The Growing Talent Crisis challenges and solutions
The Growing Talent Crisis challenges and solutions Executive Summary Employers throughout the world increasingly are struggling to keep pace with expanding hiring needs. Demand for talented employees exceeds the supply, leaving many organizations wondering what strategies to adopt to retain and expand the workforce to maintain competitive advantage. Systematic workforce planning linked to key strategies and business challenges is a foundation for informed talent strategies and processes that will impact the bottom line favorably. Implementing new strategies and tactics to attract, develop and retain talented employees will help organizations manage the talent shortage and mitigate the risks associated with a workforce growing at a much slower rate than in the past, just as the need for professional and technical skills is rising. Communicating the organization s reputation, employment brand and values and its focus on investing in engaged talent can be a key differentiator in a crowded buyer s market of employers. Using active recruiting methods, fair job-related employee assessments with standardized processes, and strong onboarding programs will help identify and leverage each employee s unique abilities, increase retention and improve individual and organizational performance. Developing next-generation leadership skills, a key need for many businesses, requires strategies for early identification of leadership talent, insightful skills assessment targeting strengths and areas of interest, and effective development plans. Retaining top talent by holding managers accountable for retention and using metrics to assess the amount and cost of turnover is increasingly a business imperative driven by the financial penalties of unfilled positions. 1
The Challenge A critical talent shortage is emerging. Anticipated mass retirements by experienced baby boomers are fueling a dire forecast worker shortages of 10 million by 2010 (U.S. Bureau of Labor Statistics). This loss of experienced talent is coupled with skill deficiencies within the lower ranks. In fact, only 20 percent of the U.S. workforce will even have the skills necessary for most newly created jobs (U.S. Department of Education). The result is a marked skill gap which, unfortunately, organizations are not prepared to face. Even though 70 percent of organizations identify the loss of talent from impending retirements as a problem/potential problem, a full 82 percent of companies with more than 500 employees have yet to address this issue (Society of Human Resource Management, 2006). To compound the problem, projections of labor force growth (see the chart below) indicate the lowest growth rates since the 1950s for the next two decades. It is more critical than ever to proactively grow, develop, and retain future leaders and high performance talent at all levels. 3 Annual Rates of change (percent) 2 1 0 1950s 1960s 1970s 1980s 1990s 2000s 2010s 2020s 2030s 2040s Labor Force Growth by Decades, 1950s to Projected 2040s To meet these challenges, employers must address an array of demanding needs: Establishing strategy-driven workforce plans that pinpoint talent hotspots for increased staff, current skill and performance gaps, and future demands for new or stronger competencies. Given likely baby boomer impacts, such planning can quantify likely talent shortfalls among senior knowledge workers and managers. These losses represent significant knowledge management issues associated with the loss of subject matter and leadership expertise. Proactively-developed workforce plans can provide a much needed wake up call to senior management to recognize impending talent issues that will have a material effect on strategic success. Winning the war in an increasingly competitive recruitment marketplace where technology, ease of access to opportunities and changing values of younger workers make the coherence and attraction of the employee value proposition more important A recent workforce planning study conducted by Aon Consulting for one of its clients showed that nearly 60 percent of its key knowledge workers and leaders would need to be replaced in the next five years. For this organization, the time to start addressing these issues is now. Copyright 2008 Aon Consulting 2
The Growing Talent Crisis challenges and solutions According to Aon Consulting s 2007 Benefits and Talent Survey, more than 78% of respondents indicated recruiting and selecting the best talent is a top or critical issue. than ever before. This will require creative yet cost-effective recruitment strategies aimed on traditional and non-traditional candidate segments (e.g., older workers) with more tailored and better-communicated offer packages. Organizations must understand the importance of slowing down excessive and costly turnover and keep talented and high performing employees. Doing so will put organizations in a much better position to build on employee, organizational and customer knowledge true sources of competitive advantage. The need is great for organizations to analyze in systematic ways the underlying causes of undesirable turnover and to adjust policies, compensation and benefits plans, as well as help supervisors and managers understand the impact of their communications and attitudes toward retention. Increasing workforce engagement and commitment is one of the most important keys to building and maintaining a high performance workforce. Employee engagement is a key enabler for optimal human capital outcomes for organizations. Engaged employees collaborate better among themselves, increase customer loyalty, innovate more, develop themselves and stay longer. No human capital strategy is complete without attention to fostering high levels of employee engagement. 3
