Talent management in volatile times

In The Economist’s “The World in 2009” special supplement, Financial Times columnist Lucy Kellaway argues that one of the effects of the financial crisis will be the rise to power of the CFO and other “bean counting” types, so much so that a major shift in management style will occur in which talent becomes merely staff and vision is downgraded to value. “The biggest loser in the struggle for power will be the human resources director,” Kellaway writes. “The ‘war for talent,’ which companies have fought tooth and nail, will be over in 2008, neither lost nor won: there will be a ceasefire brought on by lack of funds and exhaustion of the troops.”

But will there be? It is undoubtedly true that those companies taking the brunt of the current global downturn are forced to manage costs more intently than when times are more flush. It is also true that one of the most immediate means of cost reduction is the elimination of paid man hours, whether in the form of direct layoffs or some other arrangement. That is not to say, however, that an unreflective approach to talent management is appropriate.

Indeed, on the question of talent management during recessions and other periods of prolonged financial duress, companies need to understand which segments of their workforce derive the highest value in order to diligently spend their human resources dollars. Companies that ignore their talent challenges risk creating an even larger talent gap when the economy recovers because, in the current environment, more baby boomers will be in a position to retire and the pipeline of employees with the right skills and knowledge to fill the void will be inadequate.

This is no truer than of oil and gas companies. Here’s why.

Paradigm shift
The new millennium brought with it two dramatic challenges for employers in the oil industry. First, the commodities boom of the past five years led to unprecedented activity and therefore competition for labour: companies around the world had to scramble to find employees with the requisite skills and experience in an already constrained global talent market. Employers on every continent are faced with the reality that the available skill sets are simply not aligned with industry needs.

The second – and longer term – challenge concerns the demographic profile of the workforce itself. Baby-boomers have begun to retire, and with them will go their years of knowledge and experience. In Canada, growth in the 55 to 64-year-old age group will account for about 70% of the net increase in Canada's working age population by 2010 and all of it by 2020. Forty-four percent of businesses in Canada already report having difficulty finding qualified labour. 

Similar statistics abound in the US. In 2000, the US Department of Education estimated that 60% of all new jobs in the 21st century will require skills that only 20% of the workforce possesses. US colleges will graduate only 198,000 students to fill the shoes of 2 million baby boomers scheduled to retire between 1998 and 2018, and reports estimate that 20% of Fortune 500 senior executives are currently eligible for retirement. Europe is on track to see people over 60 comprising 60% of its working age population by 2050. Even across Asia and Australia, skilled labour availability is at an all time low.

The current best hope for this situation is Generation Y – those born between about 1980 and 1994 and who therefore comprise the youngest segment of the current working age population. These individuals are the workforce of the near-term, post-baby boomer era, but their capacity to rise to industry’s current labour challenges is at risk because of the recessionary pressures to cut costs now, wherever possible. And because Generation Y workers, by the simple circumstance of their youth, are generally the least experienced and, therefore, the least skilled, they will be the first to go when jobs are cut. And the problem is that those workers let go now will miss out on critical skills development over the coming months and years.

But the sad fact is that jobs are being cut all across the country. As of mid-March, the Canadian Labour Congress reports that accumulative job losses since October 2008 stand at 295,000, bringing the national unemployment rate up to 7.7%. Young workers in particular are unemployed at a rate of 14.2%, the highest that number has been since 2001. The situation in the US is somewhat worse – their unemployment rate as of March was 8.5%, according to the US Department of Labor. That’s equivalent to 5.1 million jobs lost since December 2007, when the recession is understood to have begun. How many more are on the way is anybody’s guess.

Time in a bottle
In Outliers: The Story of Success, best-selling author Malcolm Gladwell explores in great detail the factors that appear to contribute to world-class expertise in all walks of professional life. “I want to convince you,” Gladwell writes, “that . . . personal explanations of success don’t work. People don’t rise from nothing. We do owe something to parentage and patronage. The people who stand before kings may look like they did it all by themselves. But in fact they are invariably the beneficiaries of hidden advantages and extraordinary opportunities and cultural legacies that allow them to learn and work hard and make sense of the world in ways others cannot.”

Over several chapters of case study, the stories in Outliers come around each time to a kind of “magic number” that defines the key metric of expertise: 10,000 hours. For every individual who achieves mastery, he or she is almost guaranteed to have invested at least 10,000 hours of practice in their chosen vocation. Translated to workforces generally, this means that full productivity in a job is reached only after about five to seven years of steady activity. In fact, normally 70% of what you need to know is learned on the job.

You can see where this is heading. Cutting your workforce now based on principles of immediacy rather than on those of strategic workforce planning will set your business up for greater talent strain over the longer term. Don’t lose sight of the fact that all pre-recession factors are still at play and that a lack of strategic action could exacerbate the “talent war” in years to come. Instead of focusing on short-term needs and reactive hiring, the focus should be on matching strategic business requirements with long-term talent trends, external market influences and proactive planning. Most importantly, strategic workforce planning provides a critical link between business strategy and the people who will execute on that strategy, helping to ensure that your company offers programs and services that are truly relevant to your business.

To thrive or merely survive
The strategic people practices of leading organizations will, admittedly, vary depending on the availability of cash during the current economic situation. Companies that are ‘thriving’ have cash to spend and, therefore, a talent opportunity. For these companies, recessions are an opportune time to invest in their most valued employees, fill critical talent roles, and cut underperformers. Companies that are only ‘surviving,’ however, are cash poor and need to manage costs and talent. These companies need to consider alternatives to downsizing and focus on protecting their brand for the long run.

The first step is to segment your workforce and identify the skills that are most difficult to replace and have the greatest impact on the value chain. These are your critical workforces segments and are essential for the growth your business, not only through the recession but also as you position your company to thrive during the recovery and beyond. The workforce plan provides an important filter between corporate strategy, business unit plans and investment decisions regarding your people strategy. It is an enterprise-wide undertaking that will help ensure that investment decisions are channeled toward mitigating the risks of not having the necessary people with the critical skills essential to growth. What’s more, the current pause in the economy should be looked at as an opportunity – not just to cut costs but also to make the systemic changes necessary to successfully meeting your growth objectives.

Whether your company is thriving or merely surviving right now, managing talent during the recession and positioning the organization for economic recovery will lead to both short-term and long-term success. Companies should determine where they are most exposed, make calculated cuts, and plan to build critical talent. By seizing this opportunity and planning for the long term, you will be in a better growth position when the economy recovers.

by Stephen Diotte, Deloitte
Stephen Diotte leads Deloitte’s Human Capital practice in Calgary.