectors.

The good news is that by 2020, the share of the labor force age 25 and over with a college degree is expected to rise to 34 percent from 30 percent in 2000, although these modest expansions in the supply of college graduates will likely fall short of growth in demand for them.

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Skills andcompetenciesshortage

Demand and supply vary widely forjob-specific competenciesLabor

Private businesses are playing anincreasing role in education

Globalization impacts both talentavailability and job movements

Ed

uca

tion

LeadershipLeadership

educaTion counTer-Trends

Further increases in college enrollment must come from the nation’s minorities and immigrant population, which are underrepresented in attendance. According to the Institute for Higher Education Policy, only 23 percent of immigrant undergraduates who started college in 1995 completed a bachelor’s degree after five years. With these mismatches between the supply and demand for skills raising long-term issues for our economic growth, the onus is increasingly on employers to fill the educational gaps. Escaping the statistics are considerable educational efforts from employers. No one really knows how many talented computer technicians have grown their skills through self-development and company training. The same holds true in the business and managerial ranks. In order to fuel their own demand, private businesses will play an increasing role in educating their workforce and converting a critical mass of “labor” into “talent and leadership” as shown on Table 3.

going globalIn the war for talent, the battlefield is now global. Regardless of whether you are a Fortune 100 or a small local business, your potential talent is attracted outside of its home base, and you need to look at supply and demand on a global basis. On the global scene, the difference between the labor shortage and the talent shortage is even more pronounced than in the U.S. Most developing countries have a positive demographic trend and an abundant supply of labor. For them, the conversion of labor into talent is the key challenge.

Conversely, in the developed countries declining population growth and demographic Baby Boomer retirement patterns are similar to the U.S., and often worse. In most of Europe, entitlement to retirement funding inhibits the extension of the working age. Furthermore, restrictive immigration policies in places like Germany have limited the influx of new workers to make up the talent gap. This is less true in France and the United Kingdom, but immigration is a highly charged issue in many countries.

In order to fuel their own demand, private

businesses will play an increasing role in

educating their workforce and converting a critical

mass of “labor” into “talent and

leadership.”

Table 3

Source: Korn/Ferry Institute, 2008

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Going abroad for labor and talent to fill positions can be a difficult proposition that must be carefully managed. India, for instance, has a large population of young well-educated people, and has gained a reputation for being a valuable talent pool. However, this is changing, and talent availability is becoming a slow-down factor for the Indian economy. Only about 10 percent of Indians are educated and the quality of their education varies greatly. At the same time, 40 percent of the population is near-illiterate. For example, Infosys, the large information technology services provider with extensive Indian operations, receives 1.3 million job applications a year; only about two percent of these applicants meet qualifications. The situation is further tensed with the increase of labor cost. With wages rising in some sectors by as much as 15 percent per year, India is not as cheap anymore.

In China, the real issue is the readiness of the population to generate the talent needed to fuel its growth as a major player in the global economy. The country was hugely affected by the Cultural Revolution which created a 10-year educational gap. Even today, college graduates influenced by the culture and the educational system tend to fall short in the critical thinking skills, leadership and reliability that are needed in a booming economy. And it means less talent available for export.

Looking across the world, we see competition for talent as a key economic factor in most developing countries. Several Middle Eastern countries are investing enormous sums of money to attract talent, including making life more enticing for U.S. citizens to move there. In Eastern Europe, schools are still turning out impressive scientific and technical talent but are being impacted by the decreasing funding of education over the past 10 years. In addition, English proficiency and managerial skills are lacking and wages are rising, making cost a factor. In Latin America, factors

affecting the workforce include insufficient education support, economic instability and language barriers.

In the U.S., the regulatory environment has made it more challenging to import workers. There are a limited number of visas for skilled employees, and in the last ten years, the allotment of H1-B visas has been used up before the federal fiscal year begins. Denials of and delays in processing

Most developing countries have a positive demographic trend and an abundant supply of labor; converting labor into talent is the key challenge.

new global talent is hard-working, ambitious and hungry for success

3 Businesses who go to battle on the global front increase their competitive advantage

3 Moving jobs offshore is no longer the panacea, cross-fertilizing talent is the new play

3 casting the net wider will help manage the risks

3 even where labor seems cheap, investment in education is critical

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visas have cost companies an estimated $31 billion between July 2002 and July 2004, according to the Consulting firm Santangelo Group.

It is also more difficult in this post-9/11 environment for students from abroad to come to the U.S. to study. The U.S. government heavily scrutinizes prospective foreign students under the Visas Mantis program, a security review of science students to prevent the illegal transfer of technology.

finding solutionsThe good news is that despite a myriad of external factors, there are weapons a good leader can employ to fight the talent shortage. They include rethinking how you manage and grow your existing employees, which in turn impacts your “employer brand” and your ability to attract talent.