The Solution: Attract. Develop. Retain. Critical skill gaps, looming worker shortages and leadership supply shortfalls give reason for organizations to develop talent management strategies that are systematic and proactive, as well as based on best practices. These strategies will ensure organizations fill current and future pipelines with talented employees whose development can be accelerated. It is essential that organizational leaders commit to a planned talent management approach and then hold HR and line executives accountable for implementation. This means, in part, working to identify where gaps exist and creating talent pools of outstanding employees who can move into new roles. Effective branding and recruiting will enable successful external recruiting where internal gaps persist. Next, organizations must identify existing strengths and development needs of employees, and then provide them with targeted, high impact, and ongoing development. These activities will effectively build pools of talented employees able to step into new roles. Of course, keeping those talented people while aligning performance goals with organizational strategies will mean the difference between effective performance and limited growth. Thus, it is no surprise that 85 percent of the respondents to Aon Consulting s 2007 Benefits and Talent Survey cite improving performance management as important. Employees who are managed fairly, rewarded for attained goals, trust their leaders and see a linkage between their work and the organization s mission will be more engaged and open to long-term employment. Some best practices for attracting, developing and retaining an optimal workforce are discussed below. Attract Few would argue that attracting talented, hard-working, productive individuals is important to any business or institution. Addressing this issue with leading-edge thinking will become increasingly critical as organizations attempt to draw talent from the more limited pool of 25- to 40-year- olds, the relatively smaller population that followed the baby boom. In this environment, more than ever before, you must sell organization to your job candidates by using the following proven methods for recruiting high-potential employees: Communicate your organization s overall reputation and track record of success. Identify targeted pools of traditional and non-traditional external talent and invest in attracting those potential employees. Share your organization s reputation for investing in and developing talent. Use effective branded communication to sell your organization to the candidate, creating an employment brand, along with a well-articulated Employee Value Proposition. Apply job-related employee assessments, using a standardized process for optimal results. Copyright 2008 Aon Consulting 4
The Growing Talent Crisis challenges and solutions An Aon Consulting client case study of a major health insurer showed savings of $9.6 million in selection and training costs in the first year after implementing new candidate screening and selection tools. At a major computer manufacturer, sales employees who scored well on a welldesigned assessment test had 3% higher close rates than employees who scored poorly, according to an Aon Consulting client case study analysis. This gain yielded an additional $120 million in sales per quarter. Measure job fit to ensure that candidates not only have the right skills to do the job but have the right attitudes and interests to be a valued contributor for the long-term. Integrate onboarding programs to identify and leverage each employee s unique abilities while removing the barriers to early careers and job satisfaction. Identify and articulate your organization s work environment, corporate culture and value proposition as your employment brand to prospective employees in order to ensure the best fit between your business and the candidate. While it is important that compensation be comparable to the market, issues such as communication, trust, respect, learning, feedback and teamwork may be even more important to top employees. As such, it s critical that key organizational values be communicated effectively. Develop To prepare for the workforce of the future, organizations must develop talent management programs to identify the skills required for all key positions in your organization. It is vital to carefully manage the pipeline of talent to ensure that the supply meets the demand forecasted, based on organization s business strategy. High-performing individuals want to be assured of an ambitious and rewarding career path, making targeting and timely training and development programs essential. The talent management process must be fact-based, beginning with the talent implications of the business strategy and delivering the right mix of key talent in the right place at the right times. It is also important to evaluate the dynamics between merit and incentive pay. As opposed to traditional annual merit cycles combined with some recognition of performance, pay can be separated into two distinct pieces: bonuses, which address performance results, and periodic salary increases, which can recognize performance and growth in proficiency, job knowledge or skills and/or market rates of pay. By reallocating a portion of merit expenditures, you can provide significantly more money to fund the incentive pool for high performers. If properly designed and applied by clearly informing employees of your expectations regarding their performance and monitoring and measuring progress toward those objectives incentive pay can drive superior results. Developing leadership skills is an ongoing process for your business. Many organizations face significant losses of key leadership and knowledge workers within the next five years. In such circumstances, workforce analysis and planning can be the starting point for laying out a systematic action plan to mitigate these risks and, more importantly, take optimal advantage of the overall performance enhancement opportunities that can be associated with a significant influx of new high potential talent. The payoff from these efforts in terms of improved employee selection, turnover reduction, reduced training time, and enhanced leadership typically can mean millions of dollars to a large corporation. If you have attracted top talent to your team, they will expect to be groomed for leadership positions and will welcome the opportunity for such training. Effective approaches to developing top talent include: 5
