The Talent Crisis - Leadership
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SECTION: Leadership

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The Talent Crisis

By David Semb

Article Date: 04-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Your mid-level leaders are ready to run your company - into the ground. Post-downturn winners will heed the wake-up call and help ready their next generation of leaders now.


Editor’s note: Following are excerpts from a white paper written by David Semb – his entire work can be found by clicking here.

A crisis of shortages and gaps in talent at U.S. companies is gathering on the horizon. The coming wave of retiring business executives at companies in the developed world, extreme shortages in the numbers of their replacements, looming gaps in the talent and skills of these replacements, global competition for talent, and falling birthrates in the developed world are some of the key forces acting together. This crisis is powerful, it will radically change companies, and the effects will be felt for a very long time.
The looming gap in business talent is not an issue of the “Talent Disciplines” (composed of the Talent Management, HR, Succession Planning, and Training disciplines), but is a fundamental, far-reaching strategic business challenge.

Companies not prepared for this crisis will suffer as they attempt to compete with more agile competitors. Companies that respond quickly in the short term and intelligently over the long term as they manage their knowledge workers will enjoy a substantial competitive advantage. Companies that don’t respond may not even realize their misstep until too late: sales, margins, efficiencies, and other competitive advantages at these companies will quickly erode due to the inadequate decision-making of poorly prepared managers and leaders.

But why is this particular situation of critical concern at this point in time? After all, leadership at companies has always eventually changed, and retirement is not a new phenomenon. Understanding the roots of the Crisis in Talent lies in understanding that while in the past this process occurred over a manageable period of time allowing for planning and smooth transitions between leaders, the current crisis involves an unusually large number of leaders retiring in a large wave over a very short period of time.

A Surge of Retirements of Current Leaders
Consider these alarming statistics about the upcoming surge of retiring leaders at U.S. companies:

  • 40 percent of the U.S. labor force is currently made up of baby boomers (born between 1946 and 1964).3, 4 But by 2010, there will be a 52 percent increase in workers in the 55 to 64 age bracket compared with 2000. 5 And by 2010, 40 percent of the U.S. workforce will be poised to retire5; the first wave of executive retirements will occur in the next four years.
Clearly not all baby boomers will retire at the exact time expected. However, while current leaders may work a few extra years before retirement due to the financial crisis, this will not significantly lessen the impacts of the near-term surge in leadership vacancies at U.S. companies.

  • 79 percent of companies surveyed agreed that the knowledge and experience that older employees take with them when they retire can hurt a business financially.4
Short Supply of Emerging Leaders to Replace Retiring Leaders
At the same time, there are far too few emerging leaders to replace
retiring leaders:

  • 74 percent of U.S. business executives surveyed agreed that the U.S. will experience a shortage of skilled workers over the next decade.
  • The U.S. Bureau of Labor Statistics cites a projected shortfall of 10 million qualified employees beginning in 2010, with an increasing gulf in following years.
  • By 2012, the U.S. labor force will be six-million college-graduates short to fill new jobs and to replace retired workers.9 By then, workers from ages 35 to 44 (the subset of the workforce that fills the majority of the senior management ranks) will decline by 19 percent.
  • As a glimpse of how tight the labor market could become, a Deloitte Consulting study estimates a nearly 43 percent drop in accounting graduates entering the workforce over the four year period 2011-2014.
Emerging Leaders Lack Needed Business Skills
“Gen Y” is the common name used for the pool of emerging leaders who will replace retiring business executives over the next 20-30 years. Millennials, as they are also known, are specifically those individuals born between 1982 and 2005, now age 26 or younger.11 Further compounding the destructive power of the Crisis in Talent, numerous research projects indicate that the business skills of these emerging Gen Y leaders will be insufficient for the high-level roles they will soon be taking on.
It is imperative that the emerging leaders slated to fill senior leadership positions quickly develop the critical business skills to adequately fill these vacancies in their companies, to help bring their companies to the next level of success, and to advance their own careers. While companies often glibly assert that employees are one of their key competitive advantages, a 2008 study by McKinsey & Company found that most companies are actually as unprepared for the challenge of finding, motivating, training, and retaining leaders as they were a decade ago.

The Talent Disciplines represent the greatest hope of attracting, training, and retaining skilled emerging leaders to fill vacating leadership positions. These disciplines will be as critical to the strategic direction of organizations during this crisis as are the finance, marketing, and operations functions.
Yet too often HR and the other Talent Disciplines are seen as a strategic roadblock instead of a strategic partner. These professions must rise to this strategic call to action – and their companies must give them the authority to take that action or they risk becoming irrelevant due to the most critical of all resources: their human capital.

The Troubling Implications for U.S. Companies
The acceleration of the Crisis in Talent in the next five to 10 years will catalyze radical change within U.S. companies. Business’ ability to respond to this challenge will solidify their place on the competitive playing field, either positively or negatively, for decades beyond.

Ill-prepared companies will find a significant roadblock to their success awaiting them while well prepared companies will be able to exploit a considerable competitive advantage. The business world is a complex set of interrelated and constantly changing forces, actions, and reactions. In this turbulent environment, people in leadership positions, through the decisions they make, have incredible power to directly influence the actions, and ultimately the future, of their companies. Thus, leadership’s skills, insights, and ability to execute become the defining elements of what a company is and what it eventually becomes.