Take a look at the generational makeup of your workforce and what preconceived notions you might have about it. Are you loathe to develop your Gen X (those born 1965-1977) workers because you think they are too self-centered? What about the Gen Y(those born 1978-2000)? Do they just want to talk on their cell phones and surf the Internet all day? And what about the declining loyalty: am I developing employees so that they do not initiate the search for their next job or to make them more marketable?

There are plenty of generational myths out there, as demonstrated by Jennifer Deal from the Center for Creative Leadership (CCL) in her recent book Retiring the Generation Gap (see Table 4):

MyThsn Young employees don’t have values

n Younger employees are less loyal to their organization than older employees

n To retain younger employees, all you need is give them money

n Older employees are less interested in learning on the job than younger employees

n Older and younger people want different things in their leaders

realiTiesn All generations have similar values –

they just express them differently

n Loyalty depends on the context, rather than the generation. There is no evidence that younger workers are more or less disenchanted than their elders

n It is as easy or difficult to retain a young person as an older one – if you do the right things

n Everyone wants to learn – more than just about anything else

n People want leaders who are credible and trustworthy

Table 4

Source: Jennifer Deal, Retiring the Generation Gap, 2006

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These organizations also pay attention to the engagement of their workforce, starting with on-boarding of their newcomers, focused development planning and strategic use of stretch assignments to provide opportunities for competency development, as illustrated in Table 5 below. Periodic engagement surveys are an essential tool to manage retention and adapt talent management initiatives to the most critical needs.

So, what about the economics of retention policies? Industry studies consistently estimate that conservatively, the cost to replace an employee is between 100 percent and 150 percent of his or her salary, including recruitment costs, compensation overlaps, benefits, productivity loss, opportunity costs and relocation expenses. And this figure does not even include the intelligence deficit that occurs when knowledge about company processes and technologies walks out the door.

Other important levers of talent that need to be considered are productivity and leadership. Since the 1980s, automation has driven enormous productivity gains for transactional jobs, those that can easily be structured and scripted. The next generation of technology innovation has started to address the automation needs for complex interactions, those that require critical thinking skills, which are the very same skills that are in short supply. When considering new technology investments and evaluating their returns, business leaders should pay attention to those initiatives that drive productivity for knowledge workers and materially impact the need for critical thinking skills.

The other big multiplier of talent is leadership. Simply put, those organizations with best-in-class leaders develop their people better and faster than anyone else. Look at what strategies you use to develop new leaders. Do you identify your best and brightest? Do you assess them to know your high-potentials are truly high-potentials? Do you use job rotation and role assignment to accelerate their growth? How about mentoring and coaching? According to a recent study from Hewitt on “How top companies grow great leaders,” the biggest investment involved may be the time of the CEO and other executives. Many of the leaders of the winning companies in the survey spend over a third of their time in developing leaders in their organizations.

Important levers of talent that need to be considered are productivity and leadership.

Re-

career ing and Succession

Pla

nn

ingP

rod

uc t iv i t y a n d Pe r f o r mance

Ac

ce

lera

ted Development

Ta l e n t P l ann i ng

Attr

acting Talent

Retention

COMPETENCIES

finding soluTionsTable 5

Source: Korn/Ferry Institute, 2008

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in conclusionMost CEOs are concerned today by the investments in time and dollars induced by the talent war: talent is increasingly expensive to attract, develop and retain. However, this trend applies to everyone.

The talent war is a reality that no one can ignore. But it is a complex battlefield, under the influence of trends and counter-trends that apply differently to every sector and organization. Understanding your talent and competency needs, attracting the best candidates, nurturing their growth and accelerating the development of strong leadership will pay dividends in the form of competitive edge. Your talent strategies and tactics will determine how you differentiate from your competitors and win the war.

Brigitte Morel-Curran is a Senior Client Partner in Korn/Ferry International’s Leadership Development Solutions group. Based in Chicago, Ms. Morel-Curran has more than 15 years experience in leadership consulting and HR transformation and a highly successful track record advising major multi-national organizations on talent management challenges.

about the Korn/ferry instituteThe Korn/Ferry Institute was established in 2007 to commission, originate and publish groundbreaking research in the field of talent development. The Institute combines data mined through Korn/Ferry’s preeminent position as the world’s largest executive recruitment firm with an unparalleled library of behavioral research compiled by Lominger International. and Korn/Ferry’s Leadership Development Solutions group.

about Korn/ferry internationalKorn/Ferry International, with more than 80 offices in 39 countries, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to identify, deploy, develop, retain and reward their talent.

For more information on the Korn/Ferry International family of companies, visit www.kornferry.com.

Copyright © 2008 Korn/Ferry International