Assessing current leadership abilities so development activity is focused on each employee s strengths and areas of interest. Designing tailored development plans that are supported by participants and their managers, and that emphasize on-the-job experience rather than training events. Linking development activities and investments to business strategy and success, and measuring and reporting development ROI. Focusing on high-impact job experiences, building networks and using action learning versus more traditional training programs. Providing coaching and learning support to ensure ongoing development. One such coaching and learning program includes onboarding new executives. Executive onboarding, a key investment to ensuring the success of a strategic hire, typically involves intensive coaching that focuses on a successful transition into a new role during the critical first six months on the job. Well-designed learning and development programs will help organizations train future leaders and individual contributors. Adopt a culture of teamwork by sharing knowledge, best practices and lessons learned throughout your workforce and establish processes, including a technology-based knowledge management system, to ensure that continuous improvement is a way of life in your organization. A global technology firm has developed hundreds of leaders around the globe, showing performance improvements of nearly 20% with strategy-based leadership development simulations and workshops. Highly qualified restaurant managers run stores that had year over year same store sales and transaction count increases that were twice that of stores run by less qualified managers. Retain Attending to the diverse needs and interests in the workforce is critical to reducing turnover and maximizing the engagement of your employees. Leading organizations are putting additional focus on developing and implementing a well-articulated Employee Value Proposition addressing both existing employees and future employees (i.e., job candidates). A comprehensive EVP includes programs and career development; access to future growth in the organization; and a method for aggressively managing performance and linking total rewards (including long- and short-term incentives) to performance measures. The extent to which you attract, develop, lead and retain top talent will directly impact your organization s success and sustainability and will help shape your workforce today and in the future. The manner in which you communicate your organization s total rewards strategy should be similar to the way a marketer promotes and communicates product attributes. There are components to a total rewards strategy, such as recognition, flexible schedules and learning opportunities that will be more appealing and mean different things to different candidates. Knowing how to segment what s most appealing and how to communicate based on generational trends, demographical differences, etc., will enable you to position your organization in the best manner possible in an effort to attract top talent. In this same way, your employment brand should be designed to motivate and retain the best and brightest of your workforce as well. Remote talent assessment increases conducted by telephone have demonstrated 40% greater retention in the first 4 months, yielding $300,000 in annualized savings from reduced turnover costs, according to an Aon Consulting client case study analysis. Copyright 2008 Aon Consulting 6
The Growing Talent Crisis challenges and solutions Best-in-class organizations recognize that people are their most important asset. As the global marketplace expands, companies vying for and retaining top talent have become more competitive than ever before, offering employees everything from accelerated advancement and flexible work schedules to generous compensation and benefits. Leveraging a multigenerational workforce can offer tremendous opportunities in the form of diverse views, experience and capabilities. Innovative employers are offering older workers flexible schedules, modified retirement programs, retention benefits and the opportunity to coach and mentor younger employees. These strategies help companies avoid talent deficits while keeping talented and experienced workers on staff. While employee retention generally is an important issue for CEOs, retaining talented, ambitious employees is a particularly complex task. These high-performing individuals recognize that opportunities for advancement exist outside their organizations. The pressure to replace experienced employees, managers and executives will escalate as retirements for the nearly 80 million members of the baby boomer generation accelerate dramatically in the next decade. To support retention programs for your high potential employees, consider implementing the following action plans: Hold managers accountable for retention-related actions and improvement. Develop a business case for increasing employee retention. Use metrics to assess the cost of turnover by forecasting the financial penalties of unfilled positions. Focus on recruiting individuals with the appropriate skills for the job, using valid assessments to verify that the employees you are recruiting possess the right skills. Research shows realistic job previews reduce turnover by 10 percent or more. Ask candidates to review in a job previews that describe the advantages and disadvantages of the position. Realistic job previews (RJPs) should be an integral part of the talent selection process. RJPs, often delivered via multi-media methods on the Web, are valuable in educating candidates about the job and helping them self select on their fit with job requirements and working conditions. This significantly increases the likelihood of job success, thus maximizing performance and reducing turnover by encouraging strong candidates and discouraging inappropriate candidates. 7