Thus, finding, training, and retaining competent leaders is central to a company’s success.
However, the transition from the huge number of executive retirements to the emergence of Gen Y leaders will be compounded by the insufficient numbers and skills of future leaders. Retirees will take with them approximately 400-million years of on-the job experience. Without careful planning, there will not be an adequate number of qualified replacements to fill this yawning gap.

Yet few companies have made talent management an integral part of their long-term business strategy. McKinsey & Company points to a recent study by the Society for Human Resource Management showing that about a third of U.S. companies have done nothing substantial to prepare for the aging of the workforce.

The Challenges of a Gen Y Workforce
Much has been researched and written about the unique attitudes and habits of Gen Y, a generation whose numbers are swelling and already represent 12 percent of today’s workforce.

The Talent Disciplines will be on the front-lines working to motivate and develop this generation, whose strengths and improvement opportunities include the following:

  • Gen Y seeks protection against risk and a much greater work/life balance – although, paradoxically, they also are demanding higher rewards.
  • Gen Y tends to job-hop, especially if they think seniority instead of quality-of-output is the main factor in promotion, and will decide against longer paths to advancement which after years of hard work may go unrewarded. They’re happy to leave if you don’t keep them happy: “If you’re not happy, go do something else, period. Leave your management job and make a little bit less doing something you want to do.” 11, 17 Thus, companies face a risk of higher attrition levels if Gen Y’s expectations aren’t met.
  • Gen Y may not accept the concept of a standard work-week, or work-year for that matter. These concepts will likely need to be replaced with a new set of rules based on productivity, not hours at their desks.
  • Record numbers of Gen Y are gravitating toward careers at large institutions and at government agencies.
  • Some employers have commented about Gen Y’s need for a steady stream of positive feedback and their weakness in basic job skills such as punctuality and accepted business attire.
  • On the positive side, Gen Y can perform very well when given clear goals and objectives and when allowed to work in groups.
  • Gen Y also has a penchant for cooperation, organization, and teamwork, and tends to treat colleagues as partners instead of as competition.
  • Gen Y’s dedication to civic duty and volunteerism will serve both them and the companies they work for by giving back to the communities in which they live and work.

Skills in Managing Complexity Will Be Crucial
Managing change and complexity in global businesses will be critical for these new emerging leaders, and they must transcend any of the above-listed shortcomings and take full advantage of all of their strengths. Yet even current CEOs, at the top of their companies and at the peak of their careers, report that they are not comfortable with change and with the complexity in their job responsibilities, and one in five feels a lack of control over the process.

A 2006-2008 Harvard Business School study found that most current executives cannot articulate the objective, scope, and advantage of their business in a simple statement. If they can’t, neither can anyone else.19 Additionally, 68.4 percent of the experienced Chief Financial Officers polled by PriSim at a recent industry CFO conference did not know the basic definition of “profit margin.”

It is important for businesses to realize that talent management can no longer be isolated from business strategy. Business leaders at an organization must be closely involved in talent development during strategy formation, and the behavior and capabilities of the workforce must be aligned with the priorities of the business. Unfortunately, a 2006 McKinsey & Company study showed that more than half of their senior-management interviewees felt senior leadership did not align talent management strategies with business strategies.

The Time is Now
Given the fast approach of this crisis, time is of the essence and quick, strong action will be required.
And, in spite of the distressing warning signs, the Crisis in Talent can be navigated. However, solutions must be quickly identified and quickly integrated into the leadership development process. The issues won’t be resolved without clear strategies and concerted action, and companies that delay in taking focused action will fall behind. Focused recruiting efforts, clear succession planning approaches, and effective training programs are among the solutions that must be implemented and refined.
Several strategic approaches and tools that companies can deploy in navigating the Crisis in Talent include the following:

1.) Closely align talent management and succession planning with business strategy
2.) Train like the future depends on it (and it does)
Invest in high-impact leadership and business-skills training. Specific business skills that should be developed include:

  • Strategic Thinking: to thoughtfully analyze key strategic questions such as Peter Drucker’s “5 Most Important Questions,” which include defining the company’s mission, customers, and business results to be produced.
  • Financial Acumen: to become fluent in the language of financial statements and performance ratios. 
  • Leadership Skills: to understand the key elements of effective leadership and teamwork 
  • Complexity Quotient: to successfully make business decisions despite increasing complexity.
3.) Message to the talent disciplines – learn the business. Staff within the Talent Disciplines must individually roll up their sleeves and work hard to personally gain a deeper knowledge of the business.
4.) Make training an enriching experience instead of a painful one
Training departments must work to combat the sometimes negative emotions that attendees often feel toward training courses.
5.) Utilize business simulations and experiential learning
Incorporate computerized team-based business simulations into training curricula.
6.) Become an employer of choice
Establish compensation plans, training programs, remote work arrangements, and the scope of job responsibilities so that emerging talent is inspired and motivated. In addition, companies should encourage strong internal social networks and utilize technology to further this effort when possible. These networks can help retain community-focused Gen Y emerging leaders.

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