Organizations can further drive employee retention by creating environments that include: 1. Support from front-line leadership, including effective recognition and rewards, and involvement in decisions 2. Opportunities for learning and development 3. Respect and fairness 4. Lifestyle quality and work-life balance An Aon Consulting client case study of a large retailer showed up to 30% decrease in turnover. 5. Health care and financial security Don t Forget to Measure Effective performance management initiatives should balance measurement and feedback on the results desired and the behaviors required to deliver optimal results. This is critical to maintain a sustainable competitive advantage in an increasingly service-oriented, knowledge-based economy. It will allow you to more effectively manage how to grow and adapt in ways that will differentiate you from competitors. Additionally, performance feedback must be richer and more frequent; quarterly or monthly feedback may prove more effective than annual or semi-annual feedback. Better technology and information results in focused communication and training. Successful organizations will spend more time understanding and improving performance and less time tracking and reporting it. Copyright 2008 Aon Consulting 8
The Growing Talent Crisis challenges and solutions Aon Consulting s Proven Human Capital Solutions Aon Consulting s Human Capital experts help align your human resource strategies with your business plans to build and maintain a thriving workforce. With leading-edge talent processes and tools, you will develop a best-in-class workforce that sets your organization apart. Building on a foundation of systematic workforce planning, we offer solutions to help your organization: Build and retain a world-class workforce Develop employee skills Create a leadership pipeline Manage high-performing individuals Enhance customer experiences Aon Consulting emphasizes cutting-edge, research-based approaches that lead to a significant return on investment for clients. Certain Aon Consulting client saved more than $5 million annually in reduced turnover costs; another achieved more than 1,000 percent back on what they paid for their selection system; and increased sales revenues by more than 20 percent. Aon Consulting solutions include the following: Competency Modeling and Success Profiles Through extensive experience in job analysis and competency modeling, Aon Consulting establishes a clear focus on strategic performance drivers, linking success and derailment factors to business outcomes for all levels within an organization, from an individual contributor to executive leadership. Talent Acquisition Aon Consulting collaborates with you to identify or develop unique recruitment, selection and assessment solutions. Our recruitment and assessment strategies consistently improve candidate quality, decrease turnover and decrease cycle time to fill, all while lowering our clients costs. We provide a wide range of award winning, legally sound and job-related tests, scoreable application blanks, interviews and simulations. Aon Consulting offers fully tailored assessment design, litigation support and Affirmative Action/Equal Employment Opportunity expertise. Performance Management Aon Consulting has extensive Performance Management design and implementation capability with a strong focus on performance excellence, accountability for results and workforce development. We offer call center performance improvement strategies, extensive 360 or multi-rater survey resources and a full range of performance management 9
implementation and training products and services, including our customizable Development Resource Advisor that provides easy access to an extensive database of actionable development ideas, including on-the-job activities, books, seminars, training courses, and more. Leadership Talent Development Aon Consulting delivers powerful and proven assessment of leaders strengths, development needs, and leadership potential. We present a full range of assessment and development resources to support real time development and high stakes talent management decisions. Our tools range from our award winning and engaging Webbased individual business simulation, LEADeR, to workshop-based leadership experiences for groups. Combined with executive coaching and education, these processes help focus leaders on the most important development needs and strategies. Our executive coaching services support sustained leadership development through our global network of experienced executive coaches. Workforce Talent Development Aon Consulting possesses sound training needs analysis and instructional design capability. We design and deliver training and development to employees, managers and executives. We offer flexible delivery strategies and multi-media resources. With a core leadership development curriculum targeted to today s business challenges and efficiently tailored training packages, can present unique and customized training based on client and organizational goals and tailored program launch and implementation training and support materials. Communications Consulting Aon Consulting is the market leader for award-winning personalized employee communication consultation. In the past five years, Aon s Communications Consulting practice has won more than 150 communication awards from juries of our peers. We align your challenges with knowledgeable communicators who understand and specialize in your area of need. For Additional Information, Contact: Mark Lifter, Executive Vice President mark_lifter@aon.com 248.936.5411 Janet Raubach, Executive Vice President janet_raubach@aon.com 312.381.4895 Seymour Adler, Senior Vice President seymour_adler@aon.com 212.441.2065 Amy Mills, Assistant Vice President amy_mills@aon.com 248.936.5431 Copyright 2008 Aon Consulting 10
ABOUT AON Aon Corporation (www.aon.com) is the world s #1 choice for risk advice, insurance brokerage and human capital management, delivering long-term value to clients through inspired, independent thinking and inventive, personalized business solutions that have tangible impact on the bottom line. The Aon team of 43,000 colleagues in more than 500 offices and 120 countries goes to work every day with a singular purpose of helping clients or helping their colleagues help clients. Aon Consulting Worldwide (www.aon.com/hcc) is among the top global human capital consulting firms, with 2006 revenues of $1.282 billion and 6,500 professionals in 117 offices worldwide. Aon Consulting is reshaping the workplace of the future through benefits, talent management and rewards strategies and solutions. In August 2006, Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine. Copyright Aon 2008 Published by Global Corporate Marketing and Communications #2763-9/2008